MasterCard deal to acquire VocaLink draws concerns from UK competition authority

MasterCard announced last year that it had agreed a deal to buy a 92.4% stake in VocaLink, which provides the hardware, software, secure telecommunications network and operating environments supporting the clearing and settlement of payments for the Bacs, Faster Payments Service (FPS) and LINK interbank payment systems.

The Competition and Markets Authority (CMA) said the deal, reportedly valued at up to £869 million, will be subject to an in-depth competition investigation unless MasterCard tables a remedy by 11 January to address the issues it has identified.

According to the CMA, the transaction would negatively impact on competition in relation to the supply of infrastructure services to the LINK payment system.

It said that, at the moment, VocaLink and Mastercard are two of the three "most credible providers of infrastructure services" to the LINK system and that a merger of the two companies "would reduce the number of bidders and limit the ability of the LINK scheme to obtain good value when tendering for an infrastructure provider".

The CMA said that the deal had drawn concern from "a number of industry participants" and that it had "investigated a number of theories of harm".

The regulator said it had concluded that a consolidation of VocaLink and Mastercard would not cause competition concerns in respect of the supply of payment infrastructure services to Bacs and FPS as there are "many credible" other suppliers of those services to those payment systems.

Andrea Coscelli, acting chief executive of the CMA, said: "The LINK ATM network provides an essential service for millions of customers. It’s important that LINK has a good choice of providers when it comes to supplying the necessary infrastructure so it can take advantage of the opening up of payment systems to competition. These concerns warrant a closer investigation in the event that Mastercard cannot address them at this stage."

MasterCard said it welcomed the CMA's decision.

MasterCard said: "The thoroughness of the CMA’s review reflects the significance of this deal and its potential for the industry. In its announcement, the CMA noted that it has no concerns related to providing payment infrastructure services to Bacs or the Faster Payments Service."

"We’re pleased to have the opportunity to address their one concern, regarding the LINK ATM scheme, in the timeframe provided. This acquisition promises to bring greater choice and innovation to the payment ecosystem, enabling people, governments and businesses to pay the way they want to pay," it said.

The CMA's concerns come despite the fact the UK's Payment Systems Regulator (PSR) welcomed MasterCard's announcement of its deal to buy a majority stake in VocaLink in the summer last year.

In its final report following a market review into the supply of infrastructure services in UK payments, the PSR said Barclays, HSBC, Lloyds and RBS should divest their interests in Vocalink. The four banks are the largest shareholders in the infrastructure supplier. The acquisition by MasterCard "could address the issues we have identified as causing a restriction of competition currently", the PSR said.

The PSR subsequently gave its support to a cross-industry body's strategy for payments which includes proposals to replace existing payments infrastructure with "new payments architecture" that uses modern technology.

Editor’s note 04/01/17: this story has been updated to include MasterCard's statement.