MasterCard has bought Vocalink for £700m ($920m) in a deal that has been rumoured for months, with Sky reporting back in April it could fetch as much as £1bn.
The deal gives the credit card company 92.4% of the business giving Vocalink shareholders a potential pay out of £169m according to the press release, with the transaction subject to regulatory approval. Most shareholders will retain a 7.6% ownership for at least three years according to the statement.
The regulator is, of course, the reason this deal is happening at all with the Payments Systems Regulator (PSR) publishing a report earlier this year saying ownership of core paymentes technology by the big banks was having a negative impact on competition in the market.
VocaLink (formed from a merger of two separate pay tech companies Voca and Link nearly 10 years ago) is owned by a group of banks including the UK “big four” (Barclays, RBS, Lloyds and HSBC) as well as Santander. The consortium was told by the PSR in February to sell their stakes to boost competition and drive a more open payments industry.
“MasterCard’s acquisition of Vocalink represents a win-win for both companies,” says Tom Hay, head of payments at Icon Solutions. “Vocalink knows that payments processing is a scale game, and the only way to drive further scale is for it to pick up volumes in mainland Europe and beyond.
“As real-time payments become “the new normal” we may finally be seeing the convergence of card payment networks with non-card payment networks. A global MasterCard network offering real-time payments of both types is a force to be reckoned with.”
For a refresher, Vocalink operates payment tech platforms that most of us touch every day in the shape of BACS, Faster Payments and LINK, as well as mobile payments service ZAPP. The firm also licensed its Fast ACH tech in countries like Sweden, Singapore and the US. The firm reportedly made £182m in revenues across 11bn transactions in 2015.
> BACS – the Automated Clearing House (ACH) enabling direct credit and direct debit payments between bank accounts
> Faster Payments – the real-time account-to-account service enabling payments via mobile, internet and telephone
> LINK – the UK ATM network
For a deeper dive and an explainer on what all that means, check out our recent podcast with Tom Hays, head of payments at Icon Solutions.
VocaLink by more numbers
> It processes more than 90% salaries in the UK
> 70% household bills in the UK and almost all benefits handled by VocaLink
> VocaLink enables Bacs credit and debit schemes (more than 2bn direct credits per year)
> 100m direct debit transactions move through Vocalink data centres on a peak day
MasterCard, which is bracing itself for a £19 billion class-action lawsuit over processing fees, says the deal will help grow its footprint in electronic payments and payment flows, as well as “play a more strategic role in the UK payments ecosystem”.
“We’re excited about the opportunity to play a bigger role in payments in the UK, a very strategic market for us,” says Ajay Banga, president and CEO at MasterCard. “VocaLink is a unique company with outstanding technology, assets and people. We look forward to investing in and maximising the technology, and embedding it in our products and solutions, both in the UK and around the world.”
Through this deal, MasterCard gains access to non-card payments infrastructure, while Vocalink can piggyback on Mastercard’s global reach.
The acquisition will help MasterCard gain an edge on rival Visa – especially in the UK debit space where Visa is more powerful. Visa bought its European subsidiary last year, creating one single company in a deal that added 3,000 issuers, 500m accounts and EUR1.5 trillion in payments volumes to its portfolio. Visa’s amendment to that deal to appease regulators serves as a reminder that this deal will come under close scrutiny from regulators to make sure a deal is indeed boosting competition and helping open up the industry, rather than compounding existing issues in the global payment systems space.
“For MasterCard the rationale is twofold,” says Hay. “Vocalink’s Immediate Payments System gives MasterCard a presence in non-card payments, and with its global reach and network of banks, would drive a level of market penetration that Vocalink could never achieve alone. The second reason is the Zapp system. Zapp has been struggling to achieve ignition, and MasterCard’s backing could provide the boost that it needs and provide MasterCard with a new route into UK debit payments, which Visa has dominated for years now.”
VocaLink history at a glance
> 2007 – Formed from merger between Voca Ltd and LINK Interchange Network
> 2008 – Delivered Faster Payments Service in 2008 for Faster Payments Scheme
> 2014 – Paym mobile banking tool launched, powered by VocaLink
> 2015 – PSR launches review into VocaLink ownership
> 2015 – Private equity buyers including CVC Capital Partners and Permira linked to M&A talks
> 2016 – February: the PSR says banks should sell their stake in VocaLink to boost competition
This comes amid growing merger and acquisition activity in the payments industry, with Nets snapped up from a group of Nordic banks including Danske Bank, Nordea and DNB by Advent International and Bain Capital last year alongside Danish pension fund ATP for USD3.1bn.
Bain and Advent also own WorldPay, which they bought back in 2010 from RBS and which went public in London’s biggest fintech IPO to date. Consolidation is only expected to continue around financial software systems providers in the coming years.
Lloyds banking Group has agreed to pay £1.9 billion for Bank of America's credit card firm, MBNA, in the first acquisition by a UK bank since the 2008 financial crisis.
Three years on from being acquired by PayPal, Braintree, a company which allows merchants to process a range of different payments, has revealed the number of its payment transactions has increased by 25 times.
There’s more signs of consolidation in the crowded European payments space with news that Stockholm-based iZettle is buying a company called intelligentpos.
Oh, what we wouldn't do to know the future! Like Biff and the Almanac in Back to the Future, all we need is a guide. Luckily the team over at Pivotl is on hand to give us one for the future of fintech.