Mastercard Close To £1bn Vocalink Takeover

Mastercard has entered exclusive talks to buy Vocalink, the British-based operator of the Faster Payments service, as it bids to capture a greater share of UK debit card payments from arch-rival Visa (Xetra: A0NC7B - news) .

Sky News has learnt that the 13 banks which are shareholders in Vocalink have approved a period of exclusivity within which Mastercard can negotiate a takeover of the company.

Any deal is likely to be worth in the region of £1bn, according to insiders, handing a useful windfall to the four biggest UK banks - Barclays (LSE: BARC.L - news) , HSBC, Lloyds Banking Group (Other OTC: LLOBF - news) and Royal Bank of Scotland (LSE: RBS.L - news) - which between them own about 80% of Vocalink.

If a deal is completed, it will see control of a key part of the UK's financial infrastructure relinquished by big high street lenders just months after the new payments industry regulator said Vocalink's existing ownership structure was "hampering competition and the speed of innovation in the market".

Vocalink processed 11 billion transactions last year, equating to more than half of all payments made in the UK.

Sources said that Mastercard had been drawn to Vocalink's recent technological advances and successful international expansion.

The US-based card issuer has a market share of just 5% of the UK's debit card payments, and is understood to believe that a takeover of Vocalink would enable it to compete more effectively with Visa.

News (Other OTC: NWSAL - news) of the exclusive talks comes just hours after Visa Inc was forced by regulators in Brussels to amend the terms of a takeover of Visa Europe to ease anti-trust concerns.

The US-based company is to hand over a substantially higher cash sum and scrap the earn-out element of the original deal, enabling Visa Europe's bank shareholders greater flexibility to move their business elsewhere.

One source described the negotiations as "a transatlantic game of bluff that has got more cash for UK banks".

Vocalink, which is run by David Yates, its chief executive, handles £6tn-worth of payments in Britain each year, and was this week named as the recipient of a major payments industry award in the US.

More than 90% of all salary payments, and virtually all state benefits are processed using the company, which delivers the Faster Payments Service and the Bacs service which collectively underpin billions of payments.

Mastercard, which is a sponsor of the UEFA Champions League, is being advised by Citi, the Wall Street bank, on the talks with Vocalink.

Other parties, including Sia (Shanghai: 600009.SS - news) , an Italian payments group, and a number of private equity firms had expressed an interest in acquiring the British company.

Any deal involving Vocalink is likely to attract political and regulatory scrutiny given the degree of sensitivity surrounding the payments sector.

The company was also behind the delivery of the Current Account Switch Service which launched in the UK in 2013, and which was hailed by ministers as a key component of plans to make the retail banking sector more competitive.

The quickening pace of cross-border consolidation in payments is being driven by a recognition that such infrastructure does not necessarily need to be owned along traditional geographical lines.

Recent corporate activity in the sector, including the takeover of Nets in Scandinavia by two private equity firms, has fired interest in a new round of consolidation.

The two Nets shareholders, Advent International and Bain Capital, reaped huge rewards from the London flotation of Worldpay, another major payments company

Vocalink made operating profit of £16.5m in 2014, a figure that was depressed by an investment in Zapp, a mobile service.

Under Sir John Gieve, the former Bank of England deputy governor who is its chairman, and Mr Yates, Vocalink has expanded abroad, signing key agreements in Singapore, Thailand and the US.

Mastercard and Vocalink declined to comment on Friday.