Bank of America, First Data to Form ’Next-Gen’ Payments Company

Bank of America (Charlotte, N.C.) has partnered with First Data Corp. (Denver) to form what the two companies are calling a next generation payments company.

Banc of America Merchant Services will deliver next-generation payments solutions to merchants ranging from small business to commercial and corporate clients worldwide. Merchants will be offered a suite of payments solutions including credit, debit and prepaid cards, merchant loyalty, check, eCommerce payments and mobile commerce, the companies said in a release. The idea will be to help merchants gain repeat traffic to their stores and provide customers will security, convenience and rewards.

Thomas Bell, chief strategy officer and president of First Data's financial services business, was named CEO of Banc of America Merchant Services, which will be based in Atlanta.

Bell told attendees at a teleconference earlier today that the two companies had been in talks for over a year on how they could work together to further the progress in the payments area. He also emphasized this is a strategic move by the organizations and not necessarily a capital-raising play by Bank of America. "This is about bringing value to the merchants [and helping them] grow their business with loyalty programs," he said.

According to Adil Moussa, an analyst with Boston-based Aite Group, the partnership isn't quite unique. "With this joint-venture, First Data will be competing with banks/processors such as US Bank/Elavon and Fifth-Third. This same arrangement existed just about a year with First Data and Chase Paymentech before they dissolved their relationship," Moussa told BS&T.

At the same time, however, he acknowledged in a statement that the joint venture would create some new synergies in the merchant acquiring space. "From a large merchant perspective, First Data will be in an even better seat to compete over large corporate accounts. These corporate accounts need a deeper relationship with a large bank (treasury services, cash management, line of credits, etc.,) and they end up influencing the choice of the merchant service processor. Conversely, Bank of America's merchants will benefit from the technology that First Data offer in payments."

Bank of America will contribute approximately 240,000 merchant relationships and First Data will contribute approximately 140,000 merchant relationships to the new company. 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.

Moussa does see opportunities for the combined entity to bring some innovation to payments, given the companies' respective strengths in a variety of areas. "In terms of 'next gen' payments, First Data is integrated with alternative payment providers such as PayPal (both the traditional PayPal and Bill Me Later). First Data also created a rewards platform that allows merchants to participate by offering rewards to credit and debit cardholders. [Furthermore] First Data is working on mobile initiatives that can tie up with the offerings of Bank of America," he says.

Banc of America Merchant Services will be approximately 46.5 percent owned by Bank of America and 48.5 percent by First Data, with the remaining stake held by Rockmount Investments, LLC, an investment vehicle controlled by a third party investor.