In a powerful combination of American payments giants, Bank of America and First Data Corp announced the formation of a new company that will deliver next-generation payments solutions to merchants ranging from small business to commercial and corporate clients worldwide.
Bank of America Merchant Services will provide clients with a comprehensive suite of innovative payments solutions including credit, debit and prepaid cards to merchant loyalty, cheque and e-commerce payments, the companies said.
Thomas Bell, chief strategy officer and president of First Data’s financial services business, was named CEO of Bank of America Merchant Services, and told EPI he was excited to combine the technological expertise of First Data with the deep merchant reach and customer referral network of Bank of America.
“This is an incredibly competitive business but we believe we have created a real powerhouse,” Bell said. “We want to move beyond being a straightforward transaction processor and work with clients to provide innovative solutions to their payments business, but also to their entire enterprise.”
Bell said that merchant clients will also benefit from new service offerings including loyalty and prepaid programmes, along with mobile commerce and check solutions that will drive return traffic to their stores and provide their consumers with the security, convenience and rewards they have come to expect.
A year in the making
Bell said discussions with BofA began more than a year ago, in what he described as the normal course of business.
“Go back about 16 months and for First Data, in our bank partner strategy, we were very interested in BofA because of who they are and how important they had become with the addition of Merrill Lynch,” he said. “BofA had a merchant business, but they were interested in a technological partner.”
First Data Corp owns approximately 48.5 percent of Bank of America Merchant Services and Bank of America owns 46.5 percent; the rest is owned by Rockmount Investments.
First Data brings its extensive payments technology to the partnership, along with 140,000 merchant customers. BofA brings 240,000 clients and its ability to refer new customers.
Following a transition period, First Data will provide the merchant processing and related services. The combined entity will process over one billion transactions per month, Bell said.
The joint venture First Data had with JPMorgan Chase & Co, called Chase Paymentech, which dissolved last year, had serviced the 140,000 merchants First Data is putting into the new joint venture. Chase continues to operate Chase Paymentech on its own.
“For our clients, the most important transaction they have occurs the moment their customer pays them for what they do. This alliance provides stronger payments-acceptance capabilities as well as enhanced business-reporting tools and a better experience for their customers,” said Catherine P Bessant, president of BofA’s global product solutions group, in a press release.
Bell said that for merchants seeking to expand their offerings in the fast-growing virtual marketplace, Bank of America Merchant Services will offer the scalability, integrated capabilities and deep understanding of the transactional process to deliver industry leading e-commerce solutions.
Bell said that the real payoff from the new Bank of America Merchant Services partnership might come in popularising new payment methods such as cellphones and electronic wallets through Bank of America’s huge branch network.
“That is where this gets very powerful because obviously the bank and obviously First Data have been working on next-generation payment types and are investing in those, and this is an opportunity to bring those together and do it collaboratively,” Bell said.
Bell said that the new company will also find itself in possession of millions upon millions of pieces of valuable consumer data – transaction data that could be used by business clients to better target return business through personalised promotional discounts and other offers.
“We want to become a strategic partner, and not just a transaction processor, so data is a huge opportunity,” he said.
“We have tremendous analytics that we can give merchants unique insight into better planning for promotions, labor force schedules, and other management practices that they are not even aware of. People track eyeballs online, but online traffic has nothing on actual payments data – what they did, and how they did it.”
Besides offering extended payment services to existing customers in other lines of business, an initial goal of the new alliance will be persuading merchants to embrace the idea that mobile phones can become payments devices, he said.
“We all believe that eventually payments will move into the phone, and pretty quickly,” Bell addd. “Being partners with the bank allows us to be at the front line of bringing that innovation to the table.”
The deal is a significant one for Bank of America, which has been looking for business lines that hold the promise of keeping connected to the shifting preferences of consumers, who have been turning away from credit card use as the economic recession deepened.
In April, losses at Bank of America’s Delaware-based card business marred an otherwise upbeat quarterly report. The bank lost $1.8 billion in its Global Card Services unit after posting a profit of $867 million a year ago. Net card revenue was down 5 percent to $7.5 billion as fee income dropped. Of the bank’s $13.4 billion provision for credit losses, $8.2 billion was in Card Services.
As more consumers turn toward debit cards and similar forms of payment, Bank of America hopes to capture more of the merchant fees generated with those payments.
A report last year by the Gartner research firm found that mobile payment services are on track to have 103.9 million users worldwide in 2011, up from 32.9 million in 2008.