In an unexpected move, Bank of Boston has hired the NYCE network to run the bank's network of automated teller machines.

The $43.5 billion-asset bank's move is symbolic of an industry trend, in which banks of all sizes are leaving behind the business of ATM terminal processing and concentrating instead on customer service and retention.

"Typically, it's been the smaller banks that have outsourced" ATM terminal management, said Liam Carmody, president of Carmody & Bloom, a Ridgewood, N.J.-based consulting firm.

"But some larger banks are watching the prices come down, and they're starting to think about it now too," he added.

The Bank of Boston contract is timely for NYCE, which only recently announced plans to make a big push for ATM terminal management contracts.

"NYCE has been in the terminal driving business since 1989, but it hasn't been an area we really focused on until recently," said Steven A. Rathgaber, senior vice president in charge of sales and production for Infinet Payment Services Inc., the company that was formed when the NYCE network merged with Yankee 24 last year.

"Our objective today is to be the one source banks can turn to, no matter their size, and we think there are a great number of major banking companies who would be receptive to doing business with us," added Richard P. Yanak, president and chief executive of the new superregional network. He predicted that within three years, NYCE will be the largest driver of ATM terminals in the Northeast.

Industry watchers believe NYCE could well dominate the market within that time frame.

"Infinet has a brand new data processing facility, and it's got critical mass because it does all of its own processing. That will help keep the price down," explained Mr. Carmody, "and pricing is a big, big issue for banks of all sizes these days."

Bank of Boston expects to save money with this deal, but would not disclose how much. Fees and contract terms were also not disclosed.

"Primarily, this contract allows us to leverage the economies of scale the regional network has in terms of terminal processing, allows us to save money, and allows us to refocus our efforts from maintenance to development and enhancement of our remote banking offerings," said Steve Graham, Bank of Boston's director of self-service banking.

Bank of Boston, which processed over 24 million ATM transactions in 1994, is one of the largest banks in the country to outsource its ATM terminal processing. It had managed and processed all of its own terminals and related operations since first offering ATM banking in the 1970s.

The actual transfer of Bank of Boston's ATM terminal processing is scheduled to take place in the first quarter of 1996. At that time, NYCE will assume 24-hour management support of the bank's 370 ATMs, as well as provide a variety of service and processing enhancements to the bank's current ATM banking capabilities.

Bank of Boston selected NYCE as its processor in part because the bank is one of the 11 Class A owners of Infinet, and holds a seat on the network's board of directors.

"As part owners, we can leverage the existing technology and find new products and services to offer through the ATM and through the NYCE network," said Mr. Graham.

NYCE expects to pick up terminal processing work not only from banks like Bank of Boston that had handled the work themselves, but also from banks that currently contract with third-party terminal processors like Electronic Data Systems Corp. or Fiserv Inc.

But NYCE will not be without competition.

The MAC network, owned and operated by Electronic Payment Services Inc., is fairly well entrenched in the ATM terminal processing business, and overlaps with the NYCE network in the Middle Atlantic states.

"Beating out MAC is going to be tough for NYCE," said Mr. Carmody, the consultant.

Mellon's network services division is another entity competing for these contracts. Earlier this week, Mellon announced that York Federal Savings and Loan had signed on for Mellon's terminal driving services. Mellon officials say they are making a big push for this business in the Middle Atlantic states.

"We are not concerned about competition," said Mr. Yanak. "We can compete on capability, efficient processing, and price."

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