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Mastercard Makes Big U.K. Play with $1.1 Billion VocaLink Investment

poundsigns_money_shutterstockMastercard is set to gain control of a major chunk of the U.K. transaction processing market, entering a definitive agreement to acquire 92.4 percent of VocaLink in a deal that could total up to $1.14 billion. A bank-owned consortium, VocaLink’s technology underpins the British direct debit and credit payments system, as well as the LINK ATM network and the Faster Payments Scheme for real-time mobile and Internet payments.

VocaLink processed more than 11 billion transactions in the U.K. in 2015—more than half of all transactions made in the country—and handles more than 90 percent of all salary payments and virtually all state benefits, according to the company. That market share now will be controlled by Mastercard, giving the U.S.-based payments network a substantially deeper foothold in the U.K. payments ecosystem.

“We’re excited about the opportunity to play a bigger role in payments in the U.K, a very strategic market for us,” said Ajay Banga, president and CEO, Mastercard. “We look forward to investing in and maximizing the [VocaLink] technology, and embedding it in our products and solutions, both in the U.K. and around the world.” VocaLink’s global initiatives include Zapp, a mobile payments app that uses fast ACH technology, and licensing its software to support ACH payments in Sweden, Singapore, Thailand and the U.S. In 2015, the company reported revenues of £182 million (US$240 million).

“This acquisition is a major one for Mastercard as it attempts to fend off future threats to its business,” said Michelle Evans, digital consumer manager, Euromonitor International. The deal could help Mastercard compete against Visa, which closed its purchase of Visa Europe in June and controlled 43 percent of card payment transactions in Western Europe in 2014—nearly twice the share of Mastercard’s operations there according to Euromonitor, Evans noted. “At the same time, Mastercard quietly picked off one of its biggest competitors in the emerging payments space.”

A key strategic value of the deal for Mastercard could be gaining control of the Faster Payments platform, added Ron van Wezel, senior analyst, Aite Group. “The world is moving towards near real-time payments. VocaLink already processed 1.2 billion faster payments in the U.K. in 2015, and growth is expected to accelerate,” he said. “ACH payments, and faster payments in particular, may become an alternative for card payments in e-commerce,” van Wetzel noted.

Reports first emerged in April that Mastercard was eyeing a potential acquisition of VocaLink. The definitive agreement calls for the Purchase, N.Y.-based network to pay an initial price of about £700 million (US$925 million), as well as future earn-outs of up to £169 million (US$223 million). VocaLink shareholders will retain control of the remaining 7.6 percent of the company for at least three years, according to terms of the deal.

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