Just two short years ago, few people in the banking business paid much attention to a company called Concord EFS, a Memphis-based transaction processor that specialized in providing electronic payment and payroll services, primarily to trucking companies and convenience stores.

Since then, Concord has acquired three major electronic funds transfer networks — Star Systems, Cash Station, and MAC — and catapulted itself into the dominant position in the online debit and automated teller machine processing industry.

The growth has raised interest and concern among bankers because it is the first time these EFT networks have not been controlled and operated by bankers.

Most of the country’s banks do business with one or more of these networks, which Concord so far is operating separately but plans to consolidate under the Star name. The banks that used to be “members” of Star, Cash Station, and MAC have become “clients” of Concord, suddenly finding themselves on the outside looking in at this quietly growing company, which had 2000 revenue of $1.2 billion.

The remaining independent networks answer more directly to their member banks. Because of the differences between Concord’s way of doing things and those of the other networks, several prominent industry executives — most notably ones at the rival EFT networks — criticize Concord and question whether its publicly traded status will work against the banks that rely on it.

The other electronic funds transfer networks vary in their governing structures. Most of the small regional networks are set up like Pulse EFT Association of Houston, which is large but is organized as a member-owned, not-for-profit cooperative of more than 2,500 financial institutions. Pulse recently bought the Money Station network, to give it more heft to compete with Concord.

NYCE Corp., on the other hand, of Woodcliff Lake, N.J., is a privately held for-profit institution with 2,400 financial services “participants.” It is controlled by 11 of those banks, and its board is made up entirely of bankers. In 1999, NYCE bought the Magic Line network.

On Feb. 1, Concord EFS, which bought Cash Station last year, transformed itself from a company with a big EFT network to a company with by far the largest networks in the country when it completed its purchase of Star Systems. Star, itself a product of the merger between the Honor network of Maitland, Fla., and Star Systems of San Diego, had already made history by becoming the first coast-to-coast “regional” network, and the largest in the country.

Not to be completely outdone, Pulse purchased Money Station to make it arguably the second-largest network, though NYCE, the eastern regional network, lays claim to that status as well. NYCE is also rumored to be on the selling block, though executives there will not respond to such rumors. Both Pulse and NYCE say they are next-biggest to Concord, and, since there are various ways to measure the size of these businesses, it is difficult to assess these claims.

A report that surfaced last week that NYCE might be up for sale seems to have fueled fears about the consolidation power of Concord EFS and the future of this portion of the industry.

NYCE officials do not say their company is courting a buyer, but they do not deny it either. If it were bought by another company that operates a similar network — as opposed to a bank, processing firm, or other type of institution — Concord would seem to be the most logical buyer, since its operations are contiguous to NYCE’s. Pulse, which might also have the resources to buy NYCE, is less of a geographic neighbor.

The accelerating changes in the industry seem to have been put into motion less than two years ago when Concord purchased Electronic Payment Systems, the company that then owned the MAC network.

“That was really the defining moment in our business,” said Dennis F. Lynch, president and chief executive officer of NYCE.

Consolidation among the dozens of small, regional networks had been going on for a long time, but Concord’s 1999 buyout of Electronic Payment Systems represented “big-bang consolidation,” Mr. Lynch said. Its string of acquisitions “dramatically upped the tempo and caught everybody by surprise.”.

Concord’s absorption of Star gives it ties to 6,500 financial institutions, and connections to 180,000 ATMs and 720,000 point of sale terminals. Concord’s goal is to become a national network that can compete with Visa’s Plus/Interlink networks and MasterCard’s Cirrus/Maestro networks.

Concord already is the largest processor of PIN-based debit card transactions, and the fourth-largest merchant processor overall.

Stan Paur, the president of Pulse since 1982, said his deal to buy Money Station, which closed in January, was a direct response to Concord’s moves, and that Pulse intends to do battle with Concord within its MAC territory.

Mr. Paur, who takes a fairly academic interest in the EFT industry, said he sees two distinct “models” as a result of Concord’s rise to power. The Pulse and NYCE model — which also applied to Star and MAC before Concord took them over — is that the networks are shared services organizations run by consortia of financial institutions. Bank executives are on the boards of directors, and thus banks control these networks.

With Concord’s emergence, Mr. Paur said, a new paradigm was born: A network or networks operated by a company that was both for-profit and publicly held, and controlled not by banks but by other stockholders.

“I think it’s fair to say these two models will answer to vastly different masters,” Mr. Paur said. “With Pulse, control over rules, policies, and pricing remains in the hands of the financial community. There are no demands from stockholders, there are no pressures from analysts. Nobody comes to me at the end of the quarter and asks, ‘What’s my dividend?’ ”

NYCE’s structure is less co-operative in nature, but along with the all-banker board it has a “network advisory group” that tries to pinpoint the needs of various types of financial institutions that use the network.

Ronald V. Congemi, president of Star Systems, now a subsidiary of Concord, said he has heard the arguments against the public nature of Concord. And while bank executives do not sit on Concord’s board of directors, he said, they do make up a customer advisory board, which includes commercial banks, community banks, and credit unions. This, Mr. Congemi said, gives them “direct suasion” with the company.

Mr. Congemi said Concord needs to listen to its customers, and the advisory group “provides a heightened focus to continue bringing new products.”

Mr. Lynch of NYCE rebutted that point: “The Concord model needs to take care of its customers, but first and foremost needs to attend to its shareholder interests,” he said. “The implications of that — and whether that will be negative to the banking industry — will play out over the next couple of months.”

Mr. Congemi is an interesting linchpin between Star and Concord. He was Star’s president before the merger, and, continuing in that position, he will oversee the consolidation of MAC, Cash Station, and Star. He reports to Edward Labry, president of Concord EFS.

Mr. Congemi said he agreed to sell his company to Concord because he wanted to “evolve to a truly diversified payments company.”

Mr. Congemi took issue with Mr. Paur’s characterization of Concord as a second model in the EFT industry. “Pulse and NYCE are two completely different organizations,” he said. “Pulse is purely an association.” Before Concord took over Star, it — like NYCE — was a for-profit private company.

Mr. Lynch of NYCE seemed to side more with Mr. Paur, saying that his network may be a for-profit company, but its structure is much closer to Pulse than to Concord.

Concord is a diverse company with its hands in many areas of payment. The purchase of Star gives it even more ties to banks and merchants to which it can cross-sell other products: merchant processing, issuer processing, merchant-acquiring and authentication, and check conversion, among others. Mr. Labry said that by early March, Concord will have a sales force in place, its products “shrink-wrapped and ready to go.”

In a separate deal, Concord has become a merchant-acquirer for Wal-Mart, a client so large that Concord would previously have had trouble winning it.

If Concord is ultimately beholden to stockholders rather than banks, its success could rise and fall with the stock market. Lately, Concord’s stock has been coasting along at about $40 a share, up from the low 20s where it had sunk a year ago.

Most analysts say the company is fundamentally sound, and give it “buy” ratings. Even in a sluggish economy, the argument goes, Concord will continue to gain market share, because consumers are continuing to embrace electronic payments over cash and checks.

Mr. Labry said the dot-coms’ doldrums had helped boost Concord’s stock price, with investors fleeing from riskier companies to ones they perceived as more stalwart.

“I’m glad people think boring-and-predictable now has merit,” he said.

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