After a Decade And a Merger, the BofA-First Data JV Closes Out

There had been whispers about the possibility for months, but this summer the parties confirmed it: The end of Bank of America Merchant Services, a long-running merchant-acquiring joint venture between Bank of America Corp. and First Data Corp., is now at hand.

On July 30, the same day that First Data officially became part of Fiserv Inc., Charlotte, N.C.-based BofA said it will pursue an independent merchant-acquiring strategy starting next June, though it added that First Data will continue as an “important service provider supporting Bank of America’s global payment solutions.”

Bank of America Merchant Services says it processes 17.3 billion transactions annually at more than 700,000 merchant locations.

The announcement said the joint venture will end when the current contract expires. BofA said there should be no service disruption because of an agreement between the two to serve BAMS clients through at least June 2023. First Data will continue to provide processing services at current rates through 2023. Unlike two other First Data joint ventures with banks—those with Wells Fargo & Co. and PNC Financial Services—BAMS had a 10-year contract when signed in 2009. The others are five-year pacts and have been renewed several times.

Bank of America and First Data will split the merchant portfolio based on the joint-venture ownership rate. Fiserv/First Data expects to retain 51% of the merchants, while BofA will keep the remaining 49%.

The contract will govern the division of merchants, Jeffery W. Yabuki, Fiserv chairman and chief executive, said in a conference call with analysts about the announcement.

While the BAMS portfolio has a sizable small and mid-size merchant contingent, it also has numerous enterprise clients, Frank Bisignano, Fiserv president, chief operating officer, and director, told analysts. “This is not an SMB-only book,” said Bisignano, the former CEO of First Data. “It’s a fairly large enterprise book.”

Bisignano said many of the larger merchants came from First Data and have been part of the joint venture since its inception. “We will do what’s right for our clients,” he said. Executives with both companies agreed not to disregard that notion as the division of clients happens, he added.

The end of the joint venture is not indicative of the relationship between the two companies, Yabuki said. “We have a deep commitment to continuing to work with Bank of America,” Yabuki said. “Bank of America will continue to be a very important client.” The dissolution is a reflection the respective strategies of the two companies, he added.

Bank of America also pointed at the role of payments for the move. “Payments are at the core of our business, and this announcement is another step forward in our global strategy to provide companies of all sizes an integrated payment offering,” said Mark Monaco, head of enterprise payments at Bank of America, in a statement.

“We look forward to investing in our merchant solution and delivering the capabilities our clients need to thrive in an ever-changing payments environment,” Monaco continued. “We look forward to continuing our long-standing business relationship with First Data.”

Multiple factors likely contributed to the decision not to renew the BAMS joint venture.

“There are a lot of reasons why BAMS could have done this,” Thad Peterson, senior analyst at Boston-based Aite Group, says in an email. “Fiserv directly supports processing for thousands of competitive banks, so having the First Data processing function JV in place as part of Fiserv might be seen as a competitive threat. Note that they will still be using First Data processing for offshore payments, which wouldn’t be competitive with BAMS.”

Bank of America also may have considered the rate of change and consolidation in merchant processing and wanted “more control over their offering and how it’s delivered by bringing it in-house,” says Peterson. “It’s critical that BAMS be able to effectively support their merchant base as new payment alternatives and processes come online. They need to control their own destiny in the space.”

Rumors of the dissolution of the 10-year-old joint venture began surfacing in May, in the wake of the January announcement of a merger agreement between Fiserv and First Data. That deal closed July 29.