Thursday , March 28, 2024

In a Busy Day, BofA Says Yes to AmEx Network And No to TSYS

Bank of America Corp. announced today it will begin issuing cards on American Express Co.'s U.S. merchant network and also confirmed that an existing issuing relationship between AmEx and MBNA Corp., which BofA is acquiring for $35 billion, will continue. In a separate announcement, third-party credit card account processor TSYS said BofA had informed the company it planned to shift its consumer-related credit card account processing from TSYS to an in-house operation next year. BofA's move to in-house processing, which is set for October 2006 and is apparently timed to coincide with the absorption of MBNA, will cost Columbus, Ga.-based TSYS about $239 million in annual revenue, or nearly 15% of the company's total projected 2005 revenue, TSYS said. Net of so-called reimbursable expenses, which include items such as postage, the move will create a $140 million revenue shortfall, the company said. The deal between BofA and AmEx comes a day after Citibank, a unit of Citigroup Inc., said it would start issuing cards on AmEx's U.S. network later this month under an agreement reached late last year (Digital Transactions News, Dec. 20). It also ends speculation in the industry surrounding the fate of the MBNA-AmEx arrangement, which has been in place since January 2004. BofA's decision to buy MBNA, announced June 30, raised doubts in some observers' minds that BofA, which originated the bank card system now known as Visa, would allow the MBNA-AmEx deal to stay in place. With BofA now on board along with Citi and MBNA, AmEx now claims three of the four largest U.S. issuers of bank cards. As is typical in these arrangements, the banking giant will own the card loans, while AmEx will process transactions on its network. As part of the agreement, AmEx said it is dismissing BofA as a defendant from an antitrust lawsuit it filed in November 2004 against the bank card networks and eight major banks. The banks along with the associations conspired to prevent AmEx from operating in the bank card market by banning Visa and MasterCard members from issuing on AmEx's network, the New York T&E giant alleges in its suit. That exclusionary rule, which also applied to Discover Financial Services Inc., was struck down by a federal court in 2001, a decision effectively upheld by the U.S. Supreme Court three years later when it refused to hear an appeal from the associations. Meanwhile, BofA's decision to move its card processing in-house does not apply to processing of commercial and small-business cards issued by BofA and MBNA. These accounts, says TSYS, will remain with the processor. TSYS says it will also retain merchant processing business from BofA. TSYS says it expects to receive an unspecified termination fee from BofA. TSYS chief executive Philip W. Tomlinson said in a statement that the company has more than 70 million accounts in its “pipeline” for conversion in 2006. “We are disappointed with the decision to move the consumer portfolio in-house, but we will continue to work closely with Bank of America to enhance their success and our future relationship,” he said. “Looking ahead to 2006, we will convert a record number of accounts to TSYS.”

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