First USA Inc. began the new year by acquiring a credit card software development company that specializes in applications for the hospitality industry.

J.L. McKay Corp., a Portland, Ore.-based software firm with 25 employees, gives First USA's Merchant Services unit a new product that could provide greater flexibility and efficiency to its clients.

The merchant processor plans to expand the software program to apply to other retailers, such as gas stations.

Furthering its foray into the dining business, First USA has also been providing processing for Transmedia Network Inc., a discount restaurant card company.

Pamela H. Patsley, president and chief executive of First USA Merchant Services, said the most recent acquisition "fits in with First USA's goals to aggressively grow our acquiring side of the merchant processing business."

The nation's sixth-largest merchant processor delivers card authorizations for more than 169,000 merchant locations and 600 financial institutions. It has been in an acquiring mode for the last 15 months, with McKay being one of its smallest purchases.

Jim Greene, a banking analyst partner at Chicago-based Andersen Consulting, called First USA an "earnings engine which is using those earnings to invest in other areas of the card business to earn even more."

Mr. Greene said the bank is assembling software, people, and portfolios to enhance the capabilities of the organization and broaden its market share in niche segments of the processing business.

Other acquisitions and alliances include MAGroup Inc., an electronic draft capture technology company, Litle & Co., a direct marketing firm processor, NationalCard Processing Systems, which services the arts and entertainment industry, and Electronic Processing Source Inc., which serves restaurants and hotels.

EPS has been providing services to Transmedia for the past year, converting its paper-based processing system to an electronic draft capture system, which is now being used in 400 of Transmedia's 3,500 restaurants.

Bill Balke, Transmedia's vice president of electronic processing, said more than 42% of Transmedia's Manhattan transactions and 28% of its nationwide transactions are on the EPS system.

"It's another point of differentiation for us versus our competition," said Ms. Patsley, "That's what the key is."

First USA competes with the big three processors, Nabanco, National City Corp.'s National City Processing Co., and Card Establishment Services.

While First USA handled more than $17 billion in credit card sales during fiscal 1994, compared to $10.2 billion in fiscal 1993, it's still far from First Financial Management Corp.-owned Nabanco's $54 billion for all of 1993.

"Growth is clearly our focus, but we're not totally hung up on dollars or items processed," said Ms. Patsley, "We are very focused on enhancing our value to First USA merchants and growing profitably."

Transmedia is one example of First USA's increasing opportunities.

Transmedia provides 25% discounts to 420,000 diners all over the country. The Transmedia card is presented at a participating restaurant, but the meal is billed to the customer's credit card, with a 25% credit on food and beverages, but not on tax and tip.

While EPS developed special software designed to address Transmedia's special billing needs, replacing a paper-based system with an electronic payment method that disburses profits more rapidly and enhances security, Transmedia gives EPS access to all of its restaurant clients.

EPS's stronghold is in Manhattan, serving about 75% of the restaurants, while Transmedia has members in major cities around the country, including Boston, Miami, Philadelphia, and Los Angeles.

"We're expanding (EPS's capability) to the rest of our sales force to have better geographic coverage of the regions that Transmedia is in," said Ms. Patsley.

While Ms. Patsley said First USA is pursuing the hospitality industry "in terms of potential customers," she added, "that's not our sole purpose."

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