Breaking up is hard to do—and it does take some time. As first reported by the Wall Street Journal this past May, Bank of America (BofA) and First Data confirmed they are dissolving their joint venture, Banc of America Merchant Services. This occurs one day after the closing of the Fiserv-First Data merger.
When Fiserv and First Data broke the news about their planned merger in January, mention was made that First Data JV partners (including Wells Fargo and PNC) were on-board with the move. Something seems to have changed this thinking during the past six months leading up to the merger closing.
Both have something to lose by splitting up. First Data benefits from the BAMS partnership as 10% to 12% of its revenue is derived from the JV, according to Sanford C. Bernstein investment analysts. Bank of America has presumably benefited from having First Data supply the back-office and technology heft for its large merchant client base.
While the JV will end in June 2020, the relationship will continue basically as an outsourcing arrangement. BofA has decided to step out on its own with a dedicated merchant acquiring business, which will take some time to develop an infrastructure of appropriate scale. Both First Data (now Fiserv) and BofA issued positive statements looking forward to continuing to work together at least another four years into 2023.
Bank of America also announced making about a $2 billion impairment charge as a result of the dissolution. So more remains to be seen and further questions will arise. As with any merger of two large companies with client bases and cultures, changes are inevitable. Some take place right away and others will unfold over time.
What might happen to First Data’s other JVs? What will be the impact of Fiserv on First Data’s merchant acquiring business? Surely, competitors such Global Payments/TSYS and Worldpay are looking to pick off some accounts as a result of the Fiserv-First Data merger. Of course, they are going through their own M&A driven consolidation as well.
Merchants should benefit in the next six months as acquirers will offer attractive pricing packages to gain more market share. In the long run, merchants will have less choices as the field of established merchant acquirers has gone from nine to five since 2015. A future BofA merchant acquiring unit would be the 6th major player in the U.S. market assuming that no other consolidations will occur—not something to bet one’s mortgage on.
A Wall Street Journal article, excerpted below, covers the topic further.
Bank of America is disbanding its payment-processing joint venture with First Data, giving the bank more control of its business that focuses on moving money for merchants. The decades long partnership will end in June 2020, when the venture was set to expire, the companies said Monday.
Payment processors like First Data, which was acquired by Fiserv Inc. in a $22 billion deal, enable grocery stores, gas stations and other merchants to accept debit- and credit-card payments and help move money from a customer’s account to the merchant’s account. Fiserv’s purchase of First Data closed Monday.
The Wall Street Journal reported in May that the bank was considering dissolving its partnership with First Data and developing its own business. Bank of America is rushing to meet demand from consumers and businesses for modern money-moving technology, which promises a steady stream of fees.
“We look forward to investing in our merchant solution and delivering the capabilities our clients need to thrive in an ever-changing payments environment,” Mark Monaco, head of enterprise payments at Bank of America, said in a statement.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group