MAY 2006

Bank of America Could Launch a New Card Brand

Bank of America's CEO Kenneth Lewis startled many credit card market observers when he announced in late April that he might be interested in launching a new credit card processing network and brand to compete with Visa, MasterCard, American Express and Discover. With last year's acquisition of MBNA, Bank of America is now the largest issuer of debit and credit cards in the U.S., with more than 41.9 million credit card accounts, about 20 percent of the accounts issued by the top 50 bank issuers in the U.S. Most of Bank of America's cards are issued under the Visa brand.

The bank has done this before. Observers of the U.S. bank card industry will remember that Bank of America helped create the bank credit card in the U.S. with its BankAmeriCard product that it launched in 1958. That card product evolved into the Visa network and brand, now jointly owned by 13,420 member banks. But now Bank of America pays Visa transaction fees for use of the processing network. In an interview with the Wall Street Journal, Lewis said that "it gets into your consciousness to own a network rather than to rent someone else's." He added, "I'm not real happy at this point that we built that brand [Visa] when we could have been spending money on the Bank of America brand.. . Why not become the old BankAmericard again?"

A Morgan Stanley analyst estimated in a research report that Bank of America could save more than $70 million annually by building its own network. Of course, the talk of launching a new card brand could be a bargaining ploy to secure lower processing fees from its existing relationships with Visa and other networks. According to the Nilson Report (an payment card industry newsletter), Bank of America accounts for about 20 percent of Visa's transaction volume.