Merchant Market: Barnett Banks and First Data Form Merchant Processing

Barnett Banks Inc. has become the fourth banking company to join First Data Corp.'s merchant-bank alliance program in the past six months.

First Data's Card Services group said the program is designed to keep banks in a business that increasingly has become the domain of third-party processors.

This latest joint venture will establish a jointly owned company with the two corporations splitting profits, said Barnett's president of merchant services, Lyn Miles.

The bank will contribute 15,000 merchant relationships that accounted for $2.5 billion in sales volume in 1994. First Data will provide merchant processing services and a portion of the merchant base acquired through Card Establishment Services earlier this year, giving Barnett an entree for possible deposit relationships. Both company's sales forces will be enlisted to expand the business.

Barnett will "bring a very strong presence for us in their market, while extending their relationship with First Data," said Linda Mock, executive vice president of alliance management.

Jacksonville-based Barnett has been using First Data for credit card processing for three years. The $42 billion-asset bank had been considering partnerships with other processors for its merchant business, but decided First Data was "the best match," said Ms. Miles.

"The cost of staying in the business is going up and pricing is going down," she said. Companies wishing to remain competitive must develop scale capability and make large technical investments.

"We're a $2.5 billion program," she said, "We don't have the appetite to spend millions a year in technology."

She noted that First Data had made major investments in acquisitions and technology in the past few months which "we will be able to draw from to benefit our customers."

The alliance will give Barnett the chance to use its "geographic market strength and brand name to offer an array of products to hold onto merchants' business," she said.

"Offering multiple products may slow them down, so they don't move from processor to processor just for a lower price."

While some industry observers say that First Data's acquisition of CES, Envoy, and more recently, its proposed merger with First Financial Management Corp., owner of Nabanco, the largest merchant processor in the country, makes it a powerful threat to the banking industry.

By owning one-third of the merchant processing business and the card processing business, the behemoth could process transactions without using MasterCard International's and Visa U.S.A.'s systems, costing the associations millions in fee income.

Even so, Ms. Miles said, First Data has said it has no intention to become a competitor of its bank clients. "So far, every action it's taken is consistent with that position."

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