My competition is with cash: Ajay Banga
Ajay Banga is president and chief executive of Mastercard and a member of its board. He is a member of the US-India CEO Forum and co-chairs the board of the American India Foundation. In India since 1984, the company is now working with state governments on strategies as diverse as attracting more tourists to Goa as well as developing a cutting-edge payments system for the Kochi metro. Underlying these moves is Banga’s transformation of Mastercard from a cards company to one that uses the data it accumulates to generate patterns of consumer behaviour. In an interview, Banga talks about how he has defined this overarching ecosystem for the company. Edited excerpts:
Tell us something about the moonshots that Mastercard is working on.
We have to step back a little bit and think about where it’s all going. My view is that the whole digital-physical convergence is a reality. It is just a question of what point of time it works to come together. I actually don’t believe that digital will replace physical, I think it is a convergence and consumers will prove that to people who think differently because they are going to choose with their wallets and their feet. So typically you will search online, buy in a store, return remotely, buy online and find that it doesn’t fit or doesn’t work and you go to a store. In this concept of a seamless back and forth in shopping, in education, in commerce, I think it is really important to recognize that it will be a convergence not a replacement.
The second thing is that the explosion of connected devices, the Internet of Things (IoT), will actually make the pace of that convergence more rapid. Those two angles are what are deciding what I think should be the moonshots that you play. The trouble with moonshots is that they are a big gamble— and that could be a winner or a loss. That actually is a big mistake. The better way to do it is to place multiple bets.
Once you get that right then to me this whole digital-physical convergence story has four or five things to be done. The first is everything to do with consumer experience. If you design for this digital-physical convergence from the viewpoint of what you think you can do well, you will lose because the consumer will go with whoever meets her needs in a seamless way. We are insanely committed to making things simpler for the consumer.
The second one is security. There are billions of connected devices, so the amount of data you have created and the amount of personal identifiable information that is floating around on the internet is huge, because the internet was not designed for security and privacy, it was designed for transparency. It is a very empowering tool and technology is democratizing everything. I am not saying you should push back at it, but it’s going to make this issue of safety and security really important. So a lot of the things we are doing whether it is tokenization of card numbers, everything we are doing on safety and security space comes from that belief.
So experience first, security just after, and there’s a reason why the two are together. My belief is that the consumer will value convenience over security because they think that you will provide the security and that convenience is theirs to demand.
The third thing that has to happen which I am placing bets on, in my view the winners of this convergence will be those who own platforms that everybody else can innovate on. There is only so much a company can do with its own creativity as compared to unleashing the power of hundreds and thousands of creative young minds doing this development.
I am trying to build a platform—which is what we have—with open APIs so that anybody can plug into our platform and use it like a sandbox to create more things. To give you a simple example, if you have to travel to Cincinnati in the US and you have never been there before, how you have to figure out where to go and eat. What do you do today? You look at the internet, you look at Zagat, you look at Yelp, you look for referrals. But those are all based on opinions. I can tell you where people spend money, which is much more powerful than an opinion. I can tell you what the vote is—where people voted with their wallets and went to eat this steak there or that hamburger there or that milkshake as compared to ‘I think this is a great milkshake place to which I never go but I think it is great’.
So you have a third party app for that built on your platform.
Yes. What I do myself is that in our innovation lab we build what we call starter ideas. We build 30 apps and call our clients and people to see them. We have an innovation lab in Singapore, there’s one in US, and there’s about to be soon an innovation lab in this country. And the idea is to allow people to go there and touch and feel these products. That’s the third big leg of the strategy.
Consumer experience, security, open platforms to open APIs and developers to get the power of their capability—these are all actually moonshots in their way and there are multiple moonshots that build a foundation.
The fourth one is that the entire experience here should be built out of cutting edge thinking through an R&D lab kind of mentality. That is actually a huge investment because not only is it investing in people to think outside the box, we are also investing in start-ups, accelerators and incubators. We put money into small start-ups with our clients. We say we’re investing in you as you could be interesting. Honestly, a number of them go nowhere, because for every start-up that’s very successful, there are 999 failures.
