The pending merger between First Union Corp. and CoreStates Financial Corp. may cause a shake-up in the merchant processing industry.

The two banking companies own stakes in well-known third-party processors that are competitors.

First Union, Charlotte, N.C., has a 32% stake in Nova Information Services Inc., and CoreStates owns 20% of Wilmington, Del.-based Electronic Payment Services Inc., whose subsidiary, Buypass Corp., is a specialist in grocery store and oil company processing.

The situation is similar to the one Paymentech Inc. has faced since First USA Inc. merged with Banc One Corp. At the time, First USA owned 57% of Paymentech, which Banc One acquired after the merger. Banc One has its own merchant processing division and also works with First Data Corp. in a merchant bank alliance.

First Data and Paymentech are rivals, and the unresolved aspect of Paymentech's ownership has proven to be a drag on the Dallas-based processor's earnings.

"There are more questions than answers," said Stanley W. Anderson, president, Anderson and Associates, Arvada, Colo. "It will be some months before we have answers" because the merchant processing question is "not a top priority" in the First Union-CoreStates merger. "It's an afterthought," he said.

One possibility is that Atlanta-based Nova will strike gold if First Union decides to move CoreStates' business there.

Philadelphia-based CoreStates has 30,000 merchants worth $3.6 billion in annual charge volume, which is considered large by industry standards.

Edward Grzedzinski, Nova's chief executive officer, said, "It's too early to tell" whether his company is in line for a windfall.

He said there might be an opportunity to sell merchant services through CoresStates' network of 506 branches.

Taking advantage of CoreStates' branch distribution network could enable Nova to build a stronger presence in the mid-Atlantic states, where it is currently weak.

"The branch system will generate significant opportunity in that region," said Paul Martaus, president, Martaus and Associates, Clearwater, Fla.

Experts said CoreStates' partial ownership of Buypass would cause some difficulties for First Union.

"On the merchant side, it will be very difficult for First Union to maintain a level of neutrality dealing with Buypass and Nova," Mr. Anderson said.

Mr. Anderson said First Union could sell its interest in Nova and exit merchant processing. It could enter a contractual alliance with Buypass, or it could fuse the two units into one, creating a new third-party processor with tremendous scale.

Tricia L. Schafer, an Electronic Payment Services spokeswoman, said it was "premature to speculate" because her company has had "no formal discussions with First Union."

Linda Stryker, a CoreStates spokeswoman, would not comment on the merger's merchant processing repercussions. CoreStates has "relationships with a number of leading processors, including Vital Processing, which does our back-office clearing and accounting," she said.

First Union declined to comment.

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