[b]Deals
A $90 Billion Fee Pool Beckons as BofA Considers First Data Split[/b]
By Jennifer Surane and Lananh Nguyen
May 10, 2019, 2:00 AM PDT
Their joint venture helps merchants handle electronic payments
But as industry changes, BofA could try earning more by itself
Signage is displayed at a Bank of America Corp. branch in San Antonio, Texas. Signage is displayed at a Bank of America Corp. branch in San Antonio, Texas. Photographer: Callaghan O'Hare/Bloomberg
In this article
BAC BANK OF AMERICA
29.58USD-0.13-0.44%
FISV FISERV INC
85.23USD+0.54+0.64%
JPM JPMORGAN CHASE
112.51USD-0.01-0.01%
FIS FIDELITY NATIONA
116.72USD+0.85+0.73%
WP WORLDPAY INC-A
118.27USD+0.74+0.63%
Bank of America Corp. is about to decide just how big it wants to be in payments.
Executives at the lender have only weeks left to tell First Data Corp. whether they want to wind down a decade-old joint venture scheduled to renew automatically in mid-2020, according to an April regulatory filing. Known as Bank of America Merchant Services, the unit helps retailers and other clients handle electronic payments. But Bank of America could offer those services directly, potentially strengthening ties with customers and earning more.
The U.S. payments business is at a crossroads, with a new generation of ventures from Silicon Valley and China looking to muscle into an industry that collects $90 billion every year from merchants. That’s prompting longstanding players such as First Data to consolidate, and banks to ponder their own roles. Already, JPMorgan Chase & Co. has proven it’s possible to set out on its own, offering technology and other services to meet retailers’ needs.
“If I’m a large bank, I’m trying to figure out how can I strategically use my relationships with merchants to cross-sell them other services and also strengthen the stickiness of my relationship,” Harshita Rawat, an analyst at Sanford C. Bernstein, said in a telephone interview.
First Data shares slipped Thursday after the Wall Street Journal cited unidentified people familiar with the matter as saying Bank of America is considering whether to terminate the joint venture. Bank of America declined to comment, and First Data didn’t respond to requests for comment.
What Bloomberg Intelligence analysts say:
“Bank of America is unlikely to exit its joint venture with First Data, as the Wall Street Journal reported it was considering, given this would require the massive undertaking of either launching its own payment-processing capability for merchants or switching to another major provider. BofA may end up negotiating better terms, though, to extend the venture, which we calculate to be about 10-12% of First Data’s revenue.”
--David Ritter, BI senior fintech analyst
Click here to view the research
The bank’s leaders need to adopt a strategy that can endure after the industry’s rapid reconfiguration. In January, Fiserv Inc. announced it would buy First Data for $22 billion. Their competitors followed suit two months later, with Fidelity National Information Services Inc., known as FIS, and Worldpay Inc. announcing a $43 billion deal of their own. The combinations could potentially pose problems for the nation’s largest banks.
Fiserv and FIS have long provided regional banks with the technology they need to run their businesses. Meanwhile, First Data and Worldpay focused on serving merchants. The two behemoths created by their mergers could ultimately help regional lenders move into the payment space long dominated by their much-larger rivals. For top banks, that means more competition.
Fiserv said Thursday that it doesn’t expect the potential loss of the Bank of America partnership to affect the acquisition.
“We did our diligence, including with respect to client contracts and any significant ongoing negotiations, and are comfortable with the business in a variety of outcomes,” Fiserv said in an emailed statement. “We do not expect that anything related to the BAMS negotiation will impact the merger.”
JPMorgan’s Experience
With the joint venture, Bank of America and First Data share oversight of customers, while First Data runs the partnership’s technology. If Bank of America pulls out, it could prove costly and time consuming to switch clients to a new system.
Still, Bank of America could look to the success of larger rival JPMorgan for inspiration. Over the past five years, JPMorgan has almost doubled the volume of payments it’s processed for merchants. Striking out on its own could also help Bank of America negotiate better terms with payment networks Visa Inc. and Mastercard Inc., because it could leverage the strength of its card-issuing business with its merchant-acquiring arm, Rawat said in a note to clients.
Pushing further into payments could be another way for Bank of America to further expand its offerings for small business. In recent years, the lender has added bankers to deepen relationships with those customers, while improving other services, such as making it easier for them to get financing, Chief Financial Officer Paul Donofrio told analysts on a conference call last month.
“We are continuing to serve our customers in every manner possible,” Chief Executive Officer Brian Moynihan said at the time. With a growing range of payment options, “the customer can have their cake and eat it too.”
