BA Merchant Services Inc., a transaction processing subsidiary of BankAmerica Corp., will be the company's principal provider of credit card services to merchants after the merger with NationsBank Corp. is complete.

The decision, which the companies announced Friday, calls into question the role of the transaction processing giant First Data Corp., which currently participates in a joint venture with NationsBank, Unified Merchant Services.

NationsBank said it would "seek to renegotiate its existing relationship" with First Data's merchant services unit but declined to elaborate.

A First Data spokeswoman, Colleen D'Alessandro, said the announcement- which she called "undefinitive"-caught her company by surprise. "We are currently in discussions with Bank of America and NationsBank to provide a broad range of merchant processing services to the combined entity," she said, adding that the discussions will continue.

With a bigger bank behind it, BA Merchant Services may be in a stronger position to challenge First Data and other competitors. BankAmerica wanted to stake out just such a position when it formed the unit and made an initial public stock offering in 1996.

NationsBank, by contrast, owned only a minority stake in Unified Merchant Services.

Richard K. Weingarten, a director at Salomon Smith Barney in New York, called the announcement a "very big positive" for BA Merchant Services. He said it will "help their growth rate" and "more than double the number of branches they're going to be able to sell their products through."

Stanley Anderson, president of the consulting firm Anderson & Associates, Arvada, Colo., said the move could turn the BankAmerica unit into "a new powerhouse in the merchant services business."

BA Merchant Services ranks fourth among merchant-acquirers, industry sources said, while Unified Merchant Services ranks about 12th.

NationsBank formed Unified Merchant Services in 1995 with Nabanco, then the largest processor of card transactions for merchants. First Data acquired Nabanco's parent, First Financial Management Corp., and inherited the alliance.

NationsBank, through its acquisitions of Boatmen's Bancshares and Barnett Banks Inc., inherited joint merchant ventures that those companies had with First Data.

NationsBank and BankAmerica said they wanted to "assure that there is a single provider of merchant services for the combined entity." Analysts suggested several ways the decision might play out.

NationsBank could try to buy its way out of the contract with First Data, which is what happened after U.S. Bancorp, a First Data ally, merged with First Bank System Inc. The latter, which changed its name to U.S. Bancorp, took its merchant business in-house.

David Robertson, president of The Nilson Report, said U.S. Bancorp paid $40 million to terminate the alliance.

NationsBank alternatively could keep Unified and negotiate a deal for merchants signed by the merged bank to be handled through BA Merchant Services. Or it could try to bargain with First Data by offering it more merchant processing business.

Ms. D'Alessandro said First Data intends to keep its share of Unified. "In any scenario, we would retain that 80% ownership of the merchant accounts," she said.

BA Merchant Services has an outsourcing relationship with First Data, off-loading a portion of its $34 billion of annual transaction volume. Vital Processing Services, a joint venture of Visa U.S.A. and Total System Services Inc., handles another piece.

First Data, meanwhile, has a strong merchant bank alliance with BankAmerica's California rival, Wells Fargo & Co.

"BA Merchant Services is not interested in being a front-end processor," Mr. Robertson said. "They might simply try to play First Data against Vital for the best price they can get."

G. Patrick Phillips, who was named last week to oversee card services for the post-merger BankAmerica Corp., is to oversee BA Merchant Services. Mr. Phillips is currently president of financial products at NationsBank.

The executive to whom BankAmerica's card group reported, James G. Jones, was named to a new post-merger job,president of direct banking and special products.

No decisions have been made on the organizations' top card-issuing executives, Stephen B. Galasso at BankAmerica and Eileen Friars at NationsBank.

"Both those companies have operated sizable portfolios but neither has been an industry leader, so it will be interesting to see what shakes out," Mr. Robertson said.

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