Acquiring Deal with BofA Lets First Data Renew Its Alliance Model

Bank of America Corp. and processor First Data Corp. launched a merchant-acquiring joint venture Monday, a move that marks the third major change in BofA's acquiring business in five years. First Data will own 48.5% of the new Atlanta-based Banc of America Merchant Services LLC. BofA will own 46.5%, and Rockmount Investments LLC, an entity controlled by an unidentified third-party investor, will hold the remaining 5%. BofA already is a major acquirer, and the new venture instantly will rank in the nation's top tier of merchant processors. BofA is contributing all of its 240,000 merchant relationships to the new firm, and First Data will provide about 140,000. The merchants generate a combined 1 billion transactions per month, the companies said in a news release. Most of First Data's contribution is coming from the former Chase Paymentech Solutions LLC, Thomas Bell, chief executive of Banc of America Merchant Services, said at a morning news conference. Chase Paymentech Solutions was the huge merchant-acquiring venture between JPMorgan Chase & Co. and Greenwood Village, Colo.-based First Data that the partners dissolved last year at JPMorgan's behest (Digital Transactions News, May 27, 2008). BofA did not have an executive at the news conference, but the giant bank said the venture would improve services to its business customers. “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,” Catherine P. Bessant, president of BofA's Global Product Solutions group, said in the release. “The formation of this new company underscores our full commitment to the merchant services business.” Both partners said they would disclose more financial details when they release their next quarterly reports later this summer. The new venture seems to be built on the so-called merchant-alliance model that First Data created in the mid-1990s after it bought two of the nation's three largest acquirers of the time, Card Establishment Services and National Bancard Corp. (NaBanco). The latter, along with Western Union, was a subsidiary of First Financial Management Corp., which First Data bought in 1995. Under the alliance model, First Data contributed accounts from the former CES or NaBanco portfolios, and each bank chipped in its own merchant portfolio. First Data handled the processing and operations, and the banks provided branch referrals of business customers, marketing, and varying levels of sales support. That's generally how Banc of America Merchant Services will work. Bell, who has been chief strategy officer and president of First Data's financial-services business, noted at the news conference that the venture would be able to tap BofA's 6,000-plus branches for referrals. He also placed heavy emphasis on new-product development, including mobile commerce, loyalty and prepaid programs, check services, and e-commerce. Bell didn't go into details, but said in response to a reporter's question that “I think mobility is obviously the focus point … we all believe eventually payments will move into the phone.” While Charlotte, N.C.-based BofA is moving in a different direction from JPMorgan Chase, which took its acquiring business in-house when it ended the old Chase Paymentech Solutions venture, processing industry researcher Adil Moussa of Aite Group LLC says “both are valid strategies.” By partnering with First Data, BofA may be able to sell treasury and wholesale-banking services to many new prospects served by First Data, especially large businesses. BofA also can save itself major investments in payment card processing technology. “If you're getting to the end of your product-life cycle and IT infrastructure, it's best to go out,” Moussa says. “It's a good model.” One thing the new venture apparently won't do, however, is automated clearing house processing. Asked by a reporter if it would work with the venture called Pariter Solutions LLC that BofA and Wells Fargo & Co. are setting up to handle their ACH transactions, Bell said, “not at this time.” A First Data spokesperson would not give details about the Rockmount investment. “Various accounting, tax, and legal drivers were behind this structure,” the spokesperson says by e-mail. In 2004, BofA bought National Processing Inc. (NPC), a big acquirer with 700,000 merchant locations, for $1.4 billion (Digital Transactions News, July 13, 2004). But it sold many of its small-merchant relationships to Iron Triangle Payment Systems LLC two years later in a deal that included the well-known NPC brand (Digital Transactions News, Sept. 15, 2006).