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Mastercard 'cements' real-time payments strategy with largest-ever deal

Running full-speed ahead with its real-time payments strategy, Mastercard Inc.'s largest deal on record will add instant payment services to its lines of business.

Mastercard announced Aug. 6 that it will acquire the majority of the corporate service businesses of European payments technology company Nets A/S for €2.85 billion. Nets' corporate service business includes clearing and instant payment services as well as electronic billing solutions.

With the acquisition, Mastercard "cements its multi-rail strategy" as it looks to expand its instant-payment and electronic billing solutions for account-to-account payments, according to RBC Capital Markets analyst Daniel Perlin.

The acquisition comes amid an increasing focus on real-time payments solutions, which serve as an alternative to checks and traditional automated clearing house payments that could take days to process. A day before Mastercard's deal announcement, the Federal Reserve said it will develop its own faster payments service, which will rival the existing real-time service already offered by The Clearing House, a private company owned by many of the country's largest banks.

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Mastercard and Visa Inc. have historically captured traditional card transactions, known in the industry as the interchange payments rail. But Mastercard has recently been "amassing a network of assets" to create a global multi-rail option that allows it to work beyond traditional card payments.

The payments giant also recently acquired VocaLink Holdings Ltd., which boasts a software to run on real-time payments networks; Trans-Fast Remittance LLC, a global cross-border payments company that can reach more than 90% of the world's bank accounts; and Transactis Inc., a bill payment platform.

"We see this acquisition as an expansion of this portfolio geographically, as it helps round out its global distribution network to include continental Europe, which complements [Mastercard's] existing capabilities in the U.K., Americas, Asia, and Middle East and Africa," Perlin said in an Aug. 7 note. Nets operates real-time payments in the Nordic region, Italy, Slovenia and Hungary.

Bernstein analyst Harshita Rawat called Mastercard's expansion into real-time payments and a stronger presence in continental Europe "critical" to sustaining growth. The analyst noted that Nets' solution is likely easier to deploy than VocaLink's more comprehensive technology offering.

"Nets also offers defensive value, protecting [Mastercard's] debit franchises from substitution risk from rising global adoption of real-time payments," Rawat said in a note following the deal announcement.

Visa was also likely interested in the company, she added. A media report from Quartz surfaced in July saying Visa was interested in acquiring certain parts of Nets' operations. Nets would have given Visa a foot in the door for real-time payments.

The pending acquisition also sets Mastercard up to better compete against other fintechs in the payments universe.

Fidelity National Information Services Inc., Fiserv Inc. and ACI Worldwide Inc. each own companies or assets that help run country-level non-card payment services. And PayPal Holdings Inc. effectively operates a non-card international payments service through its digital wallet.

Mastercard is not buying Nets' merchant acquiring business or its issuer processing and network services business. It also is not buying a small portion of the company's corporate services segment. These business segments account for about 70% to 75% of Nets' overall sales, according to Rawat.

The companies expect to close the deal in the first half of 2020.