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MasterCard CEO predicts m-commerce assault on cash

Stuart Lauchlan Profile picture for user slauchlan June 2, 2015
50% of US retail transactions are still conducted in cash, but m-commerce will change that, says Ajay Banga.

Ajay Banga

On most occasions when the subject of m-commerce comes up for discussion, it’s met with enthusiasm from the traditional plastic card providers in the financial services sector.

Consider, for example, the views earlier this week of Bill Gaida, SVP Devices, Platforms and Mobile Operations at Visa around the future potential of analytics tied to mobile commerce expansion.

But yesterday at the Deutsche Bank Global Financial Services Investor Conference, there was what struck me as a rather different response from Ajay Banga, CEO of MasterCard when asked his opinion of m-commerce.

While Banga sees m-commerce as the way ahead, he pitched a pragmatic message that the reality is that cash is still king in most places, pointing out that:

50% of retail transactions in America are still cash, 50% and that’s in a country where we think cards are ubiquitous.

He added:

In markets like the US or developed acceptance infrastructure markets, the reason we are seeing so much cash is mostly small ticket. So it’s your coffee, it’s your news paper, it’s the cab. Now New York City when card machines got installed in the cab four years ago and all my country men were demonstrating outside [Mayor] Bloomberg’s house saying that, 'You are going to take away my [tip].' Actually they were basically fighting about the fact that tips were going to become accountable because they were going to get paid.

Meanwhile through the crisis what actually happened was that tips went up much more than their tax rates went up and so they are all very happy now. If you talk to the taxi and limousine commission they will tell you, two out of three payments in New York City cabs are now electronic.

But that’s New York City. Now you go to DC and it’s still cash based.
You go to San Francisco, Silicon Valley hub, all the cool guys are there right, hey it’s still cash based in cabs.

The introduction of contactless terminals will be a driver for growth in the mobile payments market, he predicted:

Over the next year or two you are going to see a large expansion in those. I think you are going to see a real challenge to cash from those systems and I’m looking forward to that, because I get paid for it.

And he’s going to get paid more as m-commerce goes mainstream as part of the wider ecommerce transition:

Ecommerce is exciting because ecommerce gives you growth rates that we couldn’t have got. At the end of the day PayPal’s growth in ecommerce has funded our growth too, because 55% of the transactions in PayPal are funded by cards. So it’s an interesting way to think about that.

Partnering and tokens

That’s also the way he reacts to Apple’s Apple Pay and other digital cash initiatives:

Apple, Google, Samsung to me are all partners in the system, just as the partnerships we have build over time with a Deutsche Telekom or an Everything Everywhere or an Airtel or any of the MNOs. There is a lot of partnerships to be built in this industry, to be able to get at the 85% cash.

A lot of effort at MasterCard is now focused on introducing tokenisation for additional security:

It’s coming into the Master Pass Wallet towards the later part of this year and therefore it will be available on ecommerce from that time onwards. Today ecommerce is browser-based. It will go into different countries depending on when these services get rolled into different marketplaces, that’s what going on.

So honestly tokenization is a very large endeavor in the company right now. A fair amount of energy, people, money, capital is being spent on building the capability to do that well, because its key to security and safety in the digital transaction realm.

Banga argued that MasterCard has a technology head start over rivals:

We’ve got the advantage of having technology that was built from our predecessor, where we’ve got a distributed hybrid system using servers in different banks and retail systems around the world. So most of our transactions are approved between one and two times faster than those of any of our competitors.

It doesn’t matter in hotels, whether you get approved in one three hundred and fiftieth of a second or one-one hundred of a second. It does matter at a Subway turnstile; it matters at a McDonalds; it matters at a Walgreens and so it depends what you’re catering this to with.

It also helps that MasterCard is one company with one technology platform, he added:

We have one release of technology across the world. We do upgrades to it four times a year, with clients connecting to it at least once in the year. By the end of the year everybody is on the same release and if you live in a banking world, having one release of technology around the world is a gift that just keeps on giving, and that’s an enormous advantage.

He cited the example of France as a case in point:

Banks which traditionally have been Visa banks have connected into MasterPass for the Wallet, because the MasterPass Wallet is a global solution, whereas Visa has Visa Checkout for the rest of the world and for Europe.

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