First Tennessee Bank said that it has signed letters of intent with banks in Canada and Puerto Rico to process credit card transactions for the hospitality industry outside the United States.

The agreements, which the subsidiary of First Tennessee National Corp. said will become official in August, is with Canadian Imperial Bank of Commerce, Toronto, which has hotel clients worldwide, and Banco Popular de Puerto Rico, San Juan, whose clients are primarily in the Caribbean.

Memphis-based First Tennessee said it is the nation's second largest processor of hospitality industry transactions, after CES Nabanco, the First Data Corp. subsidiary."Merchants are looking for consistent technology and reporting for hotel properties," said Stephen Demaree, senior vice president and manager of the bank's merchant services division. Merchants have asked the bank to provide processing outside of the United States, he said.

He said Canadian Imperial and Banco Popular - the banking subsidiary of Banponce Corp. - will process transactions using First Tennessee's proprietary technology.

First Tennessee Bank processes credit card transactions for Westin Hotels and Resorts, Marriott International, ITT Sheraton Corp., Doubletree Hotels and Resorts, Promus Cos., Destination Hotels and Resorts, Carnival Hotels and Casinos, and 300 Holiday Inn franchises.

Mr. Demaree said that Westin Hotels, ITT Sheraton, Marriott International, and Holiday Inn were the primary merchants with properties abroad that have asked First Tennessee Bank to expand its processing internationally.

The hospitality industry processing arm of First Tennessee Bank grew out of Electro Data Corp., based in Denver. That company was absorbed by Nabanco in 1990, and the headquarters were shut down in 1992.

Ronald R. Nation, who was president of Electro Data Corp., was one of about 40 employees who remained in Denver and were later recruited by First Tennessee. Mr. Nation is now senior vice president of merchant services for First Tennessee Bank.

Mr. Nation said that just prior to the takeover by Nabanco, Electro Data Corp. devised a proprietary software for processing hospitality industry card transactions. Using it, the company processed transactions for Hyatt, ITT Sheraton, Westin Hotels, Four Seasons, and Stouffers. Upon acquiring Electro Data, Nabanco became the top processor of hospitality industry transactions in the United States.

First Tennessee gained its own foothold in hospitality industry processing through a Windows-based product developed by members of the same team that had devised Electro Data's proprietary software.

Paul Martaus, president of Martaus & Associates in Clearwater, Fla., said that the deals with Canadian Imperial and Banco Popular mean "good new business" for the bank.

He said the hospitality industry demands a high level of performance, with smooth, seamless processing, and that Electro Data had the premier reputation for such processing. That expertise got leveraged into First Tennessee Bank.

He called it a "risky venture" for First Tennessee Bank to become involved in hospitality industry transaction processing in the 1990s, but "they made a bold move and it worked," he said.

William Westervelt, principal, First Annapolis Consulting, Annapolis, Md., said that the international merchants of the hospitality industry, like the airlines companies, want the ease of negotiating with a single provider.

"If they (First Tennessee) are in the merchant acquiring business, they need to play internationally," Mr. Westervelt added. "Fifty percent of Visa's and MasterCard's volume comes from outside the United States."

Mr. Nation said First Tennessee expects to process $200 million in international bank card sales for 1996. Additionally, he said, it expects to process $10 billion in total bank card sales in the United States.

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