The consolidation of the regional electronic banking industry has spelled doom for many small networks, but it may prove a boon to companies providing services beyond basic transaction switching.

Transaction Network Plus Inc., New York, and Comtrac Corp., Dallas, each view the concentration of automated teller machine and point of sale services in the hands of fewer players as a rare opportunity to expand their respective businesses.

Transaction Network 'Plus is a point of sale merchant processor with a focus in the Northeast. Comtrac supplies small financial institutions with the means to operate their own automated teller machines.

Striking Counterpoint

The companies' optimism is a striking counterpoint to the resignation to acquisition displayed by the numerous small networks whose business is based on switching automated teller machine transactions between financial institutions.

The number of these regional high of more than 150 in the mid-1980s to less than 60 today.

"There are going to be opportunities of various sorts opening up to those who can find niches among the services offered by the big networks," said Liam Carmody, a principal at Carmody & Bloom, a consulting firm in Woodcliff Lake, N.J.

Transaction Network Plus and Comtrac are confident that they have found two such niches.

The NYCE Connection

Transaction Network's fortunes are tied closely with those of the NYCE electronic banking network, which is New York's largest.

More than 500 merchants accepting bank-issued NYCE debit cards currently rely on Transaction Network to process point of sale debit transactions and to procure the funds backing those transactions.

But as NYCE approaches the finalization of its merger with New England's dominant network, known as Yankee24, Transaction Network said it will benefit from dealing with the resulting larger entity, which is to be known as Infinet Payment Services Inc.

Lewis Pergament, senior vice president, said that with access to Yankee24, Transaction Network could increase the number of cardholders in its user base by 5.2 million - a 25% increase from the 21 million people who now use their cards for NYCE transactions.

Wide Open Market

Since neither NYCE nor Yankee24 maintains a significant presence in the merchant processing business, Mr. Pergament said the market is wide open for Transaction Network and other third-party processors.

"It's purely a numbers game: The more they grow, the more we can grow," said Mr. Pergament.

Meanwhile, Comtrac believes it too will benefit from the consolidation of the regional networks.

Third Parties Gain

Company officials said a recent antitrust settlement between the Department of Justice and Electronic Payment Services Inc., which operates the MAC network, has paved the way for more small financial institutions to drive their own ATMs.

The Justice Department had been scrutinizing EPS for possible antitrust violations ever since four financial institutions agreed to form the company by merging their ATM operations in the summer of 1992.

As part of the settlement, EPS agreed to drop network membership rules that prohibited financial institutions from using a third-party ATM processor other than EPS.

"Most other third-party processors take [the settlement] to mean the end of mandatory processing contracts as a prerequisite to membership in a large ATM network," said a statement from Comtrac.

As such, Comtrac believes that its product, which purports to bring huge cost savings to small financial institutions by enabling them to drive their own ATMs, will sell ever more briskly as the consolidation progresses.

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