NYCE, the dominant automated teller machine network in the Northeast, expects to survive the industry shakeout and consolidation, asserts president and chief executive officer Dennis F. Lynch.

Mr. Lynch also predicts just two brand names will prevail -- but not necessarily NYCE's.

The Woodcliff Lake, N.J., company's "plan to remain viable" does not make it "completely critical" that the NYCE name live on, Mr. Lynch said in an interview. "If we merged with another organization that had a stronger brand, we would look to use the stronger brand."

Such are the calculations by leaders of shared electronic banking networks as the number of truly powerful ones has been reduced to a handful.

Mr. Lynch did not say that NYCE Corp. is engaged in any merger discussions, but he said he "would not rule out combinations with any organization. It would need to be the right strategic fit (and) the right price."

The regional nature of ATM and point of sale networks seems less and less relevant as the largest financial institutions they serve have become bigger and more geographically spread out, Mr. Lynch said. After inheriting multiple network affiliations through mergers, superregional banking companies have encouraged some streamlining.

Within three years, Mr. Lynch said, two national networks will for all intents and purposes control the industry. Smaller networks may continue to serve discrete areas, but they "won't slow the industry down."

Just as small banks continue to thrive in certain geographies or niches, so do second-tier or smaller ATM networks such as TYME Corp. of Brown Deer, Wis., and Shazam Inc. of Des Moines.

In the wake of the banking megamergers in 1998, this year has been particularly active in terms of network realignment. In March, Star System Inc. of San Diego, already the largest in number of ATMs, completed its merger with Honor Technologies Inc. of Maitland, Fla. The new entity, Star Systems Inc., is hardly "regional" any longer, in that it reaches coast to coast.

Also this year, NYCE went into the Midwest and bought Magic Line Inc. of Dearborn, Mich.

And Electronic Payment Services Inc. of Wilmington, Del., owner of the MAC network that is concentrated in the Middle Atlantic and midwestern states, was acquired by Concord EFS Inc., a publicly held transaction processing company in Memphis.

These three are the largest in terms of transaction volume on the basis of the most recent disclosures.

Star Systems processed 214 million transactions in August; MAC's monthly average is 145 million; and NYCE handled 68 million in June.

Mr. Lynch would not speculate on which brands will last, but he said the survivors will "specialize in real-time deposit-access payments, much like Visa and MasterCard specialize in credit cards."

NYCE is not alone in seeking a "broader and broader footprint," Mr. Lynch said. Born in New York City in 1985, NYCE grew steadily and has made two bold strokes, acquiring Yankee 24 in New England in 1994 and Magic Line last July.

Mark Walter, a former banker and principal of Walter Inc., an electronic funds transfer consulting firm in Lake, Mich., said the most likely winners -- if Mr. Lynch's two-network scenario plays out -- are Cirrus and Plus, the ATM brands controlled by MasterCard and Visa, respectively.

"Maybe it's a matter of adding products to those guys," Mr. Walter said.

But Mr. Lynch called Plus and Cirrus "narrow" and "confined" in scope. He predicted they would not stand up to the regionals in terms of "future business," which he defined as point of sale transactions, electronic benefits transfer, and the Internet.

Regional networks will need to focus on these growth opportunities to secure and expand their roles in the payments system, Mr. Lynch said.

The "heritage" business of switching transactions among ATMs owned by different deployers will continue to be important, but it is not enough to ensure permanence for NYCE and its peers.

Bank consolidation means less and less interinstitutional switching, Mr. Walter said, and networks must "augment that volume with new business activities" such as bill payment or automated clearing house transactions.

"There is no reason in the world why every major EFT (electronic funds transfer) network isn't in the ACH business," he said. (Shazam in Iowa is one of the few that is.) "They have the infrastructure in place to do so many things. They just have never done it."

Electronic commerce currently appears to be among the higher priorities. Though credit cards dominate as Internet payment vehicles, ATM executives say consumers want more options.

"I think there is more and more pent-up demand for being able to get at your checking account via the Internet," Mr. Lynch said. MasterCard and Visa debit cards can be used to buy goods on the Internet, but ATM/debit cards -- which require a personal identification number -- cannot.

Advocates of PIN-based debit, the regionals' forte, say these products offer greater security for Internet use but that there are obvious obstacles that do not exist at conventional retailing locations. For instance, the code numbers would have to be encrypted to prevent interception or misuse.

"When you're sitting at a desktop and you can be anywhere in the world, there are a whole bunch of additional considerations that you have to think about to make sure that it's a secure and authentic transaction," Mr. Lynch said.

Star Systems, the Pulse network of Texas, Citigroup Inc., and several other organizations have signed up for an Internet-debit test that the National Automated Clearing House Association has slated for next year.

NYCE is working on its own method to accommodate cards with PINs on the Web, but the company is offering few details. The product "will stand up to all of the stress-testing that the normal hardware-encrypted transaction goes through today," Mr. Lynch said. It is "months away."

Meanwhile, NYCE is focusing on its on-line point of sale business. At 20 million transactions a month, on-line POS is not its largest line of work, but it is the fastest-growing.

To encourage people to use ATM cards at checkout counters, NYCE has just launched radio and newspaper ad campaigns in New York City, Boston, and the Hartford-New Haven areas in Connecticut.

"We had projected a 40% growth rate for 1999 over 1998, and we're presently performing at a 51% growth rate," Mr. Lynch said.

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