If you straddle this whole ecosystem of digital payments, then who is your competition?
Eighty-five percent of the world’s retail payments—person to merchant are in cash. It is 95% plus in this country, even after demonetization. It’s 80% in Japan. So it is not a developed country versus developing country thing. It is a huge open marketplace. And no one company can win it by itself. It is going to need lots of companies focusing on taking out cash because cash is expensive and cash is not useful the way it used to be. It shouldn’t be zero. It’s got a role to play, it’s anonymous and people like anonymity, its fungible and people like fungibility. I am respectful of that but why should it be 95%. So who do I view as my competition? Cash. I don’t view another network, I don’t view Paytm, I don’t view Apple as competition. We are actually working with all of them. They all need our technology.
But your market share would have declined with the new companies coming in?
No, because you see the share of cards in total payments was so small. If you take my share only in electronic payments, yes, that share would change depending on how many players there are in this space. But against cash I am growing handsomely. I view 95% that’s cash as my enemy. Not the five that is fighting with each other all the time. That’s the wrong debate. Take Apple Pay. How does Apple Pay make a payment? The underlying source is a card. It’s an account. That’s me. You count Apple Pay different from me, but I count Apple Pay as one of my ways of reaching you. We are partners with Vijay Shekhar Sharma because Paytm needs us to access funding.
In India we see Mastercard as a card company. We haven’t seen many of its other facets.
That is because you have got an early stage development market. Did you know that the SPB wallet is done by Mastercard? Apple Pay or Citi Pay is not branded Mastercard. I am not a consumer company. If you have a Mastercard, you are not my client actually, you are the client of the bank. And the bank is my client. I am very conscious of the fact that I am a B2B company and they are the B2C company. I am not trying to be a consumer brand. But I am trying to use my brand strength to give you reassurance that that card is good to use, show you acceptance, show you new features.
We are gaining share in one way and losing it in another way, but if you define the market correctly, the only way is to go up right now because the market is still 85% cash.
I want people to understand this. Our investors understand that is why our company stock is doing what it is doing.
How do you differentiate yourself from Visa?
There are a few ways although we are very similar in our capabilities. Frankly the acceptance network is similar. But there are a few things that differentiate us. One of those clearly is that we are far more focused on this idea of being B2B and the payment bank or the merchant bank is B2C because we believe that you need to bring the bank at the centre so that the consumer knows where there financial relationship is anchored. I want the digital world to be similar to the physical world. When you take out your card from your wallet you see your bank’s brand.
The real thing you need to do in India is to build acceptance for all forms of payments, whether you pay with your phone which is you can use QR codes, or with your card, or whether it is a form of fingerprint-based payment. All of those need acceptance from merchants. In India there are 60 million merchants as per the estimates of the Confederation of All India Traders and what we are doing with these merchants is to educate them on the value of these payments. Today roughly 2.8 million of these merchants are terminalized in India. It is much better than it was a year ago before demonetization and I think GST will force these merchants to give out bills because there is no incentive now to play with the tax. But 2.8 million is nothing out of 60 million. So the real work is to get to that.
But there are a few problems. The first problem is traditional terminals cost a fair amount of money, then the acquirer charges them monthly maintenance which isn’t always easy to get. So that doesn’t work. That’s why the QR code idea was developed and it has been standardized across the networks so that you can use any payment method with your phone and it will work the same way. So that’s one aspect of it, terminalizing them. The other aspect is educating them that it is good for them in terms of incremental sales and incremental value.
The third thing we are trying to do is to get data analytics to work for them. We get 25% of our revenues today from non-card services, using data from payments. As a B2B provider Mastercard doesn’t know the name of the person who’s shopping but it gets the data on the card number, the rupee value of the transaction, the merchant code and the time of the transaction. When you get tens of billions of those it is quite a powerful predictive tool of behavioural systems.