I'm not in the business of trying to sign up individual consumers one by one, I'm not a B2C company, I'm a B2B2C company and don't want to change that.
It’s a strongly worded statement of intent from MasterCard CEO Ajay Banga, but one which perhaps reflects the increasingly competitive nature of the payments market as it shifts from physical to digital.
With challenges coming from the likes of Apple and Google, as well as the ‘co-opetition’ with the likes of PayPal, it’s a turbulent time for MasterCard and other physical card providers. This in itself goes some way to explaining Banga’s need to create clear differentiators for the firm’s own MasterPass digital offering. He states:
MasterPass for me is not just a wallet and I actually want to make that crystal clear. I'm not in the wallet business other than to create a private-labeled, brand-agnostic open wallet which is available through open API to any bank or any merchant that wants to use it. Think of it like an iOS upgrade, so that every time the iOS upgrade comes through your iPhone, you kind of click, you press things and you’ve got a new upgrade on your phone.
I want you to be able to do that in the wallet business if you use my wallet. I'll be investing in putting in all kinds of features into it. What are those? Safety and security features, omni-channel features, meaning not just browser but also in-store and in-app, third-party features like real time alerts, account balance checking, reward and voucher integration into the wallet, expense management efforts into the wallet, pushing out offers with price subsidies, all of that.
So if you as an institutional bank were to use our wallet, as a number of banks are beginning to do, when I do an upgrade, because I'm investing in it continuously, you will just get the new feature in there with it. You can choose to launch it for your consumer or not. You can choose to add a feature for yourself over-and-beyond what I'm building or not, but you will get a suite of iOS upgrades equivalent or Microsoft upgrades.
MasterPass is therefore not just a wallet, it's all these things. It's the safety and security platform, it's the acceptance market in the digital world.
Beyond that, there’s a clear objective:
I want to be in the digital world, what I am in the physical world which is the brand in the front right hand side of the card, which is not the consumer brand but it gives you the guarantee and assurance of your transactional work. The money will get there accurately and the problem it will get resolved. That’s why I want to be in the digital world. I don't want to become a consumer brand. Therefore we're not signing up consumers directly. It's a very basic strategy. I'm going to go through the banks for their large scale signing up of consumers that's what I'm doing, that's what they are signing up for. We call that digital-by-default.
Your game, my rails
Banga’s thinking is also being impacted by the presence in his orbit of Apple, Samsung, Google and other digital wallet providers:
I actually believe what's going to happen over time is the proliferation of wallets. That's why I don’t want to be in the individual wallet business. I want to be the provider of infrastructure just as I'm not in the chip business, I'm in the card business. That’s what I want to be in the digital world.
So my view is that there is going to be a lot of interesting, pushing and pulling over time. Consumer research [says] most young people would still prefer to get their payments from a bank, which is interesting, provided the bank gives it to them in a seamless, cool, easy way. But cool alone will not cut it. It’s going to have to have feature functionality, real time alerts and so on and so forth that make it useful for them.
I suspect we'll all be competing pretty robustly over a period of time. My view is NFC-based wallets are attacking exactly the 85% that I want to attack because they're going after cash. So I will support everything that tries to get at it, so long as that protects the ecosystem and does not damage the relationship between merchants, bank these players and us. I will support that.
The moment it changes that and it starts playing with the data or playing staged versus digital wallet, then I’ve a problem. But basically if it's a pass through and it's not affecting the ecosystem and it's actually attacking cash, I’m all for it.
There are mixed feelings however towards PayPal, which recently announced an NFC [Near Field Communication] partnership with Vodafone for point-of-sale transactions, parking its tanks on credit card firms lawns. As MasterCard moves online and PayPal moves towards the physical domain, collision seems inevitable.
Banga says he’s had long-running discussions with PayPal management and that PayPal is a customer of MasterCard. But he adds:
If you do things that make it complicated for the ecosystem to work cleanly I'm not going to be supportive. So the digital wallet operator rule that we’ve put out, which haven't yet come out from the other networks but we did, was set because my view is the merchant must know which card was used to purchase the product. Was it an American Express Black card? Was it a Citibank American Airlines Card? Was it a Chase Sapphire card? It’s not about the brand they should know which card was used and which value is coming to them for what kind of transaction.
The data should flow cleanly back and forth. It enables the issuer, it enables the merchant, it enables the network to control fraud and do things with it. The moment you create a staged wallet, where you create a mix of different cards funding as well as ACH [Automated Clearing House] funding and then you swizzle it together to play essentially the arbitrage game, and then use that arbitrage to try and undersell us or cross-sell us into a merchant place, I don't particularly like it.
Which part of that is complicated, right? You're using my rails to play games with my client and me, that’s the problem. I’ve said that to PayPal not once many times.
All of which sounds like trouble ahead. For now, Banga says:
Their model is their model.
Their steering to ACH is still irritating…[PayPal is] making comments about not necessarily steering, but allowing consumers to make their own choice. If consumers make a choice to go to ACH, then we have got a competitive issue of trying to offer a product that’s as competitive. That’s a fair level playing field, right?
But you can steer them to ACH and put a credit card on the back and the guy doesn’t have a balance in ACH to use the credit card to catch over that so you don't have a credit risk, that game doesn't work. That commentary has been had clearly with the PayPal over the years. It's an ongoing dialogue and until and unless they change that staged wallet, they will pay the stage wallet fine, they will.
Commendably blunt speaking from Banga. It's clear that tensions are mounting in the digital payments space as the card establishment face challenges from the digital revolutionaries. It seems most likely that the winners in all this will be those who can find a middle ground to work together, rather than a high ground from which to hit out.