Regulators to Mastercard: VocaLink deal may be 'reasonable' with open ATMs

Mastercard’s $920 million acquisition of VocaLink hasn’t cleared all the regulatory hurdles yet, but it’s closer to the finish line now that the U.K. Competition and Markets Authority (CMA) has said it will consider a strategic solution Mastercard has proposed to offset potential threats to competition.

Mastercard has volunteered to open up the Link ATM network—the largest in the U.K and a key VocaLink asset—to competitors, to assuage worries about local ATM market competition the CMA flagged early this year with Mastercard’s VocaLink merger narrowing the field of ATM providers from three to two (with Visa being the remaining competitor).

The CMA said it will consider Mastercard’s proposed solution in greater detail over the next two months, but there are “reasonable grounds” to believe Mastercard’s plan will neutralize the competition threat, the CMA said in a Jan. 18 announcement. VocaLink operates 70,000 ATMs in the U.K.

“We’re very pleased with the CMA’s decision to consider the path we’ve proposed, which we think is a very pragmatic one,” said Eddie Grobler, Mastercard’s executive vice president of global ACH systems and integration, in an interview.

Andrew Harrer/Bloomberg

The CMA’s only objection to the deal, announced in July 2016, was a competitive concern about Link. VocaLink’s other services, including technology powering the U.K.’s Faster Payments and BACS, which supports direct credit and debit transfers for 95% of U.K. salaries and 85% of the nation’s total workforce, were cleared as part of the competition review.

Mastercard's approach may enable it to avoid painful structural changes to appease the U.K. competition watchdog. If the CMA had demanded that Mastercard break off pieces of VocaLink, it could potentially undermine some of the benefits of acquiring VocaLink’s full combination of infrastructure and technology, analysts noted.

“The CMA’s decision is good news for MasterCard and VocaLink, as it potentially clears the way to the deal they wanted,” said Zilvinas Bareisis, a senior analyst with Celent.

Mastercard is optimistic about the next phase of discussions and hopes to finalize its VocaLink acquisition as early as this spring, enabling Mastercard to expand its services to new sectors and customers, Grobler said.

“We feel like we’ve achieved a major milestone here by getting more clarity in the terms and the timeframe related to this deal, which we believe will create more choices for users and create a new platform for innovation of services for consumers, governments and businesses,” Grobler said.

The CMA plans to review Mastercard’s proposed solution to the competition problem until March 15, when it will consider whether to accept it. If necessary, the CMA may extend the consideration period until May if any special reasons surface, the agency said.