After a heated bidding contest, the U.S. Postal Service has awarded its credit and debit card processing business to NationsBank Corp. and its subcontractor, the banking industry's biggest merchant processing rival.
The winning bid from the North Carolina superregional and Nabanco of Fort Lauderdale, Fla., was $45.8 million over three years, with five one- year extension options.
The companies will now undertake the largest merchant processing installation ever - 50,000 card-accepting terminals in 33,000 post offices nationwide.
Industry observers said the task is so vast that it made sense for two of the top 10 acquirers of MasterCard and Visa transactions to join forces. But eyebrows were raised by the involvement of Nabanco, formally National Bancard Corp., which will only enhance its stature as the biggest in the business.
Nabanco, a subsidiary of Atlanta-based First Financial Management Corp., reported $74 billion in transaction volume for 1994.
The postal contract "is good news for Nabanco," Frederick A. White, a principal of First Annapolis Consulting in Maryland. "But it's not surprising. Nabanco is the largest merchant card processor, and it was one of the most aggressive bidders for this contract.
"The contract sets a precedent for government agencies, especially local governments, to accept card payments," Mr. White added, pointing out that bidding for government service "is more difficult and painful than what most vendors are used to."
The successful bid may also be a jumping-off point for Nabanco and its affiliates to get more government work. First Financial also owns Telecheck Services, a check guarantee company; Microbilt, a maker of point of sale equipment; and Western Union Financial Services.
Although the Postal Service would not identify the unsuccessful bidders, it was widely assumed that they included Nabanco's two top rivals, Card Establishment Services Inc. and National City Processing Co., as well as First Tennessee National Corp. and First Bank System of Minneapolis.
National Data Corp. of Atlanta held the transaction-processing contract for a 15-month test in post offices in the Dallas, Orlando, and Washington areas.
NationsBank teamed up with Nabanco because "we thought the values of our combined organizations were what it would take to win the contract," said O.B. Rawls, a senior vice president in NationsBank's merchant division.
Mr. Rawls cited NationsBank's longstanding relationship as a provider of banking services to the federal government. For example, the Charlotte- based bank is a member of the Treasury's lockbox network and was selected late last year to help the government develop and launch its electronic tax-payment system.
The contract price, value, and ability to get the job done played big roles in the decision to choose NationsBank and Nabanco, said Stephen M. Kearney, treasurer of the Postal Service.
"Our evaluation committee had to be sure that the contract went to bidders who were capable of carrying out one of the largest card terminal installations ever," he said.
Installation of the point of sale hardware will begin in Seattle, San Diego, and Denver in April. After two years, when the full rollout is expected to be completed, the Postal Service will be the nation's largest accepter of credit and debit cards.
The $45.8 million contract includes all equipment, training, and fees pegged to volume estimates based on test-site results. The dollar amount could change depending on actual nationwide volume, said a Postal Service spokesman.
Consumers spend about $10 billion a year at post offices. A Postal Service survey indicated that 25% of its customers would use credit or debit cards for purchases.
Under the terms of the contract, Nabanco will provide all processing services for card transactions throughout the United States and its territories. NationsBank will provide relationship management and banking services. The partners will also provide support services such as training.
In a press release, Nabanco said it "is now positioned to be the preeminent services provider to the government sector." While a Nabanco spokesman said the statement was not intended to be a predictor of the future, others say Nabanco may well have an inside track for other government contracts.
This perceived advantage, said merchant processing consultants, is especially important as more government entities are both investigating and initiating card payment options.