Mastercard has been battling to regain market share since Visa Inc took full control of Visa Europe in 2016 © Reuters

HSBC’s First Direct brand will start moving customers from Visa to Mastercard debit cards next year, as Mastercard attempts to break its larger rival’s dominance in one of the most important parts of the UK payments sector.

Kelly Devine, Mastercard UK and Ireland president, told the Financial Times the agreement was “a validation of our approach and business model”, which had taken on greater urgency as the coronavirus increases the popularity of debit cards.

“Having true scale in that debit space is more important to us than it was before,” Ms Devine said. “Growth in contactless payments has been staggering.”

Debit cards overtook cash as the most popular form of payment in the UK in 2017, and by 2019 accounted for 42 per cent of all transactions, according to UK Finance data. The proportion of digital payments has risen even further since the start of the coronavirus pandemic.

The shift to digital has been a boon for card networks, which charge stores a small fee for each payment that they process. Mastercard is the UK’s main provider of credit cards, but Visa has dominated the larger debit card market for the last decade, handling more than 95 per cent of transactions at its peak.

Britain’s large banks were incentivised to work with Visa because they co-owned its European arm, but Mastercard has been battling to regain market share since Visa Inc took full control of Visa Europe in 2016.

Ms Devine said First Direct’s 1.6m customers would help lift Mastercard’s market share above 15 per cent for the first time since Royal Bank of Scotland switched to Visa in 2009.

The New York-based group has become particularly popular with fintech start-ups such as Monzo and Starling Bank, but Friday’s First Direct deal marks the second major mainstream bank to switch to Mastercard in recent years, following a deal with Santander in 2018.

Mastercard had previously hoped to pass 20 per cent market share last year, but a proposed deal with TSB was shelved after unrelated tech problems at the bank forced it to put other projects on hold.

Ms Devine said convincing major banks to switch and negotiating contracts took “years”, but said she was hopeful that “other players will make the same decision in the future”. She said the group’s success with fintechs in particular had helped convince more traditional lenders to consider moving away from Visa. “It’s been a great way of showcasing what we can do,” she added.

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