Sam's Club, the warehouse retailer that already sells office supplies and restaurant equipment in bulk, has added cut-rate credit card processing services to the mix.

Under a three-year marketing deal with First Data Merchant Services Corp., the Wal-Mart Stores subsidiary would sign up small-business customers that do not yet accept credit cards or that want to get out from under the high prices of independent sales organizations that specialize in the small-merchant market.

The relationship places Sam's Club in the unusual role of representing a transaction processing company, a new marketing wrinkle in the cutthroat, tight-margin business of handling card payments for merchants.

Industry experts and First Data executives said the deal indicates how hard processors-including the few sizable ones controlled by banks-are working to expand their rosters of merchant clients.

Sam's Club is promoting the service, Sam's Club Payment Solutions, in some of its 451 stores and through direct mail. First Data is handling the processing-for credit and debit cards, checks, and Internet payments- through a joint venture with Old Kent Financial Corp. of Grand Rapids, Mich.

Executives at First Data and Old Kent characterized their cooperation as a cost-effective way to build transaction volume.

"From our perspective, there are millions of small businesses currently with memberships at Sam's Club," said John Duncan, executive vice president of the First Data Corp. merchant division in Englewood, Colo.

The arrangement will also give Old Kent a chance to draw customers from outside its Midwest base.

Through Sam's Club "I can expand beyond the branch referral process as well as find a way to keep my overhead down," said Bruce Binder, general manager of Old Kent Merchant Services, the bank's joint venture with First Data Corp. "Sam's Club was a natural fit."

To reach the low-end merchant-acquiring market, the sales agents known as ISOs-independent sales organizations-typically send representatives door-to-door. Many of the businesses they hook up to payment processors are of Mom-and-Pop scale, paying relatively high transaction fees based on their low volume.

The arrangement with Sam's Club will work like an ISO operation, but without the house calls. The chain is advertising a toll-free telephone number dedicated to the service, and callers are referred to Old Kent, which says it can offer lower rates than most ISOs.

A spokeswoman for Sam's Club said customers are already saving money. In a pilot in Detroit and Tampa, businesses saved an average of $800 a year by switching from other processors.

Paul Martaus, president of Martaus & Associates, a Clearwater, Fla., consultant, said Sam's Club Payment Solutions seems convenient for small businesses, which can "buy their merchant processing where they buy their wholesale goods."

Identifying new customers is one of the biggest challenges in merchant- acquiring, Mr. Martaus said.

"There are a limited number of ways that a merchant-acquirer can get a client," he said. "They can can go door to door, they can buy a list, they can rely on telephone sales."

He said the Sam's Club's deal is a creative approach to attracting business from companies that do not have depository relationships with Old Kent.

The Old Kent-First Data merchant processing venture, one of a dozen such arrangements First Data maintains with banks, has seen volume flag significantly since 1996, when it processed $5.8 billion of transactions. According to The Nilson Report, the joint venture reported a transaction volume for 1998 of $950 million, up from $802 million in 1997.

Working through Sam's "may be an effort to reinvigorate their merchant business," said Stanley Anderson, president of Anderson and Associates, Arvada, Colo. The actual payment volumes generated may be less significant than "the fact that it plays well from a marketing standpoint."

Sam's Club accepts only Discover cards in addition to its own private- label credit card.

First Data has a broader relationship with Wal-Mart. A separate First Data alliance-with Chase Manhattan Corp.-handles processing for the Bentonville, Ark., retailer.

That alliance, Chase Merchant Services, announced a processing agreement last November with BJ's Wholesale Club, another warehouse retailer. Chase is processing transactions for BJ's 91 stores and is working with BJ's to market services to small-business customers.

Mr. Duncan said First Data is likely to pursue more deals like the one with Sam's Club: "Our goal is to act as a supporting channel for our alliances to open new accounts."

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