Mastercard going digital? Table stakes. Finding new markets? Priceless

Profile picture for user pwainewright By Phil Wainewright August 9, 2018
Summary:
Payment network Mastercard sees digital transformation as an opportunity to explore new technology-enabled channels and find new markets

Mastercard logo on card © Alexander Yakimov - Shutterstock
Financial services, like many other industries, is being transformed by adoption of connected digital technology. For every business, that means a radical rethink of its role, advises Ed McLaughlin, President of Operations and Technology at consumer payments network Mastercard. He recently spoke about the experience of Mastercard's own digital transformation at the TBM Summit in London.

Digital has changed consumer expectations, which means that businesses like Mastercard have no choice but to adapt to a new competitive landscape, he says:

If you're a financial institution, the comparison isn't the bank branch across the street, it's the app one tile over you're being compared to — Spotify or Maps or whatever else our consumers are using. So if [what you offer] isn't instant, it's broken.

Even though this is being led by consumer demand, it's not solely the responsibility of marketing or product development. Because the underlying technology is digital, then IT leaders must take responsibility for leading the necessary transformation, he insists:

If there's any belief that digital is something separate or unique and not the description of the environment where our consumers are and in which we do business, it is wrong. Digital is information technology. Digital is our job and digital is leading that transformation.

Identify the core proposition

IT must take on that leadership role as an integral part of the business rather than solely a back-office team. The whole business must decide how to express its values through its use of technology. At Mastercard, that meant thinking through what its primary role really is, explains McLaughlin:

We run the world's fastest and most secure payments technology in the world. We have 210 countries we do business in. Two and a half billion accounts, 60 million merchants, a brand we're very proud of. And all of that is not us. That's what we do, but it's not who we are.

I think the only way you can win a transition like we're going through, in this shift to a digital realm and connected devices, is not by trying to pretend you're someone else, but by being more of who you are or perhaps be more of who you should be.

We saw ourselves as a platform. When we defined our primary business, we are in the promises business — that you can use it anywhere, it'll work flawlessly. And that's what the brand needs to mean.

For Mastercard specifically, that meant thinking beyond the card metaphor that's built into its brand name to uncover the underlying proposition.

It is not how you deliver it, it's what you do and who you are, and so for us moving beyond the traditional delivery mechanism we had became one of our biggest challenges. But the more we thought about it, it became our biggest opportunity.

Enable new delivery channels

McLaughlin draws a comparison to Netflix, a company that started out delivering DVDs by post, but which evolved to downloading and finally streaming as the capabilities of the technology evolved. The company never tied its mission to a specific delivery method, and Mastercard has had to adopt the same mindset.

You stop thinking about your physical delivery channels. You stop thinking about the way you deliver it and you start thinking much more profoundly about who you are.

The 'ah-ha' moment was the realization that digital technology was evolving to the point where any device could become a commerce device, and thus Mastercard's role would no longer be tied to a physical card but instead would enable trusted, secure transactions on all of those devices:

Suddenly the realization that if we are freed from the tyranny of the physical world, we could unleash the power of our network in a way we never could.

That realization eight years ago has led to the introduction of the Mastercard payment ring, which is worn on a finger and includes the same digital technology as a contactless payment card or mobile phone. McLaughlin was able to use this during his visit to London to access public transport using Transport for London's contactless payment turnstiles. It's one of an expanding range of options now becoming available alongside traditional payment cards, he explains:

When you walk up to the turnstile and you go like this and the gate opens, that's a good consumer experience. But what it really is, is just another way I can use my Mastercard account.

So when I get asked things like, when does the plastic go away? Well the real answer is, when the last person who wants one. Who am I to judge? Our job is to figure out how we serve consumers in this new environment.

Find new markets

One unexpected consequence of Mastercard moving into these new digital payment mechanisms is that it's expanding the company's reach into previously unserved markets. One notable example is the use of Mastercard accounts to distribute benefits to citizens in South Africa, reducing fraud and transaction costs. It's a completely new opportunity for Mastercard, says McLaughlin:

What's really amazing is this also gives us the ability to reach and serve whole swathes of new customers we could never help before ...

We made a commitment at the World Economic Forum to bring half a billion people into the financial system so they could enjoy the same rights, the same access, the same benefits that we have. Suddenly that 16-digit Mastercard number became a passport for a whole new population to have things they could never have access before — to get, build, hold wealth, to seize the opportunities that are out there.

As they come online, that 16-digit number that they have is every bit as good as the one that I have in Manhattan. And as exciting as what we can do with the device side, I think what's truly inspiring is what we can do to help build sustainable economic growth in communities around the world. But that was so different than the traditional network business we had run.

My take

If only the railroads had realized they were in the transportation business, wrote Ted Levitt in his seminal Harverd Business Review article on Marketing Myopia, first published in 1960. The advent of connected digital technologies is forcing every business to re-examine whether their current products remain the best way of meeting customer needs. As Mastercard's story shows, that rethink may be highly disruptive but it's well worth doing as it has the potential to open up significant new market opportunities.

Read my follow-up post on Mastercard's use of technology business management (TBM) to direct its digital transformation —  How TBM underpins agile at Mastercard and turns IT into an asset.