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WHOLESALERS CREATE FIRM TO LOWER EFT PROCESS FEES

SEATTLE -- Seeking to cut costs of handling credit, debit and electronic benefits transfer transactions, two major wholesalers have joined forces to create a new company that promises to offer electronic funds transfer processing at lower rates than otherwise available on the market.Beta testing is scheduled to begin this week and by February some $10 million in weekly transactions are projected to

SEATTLE -- Seeking to cut costs of handling credit, debit and electronic benefits transfer transactions, two major wholesalers have joined forces to create a new company that promises to offer electronic funds transfer processing at lower rates than otherwise available on the market.

Beta testing is scheduled to begin this week and by February some $10 million in weekly transactions are projected to be running through the financial switch developed by the newly formed Supermarket Transaction Services here.

The joint venture is the brainchild of cooperative wholesalers Associated Grocers here and United Grocers, Portland, Ore., and is headed by Doug Mills, general manager of Supermarket Transaction Services. Mills is former director of retail services at Associated Grocers.

Other wholesalers are closely watching the new company's progress in hopes of signing on and securing lower transaction costs for the retailers they serve -- and possibly capture a little extra revenue for themselves.

"We have stores that are subscribing to third-party processors but if we could offer that service instead, the retailer could save money and we could make money," said one wholesaler familiar with the program and interested in becoming involved.

"We recognize if we don't do something as an industry, and band together, then we're going to continue to be pushed around by the financial industry," said another source close to the project. Retailers have become increasingly vocal about rising per-transaction processing fees charged by credit card companies and third-party service providers.

Don Benson, Associated Grocers' president and chief executive officer, told SN the collaborative effort with United Grocers is viewed as a cost-containment initiative but could lead to additional retailer services once the necessary infrastructure is put in place.

"We are working with United on a joint venture for electronic payments systems in hopes of controlling the total overall fee basis for retailers," he said, "but, more importantly, to provide a total overall additional service with networks at retail stores."

Benson declined to elaborate further and United Grocers was unavailable for comment.

Associated has been processing its retailers' electronic payments through an in-house switch for seven years and United has been doing so for a slightly shorter period of time. Faced with the need to make costly hardware and software upgrades to accommodate electronic benefits transfer transactions, for example, the companies decided to pool their resources and processing power and take it to market.

Initially, financial processing through Supermarket Transaction Services will be offered only to Associated Grocers' and United Grocers' retailers, representing some $10 million in transactions weekly. In the longer term, the company hopes to service other retailers to exploit potential economies of scale.

"If you had 15 companies involved," one wholesaler speculated, "you are talking $10 billion worth of transactions and that would drive the rates down." Such transaction volume, if achieved, could give Supermarket Transaction Services great leverage when negotiating fees with credit card companies, he added.

Discussion of the project arose earlier this year during a meeting of information systems executives from several noncompeting wholesalers that together represent some $10 billion in annual sales. Western Family Foods, Tigard, Ore., organized the gathering hosted at Associated Grocers' headquarters in May and Supermarket Transaction Services was formed three months afterward.