TUCSON, Aris. - In announcing last week that it will acquire MAGroup Inc., First USA Inc. signaled that it is playing for keeps on the merchant side of the credit card business.

MAGroups's 6,000 merchant clients will add modestly to what is already the sixth-larget merchant processing operation, with $10.2 billion in sales volume in the 12 months through June 30. But more important to the Dallas-based credit card company is MAGroup's technology.

"We're strictly focused on the credit card business, and this gives us the ability to bring some of our draft capturing in house," said Pamela Patsley, president and chief executive officer of First USA Merchant Services.

First USA, the Dallas holding company that also owns the 16th-largest bank in credit card loans - First USA Bank of Wilmington, Del. - expects to complete the acquisition of Tucson-based MAGroup within a few weeks.

|New Capabilities'

In a prepared statement, First USA chairman John C. Tolleson emphasized MAGroup's "new capabilities in the electronic draft capture business."

Meanwhile, MAGroup, a 40-employee operation, will see its processing facility upgraded and will accomplish more than it could have alone.

"We saw this strategically as an opportunity for us to go to the next level in the processing industry," said John Hunnicutt, MAGroup's president and chief executive. "To continue to compete we needed to be affiliated with a bank."

|Growing the Merchant Side'

For the last three to four years, First USA has been "growing the merchant side of the business," according to Ms. Patsley.

The dollar value of sales has increased at least 70% in each of the company's past two fiscal years - ending June 30 - while the number of items processed has risen more than 50% each year.

MAGroup's merchant accounting services and advanced, flexible draft capture system - which uses smaller computers to release information more quickly and efficiently than a mainframe system - attracted First USA's interest.

Converting Customers

First USA expects to save the expense of creating its own system, while building on the bank's four-year relationship with MAGroup.

According to Ms. Patsley, the bank plans have 20% of clients using its draft capture system a year from now. Customers will be brought on in stages.

She said the bank does not plan to completely phase out its relationships with other transaction processors, including National Data Corp. and Envoy Corp.

Highlighting a Commitment

"We're at a different plateau now than two or three years ago," said Ms. Patsley, who joined the company in 1985 when it was owned by MCorp. An accountant by training, she also serves as chief financial officer of First USA Inc.

According to David Robertson, president of The Nilson Report, the acquisition highlights not just First USA's growth, but its commitment to merchant processing.

|Determined by Scale'

He said many "specialized boutique-type organizations" such as MAGroup are generating good prices on the acquisition market. The first USA deal was valued at $10.5 million.

"In a business that is more than ever determined by scale, the large companies, to continue to grow, are willing to buy relatively small companies," Mr. Robertson said.

"Independent sales organizations are going to find it tougher sledding."

Honing Its Identity

MAGroup was formed 10 years ago as Magnum Computer software, and has grown rapidly as a processor since authorizing its first card transaction in 1986. Annual transaction volume is 20 million.

Of MAGroup's 6,000 merchant customers, 3,400 are customers of the MAGCard service, meaning First USA will have a direct relationship with each.

According to Mr. Hunnicutt of MAGroup, the acquisition will help First USA hone its identity as a merchant processor, enabling the bank to compete more on a par with leaders like Nabanco and National City Processing Co. Each has its own in-house capabilities for draft capture.

Mr. Hunnicutt and executive vice president Bill Hill, MAGroup's other founder, are committed to stay with First USA through a transition period or "as long as needed."

No Shrinkage Planned

As the unit becomes absorbed, its creator will decide if he still fits in.

"I don't feel really positive personally about standing in someone else's way," Mr. Hunnicutt said.

In Ms. Patsley's view, not much of a transition will be needed, and MAGroup will retain its individuality.

"We're looking to expand the operation in Tucson, increasing volume and people and functions," Ms. Patsley said.

"In no way did we buy this to shrink the operation."

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