Competitors Caught Off Guard By Announcement from Banks

The announcement Wednesday of a meganetwork for electronic payments caught competitors off guard even though they have been predicting a wave of consolidations in that part of the retail banking industry.

"I'm shocked, but I'm not surprised," said Stephen Cole, president of Cash Station Inc., a shared network based in Chicago.

Most observers have been expecting mergers of regional teller machine networks more along the lines of a three-way combination of multibank associations that resulted in the formation of Florida-based Southeast Switch Inc. two years ago.

Change in Strategy

The partners in the venture announced Wednesday - and especially CoreStates Financial Corp. and Banc One - had long preferred to control their ATM and point-of-sale destinies rather than join associations with many voting members.

"This seems to be an acknowledgment on their part that a multi-owner arrangement is best," said Alan Pohlman, chief executive of the NYCE network, which has been the archival of CoreStates' Mac system in the Northeast and is certain to feel the heat of the new entity known as Electronic Payment Services Inc., or EPS.

"I don't think one bank should dictate" the terms of a shared network, Mr. Pohlman said.

In addition to competing with shared networks such as NYCE, EPS could go head-to-head with the national point-of-sale efforts of Visa U.S.A. and MasterCard International - including the Interlink and Maestro debit card programs - and provide a bank-owned alternative to independent transaction processors such as Deluxe Data Systems and Electronic Data Systems Corp.

Further Moves Seen

"This will accelerate consolidation," said Janet S. Hartung, senior vice president of network services at Mellon Bank, a participant in Mac. "A major consolidation like this gets everyone to reassess their position."

By combining with other banks, CoreStates may have removed one of Mac's biggest obstacles to growth - that many banks did not want to join a network owned and operated by a single bank.

Industry observers say the joint could venture compete in four major areas:

* As a brand-name regional network, like NYCE and Most in the Mid-Atlantic region, or Pulse in the Southwest.

* As a processor of ATM and point-of-sale payments, in competition with Cirrus, Plus, Visa, and MasterCard.

* As a national debit card brand, an alternative to Interlink and Maestro.

* As a transaction-processing utility like Deluxe Data, EDS, First Financial Management Corp., National Data Corp., Mellon Bank, and Midwest Payment Systems. The last is a subsidiary of Fifth Third Bancorp, Cincinnati.

"If there are four banks that understand this business, it's these four," said Mr. Cole.

"Banc One has a very wide market, and if it promotes this, the group could easily move into other networks' markets," said Richard Yanak, who heads Yankee24, a Wallingford, Conn.-based cooperative that has faced formidable competition from both Mac and NYCE.

Mr. Cole said major growth opportunities are in health care payments, government benefits supermarkets, and automatic ticketing at airports and other transportation facilities.

Speer and Associates, an Atlanta consultant, has tracked a 45% growth in the number of direct debit terminals deployed among the largest shared networks in 1991, and growth of 179% in the number of point-of-sale transactions on those networks, from 1.6 million to 4.5 million.

A spokesman for MasterCard said it did not see EPS as a competitor to Maestro. "Maestro was formed in conjunction with regional networks, and can easily accommmodate consolidations," the spokesman said.

But neither Mac nor NYCE have joined the nationwide POS networks, and say they have no immediate plans to do so.

Ms. Hartung viewed the venture as competitive with Visa, MasterCard, Cirrus, and Plus.

She said the venture would probably continue to pursue a brand name strategy, rather than the private-label approaches offered by the third-party processors.

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