After many months of deliberations, MasterCard has finally announced its acquisition of a 92.4% stake in UK based payments systems VocaLink for £700 million ($920 million). In addition to this, shareholders could earn up to £169 million ($220 million) if targets are met after the acquisition is fully approved by regulators.
This enables VocaLink and MasterCard to strategise together in order to dominate the UK payments landscape by enhancing their products and services. Ajay Banga, president and CEO of MasterCard, shared this view and advocated VocaLink’s expertise. “We’re excited about the opportunity to play a bigger role in payments in the UK, a very strategic market for us. 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,” Banga said.
CEO of VocaLink, David Yates, also commented on the acquisition and said that this partnership will aid increased global innovation. “Today’s announcement is positive news for our partners, customers and employees. We will continue to focus on ensuring that the UK systems perform seamlessly, maintaining the highest levels of quality. At the same time, we’ll invest in further innovation to power competitive payments solutions for consumers and businesses around the globe,” Yates said and he will join the MasterCard management committee following this announcement.
VocaLink is responsible for UK payments technology schemes such as Faster Payments, enabler of mobile, internet and telephone payments with the use of a real-time account-to-account service; BACS, enabler of direct credit and direct debit payments using an Automated Clearing House (ACH); and LINK, the UK ATM network. The payments company also offers ZAPP, a mobile application that uses Faster Payments to provide services in Sweden, Singapore, Thailand and the US.
In our most recent FinTalk podcast, we interviewed Tom Hay, head of payments at Icon Solutions, who was one of the lead architects who designed the central processing systems for UK Faster Payments, spoke to us about how VocaLink acts as a central hub for processing payments between banks and the Bank of England. “They have been doing that for about 50 years so the tech has changed a lot but they now look after the BACS, Faster Payments and LINK,” Hay said. He goes onto discuss how the terms instant, real-time, faster and immediate payments are all interchangeable and refer to the same thing but this is a costly for banks to adopt.
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
In conversation with bobsguide late last year, Yates spoke to us about their partnership with The Clearing House (TCH) in order to develop US real time payments in similar way to how the UK Faster Payments Scheme was formed. VocaLink and The Clearing House signed a letter of intent in October 2015 that consolidated that a system would be built so that consumers and businesses could send and receive real time payments from existing accounts at financial institutions. Alongside this, the adoption of the system would mean that new innovative technologies could transform the US market for the better.
Yates highlights how although it would follow a similar programme, the US market would have to respond to this decision in a different way. “UK banks were mandated to implement Faster Payments and that hasn’t been the situation in the US. What The Clearing House has done in close collaboration with the Fed is to work with the banks across the US to encourage them to adopt a new digital commerce platform.” He also explained that the real time payments system suits the mobile environment better because the payment authorisation and settlement can be completed in real time, which matters a great deal when in real time commerce.
“Real time systems enable people to complete mobile billing and mobile invoicing in a way that goes back directly to the bank account, without the old fashioned nature of card systems getting in the way,” Yates said. In addition to these developments, TCH are focused on helping individual financial institutions and their service providers to integrate and adopt the new system so that their customers can retain their existing bank accounts.
Yates confirmed that the payments industry has been evolving rapidly and the global fintech firms have been pushing the traditional lenders to provide newer systems. “The financial industry is facing what I would call “disintermediation” of their customers by the non-banks and I think one of the key ways we can remediate this is by bringing this platform to the US to effectively interface, compete and retain the relationship with the customer.”