MasterCard buys Travelex prepaid unit for $459 million

NEW YORK/LONDON (Reuters) - MasterCard is buying the prepaid cash-card business of foreign exchange group Travelex for 290 million pounds ($459 million), boosting its presence in a fast-growing financial services segment.

The deal is MasterCard's second effort this year to expand its international and emerging market business, where it has more room to compete against arch-rival Visa Inc. Both companies are also trying to gain a foothold in the small, but high-growth prepaid market, which offers them new business from consumers who use cash and checks to shop.

Prepaid cards are especially popular with lower-income or "underbanked" consumers, many of whom cannot qualify for credit cards or use traditional bank accounts. The Travelex unit specializes in a different prepaid niche -- cards for overseas travelers who can use them instead of travelers' checks -- but MasterCard said it plans to expand Travelex's offerings.

The deal will "be an important driver for our growth in the whole prepaid arena," especially outside of the United States, MasterCard Chief Executive Ajay Banga said during a conference call with investors and reporters on Thursday.

Prepaid cards are one of the fastest growing segments of the financial services industry. MasterCard forecast prepaid volumes would reach more than $840 billion by 2017.

The Travelex "cash passports" are seen as more secure and more convenient than traditional travelers' checks, MasterCard executives said. They also allow consumers to lock in good foreign exchange rates when they buy them, instead of withdrawing money once they travel and being subjected to currency fluctuations.

MasterCard does not plan to expand the Travelex offerings in the United States, where it already works with dominant prepaid card marketers such as Green Dot and NetSpend.

"There are a lot of strong program managers" in the United States, but "the fact that this business has such a strong cross-border global footprint means that we can really drive the opportunities outside the U.S.," MasterCard Chief Product Officer Tim Murphy told Reuters in an interview on Thursday.

SPENDING ABROAD

The Travelex deal is MasterCard's second bid this year to buy wider access to international markets. It paid $520 million in October for the British online payment services company DataCash, and like Visa, has said it plans to continue looking for acquisition targets.

The world's second-largest credit- and debit-card company said the transaction would be 4 cents dilutive to its 2011 earnings per share as a result of amortization and integration costs. It added it could pay an extra 35 million pounds if the business meets certain performance targets.

For Travelex, the transaction provides it with extra cash for its own expansion plans.

The deal will not change the shareholding structure of Travelex, majority-owned by private equity group Apax and often touted as a potential candidate for a listing.

Travelex founder Lloyd Dorfman, who set up the company in 1976, also has a significant stake in the group.

Travelex reported a 3 percent dip in first-half earnings in September, saying at the time it was confident its full-year profit would be higher than in 2009.

MasterCard said it expected the acquisition to be neutral to its earnings in 2012 and accretive in 2013.

Smith Square Partners advised Travelex on the deal; MasterCard did not use advisers.

Separately on Thursday, Travelex said it had bought a major holding in South Africa's FX Africa.

($1=.6317 Pound)

(Additional reporting by Sudip Kar-Gupta and Simon Meads in London; Editing by David Cowell and Maureen Bavdek)

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