Chase Builds Merchant Processing

A unit of Chase Manhattan Corp. announced that it will act as a merchant processor for Command Credit Corp., an up-and-coming developer of credit card acceptance programs for banks and retailers.

Under terms of the agreement, Chase Lincoln First Bank will provide a clearing service for the retailing clients of Command Credit.

The merchants will send their card transactions to the Rochester, N.Y., bank for authorization and eventual settlement.

Chase Lincoln expects the deal will increase its transaction volume immediately by more than 10%, with further increases in merchant business to follow.

Like Having a Sales Force

"With this contract we have acquired a professional sales team that, in the process of generating its own business, creates transaction volume for us," said Gary Radford, a senior vice president of the $7 billion-asset Chase Lincoln.

Merchant processors such as Chase Lincoln make money by charging retailers a fee for routing card transactions to credit card companies such as Visa and MasterCard.

Several large banks have pulled out of the merchant processing business in recent years, leaving the business to high-volume transaction servicing specialists like NaBanco and National Data Corp.

The business is very scale-intensive - unit profit margins are tight, so high volumes must be generated to make the business worthwhile. Chase Lincoln is looking to Command Credit as a source of added volume.

Based in Rockville Centre, N.Y., Command Credit is also known as a provider of secured credit cards. These are targeted at people with brief or poor credit histories who are willing to leave money in a savings account as collateral.

Just as it offers to bring non-cardholders into the credit card fold, Command Credit's merchant business aims to sell credit acceptance to retailers that have not customarily accepted cards, such as supermarkets.

"The major obstacle to getting these businesses to accept credit cards is their cost of business," said William Lucas, chairman of Command Credit. "If you can get past that, you've got a sale."

Mr. Lucas said there is a huge potential market for point-of-sale terminals. The vast majority of the more than 45,000 supermarkets in the United States do not accept credit cards because of the costs.

Debit Cards Used

A small but growing proportion are participating in debit card networks, which allow customers to pay for goods with their automated teller cards. Command Credit's program is designed to make automated payments attractive to retailers, with transactions costing the same as or less than the cost of handling cash and checks.

Clearing a transaction directly through a merchant processor typically costs a retailer about 2% of the transaction amount.

Because Command Credit is promising Chase Lincoln transactions in "wholesale" quantities, it is able to offer a rate of about 1.2%, Mr. Lucas said.

Though it makes only marginal profit on each transaction, Command Credit believes the traffic at participating locations will be substantially higher than at businesses that currently accept credit cards.

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