UK: Competition watchdog gives tentative approval to Mastercard VocaLink deal

Earlier this year, the CMA raised concerns over access to the UK ATM network, given the acquisition’s potential to negatively impact the competitive nature of the region’s ATM market by reducing the number of competitors from three providers (Mastercard, Visa, VocaLink) to two. In a statement issued on January 4, 2017, the CMA noted that “the merger would reduce the number of bidders and limit the ability of the LINK scheme to obtain good value when tendering for an infrastructure provider.”

In that same statement, the CMA rejected industry concerns over BACS and Faster Payments Services access.

In a conversation this morning with Mastercard’s Chief Product Officer Michael Miebach shortly after the news was released, Miebach suggested that the somewhat expected and often typical solution to such concerns is divestiture. But while Miebach noted that might have solved the narrow problem for Mastercard and VocaLink, it really wouldn’t have addressed the larger concern — and potential opportunity — which is access to LINK ATM network.

“If you look at this competitive landscape right now and glance backward at who has been bidding, there really have been only three players — Visa, MasterCard and VocaLink,” Miebach told Karen Webster shortly after the news broke. “What the CMA wanted was the opportunity to provide a more favorable cost of entry for a new provider as well as to consolidate the time to revenue to make it attractive for all parties.”

So Mastercard and VocaLink proposed what Miebach described as, “a novel solution” — instead of divesting the LINK network, they will instead open it up so that others who might want to establish an ATM network can do so easily and cost-effectively. The proposed remedy allows new entrants to use VocaLink’s connectivity with members of the LINK ATM network and includes the licensing of LINK’s intellectual property rights relating to the LINK LIS5 messaging standard, which members of the network use to communicate when customers use cash machines. Access to the LINK network will also come with a more favorable pricing scheme to encourage innovation and new services.

Miebach noted that the proposed solution is consistent with what UK regulators have been pushing for across the financial services board of late — more open access to financial infrastructure.

“The existing model today is not inviting competitors. With this deal, [the indusrty] will get a much more open market — which I think will invite new entrants,” Miebach emphasized. “There is very little infrastructural change needed — we are just opening up the existing ‘pipes’ to others who want to use them without going through a long process to set up their own.”

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So what’s next?

The CMA now has 40 days to consider the proposed remediations for Masercard and VocaLink — they can either accept them as written or suggest alterations. Thus far, the CMA has stated that there are reasonable grounds for believing that these proposals, or a modified version of them, are likely to be acceptable to remedy the competition concerns it has identified.

The CMA now has until 15 March 2017 to consider the proposal — though it can still decide to extend this deadline to 15 May 2017 if it decides that there are special reasons for doing so.

“This was the big milestone today,” Miebach noted.

As for what’s next for VocaLink and Mastercard — Miebach said the overall focus is on building their next-phase firm, which he says will give Mastercard cardholders the ability to make both card and bank-account based payments.

“We are really excited,” Miebach emphasized. “We are one step closer to creating an integrated payments technology company that isn’t just card based services but also bank account based services. We really look forward to being a one-stop shop.”

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