Some credit card processors are moving to client/server technology.

Client/server systems are seen as more flexible, easier to manage, and ultimately less costly than the aging mainframe-based systems that a new breed of technology vendors are hoping to displace.

Executives at merchant-acquiring companies that have moved to client/server say the systems perform better and more cheaply than mainframes.

The decentralized systems link the power of a host-the server-to remote "clients," typically point of sale terminals from companies like Verifone Inc. and Hypercom Corp., which have developed client/server approaches.

If the systems live up to their promise of "scalability"-the ability to be configured to any size necessary to handle a given transaction load-they will pose a formidable challenge to older "legacy" systems.

"The key difference is that today I am putting through about 90 million transactions a year" on a client/server system, said James M. Aviles, senior vice president of BA Merchant Services. That "would have been virtually total capacity on the older legacy system."

The BankAmerica Corp. merchant processing affiliate is in the forefront of the client/server movement, having recently converted to Verifone Inc.'s Omnihost system. BA Merchant Services has become an Omnihost showcase.

"I can comfortably grow my transaction volume six to eight times on this platform, and that is where I am going to reap the economic benefits of this system," Mr. Aviles said.

Omnihost, a Unix-based system, essentially eliminates the mainframe host by acting as a payment switch for debit and credit card transactions, as well as for electronic commerce.

Globally, Omnihost is used by 35 banks, but just a handful of them are in the United States. The merchant-acquiring leaders using Omnihost include First USA Paymentech Inc. of Dallas, which uses it on a more limited scale than BA Merchant Services.

"BA Merchant Services is one of the first to bring client/server to the merchant world," said Stanley W. Anderson, president of Anderson and Associates, Arvada, Colo. "This is the positioning for the 21st century."

Verifone said its approach promises to reduce costs per transaction by 60% to 80% and could fundamentally change transaction processing economics. Verifone also markets Omnihost's enhancement of users' control over their operations and information.

"Third-party processors and banks that do their own acquiring are investigating this technology because it has such a major impact on their cost structure," said Richard A. Bailey, vice president and general manager of Verifone's business systems division. "Control of the merchant information may be more valuable to the business operations than just the cost savings."

Because Omnihost can be just as powerful as a mainframe, Mr. Bailey said, it can let banks return merchant processing functions in-house that they had farmed out.

"In the payment processing environment, people are looking for smart card payments, electronic commerce, Internet commerce, stored-value programs, and loyalty programs," said Prakash Kondepudi, director of business development at Redwood City, Calif.-based Verifone, a subsidiary of Hewlett-Packard Co. "Merchants are demanding all of these solutions to be competitive in their market spaces."

First USA Paymentech, a subsidiary of Banc One Corp., uses Omnihost to serve direct-response merchants. Omnihost "stores information in a relational data base," said Todd Meckenstock, the processor's senior director for technology.

Another advantage, he said, is that "the communications process can be distributed across multiple servers for scalability, with the central switch sitting in the middle in a Unix environment."

Mr. Aviles of BA Merchant Services said expandability is crucial to his operation, which is growing by 30% a year.

The bank's previous system-a 10-year-old platform from Tandem Computers Inc. of Cupertino, Calif.-had "basically reached its limit," Mr. Aviles said, "and we needed to move forward.

"We made the decision to move to client/server precisely because we felt that the maturity of that technology was at a point that it was going to drive into transaction processing, and there were going to be economic benefits."

Before bringing in Omnihost, BA Merchant Services had outsourced much of its processing to First Data Corp. and Total System Services Inc. By not outsourcing, Mr. Aviles said, the BankAmerica unit could move from variable to fixed pricing.

Verifone's Phoenix-based competitor, Hypercom, sings the client/server tune a little differently.

George Wallner, chairman of Hypercom, said his company does not necessarily encourage elimination of old central processors.

After starting a "new life" through an initial public offering, he said, BankAmerica was positioned to do a complete system overhaul and free itself of service bureau costs. Mr. Wallner contended that type of setup will be an exception, and most customers don't need or want such an extensive overhaul.

"Everybody underestimates the resilience of legacy systems," Mr. Wallner said. He claimed Hypercom's Pinnacle system has been "an easier sell" because it allows for a more gradual transition away from older - though fully functional - host systems.

Experts say client/server can lower the barrier to entry for smaller processors and increase competition with giants like First Data.

"This will make the market more competitive for medium-size processors," said Mr. Anderson, the Colorado consultant. "And it will allow smaller processors to support things like Internet commerce."

"I think the client/server architecture lowers the threshold for entry into the business of managing your own transaction processing platform," said BankAmerica's Mr. Aviles.

"The harder issue-and the one that will take more time to reconcile-is the infrastructure," he added. "Do you really want, as a management team, the direct responsibility of administering your own system and keeping on top of the regulatory changes? That can be as much of a barrier as the economics."

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