Mastercard Acquisition of Vocalink Strengthens UK, Adds ACH

Navigator Edition: August 2016
By: Joel Van Arsdale, Jip de Lange, and Scott Frisby

In July, Mastercard announced the acquisition of Vocalink, the UK domestic payment network and a global leader in ‘instant payments.’ The acquisition valued Vocalink at $995 million (USD), a valuation multiple of 16 x trailing EBITDA. The acquisition is logical for Mastercard for several reasons:

  1. It strengthens Mastercard’s ambition to be the card payment network of choice in the U.K., relative to Visa’s strong debit position.  It also positions Mastercard as the ACH backbone in the UK (operating the BACS and Faster Payments networks).
  2. The deal makes Mastercard a leading global provider of real-time ACH including existing or planned networks in the UK, Singapore, Thailand, and the U.S.
  3. The acquisition is potentially game-changing considering possible market disruptions such as PSD2 in Europe and the initiation of new mobile front-ends.  Mastercard now positions with both card and bank transfer-based networks along with multiple front-end product platforms.

Enhancing Mastercard’s UK Position

The UK is Europe’s largest card market, making it highly strategic for Visa and Mastercard. Today, Visa is the largest cards network as a function of sustaining a 90%+ market share in debit, which accounts for 69% of all UK card transactions (Mastercard, on the other hand, has a majority share of the smaller base of credit cards). The majority of UK ATM transactions are switched domestically via Link, a domestic network owned by Vocalink. By acquiring Vocalink, Mastercard repositions for debit switching via Link’s relationships and network, and introduces potential synergies with ACH processing. Also, Vocalink’s front-end solution Zapp challenges Visa’s hegemony in the Debit space.

Vocalink operates the two most significant ACH networks in the UK – BACS, which is used for bulk transfers and direct debits, and Faster Payments, which is used for (near) real-time retail payments (note that CHAPS, the UK high-value wire network is not operated by Vocalink). The BACS network has been largely stable while Faster Payments (the more premium-priced of the two networks) is growing at 30% per annum. Faster Payments, via Vocalink, is also redefining the access model for ACH networks by providing more open, lower-cost membership, and by moving toward a web-service (cloud-based) model. Vocalink’s Access program and PayPort service are designed with these objectives in mind. These models move Vocalink toward a direct relationship with network users and processing services, but away from a strict ACH operator role.

Figure 1: Snapshot of Vocalink

Figure-1_-Snapshot-of-VocalinkSource: Vocalink, market observations.

Figure 2: UK Payment Transactions by Instrument
(in billions)

Figure-2_-UK-Payment-Transactions-by-InstrumentSource: Payments UK, UK Cards Association, ECB.

Entering Real-time Clearing

ACHs around the world are upgrading to real-time (or near real-time) clearing and Vocalink is a leading global provider of real-time clearing networks including the FAST network in Singapore, and recently-announced partnerships in the U.S. and Thailand. Faster Payments is the world’s largest real-time (or near-real time) network. Much of the growth to date of Faster Payments has come from P2P payments and the migration of UK standing orders. Even as the world’s largest real-time ACH, the network has yet to disrupt card networks in competing for retail transaction volumes. PSD2, however, could accelerate such a disruptive outcome in Europe.

Positioning for PSD2 and other potential disruptions

PSD2 mandates open access to bank accounts via APIs. This access can be used for both payment services and information services. Combined with real-time ACH clearing, there is strong potential to enable bank-transfer networks for retail payments. This outcome is clearly threatening to card networks, which thrive in retail payments. With Vocalink, Mastercard positions with both cards and real-time ACH networks in addition to a variety of access models, bank connectivity, and front-end services. The addition of Vocalink’s capabilities could, for example, enhance the utility of MasterPass on bank accounts of which the cards are Visa branded. More than anything, Mastercard’s acquisition of Vocalink hedges a shift of volume from card networks to real-time ACH.

Figure 3: Real-Time Clearing Networks in Europe

Figure-3_-Real-Time-Clearing-Networks-in-Europe* Planned lanunch.
Source: Press releases.

Future Development and Synergies Arising from the Vocalink Acquisition

  1. Mastercard will likely push more aggressively for global expansion of Vocalink instant payments capabilities. Mastercard has the capital resources, sales offices, data centers, and other on-the-ground resources to help sell and implement new instant payment initiatives globally.
  2. Mastercard will use Link and the other domestic payment networks (BACS and Faster Payments in particular) to contend with Visa’s strong debit position in the UK (although Visa’s position was recently reinforced with new contracts). Under separation of scheme and processing, now mandated in the UK, Mastercard could potentially use some combination of the Link/Maestro/Mastercard networks to eat away at the Visa UK debit and international card ATM share.
  3. It is unclear how Mastercard will embrace Zapp given that the scheme is not yet live in the market and given the global investment in MasterPass. One scenario is that Zapp continues to be marketed as a local UK mobile scheme while correspondingly made interoperable at the POS via PayPass and internationally via MasterPass. At a minimum, Zapp presents an interesting inventory of intellectual property and UK commercial arrangements for mobile which could prove valuable.
  4. Lastly, and most disruptively, Mastercard could use Vocalink to aggressively push new network models in a post-PSD2 European marketplace. Specifically, Mastercard could enable bespoke network arrangements with large merchants or PSPs using the open-access-to-account provided by PSD2. Additionally, Mastercard could leverage Vocalink to further its agenda to expand into information services and to provide more direct models for working with non-banks (in particular with large merchants).

Vocalink fills a logical need (positioning in the UK) as well as strategic upsides for Mastercard in the form of positioning to be the global market leader in real-time bank clearing and hedging PSD2 impacts in Europe.

For more information, please contact Joel Van Arsdale, Partner,; Jip de Lange, Senior Consultant,; or Scott Frisby, Manager, Each specializes in European Initiatives.

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