Even as banks experiment with flashy new digital technologies, they still store massive amounts of data on old-fashioned magnetic tapes, not to mention even more archaic boxes of paper files.

They may soon have fewer suppliers to choose from for this seemingly mundane but critically important service, as the two largest paper and data storage vendors are planning to merge.

Iron Mountain, the leader in this field, whose clients include most of the big banks, agreed in December to buy its largest rival, Recall Holdings. The combined company would have a 57% market share, and the remaining players in the fragmented industry would be mostly small or regional companies ill-equipped to handle large users like the major financial institutions.

On the one hand, banks have been looking to streamline their vendor rosters for various services, and they could reap certain benefits from having a single document storage provider. There is also the possibility that the merged company could capitalize on its scale to slash prices. And if it tried to raise them, it might be the final straw that motivates banks to do something they have been reticent to do.

"This could be a trigger to go to the cloud, which is becoming more ubiquitous and efficient, but habits are tough to change," said Dan Dolev, an analyst at Jefferies. "Sometimes you need a shock, so if you're paying Iron Mountain so much money, can you do it cheaper and pay a fraction by going to the cloud?"

Still, all else equal, with fewer physical storage vendors to choose from banks would have less pricing power. Rivals say Iron Mountain already discourages competition by charging so-called "hostage fees," also known as permanent removal fees, when a customer switches to a new data storage provider. These fees make the deal fair game for antitrust scrutiny by the Federal Trade Commission or the Justice Department, the competitors say.

"If Iron Mountain and Recall merged, the impact on the banks will mean they will pay more," said Gerard Nichol, the CEO of GazillaByte, a Denver provider of tape management software.

The FTC and the Justice Department declined to comment, as did a spokesman for Iron Mountain, which is based in Boston. The merger, announced last year, also requires the approval of the Australian Competition and Consumer Commission, since Recall is based in Sydney.

Bob Larrivee, a vice president of market intelligence at the Association for Information and Image Management, a trade group, said banks would benefit from having a single supplier.

"Banks typically use Iron Mountain to store information, and with Recall, whose focus is digital, they now have more capabilities, which gives banks more options," Larrivee said. "Banks that had used multiple suppliers now have a single source."

Dolev said he doubted antitrust issues would hold up the deal because the industry is so fragmented. But the proposed $2.6 billion merger is by no means assured given that Iron Mountain's stock has plummeted 30% since July, and the deal price has already been raised twice.

While Iron Mountain is still the undisputed leader in the $7 billion global document management industry, with a 45% market share, it is no longer a "beacon of stability," Dolev said.

Though studies show that 80% to 90% of data is never accessed again once stored, banks are required by various regulations to keep records for long periods of time — if not indefinitely. Tapes remain the industry standard because of their lower cost and superior bandwidth, especially for less critical data.

Yet the merger deal comes at a time when the demand for physical document storage is plunging, reflecting the fact that many documents are generated and stored electronically, as well as the inexorable migration to cloud computing in most industries.

Iron Mountain earns 40% of its revenue from services, including 8% from shredding and recycled paper sales. The remaining 60% comes from traditional paper document storage and digital data backup storage, Dolev said. Health care providers are Iron Mountain's largest customers, followed by banks and other financial services firms.

Iron Mountain was able to increase revenue and margins after the financial crisis for two reasons: it has a diverse group of customers, including 90% of Fortune 1000 firms; and the durability of physical document storage. (The company has estimated the average storage time of a box is 15.9 years, Dolev said.)

But that has changed dramatically in the last few years as companies gravitate toward cloud computing, where storage costs are falling. U.S. bankers are an exception, remaining cautious about moving to the cloud even though the potential cost savings could be significant.

"The reason Iron Mountain had such a huge advantage over [competitors] is that up until two or three or four years ago, there was a lot of retrieval of documents," said Dolev. "Now retrieval is gone because most companies are storing a backup on some cloud, so they don't need an original, hard paper copy."

Of course, a bank with a trove of paper documents can't just beam them into the cloud like Scotty from Star Trek; they have to be scanned into an imaging system first, a time-consuming and expensive process.

In addition to the controversial permanent-removal fees, the large data storage providers also charge "touch" fees each time an employee retrieves a box of documents or a tape from a rack, puts it in a truck and sends it to a client.

Iron Mountain has faced lawsuits over the exit fees. Though they used to be confined to paper storage, Iron Mountain is currently locked in disputes for charging the fees on tape storage as well, its competitors say.

Nora Kane, an attorney at Stinson Leonard Street in Omaha, represented a law firm in 2008 that sued Iron Mountain, contesting the fees charged to permanently remove its records from the company. Such fees, she said, are anticompetitive.

"The fee holds everybody hostage so they can't go to a competitor," Kane said. "If you want to change vendors you have to pay a permanent removal fee, which keeps another vendor from soliciting the business."

Dolev said the fees do hold some clients captive, but he thinks technology will be a game-changer and any attempt by Iron Mountain to raise prices after the merger could be the clincher for some customers to move to the cloud.

"They are basically storing paper and you don't need to pay them to get the truck to bring it from a facility to you," Dolev said. "It's archaic."