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MasterCard to Buy Travelex Prepaid Program for $485 Million

Placing a big bet on the prepaid and travel market, especially outside the U.S.

As banks ramp up their prepaid card offerings, partly as a hedge against coming fee limits on debit cards and existing fee restrictions on credit cards, MasterCard has come out with a blockbuster announcement: it's acquiring Travelex's prepaid card program management operations for $485 million. The deal will also involve an earn-out of up to an additional $55 million if certain performance targets are met. The transaction is expected to close in the first half of 2011.

"The prepaid area is projected to grow about 22% to $840 billion by 2017," said Ajay Banga, president and CEO of MasterCard, during a call this morning. "This includes seven-fold growth in the travel market; that travel market by itself is estimated to reach $76 billion in global volume by 2017." Banga said MasterCard has neither the need nor the desire to act as a direct issuer of prepaid cards.

MasterCard is acquiring the Travelex operations that manage and deliver consumer and corporate prepaid travel cards to business partners including financial institutions, retailers, travel agents and foreign exchange bureaus. These operations also manage cross-border payroll, per-diem and expense-management prepaid cards for corporations.

As part of the transaction, MasterCard and Travelex signed a long-term contract whereby MasterCard will provide program management services for the Travelex Cash Passport prepaid card sold through Travelex stores and online channels. Travelex will now exclusively offer MasterCard cards.

Last year, the two companies expanded their relationship by agreeing to convert the majority of Travelex card programs to the MasterCard brand and by using MasterCard Integrated Processing Solutions for global prepaid transaction-processing.

Peter Jackson, CEO of Travelex, said the sale of the prepaid unit will allow the company to accelerate its investment plans in higher growth regions such as Asia and South America and in the e-commerce.

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