Two electronic banking networks covering the South and Southwest have formed an alliance that they say will bring their members the benefits of a merger without one.
The networks, GulfNet and Pulse, are going well beyond a reciprocal sharing of automated teller machines. They also plan to work together on marketing, education, product development, and research.
What's more, GulfNet, the Louisiana-based network that is the smaller of the partners, will solicit its members to join Texas-based Pulse, currently No. 6 among regional ATM systems.
The arrangement will be watched closely by other regional network officials as they grapple with continuing industry consolidation and the growing influence of MasterCard's and Visa's national networks.
Some industry watchers suspect the alliance is a step toward a merger of GulfNet and Pulse, which serve adjacent and overlapping territories.
"It looks like they're engaged but not married, and they're deciding if they like each other enough to go through with the wedding," said Stephen P. White, a payment systems consultant with Dove Associates.
The two networks were reported to be in merger talks in the summer of 1993, when GulfNet was also talking to Electronic Payment Services Inc. and Southeast Switch Inc. By the end of that year, however, GulfNet had decided to remain independent.
But the industry's continuing consolidation has caused renewed soul- searching at second-tier networks like GulfNet, which ranks 17th nationally, according to Bank Network News.
"I believe ultimately there will be a merger or acquisition" of GulfNet, said Del Tonguette, president of the Slidell, La., company which has 3,258 ATMs in Louisiana, Mississippi, Tennessee, Arkansas, and Texas.
The 7,731-machine Pulse network "would be a likely candidate," he added, "but there is no intent that this alliance signals that a merger is imminent."
Stan Paur, chief executive officer of Pulse in Houston, said, "This alliance does not rule out a merger. But at this time, the two organizations have their reasons for not merging.
"With consumer awareness of the GulfNet mark in Louisiana and Mississippi, it would be counterproductive to displace such a well- recognized logo," he said.
Mr. Paur said he is "optimistic that all GulfNet members will join Pulse." Outside consultants said this eventuality could lead to GulfNet's effectively easing itself out of existence.
The alliance "might shorten the tenure of GulfNet, but it might lengthen the time we're in this business," Mr. Tonguette said.
Even without an outright merger, GulfNet's members get significant benefits including access to Pulse's services.
For one, Pulse has aligned itself with San Diego-based Star System Inc., by some measures the nation's largest ATM network, to combat check fraud.
Pulse, a nonprofit organization, formed a for-profit unit, Pulse Chek Service Corp., to protect member institutions from losses due to uncollected funds.
This and other Pulse products and services will be available to GulfNet members, said Mr. Tonguette.
However, GulfNet members cannot take advantage of Pulse's reciprocal ATM-sharing arrangements with Star and other shared networks including NYCE, Shazam, Honor, Magic Line, Iowa Transfer, and Alert.
"I've only got one reciprocal, with Alert," said Mr. Tonguette, referring to the Birmingham, Ala.-based network. "Pulse's reciprocals may be attractive to my non-Pulse members. That's why I'll be out selling Pulse memberships."
Mr. Tonguette and Mr. Paur cited three main reasons for the alliance: volume, competitive pressures, and point of sale debit growth.
Mr. Tonguette said GulfNet switches approximately 2.2 million transactions per month, which is sure to rise with the Pulse connection.
"Ninety percent of our income comes from processing transactions," said Mr. Tonguette. "The alliance with Pulse will give us more transactions, so we'll be making more money."
Pulse and GulfNet cardholders will have access to any of their combined 11,054 ATMs and 16,764 point of sale terminals in seven states. The networks will be working with members and merchants to place both service marks on ATMs and POS terminals.
The alliance's combined numbers surpass those of the Most network, fifth-largest in the nation, which operates in the region north and east of GulfNet's.
"GulfNet is being squeezed from all sides," said Mr. Tonguette. "This alliance with Pulse will give Most and (Southeast Switch's) Honor pause. I think it will stymie their efforts to move into this territory."
Thomas O. Bennion, chief executive officer of Southeast Switch, responded: "Until now, we really haven't made concerted efforts to actively solicit membership in what GulfNet considers its territory.
"If one of our members acquires a financial institution in that market and wants the Honor brand, then we may make a move," he added. "We tend to follow what our financial institutions do, rather than aggressively move into markets."
David A. O'Connor, chief executive of Internet Inc., in Reston, Va., which operates the Most network, echoed Mr. Bennion: "We support our members, and if that brings us into competition with another network well, then so be it."
GulfNet's POS effort stands to gain from the Pulse alliance. GulfNet, an early participant in MasterCard's and Visa's national POS programs, introduced its own regional program only nine months ago. Its monthly POS transaction volume as of yearend was only 22,300.
Pulse, on the other hand, handles close to two million monthly POS transactions.
"As tourism increases along the Gulf Coast and as merchants continue to deploy POS programs, it is important to maximize the number of cards and terminals available to the financial industry and merchants," said Mr. Paur. "Coordinating activities of our two programs will effectively expand the value of participation in the networks by the individual financial institutions."