Bank of America recently announced that it is ending its payments joint venture with First Data, a decision that will likely lead to Bank of America offering their own payment processing services to clients in the near future. To get an expert view into how this development will likely impact thousands of business owners and operators across the nation—and what actions they should take, if any—we sat down with Chrissy Ouellette, Vice President of Business Development at SpotOn.
What are the traditional roles of banks like Bank of America and payment processors like First Data when it comes to providing merchant services?
C. Ouellette: The majority of the banks in the US have relationships with processors like First Data. Bank of America Merchant Services (BAMS) accounts for 10 – 12% of First Data's revenue. It's a perfect relationship for the processors. When a business owner needs a bank account, they walk into the bank to open a business account, and it seems only natural for the bank to offer a merchant account at the same time. The bank already has a relationship with the client and they capitalize on this by reselling the processing services and end up making a portion of the monthly residual off of every credit card transaction that the business owner runs.
So the joint venture between these companies makes sense at face value. Why do you suppose Bank of America is opting to end that partnership?
C. Ouellette: I believe this has a lot to do with the recent Fiserv-First Data merger/acquisition. At the forefront, the relationship has caused Bank of America some issues with customer processing outages, hardware and device issues, along with it taking an extended period to get funds deposited. Bank of America Merchant Services has stated that they want to develop their own solutions to move money for their customers, meaning that they will have all of the control with their own solutions. I can foresee Bank of America offering real-time transactions to account holders and merchants, which is something similar to peer-to-peer money exchange.
In your opinion, does it make sense for the owner of a small- or medium-sized business to partner directly with their merchant bank for payment processing?
C. Ouellette: I think banks are really good at banking and not as versed in the payment card industry as they should be in order to properly support small- to medium-sized businesses. They simply are not equipped to provide the most with their processing relationship, whether it’s with hardware or other value-added services. The payments industry is much more complicated today than in years past and requires a vast knowledge of financial technology.
So why do so many businesses choose to work with big banks for payment processing? Reports show that Bank of America and First Data processed $17.3B in 2018, so they clearly have a huge number of clients using them for their services.
C. Ouellette: Again, I think businesses chose to work with big banks because of convenience. They trust their bank with their money, so why not add one more service? New business owners, in particular, are typically not familiar with the payment card industry and do not know how to navigate through choosing a partner to manage their payments.
The convenience of wanting to work with your own bank makes sense. When a business owner partners with a company like SpotOn for payment processing, are they still able to get deposits and work with their existing bank?
C. Ouellette: Absolutely, SpotOn can deposit funds into any US banking institution, and it’s no extra hassle on the part of the business owner!
And what added benefits do they get from SpotOn beyond just having SpotOn facilitate transactions for credit card payments, online payments, and so on?
C. Ouellette: SpotOn is a full technology platform that offers much more than just payment processing. SpotOn has technology that will help a merchant earn, gain, and retain their customers, and also helps with point-of-sale systems for small, medium, and large organizations. SpotOn can make our merchants a professional website, offer payroll services, loyalty, marketing and more. We are a one stop shop, instead of a merchant having to deal with multiple vendors for the variety of services. We can save them time, money, and offer cutting-edge technology.
So for businesses that are currently using Bank of America Merchant Services for their payment processing, what advice would you give to them? Bank of America will reportedly continue to offer products and services through First Data through 2023, but will then likely transition them to some other unspecified services at that point. It seems like a lot of uncertainty.
C. Ouellette: The decade long partnership ends in June 2020. I think Bank of America Merchant Services merchants should evaluate their current needs and then have a plan of where they would like to be in the next several years with payments, card holder security, and payment technology. From there, they can start having conversations with other providers to educate themselves on the offerings that are available to them.
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