VocaLink's 4 Biggest Shareholders Should Cut/Sell Stakes if MasterCard Deal Fails - Regulator

By Ian Walker

LONDON--The U.K. Payment Systems Regulator said Thursday the four largest shareholders of VocaLink should sell all, or part of their holdings in the infrastructure provider if its acquisition by MasterCard doesn't go ahead, in order to open up the market and boost competition.

VocaLink is owned by a consortium of 18 banks and building societies, with the four biggest being Royal Bank of Scotland Group PLC (RBS.LN), Barclays PLC (BARC.LN), HSBC Holdings PLC (HSBA.LN), and Lloyds Banking Group PLC (LLOY.LN). Its technology provides the backbone for non-card transactions such as employer payroll deposits and consumer bill payments, processing over 90% of salaries, more than 70% of household bills and almost all state benefits in the U.K.

It also unites the infrastructure of Britain's automated teller machine network among its participating banks. VocaLink reported $240 million in revenue last year and processed more than 11 billion transactions.

In a review that started earlier this year the regulator said it now plans to consult on a series of changes designed to increase competition and better meet consumer needs, including adopting a common international messaging standard to encourage new entrants, and creating a competitive procurement process that addresses consumer needs.

Last week, however, MasterCard Inc. (MA) announced that it was buying 92.4% of VocaLink Holdings Ltd. in a deal valued at about $920 million. If the deal completes, a majority of VocaLink's current owners will retain a 7.6% stake for at least three years.

The deal, which is subject to regulatory and other approvals, is expected to close early next year.

At the time of the deal, RBS confirmed it would sell its 21.4% shareholding in VocaLink and book a 150 million pound ($197.58 million) pretax gain in its accounts. Barclays also said it has sold 13.68% of its shareholding in VocaLink for GBP104 million, leaving it with a 1.5% stake.

Hannah Nixon, managing director of the Payment Systems Regulator said the deal could address the issues identified, but stressed that the problem runs deeper than just the ownership of the infrastructure provider and she wants to see further changes in the market if competition is to be effective.

"We need to future-proof the payments system so that the U.K. can continue to be at the forefront of payments innovation and deliver the best service to consumers. This means ensuring there is effective competition and that new entrants face the right conditions to enable them come to market," Ms. Nixon said.

"There is not one single area of concern, but a series of issues that are entwined and require a holistic approach in order to see them resolved. The remedies we are considering are packaged to achieve just that," she added.

-Write to Ian Walker at [e-mail]; @IanWalk40289749

(END) Dow Jones Newswires

July 28, 2016 06:13 ET (10:13 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.