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MasterCard is considering a takeover of VocaLink, following the Payment Systems Regulator (PSR) proposing that the bank-owned payments service company is sold off to even out the payments infrastructure.
According to Sky News, MasterCard approached the banks that own VocaLink about a £1bn takeover.
The UK payments regulator PSR recently confirmed its plan to encourage banks to sell off some of their stakes in VocaLink, which processes most UK payments.
Through its services – which include the UK Faster Payments, Bacs and UK Link ATM systems – VocaLink processes more than 90% of salaries, 70% of household bills and almost all state benefits in the UK.
The PSR believes the fact that VocaLink is owned by a small group of large banks makes it uncompetitive. At a time when financial services regulators are trying to increase competition in the financial services sector, this ownership is a conflict of interest.
According to David Bannister, financial services analyst at Ovum, there have been rumours for a while that other companies were trying to acquire parts of the VocaLink business.
“It makes sense because MasterCard has all the capabilities to do this, but I think the PSR would be disappointed if a large organisation took over,” he said.
MasterCard was mentioned in the PSR report as a potential company that could take over parts of VocaLink.
Read more about VocaLink
- Banks look set to lose their grip on payment systems because they add little other than resilience, as the new system regulator sets out its plans in its industry consultation.
- The Financial Conduct Authority plans to open up the payments sector to new companies to improve competition.
- The UK payments regulator wants banks to loosen their grip on the payments infrastructure by selling off some of their stake in it.
Gareth Lodge, analyst at Celent, said that MasterCard has lost out heavily in the UK, as almost all major banks have debit cards with its main competitor Visa.
He said a takeover of Vocalink would help MasterCard diversify beyond cards with things such as real-time payments through the Faster Payments system. “Real-time payments is the jewel in the crown.”
Lodge added that the card industry is at risk of declining business. This is particularly with the European Commission’s Payment Service Directive 2 introducing a rule that will allow third parties, such as large retailers, to go direct to banks for money owed by customers. “Tesco, for example, could go direct to a bank for money and cut out the card companies.”
Potential loss of Vocalink
MasterCard and Vocalink already have a connection in the form of Marian King, who currently heads up payments at the Royal Bank of Scotland (RBS). King was at MasterCard before RBS, but she also spent a decade at VocaLink as CEO.
The potential loss of control over VocaLink has not come as a surprise to banks. They have been resigned to losing this £75tn payments service for some time.
On the publication of the PSR’s latest report, managing director Hannah Nixon said: “The payments industry has evolved at a steady pace, but now is the time to ask whether or not it is operating best practice. The evidence we have gathered shows that common ownership is hampering competition and the speed of innovation in the market.”
First announced in April 2014, the PSR was set up to open up the payments sector to companies to improve competition.
When the PSR was announced, the Financial Conducts Authority (FCA) CEO Martin Wheatley said the regulator needs to know whether consumers are getting the best possible deal and if the payments sector is as open as it should be to entrants to the market.