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This article appears in the July 2, 2009, edition of ISO&Agent Weekly.
Bank of America Corp. and processor First Data Corp. are collaborating to deliver advanced payments capabilities, and especially mobile payments, to merchants.
The companies announced Monday the creation of Banc of America Merchant Services LLC, a joint venture that incorporates Bank of America's acquiring unit and First Data's merchant clients that had been served previously by a joint venture with JPMorgan Chase & Co. that disbanded in November.
The joint venture is based in Atlanta. Financial terms were not disclosed.
First Data has a history of teaming up with banking companies, and this partnership will help deliver its payments technology to BofA's business customers, according to Thomas Bell, the new company's chief executive.
"The bank alliance model is, we believe, the most powerful strategic model for us to go to market, and it's certainly something that we've been committed to for decades," he said during a conference call Monday. Bell also is First Data's chief strategy officer and president of its financial services division.
Besides offering credit and debit card acceptance services, Bell said, First Data and BofA expect to promote a variety of emerging services, including prepaid cards, new types of online transactions and mobile payments.
The ability to collaborate on new payment formats "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," he said.
A goal of the venture is persuading merchants to embrace the idea that mobile phones can become payments devices, Bell said. "We all believe that eventually payments will move into the phone," he said. "And we believe that being partners with the bank allows us to be at the front line of bringing that innovation to the table."
First Data and BofA have been planning the venture for "well over a year," Bell said.
First Data Joint Ventures
First Data's executives "are masters of joint ventures" with banking firms, says Brian Riley, a research director in the bank cards practice at TowerGroup, a Needham, Mass.-based independent research firm owned by MasterCard Worldwide.
One of its largest ventures was Chase Paymentech Solutions LLC, which it co-owned with Chase.
The processor decided to dissolve the joint venture after First Data's 2007 acquisition by Kohlberg Kravis Roberts & Co. First Data owned 49% of that venture, and when it formally broke up in November First Data ended up with a proportional number of the merchant acquirer's customers.
The new company "certainly replaces the void that First Data had from breaking up with Paymentech," which was similar in scale to Banc of America Merchant Services LLC, Riley says.
This new venture "locks in the relationship with an important customer, without a doubt, but it also allows a lot of sharing of best-in-class technologies through either side," he says.
The company will handle the business of BofA's 240,000 merchant clients plus 140,000 of First Data's merchant clients, which come mainly from Paymentech.
First Data is the biggest shareholder, with 48.5%, but no company owns a majority stake. BofA owns 46.5% and the remaining 5% is owned by Rockmount Investments LLC. Neither First Data nor BofA would identify the owners of Rockmount, which they described as a "vehicle controlled by a third-party investor."
One area where BofA and First Data may not be working together is in automated clearinghouse payments.
BofA and Wells Fargo & Co. are working to create an ACH service to handle their mutual payments through a joint venture called Pariter Solutions LLC. There are no plans for Banc of America Merchant Services to work with Pariter, Bell said.
Merchant Growth
The venture with BofA could help First Data win more large merchant clients, says Adil Moussa, an analyst at Boston-based Aite Group LLC.
"You really need a bank, a big solid bank, to work with the large merchants," he says. "One of the most-challenging aspects of getting one of the large merchants" is that they typically want a broad suite of financial capabilities, including payments, loans and lines that they can typically only get from a bank.
"If you have a bank to work with, or if you have a couple of banks to work with, you're really securing the processing part of the deal," Moussa says.
James G. Kelly, president and chief operating officer of Global Payments Inc., an Atlanta-based processor, downplayed the joint venture's impact.
"Global Payments has been in the marketplace competing with First Data and Bank of America for some time," says Kelly. "I don't know that this changes the competitive landscape."
The new venture pairs "two dominant players" in the payments technology market, but Philip J. Philliou, a partner at the consulting firm Philliou Selwanes Partners LLC, questions their ability to deliver next-generation technology.
Though "mobile is certainly top-of-mind for merchants," the other payment types the companies say they would focus on, such as prepaid, are not especially new, Philliou says.
However, merchants have been demanding more attention from service providers, he says. "I'm happy to see activity in the merchant processing space. That's a good thing."
Daniel Wolfe is a reporter with American Banker.
Kevin Woodward, ISO&Agent Weekly editor, contributed to this article.
