Last week's announcement of a potentially huge electronic banking joint venture in the Midwest, the latest sign of consolidation in that business, was motivated by fear and revenge.

Feeling the heat of MAC, an automated teller machine network invading from the East, four major Ohio banks set the coalition into motion.

Officials of the four companies -- Huntington Bancshares Inc. of Columbus, National City Corp. of Cleveland, and Provident Bank and Star Banc Corp. of Cincinnati -- met last September to assess the competitive threat.

One thing led to another, and the group, Electronic Transactions Inc., has attracted 11 other organizations, including Norwest Corp. and First Bank System Inc. of Minneapolis, NBD Bancorp and Comerica Inc. of Detroit.

They could form a potent counterweight to Electronic Payment Services Inc., the joint venture led by CoreStates Financial Corp. that owns MAC.

Powerful Coalition

MAC began roiling the Ohio market last year when three of the state's biggest banking names -- Banc One Corp., PNC Bank Corp., and Society Corp. -- joined CoreStates with ownership positions in Electronic Payment Services, known as EPS.

Just last week, EPS began to tell such banks as NBD that some ATM networks in which they participate would have to display the MAC logo. In September, PNC and Society will withdraw from Money Station, the processing system that ties together the various networks in Ohio.

EPS and its owners are accused of being heavy-handed, not giving their competitors time to explore alternative ways of linking to MAC.

Subordinate Role

"Banks of a certain size don't want to be looked at as subordinate to any bank they're competing with," said a banking executive who asked not to be identified. Even if EPS would admit other banks as equity owners, "you don't want to have to tell your CEO that you're going to play a subordinate role in a joint venture."

The tension illustrates how the stakes have risen in the ATM business. It is increasingly viewed as a strategic asset or profit center, rather than a necessary, expense-generating evil.

The midwestern coalition was "originally concerned about EPS in the Ohio and Kentucky markets, but it's grown well beyond that," said Richard Speer, president of Speer & Associates in Atlanta, a consultant to the group. "Now people are excited about the opportunity to take what is an expense for the bank, create shareholder value, and provide a higher level of service to customers."

"EPS has raised the consciousness of the whole ATM area and made it more of a priority for many of us than it was before," said Anthony McEwen, senior vice president at National City Corp. "EPS probably was a catalyst" in getting higher-level management involved, Mr. McEwen said.

Ripe for Consolidation

The Midwest is particularly ripe for consolidation, with its dozens of small independent networks, many of them soon to feel the effects of EPS.

MAC's logo is now being adopted across the Ohio-based Owl network. Society's Green Machine network has sent participants letters saying they must display the MAC logo by a certain date or leave the network.

"We've told Green Machine we're pulling out," said Charles Raphael, first vice president of NBD Bancorp, which is in the process of merging its ATM network with the Michigan-based Magic Line system. Green Machine and Magic Line have some overlaps.

The new entity, Electronic Transactions Inc., has set a goal of creating a brand name recognizable throughout the region. "It would unify what is now a very fragmented market," said A. Joseph Parker, chief financial officer of National City. "We can really put together so critical mass."

No Definite Plans

Details on who would own the system's equity and what brand name or names it would use have not been ironed out. Nor is it certain that all those involved in the talks -- 13 banking companies, a thrift, and a credit union association -- will be part of any final agreement.

Bankers involved in the discussions say they expect at least 20 equity owners. Some say they may choose to retain more than one operating name -- one for ATMs, one for point-of-sale services. for example - or that a new brand will be created.

Joseph Parker of National City, Phillip A. Parker, executive vice president of Star Banc; William M. Randle, senior vice president of Huntington; and Roland Koch, senior vice president and chief operations officer of Provident, attended the initial meeting in Columbus last September.

Rethinking the Business

Noting other moves toward consolidation, such as the merger discussions between Florida-based Honor and Virginia-based Most, Star Banc's Mr. Parker said, "We felt it was time to re-examine what we were doing from Ohio west."

In January, the original four Ohio banks, Fifth Third Bancorp of Cincinnati, and Liberty National Bank of Louisville, Ky. -- where EPS was also moving quickly to install MAC -- put up about $100,000 to fund a preliminary study.

"They gave us the funding to go to phase two, to flesh out the plan and see if we could put together a business plan," Mr. Parker said.

The study was presented to the bank presidents, and the group agreed to open up discussions with other financial institutions, NBD was one, and it brought in other owners of Magic Line.

Fifth Third then decided not to continue with the project, but a source said the Cincinnati bank could rejoin.

Current Participants

The group currently consists of the original four, NBD, Citizens Banking Corp. of Flint, Mich.; Comerica of Detroit; First of America Bank Corp., Kalamazoo, Mich.; First Federal of Michigan, Detroit; First National Bank of Chicago; Liberty of Kentucky; Michigan Credit Union League, Detroit; Michigan National Corp., Farmington Hills; and Norwest Corp., Minneapolis.

First Bank System joined within the past week.

Mr. Parker of Star Banc said more bankers have called to ask about joining. But now the members want to concentrate on program details. They plan to make formal presentations to their CEOs by the beginning of August.

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