Paymentech Inc. has agreed to buy the merchant processing business of Mellon Bank Corp., the companies announced Thursday.

The deal, scheduled to close by yearend, would add 46,000 merchants and $5.3 billion in annual bank card sales volume to Paymentech, which is a unit of Bank One Corp.

Mellon would also refer merchant customers to Paymentech's processing services.

Pamela H. Patsley, Paymentech's president and chief executive officer, said Mellon's work in government merchant processing "gives us a strong foothold in that emerging market."

Mellon joins a growing list of banks that have exited the merchant processing business, saying that third parties can do the job at lower cost. "Paymentech has the necessary scale, resources and commitment to the business to ensure continuity of service to our customers," Steven G. Elliott, Mellon's chief financial officer and senior vice chairman.

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