Banc One Corp. will have a dilemma when it completes its planned merger with First USA Inc.: two competing merchant processing units.

The $7 billion deal, announced last month, would create the third- largest credit card issuing bank, with 32 million customers and $35 billion of receivables. The deal is expected to close by the end of May.

But it leaves open to speculation the fate of First USA Paymentech Inc. and Banc One Payment Services, both powerful and highly competitive processors of point of sale payments for card-accepting merchants.

"The merchant services side was thrust into this deal," said Paul Martaus, president of Martaus and Associates, Clearwater, Fla. "The real money is on the issuing side of the business."

Banc One Payment Services, like Paymentech a top 10 merchant processor, has been in the First Data Corp. merchant bank alliance program since last year. Completion of the deal would make Banc One Corp. also the owner of First USA's 57% stake in Paymentech and a direct competitor with First Data, which is based in Hackensack, N.J. and runs its merchant business from Palo Alto, Calif.

As is typical of a First Data alliance, Banc One and First Data, the biggest of all credit card processors, each own half of their merchant venture.

Industry experts say Columbus, Ohio-based Banc One has several options, all of which are good for the bank.

It could let Paymentech continue operating on its own, in competition with First Data.

It could sell Paymentech, possibly to a bank looking to get back into merchant processing in a big way. This would also help finance the acquisition.

Or it could fold Paymentech's portfolio into the First Data alliance.

The last option would be of a size-$50 billion in annual transaction volume-to rival other big First Data alliances, such as the one with Chase Merchant Services that handles $90 billion in annual sales.

In 1996, Banc One Payment Services processed $13.6 billion in Visa and MasterCard transactions on 156.7 million transactions, while Paymentech processed $36.5 billion on 917 million transactions.

David Strider, chairman of Banc One Payment Services, said Banc One has a "serious and significant" obligation to First Data.

Mr. Martaus, the consultant, said Banc One has nine years left in its contract with First Data-and "a wonderful set of options."

Mr. Strider said Banc One recognized First USA's merchant business was a "complex component" of the acquisition.

"But we also recognized the strategic value of this transaction was paramount," he continued. "We recognized a robust business entity on both sides of the credit card business-both issuing and acquiring. As we look at all components represented on completion of the transaction, it becomes a very comprehensive payment strategy to take to the marketplace."

Both First Data and First USA Paymentech representatives said it is still too early to determine what the outcome for the payment processors will be, and business will continue as usual.

"Nothing concrete is on the table," said Paymentech spokesman Rodney Bell. "Paymentech will continue to compete as it has in the past. Nothing has changed and we are following our plan for growth."

Nicholas Ferrante, president and chief executive officer of Ferrante Financial Services Inc., Chatsworth, Calif., said First USA Paymentech has long been looking for a back-office processor and may find that capacity through the First Data alliance.

Mr. Ferrante, a merchant processing veteran, said Banc One may opt for "some segmentation or outsourcing of the whole process" with Paymentech. "If Banc One likes the back-office services provided by the alliance, it could move Paymentech operations to the alliance."

As for the longer-term implications, competition has made strange bedfellows in the credit card merchant-acquiring business before.

"People were worried when Chase sold its business (to) Nabanco," the first of the giant nonbank specialists on the merchant side, Mr. Ferrante said. "Welsh Carson bought Nabanco and later it got sold to First Data," which has spun part of it back to Chase.

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