Honor, the major automated teller machine network in the Southeast, has embarked on a membership campaign that may strain its merger talks with the Most network to the north.

Florida-based Honor said this week that it will waive initiation fees and first-year membership charges for any financial institution in Tennessee, Virginia, Maryland, or the District of Columbia that joins before April 30. Since the fees would be relatively small - $2,000 to $125,000, depending on institution size - most experts see the offer as a symbolic gesture of intent, rather than a concerted push for new membership.

The areas targeted by the campaign are squarely in the back yard of Most, the mid-Atlantic network with which Honor has had longstanding merger talks.

Strong Proponents

"Our conversations with Most have been going on for four years, and it's getting to the point where we must look into some other way of expanding," said Thomas O. Bennion, president of Southeast Switch Inc., the Maitland, Fla., company that operates Honor.

"If we can't get the business through a merger, we'll go in there and get it on a competitive basis."

It is common knowledge that NationsBank Corp. and First Union Corp., both based in Charlotte, N.C., are strong proponents of an Honor-Most combination. Both superregionals have sizable presences in the networks' respective territories and have expressed a desire to cut back on the number of networks serving those markets.

With the Honor-Most talks proceeding slowly, some observers believe NationsBank and First Union are working to shift the talks into a higher gear.

Representatives from those institutions declined to comment on the speculation. "We'd prefer to leave the comments on this to the networks," said a First Union spokesman.

Several observers suggested that the new membership drive on its own would not accelerate the merger discussions.

"If this is some kind of shot across the bow, it's not a very impressive one," said David Dove, president of Dove & Associates, a Boston-based consulting firm that advises Virginia-based Most.

Honor is "going to have to come up with something more meaningful than this if they expect any real reaction," Mr. Dove said.

David O'Connor, president of Internet Inc., the Reston, Va., company that administers Most, put Honor's move in less volatile terms.

"I think it's reflective of the fact that we are not deliberating as quickly as they would like us to," Mr. O'Connor said. "Right now, we still compete with Honor, so I don't think there is anything untoward about the move."

Still, people familiar with the two networks say that Honor's membership bid has strained relations between the companies.

Agreement Expected

Nonetheless, bank executives and consultants close to the networks expect that merger talks will eventually bear fruit.

NationsBank and First Union own large chunks of both Most and Honor, and their desire to consolidate networks - not to mention membership costs - is expected to prevail in the end. About 40% of Most's transaction volume reportedly hails from institutions that own equity stakes in Honor.

Of course, the possibility still exists that Most could merge with another major network, such as NYCE or MAC, which reach into the Northeast.

However, the fact that neither NationsBank nor First Union plays a major role in either of those potential acquirers makes such a deal unlikely. That could change if another large owner of Most - such as Crestar Financial Corp. or Signet Banking Corp. - is acquired by an owner of NYCE or MAC.

What's the Holdup?

If the Honor-Most merger is so logical and inevitable, then what is the holdup? Some observers point to cultural differences between the organizations.

A more likely snag is determining the share of equity each network would have in the postmerger organization.

According to sources close to the talks, Montgomery Securities - which Most and Honor hired this year to render an opinion on the potential division of equity - found that the financial institutions that own Honor were entitled to about a 65% share of the combined network, Most owners 35%.

"Most feels as though it is more valuable than that, and that's creating some problems right now," said one source, who requested anonymity.

As the supposed merger timetable lengthens, Honor executives said they plan to stick to their goal of expanding membership.

Southeast Switch has been pushed by Mr. Bennion and Its board - headed by First Union Corp. executive vice president Alvin Sale - to diversify and develop new revenue.

In addition to switching electronic transactions between banks, Honor offers to directly "drive" participants' automated tellers and point of sale-terminals. Honor agreed to acquire terminal-driving businesses from Barnett Banks Inc. and Wachovia Corp.

Honor also produces plastic cards, providing the embossing and encoding services in competition with established vendors in that field. Early this month United Carolina Bank of Whiteville, N.C., which has 181,000 ATM cards, signed on as a customer of the Southeast Switch Card Services Division in Altamonte Springs.

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