Payment systems: WorldPay sold to VCs by RBS

WorldPay is the largest provider of card payment services in the UK and Europe and the fourth largest globally. In 2009, the business processed a total of 6,800 million transactions worldwide with a value of USD383,000 million.

Through its Streamline brand, it underpins almost half of all UK high street card transactions.

Headquartered in the UK, the company employs over 2,600 people in more than 30 markets throughout Europe, the US and Asia.

It was a jewel in the crown of Royal Bank of Scotland group, - already a leading domestic POS credit card processor called Streamline, WorldPay as a brand was created in 1994 when internet payments were new, it grew within RBS to become a major global force, the WorldPay brand becoming the global brand for the services. The inroads that the company carved into the USA startled financial institutions there.

Now, the company is in the hands of American Venture Capitalists. With completion of the sale yesterday, a raft of announcements of new appointments shifted the management focus sharply west.

Although RBS is keeping a "minority stake", the bulk of the company is now owned by private equity firms Advent International and Bain Capital.

This new ownership immediately brings with it challenges for the company as it will now fall under more direct scrutiny by US authorities in relation to its non-US business.

The company says "The management board which will lead the business includes two new appointments to the existing team. Floris de Kort joins as head of e-commerce from e-payment services provider GlobalCollect where he was chief commercial officer. Peter Smith will join as chief human resources officer in January from Burger King in the US, where he held a similar role. Stephen Hart continues as chief financial officer, together with Raghav Prasad as head of the UK Streamline business and Ian Stuttard as head of WorldPay US. Advent International will be represented by managing director James Brocklebank and Bain Capital by managing director Robin Marshall. "

It goes on "The new company will be structured as three divisions. In the UK, WorldPay will continue to be represented through the Streamline brand, the leading provider of point-of-sale payment services in Europe. In the US, WorldPay is the fastest growing merchant acquirer in the world's largest card payments market. The third business, e-commerce, supports some of the biggest names on the internet and is one of the few global full-service players well positioned to support the trend of traditional retailers turning to online sales."

It's the use of the words "company" and "divisions" that raise the spectre of greater US supervision: if there is a single operating company operating discrete business units but in the same ownership, then there is little escape from US supervision. Independent companies, arguably, are severable. That, however, is likely to be seen by regulators on both sides of the Atlantic as an artificial distinction from a regulatory perpective.

Being independent of a bank releases WorldPay from strict banking supervision rules. It places it in, broadly, the same regulatory position as VISA or MasterCard.

WorldPay will be regarded as a "payment services provider" and subject, at least in part, to regulation in Europe under the E-Money Directive. But in the USA, e-money providers are not subject to a clearly defined regime. That's because the USA relies on a system of looking through the banks to the money. It is though this - in the correspondent banking network - that the USA found a way to access SWIFT data.

But for RBS, the sale is a blow. The UK's departed Labour Government made it a condition of RBS gaining access to the government's bail-out funds that it sell WorldPay. To describe this decision as crazy is an understatement. WorldPay contributed much to RBS's revenue stream.

The sale completed yesterday is at an estimated GBP2,025 million for 80.1% of the business.

There was a large-scale sell-off of assets planned and in March The Times carried a statement form an RBS spokesman saying "“We are making excellent progress in reducing the size of our balance sheet and making the bank safer. A wide range of asset disposals are underway, including those we identified as non-core in our strategic review as well as those that we agreed with the EU Commission would be disposed by 2013."

There is an argument that RBS would have been better off if it had dumped its banking business and reversed the rump of the business into WorldPay. Instead, hoisted on an altar of bank-bashing, it has sold, for quick cash upfront, one of the few parts of the bank that wasn't destroyed by bad decision making in the run-up to what became the Global Financial Crisis.

Shareholders (who still own almost 20% of the bank, the rest being in public ownership, in RBS should be mightily angered.

There is no criticism of the purchasers. For those who ordered the disposal, however, there is a more serious question. As the prime beneficiary of this sale is the UK Government, which ordered it to take place, there is a potential question of abuse of minority shareholders who did not get the chance to vote on the disposal.