— With assistance by Joshua Fineman
A $90 Billion Fee Pool Beckons as BofA Considers First Data Split[/b]
By Jennifer Surane and Lananh Nguyen
May 10, 2019, 2:00 AM PDT
Their joint venture helps merchants handle electronic payments
But as industry changes, BofA could try earning more by itself
Signage is displayed at a Bank of America Corp. branch in San Antonio, Texas. Signage is displayed at a Bank of America Corp. branch in San Antonio, Texas. Photographer: Callaghan O'Hare/Bloomberg
In this article
BAC BANK OF AMERICA
29.58USD-0.13-0.44%
FISV FISERV INC
85.23USD+0.54+0.64%
JPM JPMORGAN CHASE
112.51USD-0.01-0.01%
FIS FIDELITY NATIONA
116.72USD+0.85+0.73%
WP WORLDPAY INC-A
118.27USD+0.74+0.63%
Bank of America Corp. is about to decide just how big it wants to be in payments.
Executives at the lender have only weeks left to tell First Data Corp. whether they want to wind down a decade-old joint venture scheduled to renew automatically in mid-2020, according to an April regulatory filing. Known as Bank of America Merchant Services, the unit helps retailers and other clients handle electronic payments. But Bank of America could offer those services directly, potentially strengthening ties with customers and earning more.
The U.S. payments business is at a crossroads, with a new generation of ventures from Silicon Valley and China looking to muscle into an industry that collects $90 billion every year from merchants. That’s prompting longstanding players such as First Data to consolidate, and banks to ponder their own roles. Already, JPMorgan Chase & Co. has proven it’s possible to set out on its own, offering technology and other services to meet retailers’ needs.
“If I’m a large bank, I’m trying to figure out how can I strategically use my relationships with merchants to cross-sell them other services and also strengthen the stickiness of my relationship,” Harshita Rawat, an analyst at Sanford C. Bernstein, said in a telephone interview.
First Data shares slipped Thursday after the Wall Street Journal cited unidentified people familiar with the matter as saying Bank of America is considering whether to terminate the joint venture. Bank of America declined to comment, and First Data didn’t respond to requests for comment.
What Bloomberg Intelligence analysts say:
“Bank of America is unlikely to exit its joint venture with First Data, as the Wall Street Journal reported it was considering, given this would require the massive undertaking of either launching its own payment-processing capability for merchants or switching to another major provider. BofA may end up negotiating better terms, though, to extend the venture, which we calculate to be about 10-12% of First Data’s revenue.”
--David Ritter, BI senior fintech analyst
Click here to view the research
The bank’s leaders need to adopt a strategy that can endure after the industry’s rapid reconfiguration. In January, Fiserv Inc. announced it would buy First Data for $22 billion. Their competitors followed suit two months later, with Fidelity National Information Services Inc., known as FIS, and Worldpay Inc. announcing a $43 billion deal of their own. The combinations could potentially pose problems for the nation’s largest banks.
Fiserv and FIS have long provided regional banks with the technology they need to run their businesses. Meanwhile, First Data and Worldpay focused on serving merchants. The two behemoths created by their mergers could ultimately help regional lenders move into the payment space long dominated by their much-larger rivals. For top banks, that means more competition.
Fiserv said Thursday that it doesn’t expect the potential loss of the Bank of America partnership to affect the acquisition.
“We did our diligence, including with respect to client contracts and any significant ongoing negotiations, and are comfortable with the business in a variety of outcomes,” Fiserv said in an emailed statement. “We do not expect that anything related to the BAMS negotiation will impact the merger.”
JPMorgan’s Experience
With the joint venture, Bank of America and First Data share oversight of customers, while First Data runs the partnership’s technology. If Bank of America pulls out, it could prove costly and time consuming to switch clients to a new system.
Still, Bank of America could look to the success of larger rival JPMorgan for inspiration. Over the past five years, JPMorgan has almost doubled the volume of payments it’s processed for merchants. Striking out on its own could also help Bank of America negotiate better terms with payment networks Visa Inc. and Mastercard Inc., because it could leverage the strength of its card-issuing business with its merchant-acquiring arm, Rawat said in a note to clients.
Pushing further into payments could be another way for Bank of America to further expand its offerings for small business. In recent years, the lender has added bankers to deepen relationships with those customers, while improving other services, such as making it easier for them to get financing, Chief Financial Officer Paul Donofrio told analysts on a conference call last month.
“We are continuing to serve our customers in every manner possible,” Chief Executive Officer Brian Moynihan said at the time. With a growing range of payment options, “the customer can have their cake and eat it too.”
— With assistance by Joshua Fineman
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