MasterCard's Rumored VocaLink Purchase Flexes Faster-Payments Muscle

MasterCard will vault itself deep into the faster payments landscape and position itself better to compete with Visa in the U.K. if a £1 billion acquisition of VocaLink unfolds as reported on a U.K. news site.

The Purchase, N.Y.-based card brand has entered exclusive talks over the possible takeover of VocaLink, which operates the U.K.'s Faster Payments system and Zapp mobile service, according to Sky News.

Speculation about the potential deal has spread through U.K. financial circles for a couple of weeks, but appears to be picking up some steam more recently. MasterCard declined to comment, stating company policy to not provide statements related to speculation or rumor. VocaLink also did not respond.

Such an acquisition would provide MasterCard an effective response to Visa Inc.'s current negotiations to obtain Visa Europe. Visa announced Thursday that it had to delay and amend its deal to merge with Visa Europe, resulting in a 1.75 billion euros cash payment.

Four banks — Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland — own nearly 80% of VocaLink, and the 13 banks that are shareholders have approved exclusive negotiations with MasterCard for the acquisition, the report said.

VocaLink technology drives the UK Faster Payments service, and the company is involved in partnerships that are driving faster payments in the U.S. as well.

"This is a valuable asset for MasterCard if they can acquire VocaLink," said Larry Berlin, vice president with Chicago-based First Analysis Securities. "You can see it at the various industry conferences that payments companies are looking for ways to expand their services."

According to its website, VocaLink processes more than 90% of salaries, more than 70% of household bills and almost all state benefits in the U.K. The company says it processed more than 11 billion transactions, or more than half of all payments made in the U.K., for a total value of £6 trillion.

Those types of numbers illustrate "a huge sector and a strong, dominant player" that would be a powerful asset for MasterCard, Berlin said. "This would be a very competitive move for MasterCard, which has already shown it is quite creative in advancing payments technology."

Almost immediately, MasterCard would find VocaLink’s technology for faster payments appealing, considering it is already live in Singapore and advancing in other countries, including in the U.S. and its various initiatives related to a Federal Reserve push.

It is less clear how MasterCard would approach VocaLink's Zapp payments system, but some speculation centers around the card brand viewing it as a tool to counter Visa's stranglehold on debit payments in the U.K.

Otherwise, MasterCard clearly has been advancing its mobile strategy into wearables and other form factors, an area in which Zapp could also have a future role.

It is important for MasterCard to establish a better foothold in the U.K., considering “a huge majority of the debit cards that were MasterCard are now Visa,” said Gareth Lodge, a London-based industry analyst with Celent.

But MasterCard’s key purpose in potentially acquiring VocaLink would be gaining access to the real-time payments solution, Lodge said.

VocaLink technology powers The Clearing House's faster payments solution in the U.S. and the FAST system in Singapore, Lodge added. “If you believe real-time is the future, this would seem a very interesting opportunity.”

If it can acquire VocaLink, MasterCard would also find itself even more connected to global banking and financial services networks. The VocaLink PayPort managed payment product helps financial institutions avoid developing or maintaining their own infrastructure, especially for cloud-based services.

In another signal of the power VocaLink wields, the U.K.'s new Payment Systems Regulator has been seeking ways to enhance innovation and competition in the country's payments infrastructure, citing the banks' ownership of VocaLink as a deterrent to that process.

The regulator has called for banks to sell their shares in VocaLink.