The continuing consolidation of the banking industry also is manifest in many of the underlying lines of business, especially those that are technology-based.
Regional electronic banking, outsourcing, and credit card processing businesses are all coming under the control of an increasingly shrinking circle of dominant players.
Perhaps nowhere is this phenomenon so prevalent as in the credit card acquiring business. The top 10 acquirers, or merchant processors, have come to control 69% of credit volume in the United States, according to The Nilson Report.
As elsewhere, much of the consolidation in merchant processing is driven by mergers and acquisitions.
But at least one of the major players in the business -- First USA Merchant Services -- does not view the acquisition trail as its main road to expansion.
"Acquisitions will be used to augment our internal efforts," said Pamela Patsley, president and chief executive officer of the nation's fourth-largest merchant processor, a unit of First USA Inc. in Dallas. "But it's not going to be the sole way we will grow by any means."
Consolidation is nothing new to the 37-year-old executive, whose history with the company dates back to 1985, before First USA Merchant Services had been formed.
At the time of Ms. Patsley's arrival, First USA Inc. was a part of MCorp., the Dallas-based bank holding company, which was in the process of combining the merchant divisions of its 63 "MBanks" into a single entity.
The force behind this conglomeration was the same as that pushing today's merchant-services industry consolidation: the desire for economies of scale.
Merchant-acquiring "is not a glamorous business," said Mark C. Alpert, an analyst in Alex. Brown & Sons Inc.'s New York office. "It's volume-driven, and the big players are looking to increase their scale any way they can."
Acquisitions are often a first resort for processors eager to increase transaction traffic. And while First USA does not completely eschew buyouts, observers said First USA is less enamored of them than some of its larger, nonbank competitors.
Nabanco, the largest merchant processor and a unit of Atlanta-based First Financial Management Corp., is expected to garner close to half of its business growth this year from acquisitions.
In the second quarter of 1994 alone, Nabanco acquired two merchant credit card portfolios. Executives indicated their strategy calls for continuing purchases at this pace.
First USA, which runs the merchant operation separate from its card-issuing business in Delaware-based First USA Bank, believes it can expand dramatically through aggressive sales efforts and by retaining merchants that are likely to increase their credit card activity in future years.
The company uses acquisitions to gain specialized processing capabilities that can attract new customers. It is not motivated by target companies' raw transaction volume. First USA's key acquisitions in the last fiscal year exemplified this strategy.
In July it bought Electronic Processing Source Inc. and National Card Processing Systems Inc. These independent sales organizations, which serve as intermediaries between merchants and their processing banks, were purchased mainly for their merchant accounting software systems.
Earlier, First USA acquired MAGroup Inc., which had 6,000 merchant customers but, more interestingly to First USA, owned some sophisticated electronic draft capture technology.
The acquisition strategy has paid off so far. In fiscal 1994, which ended June 30, First USA Merchant Services' processing volume grew 69.1% to $17.3 billion. The vast majority of the growth was not related to acquisitions, analysts said.
Net revenues for the merchant unit were up to $20.4 million from $13.4 million the year before. Net income rose 66%.
Analysts project a 40% to 50% rise in merchant services income for 1995, and Ms. Patsley seems comfortable with the predictions.
"We are very bullish on our continued profitability," she said.
One of the ways she hopes to preserve and perhaps improve the unit's profitability is to avoid pursuing transaction volume for its own sake.
"We are not going to be driven to chase volume at the expense of profit," Ms. Patsley said. "We see pricing in the market that is below interchange [the floor level based on fees set by the credit card associations!, and I can tell you that is no way to make money."
First USA's strategy to gain share revolves around better differentiating its services from those of its competitors. Some of the new services, such as the improved accounting systems, will come with acquired companies.
But others will be developed internally. For example, First USA is in the process of developing a new system to handle chargebacks, which many merchants find the most annoying part of credit card acceptance.
With new services and an ability to adjust to the changing needs of clients, First USA believes it can attract some of the larger retail merchants that are expected to be the main beneficiaries of rising consumer credit card use.
Even if First USA fails to gain new merchant customers, its transaction volume is still likely to grow significantly in the coming years.
The reason, as Kidder Peabody analyst Susan L. Roth pointed out in an Aug. 1 report on First USA, is that broader acceptance of credit cards and "newer credit card offers, incorporating incentives tied to charge volume, should lead to higher usage of the credit card as a payment vehicle."
That rosy picture seems to have convinced First USA Inc. to commit itself -- and Ms. Patsley -- more strongly to the merchant business. Ms. Patsley, who had been doubling as First USA Inc.'s chief financial officer, recently turned the CFO job over to former MCorp executive Peter B. Bartholow.
"There is always the possibility that [First USA] will spin off or sell off the merchant unit," said Alex Brown's Mr. Alpert. "But the fact that Pam Patsley is devoting 100% of her time to [merchant processing] is a sign of the increasing size and importance of the business to First USA."