KeyCorp Joins Nova for Merchant Processing

KeyCorp and Nova Information Systems Inc. said they will form a joint merchant processing venture, Key Merchant Services.

KeyCorp will contribute its merchant services contracts-50,000 customers with $5.1 billion in annual credit and debit card sales.

Nova, a subsidiary of Nova Corp. of Atlanta, will do the processing.

The transaction, announced in December and scheduled to close in the first quarter, would keep Nova on a rapid expansion path. KeyCorp's volume would boost Nova's total to more than $20 billion, which the company said will make it one of the top five processors on the merchant side of the card business.

Nova chairman and chief executive officer Edward Grzedzinski said the company has aimed at a top-five ranking since its inception in 1991.

"That's the sort of scale somebody needs to compete effectively," Mr. Grzedzinski said. "Through a combination of strengths, the new Key Merchant Services will be perfectly positioned to expand market share."

KeyCorp's employees in merchant services, sales, and marketing-about 90 in all-will work for the new venture. Operations will move from the bank's headquarters in Cleveland to Nova locations in Atlanta and Knoxville, Tenn.

Nova will hold a 51% stake in the venture and will be responsible for back-office support, customer service, and terminal management.

David R. Campbell, KeyCorp executive vice president of payment services, said the bank chose Nova for its "depth and breadth of product offerings" and willingness to form a flexible alliance structure.

"We needed to ally ourselves with a merchant processor who could provide us with technology for the long term," Mr. Campbell added.

Analysts said the agreement is yet another sign that Nova's strategy is paying off. It has been courting banks by offering them a cut of revenues, while the processor remains behind the scenes. Banks thus "own" their customer relationships and keep their brand names in the forefront.

First Data Corp., the transaction processing industry leader, offers similar support to banks through joint ventures called merchant bank alliances.

Nova is "a low-key partner" with "a great technological advantage and a great partnership strategy," said Brent Wouters, a research analyst for Robinson-Humphrey Co. of Atlanta.

It has the wherewithal to "capture a big bank with a lot of volume," he said.

Banks that have historically handled processing in-house are turning more and more to outside companies for technical assistance.

"Banks don't have a core competency in technology," said Paul Martaus, president of Martaus & Associates, Clearwater, Fla. "These alliance programs have allowed them to outsource the technology part, the service part-basically the nuts and bolts."

Nova's alliance with KeyCorp followed two other major contracts in 1997. In May, Nova agreed with Crestar Financial Corp., Richmond, to process its $1.8 billion portfolio and 7,500 merchants.

In October it added the $3 billion portfolio of Firstar Corp., Milwaukee. Including KeyCorp, these deals more than double Nova's volume.

Before last year, Nova's biggest windfall had been a 1995 agreement with First Union Corp., which took a 32% equity stake in Nova and handed over its $4.6 billion merchant portfolio.

Nova is "back on a roll, and they are doing incredibly well," Mr. Martaus said.

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