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Disruption: The key to MasterCard’s survival

Volume 2, 2016

What pops into your mind when you hear the word MasterCard? Is it the intertwined yellow and red circles of its well-known logo, or the latest Selfie Pay idea the company is promoting? We had the pleasure of welcoming MasterCard Chairman Rick Haythornthwaite as keynote speaker at our CEIBS Master Class series in February. He shared the payment giant’s innovations in today’s age of digital integration, the blueprint behind its tremendous growth, and how it has shaped our society. Read on for excerpts from his speech.

“One of my key roles as Chairman [of MasterCard] is to ensure that the depth of change that is going on, and which is portended by this digital convergence, is recognised and embraced. If we have any doubts about the consequences of failing to embrace new digital models, then one should reflect on the fact that over 50% of the Fortune 500 companies that existed in the year 2000, no longer exist in the same form.

What are we [now] seeing in the [payments] sector? We’re seeing acceleration of electronic payments in both the developed and the developing world. We’re seeing a shift in the competitive set and industry dynamics. When I first [became MasterCard Chairman] in 2006, there were few companies that were starting to understand the power of e-commerce – PayPal notably amongst them.  As time went on, as people began to see that e-commerce and mobile were important channels for our products, everybody thought that they were going to win the sector.

[But then later] everyone suddenly realised that this was a trickier sector than it at first seems, and that nothing was going to happen without collaboration.

And when players start to think that collaboration is important, they look for safe facilitators and catalysts. And I think we’ve been fortunate, from the standpoint of being a hub in quite a complex ecosystem, as a network payment company, to have taken on that role of facilitator.

We were [a facilitator], in the era of the plastic card; and we’re emerging as the facilitator in the era of the electronic and digital payments world.

We’ve seen a dramatic increase in the volumes of virtual trade flows over the years. Every year has seen a shift from cash to electronic, particularly as governments come to realise that cash is expensive and cash is seen as an enabler of a grey economy, of illicit trade, and of corruption.  More and more governments are pushing hard to move away from a cash economy to an electronic economy.

We’ve seen a shift in consumer expectations. They want consistent, safe, smart, secure payments across all forms, whether it’s a point of sale, mobile, e-commerce – and [they] still [want] the plastic card, they’re still out there. And finally we’re seeing heightened regulatory interest across many parts of our industry. The interchange, for many years, has been a source of some scrutiny. This is something that, it’s generally felt, needs to be driven as low as possible. And as it’s driven lower I think regulators are coming now to realise that low doesn’t always mean good and that you still need innovation in the sector. And if there’s no money floating around it’s tough to innovate. 

Data privacy is clearly becoming a big issue, and domestic processing in particular. As we see the revelations of Edward Snowden, in some economies people are becoming more and more touchy about data flowing across boundaries. We’ve seen the ruling against safe harbour in Europe, and so there are big issues about the flow of data around the world and the benefits that accrue to consumers from having the flow of data and the ability to apply analytics to those data.  

So in the face of swirling external forces, what we’re doing at MasterCard is focusing – with a laser-like intensity – on understanding where the consumer is going. We don’t know where the consumer is going; and actually we as consumers don’t know where we’re going. This is really an evolving world of the digital. What is it that we actually want from our world? We know we want it to be simpler, we know what we don’t want. But often it is very difficult to know what we do want. And there’s a tendency right now for you to be given many offers from many different directions. Somehow we’ve got to find a way of bringing this together, understanding what is genuinely useful to consumers as we go forward, and delivering it in a way that is simple, safe and secure. That is a journey that we’re on, and we focus particularly on segments like new affluents, the new millenials, and women. And we are having to rapidly innovate, fast fail, try, experiment, and work through our merchants – and not only our traditional customers, the issuing banks. We have to work with processes to make sure that we get to understand fully what it is the consumer wants now, and allowing the consumer to explore what he or she wants in the future.

There is undoubtedly a paradigm shift in how we consume goods and services, how we pay for things and how important to us is your relationship to brands in this new mobile world. How is it that we as a company build a relationship with you as an individual in a mobile world? How is it we make sure that you understand and appreciate and want to reach for MasterCard once it goes into a mobile environment? These are issues that we are continuously addressing. But in a world where technology is changing how we interact, there’s a proliferation of interconnected devices, as you know: 2 billion smart phones, 40% of the global population have access to the internet, and 50% of them are in China, 90% of those with mobile phones are now accessing the internet through mobile. These are massive shifts in recent years.

We as network payment companies are having to work hard to keep up with these [changes]. And the way we do this, the way we make sure that digital payments are embedded in everything that is out there is by continuously thinking how to innovate, how to focus on new worlds while at the same time maintaining the integrity of our core business. If you look at RP&L (revenue, profit & loss) – and this is the issue facing  many businesses as they deal with new technologies – for years to come the P&L will be dominated by the legacy businesses. Yet we have to make sure that we’re reinvesting that into new worlds, and doing that is never easy. In fact we basically have to disrupt ourselves. And that is what we’re doing.

Over the years, particularly over the last 4 or 5 years, we have invested a great deal in innovation hubs around the world: we have them in Singapore and Dublin, New York city and the west coast. These are places where there are only, in effect, incubator start-ups: we offer funding, expertise, we hold competitions to work out what the landscape of new technologies might look like. And so we’re effectively doing what many of the best VCs do, but [we’re doing this] internally and in areas that we know. It gives us [a clear picture] of what is happening, but it gives us our own staff that really understands what agile development looks like. We have our culture that is willing to fast fail, is willing to drive new technology, is willing to experiment with the consumer. It creates a culture in the company which is exhilarating; and it attracts good, new people to the company.

The crucial thing is that this has to be, philosophically, radically different from our legacy business, but geographically proximate. We want the flow of the best of that culture back into the legacy business, but without knocking it off course. And of course one of the real tricks of trade in how to do that is not to make new [synonymous with] good, [and] old bad. You want equally excellent talent in the legacy business as well.  It’s a delicate balancing act.

So companies like ourselves have to work out how we drive the core of the business, while at the same time seeking to disrupt that core in a very controlled fashion.  And as we look forward 5 to 10 years we would hope, of course, that that disruptive set of businesses will become the core. But we’ve got a long way to travel before we actually get there. So it’s a world of continuous reinvention, where we also have to look to unconventional partners. So we spend a lot of our time with Apple, Google, Samsung, we look to disruptive device companies like Square, we look increasingly to block chain technologies that think through security and are thinking of how the new distributed ledgers could help our business.  We’re continuously on the lookout, making sure that the latest technologies are embraced and adopted when appropriate for our customers.”