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Bank of America is ending its joint venture with First Data following its aquisition by Fiserv. The two companies will "pursue independent merchant services strategies" in June 2020 when their joint venture (JV) — Bank of America Merchant Services (BAMS) — expires, per a press release.
First Data, now Fiserv, will still support Bank of America’s global payments solutions, and the firms have also agreed to supply uninterrupted services to merchants that have received support from the JV through at least 2023. Fiserv expects to come away with 51% of the JV’s merchant portfolio, while Bank of America would get the remaining 49%, according to Digital Transactions.
Here’s what it means: The end of BAMS could be a key inflection point for both Bank of America’s and Fiserv’s processing businesses.
- Bank of America will need to find another partner for a new JV, or it could start handling its processing on its own. The firm is looking forward to "investing in our merchant solution and delivering the capabilities our clients need to thrive in an ever-changing payments environment," head of Enterprise Payments Mark Monaco said in the release. And to provide and support BAMS’ point-of-sale (POS) solutions and other services, the bank may need greater capabilities than it currently has since it will no longer be working with First Data. Bank of America has the option of selecting a new partner — potentially one that doesn’t work with as many competing banks as Fiserv does, which could have been part of why Bank of America is exiting the JV, Thad Peterson, senior analyst at Aite Group, said to Digital Transactions — or it could increase its own capabilities and handle its processing business itself, as JPMorgan does, for example.
- Fiserv may look to leverage its other banking connections to find substitutes for the business it’s losing with the end of the JV. BAMS claims 17.3 billion transactions and over 700,000 merchant locations, and once Fiserv’s collaboration with Bank of America concludes it’ll likely lose access to around half of that volume. This could prove problematic as First Data’s Global Business Solutions (GBS) segment — its biggest revenue contributor — saw its annual revenue growth slide in the quarters leading up to its acquisition by Fiserv. Fiserv’s established relationships with banks might help it bring in new business, which it may want to do to cover its loss from the end of the JV.
The bigger picture: The spate of major consolidation in the payments space could lead to significant reshuffling of partnerships going forward.
Big mergers and acquisitions can alter the competitive landscape surrounding existing partnerships, so a number of partnerships may change in the near future. This year, Fiserv acquired First Data, FIS acquired Worldpay, and Global Payments is set to merge with TSYS.
But the ramifications of these moves go beyond the companies directly involved because each party is already a huge player in their space, meaning they have a number of partnerships with other firms in place. Those companies may be reevaluating those deals after the mergers and acquisitions, and they may decide they’d be better off working with other firms, setting the payments industry up for significant upheaval.
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