Mastercard's Heavy Investment in VocaLink Lightens Its Global Burden

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Mastercard is betting its $920 million investment in the U.K.'s VocaLink gives it a significant edge in many emerging technologies, particularly in regions where it is lagging Visa in traditional card-based business lines.

The Purchase, N.Y. card brand has spent the past few years nurturing a strategy that places more emphasis on digital merchant services and mobile payments.

"There are services that are not always best served through a card," said Michael Miebach, chief product officer for Mastercard. "It's not a tradeoff between bank cards and other services, but we want to provide solutions across the board."

There are immediate tangible benefits for MasterCard, particularly given Visa and Visa Europe's ongoing reunification, which pressures MasterCard's share in the region. VocaLink processes more than 90% of the salaries in the U.K., more than 70% of household bills and almost all state benefits in the country—covering more than half of all payments made in the U.K.

"The U.K. is an important market for us. We are positioned well in credit and prepaid but less so in debit," Miebach said (Visa controls most of the U.K. debit market). "VocaLink gives us an interesting alternative to debit in the U.K."

But the horizons go further than the U.K. Mastercard is investing heavily in Asia, building a new merchant services technology platform and adding technology development centers in India. Mastercard also hopes to establish a domestic payment presence in China and has expansion initiatives underway in Myanmar and other local nations. The card network relies in part on its tokenization security technology to penetrate emerging markets globally.

Mastercard is addressing substantial competitive pressures by acquiring VocaLink, according to Michelle Evans, digital consumer manager for Euromonitor International, which estimates Visa controls more than 40% of card transactions in Western Europe, or more than double Mastercard's volume.

"At the same time, Mastercard quietly picked off one of its biggest competitors in the emerging payments space," Evans said, noting VocaLink's faster processing and mobile initiatives including Zapp, a VocaLink platform that allows merchants to place payments buttons on their websites.

While most alternative payment technology plays rely on the card rails at least partially, some new mobile wallet models are a threat to the card networks, Evans said.

"One of the greatest threats to the traditional card payment players is a digital wallet in which payment is funded over a lower cost EFT network, which is what Zapp in the U.K. and the defunct CurrentC was attempting to do," Evans said.

Mastercard has introduced many digital payment products over the past few years, and has taken a recent interest in connected devices, powering payments for Samsung's new Web-connected refrigerator and robotic wait staff at Asian Pizza Hut locations.

"This acquisition gives MasterCard access to a much broader pool of transactions, which is helpful when developing products around risk and loyalty," said Zil Bareisis, a senior analyst at Celent.

VocaLink additionally powers faster payments processing initiatives in the U.K., Singapore and other countries, and has ambitions for the U.S. VocaLink's range of real time processing and mobile commerce tools can give Mastercard an even broader set of services to reach new markets.

With VocaLink, "Mastercard has bolstered its position in not only the U.K., but a number of important geographies such as Singapore," said Jordan McKee, a senior analyst at 451 Research's mobility team.

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