Dramatic growth in electronic payments systems and retailers' demand for customer convenience may force an early marriage of competing automatic teller machine networks in the region.

The first indication that technology and events may forge a link between competing regional ATM systems surfaced Wednesday in a joint announcement by Maryland Switch Inc. of Baltimore and Mid-Atlantic Exchange Inc. of Norfolk.

The two companies have agreed to combine operations to work toward establishment of a major electronic banking and retail payment system for the Maryland-Virginia-District of Columbia region.

The communications link between the two companies will have the immediate effect of standardizing technical and operational procedures used to link electronic cash registers in retail outlets to banking networks in the region.

"It might be the first step in bringing them all together, which would make sense," said an officer of a District bank. "It certainly would cut down the costs."

Maryland Switch is owned by First National Bank of Maryland, Suburban Bank in Bethesda, Savings Bank of Baltimore and First Virginia Banks Inc. It operates Network Exchange, an ATM network of 14 financial institutions and 300 remote teller machines.

Mid-Atlantic Exchange is the support system for the Cash Flow program in which ATMs are owned by Riggs National Bank of Washington, Virginia National and Mercantile Bank of Baltimore.

The agreement between Mid-Atlantic Exchange and Maryland Switch will lead to establishment of a regional communications link between the two ATM networks they operate.

"This moves us toward what we think and the merchants think are necassary--that all these networks be linked," said David O'Connor, senior vice president of Virginia National and president of Mid-Atlantic Exchange.

Until now, operators of the four shared-automatic teller machine networks in the region have concentrated primarily on saturating a wider market with remote units, offering greater convenience to their customers.

Representatives of the ATM systems have been vying for merchants' approval to place the remote teller machines in their stores. One network, in fact, had anticipated making a major announcement this month that it had signed contracts with several merchants in the region.

Although some merchants are open to proposals to put ATMs in their stores, major retailers for the most part have been reluctant to sign exclusive agreements with any single network. Citing the importance of customer loyalty and convenience, merchants have made it clear they prefer a universal ATM system that would provide banking convenience to most or all of their customers.

Actually, a universal system might facilitate the switch to electronic payment systems, which soon will link retailers and financial institutions.

The agreement between the two electronic switching systems can be expected to hasten that process for several merchants in the region.

"What is envisioned is an approach to support the total payment mechanism," said Norman Foster, chairman of Maryland Switch. The intent of the cooperative effort, Foster continued, is to "coordinate the expansion of the facilities necessary to support the future needs of financial institutions, retail merchants and others dependent on a more efficient payment system."

"We're whistling in the dark if we think merchants will deal with any one ATM group," said O'Connor. "We're dealing with very fundamental sociological changes."

Although their agreement has some implication for an eventual merger, for the time being Mid-Atlantic Exchange and Maryland Switch will continue to support a number of separate programs within their networks.

Competition among ATM networks really should be a minor consideration where banks are concerned, however, O'Connor says.

"We are not all that concerned about competition among the networks but about competition in the financial services industry," he said.

"Banks are deluding themselves if they think joining an ATM system is going to solve their competitive problems."

Basically an ATM network is a delivery system and "you can have the best delivery system in the world but if you don't have the products to offer, it doesn't do you much good," O'Connor said.

Cash Flow, he explained, is a product-development system although its member institutions share an ATM network. In fact, Cash Flow members may participate in other ATM systems if they desire.

Cash Flow's primary role, O'Connor emphasized, is to perform research and development for its banks, producing products and services that will make them competitive with the growing nonbank financial services giants.

"Sears has passed the point of conversation where they've opened financial services centers," said O'Connor.