Banks and processing companies are worried that a Visa U.S.A. plan to upgrade transaction processing may cost them money next spring instead of saving it.

The system, called the Retail Electronic Payment Service, is the first initiative undertaken as part of Visa's multiyear Payment Service 2000 program to improve its card-processing technology.

The initiative calls for Visa and the banks and nonbanks that process merchants' accounts to retool their systems with new software intended to eliminate most charge-backs of Visa card purchases.

But many say Visa has provided specifications too late for the planned springtime launch.

Big Savings Foreseen

Chargebacks cost the industry millions of dollars each year. The Retail Electronic Payment Service is supposed to eliminate many of them by automatically matching transaction authorization records with electronic settlement files.

Savings in administrative costs alone could exceed $62 million a year, not counting the elimination of untold millions of dollars of writeoffs resulting from charge disputes that are never resolved.

"We're dealing here with a whole new way of processing bank card transactions," said Rosalind Fisher, a Visa executive vice president. "This is a standard that will result in a much improved level of the overall bank card service."

But while saying that Visa's goal is laudable, many in the industry complain that Visa is setting too aggressive a timetable for installation.

Merchants' bank and non-bank processors must install the systems by April 1 or face sharp increases in so-called interchange fees paid to card-issuing banks to cover operational costs.

Banks that now pay the lowest interchange rate, 1.25% of the transaction value, will see their interchange fees rise to 1.35% of the transaction value plus 5 cents if they don't install the Retail Electronic Payment Service.

But implementation costs at some banks and processors will also be large, creating a pinch in a business where profits are estimated to total only a fifth of profits on the card-issuing side.

"It's a basis-points business," said Paul Martaus, an independent consultant in Clearwater, Fla. "You start giving away basis points and you dramatically impact the bottom line."

Thin Profit margins have encouraged many banks to exit the merchant Processing business in recent years.

The problem with April 1 is that Visa released the final specifications for the Retail Electronic Payment Service only a few weeks ago, bankers said. This means that much of the programming must be done during the holiday shopping season.

As a result, many observers are betting that Visa will have to push back implementation from the April 1 deadline to give banks and processors enough time to install the system.

"I don't think there will be the critical mass available on day one that you'd need to take advantage of this service," Mr. Martaus said.

Delays Called Likely

Added Steve Demaree, vice president of merchant processing services for First Tennessee Bank, Memphis: "My guess is that you're going to have a lot of folks that might not make it by April 1."

Mastercard International, which doesn't have any plans for a system like the Retail Electronic Payment Service, is dubious that Visa will see the payoff it expects. But officials are waiting to see how Visa's program works before deciding whether to follow, said Philip Verdi, the association's executive vice president of electronic services.

For her part, Ms. Fisher said an implementation delay was not foreseen. "I don't see anything at this point that even makes that plausible," she said.

And, not suprisingly, merchants' processing banks and technology companies said they would do whatever it takes to implement the new technology in time.

"Wells Fargo is going to make it, even if we need to work around the clock," said Debra Rossi, senior vice president of the San Francisco-based bank's merchant card services division.

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