In a move that could have long-lasting ramifications for Europe’s card processing industry, MasterCard is believed to be linking up with Telecom Italia to bid for Italian payment processor SIA-SSB, which was put up for sale by its consortium of Italian bank owners in mid-2008. After a drawn-out tender process, which attracted around 30 separate bids, SIA-SSB is believed to have narrowed the shortlist down to two, Telecom Italia, which already holds a 4.1 percent stake in SIA-SSB, and European IT company Atos Origin.
Telecom Italia, looking to increase its stake in the payment processor to 63 percent, is rumoured to be the front-runner, according to payment industry insiders speaking to CI, firstly because SIA-SSB may give preference to another Italian organisation, and secondly because Atos Origin has been weakened by in-fighting between its shareholders and board of directors over the company’s direction.
The bidding process for SIA-SSB has been derailed by a string of setbacks, with several early bidders dropping out, and negotiations over the sale price dragging on as the global economic turbulence slashes company valuations. SIA-SSB’s initial asking price of €800 million ($1 billion) is now believed to have fallen to around €500 million, and with no closing date for the bidding process in sight, SIA-SSB’s sale value could fall further.
Ramifications for processing landscape
However, it is MasterCard’s involvement with Telecom Italia’s bid that has the potential to shake up Europe’s processing industry, now that the SEPA initiative has brought about the unbundling of schemes and processing.
MasterCard has made no secret of the fact that it wants to be a fully-fledged processor, and its potential acquisition of SIA-SSB comes just a couple of months after MasterCard acquired Ireland-based payment solution software provider Orbiscom for $100 million to enhance its payments processing system.
Aside from card processing, SIA-SSB also has network service management, capital markets and automated clearing house (ACH) processing business lines, and it is the potential of combining elements of those operations that appeals to MasterCard.
Speaking to CI, Francesco Burelli, a payment industry analyst, said: “The potential convergence of ACH, real time gross settlement [RTGS] and cards infrastructure has been one of the possible developments that have been explored by schemes and processors for quite few years, revived by the SEPA migrations.
“The topic was high on the agenda up to a couple of years ago as it might have enabled a much higher leverage of volume economies though a clearing infrastructure.
“We have seen technological developments leading to convergence of ACH and RTGS functionalities but not between these and card processing infrastructures to date and these arguments seem to have recently lost momentum. Should MasterCard be involved in the acquisition of SIA-SSB together with Telecom Italia, as it is rumoured, it is likely the convergence of cards and non-cards processing infrastructures might re-emerge.
“Should MasterCard be actually involved in the SIA-SSB deal, there would be some interesting changes in the scheme and card processing competitive scenarios. On one side MasterCard would be in position of leveraging a much wider processing presence in the issuing and acquiring value chains compared to its competitors, while at the same time it would become a direct competitor to processors like TSYS and First Data.”