End of BofA, First Data JV would signal a bigger digital rift

First Data has had significant relationships with Citi, Chase, Bank of America and other large banks — but a report that Bank of America may be ending its joint venture with First Data could send waves throughout the payments industry for what it signifies.

An end to the Bank of America Merchant Services joint venture would feed a trend that has been bubbling beneath the surface of the digital payments evolution — that the introduction of open banking systems, vast developer collaboration and advanced technology is giving banks more say in how they will handle payments and work with merchants.

BofA is mulling an end to its 10-year partnership with First Data that concludes in June of 2020, hasn't made a final decision, according to a Wall Street Journal report citing anonymous sources. The report sparked a dip in First Data stock prices Thursday morning to $24.68 per share; previously, the stock had rallied 45% to a high of $27.15 in the wake of news that Fiserv agreed to buy First Data in a $22 billion deal. Bank of America declined to comment for this story, and First Data did not respond by publication time.

Callaghan O'Hare/Bloomberg

There have been other signs that Bank of America Merchant Services was being affected by the rapid pace of fintech. In 2017, the venture cut 10% of its workforce in a restructuring meant to address the shift to digital payments.

Bank of America has continued moving toward that end by handling much of its payments processes. It is a founding member of the Zelle P2P service, and has taken a more aggressive with merchant services through products like cloud-based restaurant POS systems to stronger subscription-based payments platforms.

Bank of America Merrill Lynch has also upgraded its own automated currency conversion service, AutoFX, to initiate faster settlements and advance accuracy and cut costs for the bank sending a cross-border transaction.

First Data's history, and the aspect that made the company so appealing to Fiserv in the first place, is that it has landed many of the major partnerships and joint ventures with the country's top card issuers.

But its long relationship with JPMorgan Chase ended in 2008, and Chase has evolved into a top acquirer and processor with Chase Paymentech.

"A lot of things are evolving right now, even within First Data itself," said Brian Riley, director of card services for Mercator Advisory Group. "It would not be surprising to see something different, but whether Bank of America could go without First Data completely is the big question."

Any time a bank and processor relationship is facing potential changes, the bank has to look far beyond any technology it feels it could develop on its own. The merchant relationships that First Data brings to the table are far more important, Riley said.

"That's an area that Bank of America has come in and out of over the past couple years," Riley said, noting that the bank never fully integrated its acquisition of National Processing into its merchant services unit.

"From that standpoint, it could be time to do something differently and get some economies of scale," he added. "I don't think there is any bad blood between these two, it's just like a natural evolution of the market."

Bank of America has often experimented with taking elements of its payments operations in-house, such as when it bought MBNA Corp. in 2006. Following that deal, BofA ended a contract with Total System Services (TSYS) for its consumer credit card portfolio, a relationship that the processor said accounted for 8.7% of its 2005 revenue.

Bank of America reversed that decision in 2012, bringing its consumer card business back to TSYS. At the time, BofA said the decision reflected advancements in TSYS' technology compared to the issuer's aging in-house operations.

Even as it returned to TSYS, BofA kept some functions under its own control, including card issuance, statement delivery and rewards management.

Penny Crosman contributed reporting to this story.