Wells Fargo & Co. will accept final bids this week for a stake in its merchant credit card processing business.

The San Francisco-based company, one of the last big banks to remain in the business of funneling receipts and payments from merchants into the credit card clearing system, boasts the nation's eighth-largest merchant operation.

Wells had long said it had no intention of following its competitors that have sold or "outsourced" their merchant business, which depends on big volume for profits.

But on Sept. 4, Wells announced that it would look for a partner to help run its merchant card services unit. The company is expected to make a final decision by the end of the month.

Strategic Alliance Sought

Wells did not say how much of a stake it hopes to keep in its merchant operation. But its plan goes beyond merely hiring an outsider to process payments.

"Our goal is to form an alliance with a low-cost producer in technology so we can grow this business faster and more efficiently and deliver competitively priced services to our customers," said Debra Rossi, senior vice president of merchant card services. Wells, which has been under severe pressure from bad California real estate loans, is "trying to have its cake and eat it too" in looking for a merchant partner, said David Robertson, president of The Nilson Report, a credit card newsletter.

To sustain an acceptable return on the business, he said, the bank would have to spend heavily on new technology, which it cannot now afford.

Wells is also competing in the California market against BankAmerica Corp. and First Interstate Bancorp, which run slightly larger operations.

Shrinking Profit Margins

Experts said that a well-run processor such as Wells' unit historically could expect to earn about 80 basis points per transaction. But in recent years that has slipped to as little as 50 basis points as a result of competition from aggressive processing specialists.

Wells' margin could shrink even further, these experts said, because of computer upgrades the company must make to meet new requirements of the major card associations.

The California bank is a much smaller merchant processor than former industry giants like Citicorp. The New York bank sold its merchant unit, which served close to 100,000 merchants, earlier this year to Welsh, Carson, Anderson & Stowe for $170 million.

Chase Manhattan Corp. and Chemical Banking Corp. are other large credit card issuers that pulled out of the merchant processing business in recent years.

Big Firms that May Bid

Among the handful of big transaction processors expected to bid for the Wells business, according to industry sources, are Welsh Carson, the burgeoning New York-based company that bought Citicorp's operations; National Processing Co., a unit of National City Corp., Cleveland; Nabanco, a unit of First Financial Management Corp., Atlanta; National Data Corp., Atlanta; and NationsBank Corp.'s merchant processing unit.

Some big telephone companies that have recently entered the card business - including American Telephone and Telegraph Co. and GTE - may also be interested in getting into merchant processing through an alliance with Wells, a source said.

Roster of Smaller Companies

The phone companies have a built-in pricing advantage in processing, which entails heavy long-distance usage.

Smaller data firms that are said to be interested in increasing their customer base through a union with Wells are: Innova Information Systems, Atlanta; Electronic Data Systems Corp., Dallas; Transaction Processing Co., Philadelphia; and First Data Resources Inc., Omaha.

Neither wells nor any of the companies mentioned as possible bidders would comment.

Competition among the data firms for merchant relationships has heated up as the processing industry has consolidated and credit card organizations have offered more incentives to consumers to use their cards.

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