Fifth Third Unit Spends Big in Bid To Lead Electronic Funds Transfer

its goal to be the premier transaction processor in the electronic funds transfer world. Now third in terms of processed transactions, the data processing subsidiary of Fifth Third Bancorp is pushing for No. 1 in a big way - by spending millions of dollars on technology. "We made this multimillion-dollar investment to prove that we are committed to continued expansion and growth," said James J. Hudepohl, senior vice president of the Cincinnati-based bank. Midwest Payment, also based in Cincinnati, serves about 1,100 financial institutions and about 13,000 merchants. It estimates it will process 1.62 billion transactions this year, placing it just behind Electronic Payment Services Inc. and Deluxe Data Systems Inc. Midwest Payment sees technology as a key to climbing higher. It said it just became the first in the nation to fully implement the Parallel Enterprise Server, a high-volume transaction processing system from International Business Machines Corp. "To be the first is an aggressive technology stance to take," said Bob Landry, a technology research analyst at the Tower Group in Wellesley, Mass. "Technology like this is supposed to give you lower costs, which is an attractive issue in this very competitive segment of the market," Mr. Landry added. Midwest Payment estimates that the new technology will allow it to reduce energy expenses by 97%, floor space requirements by 94%, and maintenance costs by 65%. The system has the potential to process more than 100 million transactions per second, and supports established as well as emerging telecommunications and networking enhancements. Most important, bank officials said the new technology should allow Midwest Payment to offer more attractive pricing to its bank and merchant customers and prospects. The company has been especially aggressive in signing electronic funds transfer contracts in Pennsylvania, particularly with banks that had previously been with Electronic Payment Services, the Delaware-based joint venture of several superregional banks that owns the MAC automated teller machine network. In April 1994, EPS signed a consent decree with Justice Department requiring the processor to drop membership rules that prohibited financial institutions from using a third-party ATM processor other than EPS. Midwest Payment lost no time moving into that territory. The processor has picked up 109 financial institution clients this year, the majority from within the EPS-dominated region. Income from these data processing activities grew 18%, to $54.5 million, for the first nine months of 1995. Company officials estimate a 20% growth rate for the year, which is average for the past few years. Executives spend a day or two each quarter interviewing scores of candidates for new jobs within the unit. Midwest Payment currently has 400 employees dedicated to the unit; it also shares support staff with the holding company. Midwest Payment ranks among the top 10 credit card merchant processors. The company recently signed on to handle Office Depot Inc.'s Visa, MasterCard, and Discover card transactions. A Fifth Third spokeswoman said Midwest Payment contributes approximately 25% of Fifth Third's overall income.