LOUISVILLE, Ky. - In a moment of reflection, reclining in his office chair with his hands behind his head. Frank Knego reveals in his image as a credit card industry maverick.

"Growing up through the business world with cutthroat politics and people always climbing over one another to get ahead always frustrated me," the outspoken former bank executive said.

"I think that's why I was known as a rebel. I wouldn't do that," said Mr. Knego, currently president and chief executive of Financial Alliance Processing Services Inc.

Bucking conventional wisdom, the 56-year-old New Jersey native persuaded Citizens Fidelity Bank and Trust Co. of Louisville to separate the card-processing unit that he headed from the card-issuing arm in 1979. It was a move that other banks would follow.

Focused on the merchant side of the bank card business, Mr. Knego became a vocal critic of the way the bank card associations set the interchange rate - a fee that the merchant's bank pays the cardholder's bank for the privilege of accepting a credit card payment.

Black Roses

In 1987, upset by a 40-basis-point hike in MasterCard's interchange rate, Mr. Knego sent a dozen black roses to Russell Hogg, then president of the association.

Nobody knows if the roses were a factor, but MasterCard relented and rolled back the increase to 10 basis points.

Three years later, Mr. Knego quit as president and chief executive officer of the Citizens Fidelity processing unit. The bank had been acquired by PNC Bank Corp. of Pittsburgh, and Mr. Knego did not want to cater to its demands.

These days, however, Mr. Knego says he doesn't have resort to brash tactics to get his way. His reputation as a forceful executive and his penchant for handpicking personnel with operating and strategic expertise have helped Financial Alliance to blossom as a merchant processor.

"The key to our success is people, not Frank Knego." Mr. Knego said. "O.K., it played off my image, but the day-to-day workings made it successful."

The firm, which serves card-accepting merchants nationwide, was formed in September 1991 by Mr. Knego, John J. Leehy 3d, and Gregory W. Sahrmann.

Mr. Leehy, a former First Data Resources Inc. executive, serves as executive vice president of marketing and sales.

Mr. Sahrmann, who was a senior vice president at Norwest Corp.'s Norwest Card Services, is executive vice president and chief operating officer.

Aiming High

The three assembled $2 million of capitalization from 22 investors. Two years into its life, Financial Alliance expects its transaction volume to reach $2 billion by yearend and more than $20 billion by 1998.

With growth in mind, Financial Alliance has been signing up 1,500 to 2,000 merchants a month. But what has pushed this upstart company over the top is its ability to acquire big-league portfolios.

Last spring, Financial Alliance acquired the merchant portfolio of First Florida Banks Inc. from the holding company that acquired it last year - Barnett Banks Inc. of Jacksonville, Fla. That resulted in 140 banks and some 16,000 merchants converting to Mr. Knego's company.

"We're very selective in the type of acquisitions," Mr. Knego said. "We walk away from deals. We don't want major national accounts. We've picked our niche. We're good at handling the small |mom-and-pop' retailer."

Mr. Leehy said, "This is an area of the marketplace that we feel has been somewhat underserviced from a quality standpoint."

1,500 Salespeople

It is also one of the hardest to reach. Financial Alliance has 1,500 salespeople assigned to find and service the retailing customers.

The mom-and-pop segment is a lucrative market, said Paul Martaus, a consultant with Martaus & Associates Inc., Clearwater, Fla. He estimates there are 777,000 merchants making cash and check transactions.

"There is a move to hook these folks up" with advanced point-of-sale technology, he said. The systems allow for zero floor limits, meaning all card transactions can be authorized, thereby lowering the stores' interchange and processing fees.

"Financial Alliance is a key player, even if they are not in top five" of merchant servicing, Mr. Martaus said. "They don't own portfolios, but they control many."

Wanderlust

Mr. Knego may not be around to reap the benefits of his ambitious growth targets.

"I'm the kind of guy who likes to build things," Mr. Knego said. "My tenure here might be a couple of more years. I'm looking at a few other things close to this business. I like something that can be built from the ground up."

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