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Mastercard – VocaLink Deal Passes Crucial Regulatory Test

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On Tuesday, 11 April 2017, the UK Competition and Markets Authority (CMA) announced that proposed steps by Mastercard International Inc and VocaLinkHoldings Ltd had adequately addressed competition questions relating to Mastercard’s planned acquisition of VocaLink. The decision clears the way for the GBP700 million deal to close in the coming weeks. Once completed, the acquisition will serve as a strategic pillar in Mastercard’s ongoing efforts to expand services beyond its traditional card-based model.

Concessions proposed in order to win regulatory approval

Mastercard announced its intention to purchase VocaLink – the largest payment processor of government benefits, payroll, and bill pay in the UK – in July 2016. In January 2017, the CMA indicated that unless the parties were able to allay concerns over the deal’s impact on competition within the UK market, a deeper investigation would be required. In response, Mastercard and VocaLink offered a proposal to address potential issues. This proposal included steps to improve competition on the LINK network such as transferring select intellectual property to the network, enabling an additional infrastructure service provider to access the network, and provision of financial support by Mastercard to LINK members converting to an alternate supplier. In April, the CMA determined that these steps were enough to satisfy concerns, opening the doors for the deal to be completed.

Taking stock of VocaLink’s capabilities

VocaLink is a major payments player in the UK market. The company provides ATM switching through the LINK network, while also managing the BACS system for electronic payments as well as the Faster Payments Service, which facilitates interbank processing. VocaLink handles a large portion of salary, government benefits, and bill pay activities in the UK market. Electronic Direct/ACH Transaction value is expected to expand by a 4% compound annual growth rate over the 2016-2021 period in constant value GBP. Through the Faster Payments Service, VocaLink also provides rapid bank-to-bank transfers. VocaLink also provides payments services outside the UK, in markets such as Sweden and Singapore.

UK Payment Transactions (2011-2016)

Source: Euromonitor

Mastercard + VocaLink: expanding Mastercard’s horizons

While traditionally best known for its role in physical card-based processing systems, Mastercard has spent a tremendous amount of effort in recent years pivoting towards a broader range of payment types and value added services. This shift in emphasis is notably present in the company’s decision to change its name from “MasterCard” to “Mastercard,” to indicate a business that delves beyond cards.

Mastercard has invested in its Masterpass platform as a tool to bring payment solutions to a variety of physical and digital points of sale with compatibility across operating systems. While the VocaLinkacquisition will increase Mastercard’s positioning in the UK market – a position that may change as the UK proceeds through its Brexit process and details of the country’s financial relationship with mainland Europe are hammered out – the true value of this purchase comes from adding VocaLink’s expertise and infrastructure in new payment types.

VocaLink provides Mastercard with a strong footing in payroll, government benefits, bill pay, and peer-to-peer transfer networks in the UK – products which would play particularly well in Mastercard’s expanded view of the payments universe. The purchase should significantly increase Mastercard’s capabilities and offer an excellent opportunity to export new models to Mastercard’s already expansive global card network. As technology reshapes consumer, commercial, and government financial transactions, Mastercard is hoping to reposition itself as a leader in all these realms, and stands to reap handsome rewards if it can successfully implement its vision.

For more analysis on Mastercard, please see Euromonitor's profile: MastercardInternational Inc in Consumer Finance (World).

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