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B of A, Merrill Lynch deal will impact U.S. debit market, consultancy says
September 17, 2008
NEEDHAM, Mass. — While Bank of America's acquisition of Merrill Lynch most directly impacts the retail brokerage and capital markets sectors, it also carries important implications for retail payments and, more specifically, debit cards.
According to financial-industry consultancy TowerGroup, the acquisition provides Bank of America with a special edge in the high-net-worth card business — a niche requiring that customers hold no less than $500,000 in assets. Merrill Lynch recognized the broad access features that branded-network debit-card products provide, and incorporated those features into its well-run Cash Management Account. Its innovations in the card business included the ability to offer deferred debit cards, which are short-term credit accounts that sweep against asset and brokerage accounts. These products provide low-interest or no-interest loans for a short period until settlement. Additionally, Merrill Lynch's rewards program targets high-net-worth individuals with an innovative approach — raising the cardholder's standing based on cumulative-purchase thresholds, similar to airline frequent flier programs. "Bank of America's acquisition of the Merrill Lynch card business brings more innovation than scale," said Brian Riley, a research director in TowerGroup's bank-cards practice.
In the face of B of A's move, large card issuers with top-tier global private banking groups — including Citi, JPMorgan Chase, and Wells Fargo — will need to reassess their offerings to ensure relevance. American Express is expected to feel the most pressure.
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