(April 26, 2006) The possibility that Bank of America Corp. could start its own payment card network and brand poses some big risks and would bring big expenses for the Charlotte, N.C.-based banking giant, though it could enable BofA to differentiate itself in a mature card industry, analysts say.

Reports that BofA chairman, president, and chief executive Kenneth D. Lewis is mulling such a move surfaced last week in the Charlotte Business Journal and again today in The Wall Street Journal. But apart from saying that BofA might be able to save on network expenses by launching its own system, Lewis so far has given few details of his intentions. He didn’t mention the idea at today’s annual shareholders’ meeting in Charlotte, either in his prepared remarks or in answer to questions, and a BofA spokesperson had no comment.

That BofA would even consider such a move is only possible because of its lofty position in both card issuing and merchant acquiring. BofA in January bought giant issuer MBNA Corp. and in 2004 bought the No. 2 acquirer, National Processing Inc., better known as NPC. BofA today has more than 40 million active credit card accounts and is the nation’s biggest debit card issuer, with 27 million cards in circulation. As an acquirer, BofA has an estimated 700,000-plus merchant locations and processed $352.9 billion in charge volume last year on 7.7 billion transactions. That was second only to Chase Paymentech Solutions LLC, an acquirer co-owned by JPMorgan Chase & Co. and First Data Corp.

“It absolutely makes sense for them to take a look at the strategy of creating a closed-loop payment system,” says Les E. Riedl, president of Alpharetta, Ga.-based payment consultancy Speer & Associates Inc. Such a system would enable BofA merchants to offer rewards programs for BofA cardholders more easily than such programs could be offered today through the open-loop Visa and MasterCard networks, and also enable BofA to market something different from what its competitors have, he says.

Riedl, however, doesn’t expect that establishing a proprietary network means BofA would withdraw from Visa or MasterCard. “You’re talking about an expectation [by consumers] of acceptance of those brands on a worldwide basis,” he says. “It’s not really feasible.”

While it has a considerable MasterCard file, BofA is primarily a Visa issuer and has representation on Visa’s board. That’s not surprising given BofA’s pedigree as an amalgamation of many regional banks. The firm was formed when Charlotte-based Visa stalwart NationsBank bought San Francisco’s Bank of America in 1998 but took the acquired bank’s name. The original Bank of America founded the BankAmericard credit card in 1958 and both issued cards and signed merchants. BofA brought other banks into the system and spun it off in 1970 as National BankAmericard Inc. That firm changed its name to Visa in 1976. “This really brings it full circle,” says Riedl.

Any expenses BofA saves by not having to route transactions over the open-loop networks, however, might be offset by the costs of starting and maintaining its own network, analysts note. Persuading merchants to accept a new brand alone would be a major sales task, says processing consultant Paul R. Martaus, president of Martaus & Associates in Mountain Home, Ark. “It’s going to take someone who can see through a brick wall to pull that thing off,” he says. “Just because you have a huge card base and just because you have a fairly significant merchant base, that doesn’t necessarily spell instant success.”

But as an example of a successful bank-owned payments network, Riedl points to Central America’s Credomatic International Corp., which has about 65,000 merchant locations in the region. Earlier this year, General Electric Co.’s GE Consumer Finance unit bought a 49.99% stake in Credomatic’s parent company, BAC International Bank.