Bank of America May Challenge Visa, MasterCard
Bank of America's credit cards led to $5.7 billion in profit, or 23% of the bank giant's non-interest income, for BofA last year. They are the nation's leading credit card issuer with 40 million active credit card accounts. Now, BofA may be looking to parlay that into even greater earnings. They are considering developing its own payments network to rival Visa and MasterCard, according to Morgan Stanley analyst Betsy Grasek, who recently met with senior BofA officials, including Chief Executive Ken Lewis. Visa and MasterCard currently command 60% and 27% of market share, respectively. While official bank spokesmen are declining to comment on the issue, some bank employees in Charlotte, speaking anonymously, say that the idea is being studied.
Grasek estimates that BofA's annual earnings could get boosted by as more than $70 million if BofA had its own card payments network. This is because of savings realized on transaction fees. Grasek estimates that BofA could save approximately 0.8%–0.9% per transaction, which may total $240 million to $270 million annually, based on BofA's $302 billion credit card volume in 2005. Another $74 million in savings would be realized from debit card transactions. Annual operating costs are operated at $245 million to $270 million.