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Ask MasterCard's CEO about his biggest competitive challenge, and Ajay Banga doesn't mention Visa or American Express.
Banga, who was in O'Fallon, Mo., this week to visit MasterCard's global technology center, says his focus these days is on a much older and much bigger competitor: cash.
Worldwide, 85 percent of consumer transactions use cash or paper checks. Even in technologically advanced Japan, paper has a three-to-one edge over electronic transactions, and in the U.S. the ratio is close to 50-50.
“You can think about getting more of the electronic share, but then there's the other 85 percent, and every percentage point we take from that is a very big gain for us,” Banga says.
MasterCard has in fact lost ground to its traditional competitors. Its share of U.S. credit card volume fell to 25 percent last year from 37 percent in 2006, according to the trade journal Nilson Report, and it ranks third behind Visa and American Express.
Mastercard's global transaction volume, though, grew 18 percent last year. At O'Fallon, the company's primary payment processing center, MasterCard has expanded into a second building and added 350 employees since 2008.
In O'Fallon, 2,000 workers and banks of computers process a transaction every 130 milliseconds, which adds up to about three card payments in the blink of an eye.
They're about to get even busier. After March 1, the federal government will no longer mail Social Security checks, and recipients who haven't signed up for direct deposit will get their money on a prepaid MasterCard.
The government will save $600 million a year, and Banga says people without bank accounts will pay much less to use an ATM than they now pay at check-cashing stores.
Prepaid MasterCards also are solving a government payments problem in India's Punjab state, where Banga grew up. The government's grain-buying agency uses the cards to pay small farmers, cutting out middlemen who tended to keep a lot of the money for themselves.
“It's the first step toward getting the farmers out of a corrupt system, eliminating leakage,” Banga says.
In the developed world, meanwhile, policymakers sometimes impose rules that slow the electronic payments revolution. In the U.S., the Durbin Amendment limits the “swipe fee” that banks can collect from retailers who accept debit cards.
MasterCard is doing well in debit cards; it has won market share from Visa since the Durbin amendment took effect last year. Still, Banga believes the fee limit has cut into growth.
“The incentive to push a card to anybody becomes a little less as it becomes more expensive to be a bank and comply with all the regulations,” he says.
Banga can't let a conversation about card fees go very far, though, without turning it back to his paper nemesis. He ticks off the ways in which cash costs merchants and governments money: Handling. Security. Tax evasion.
“My case is very simple,” he says. “Cash is expensive. It is not free. I want a public dialog to happen on the cost of cash.”
That argument didn't persuade Congress, but it did win new business from the Social Security Administration and the governments of India, South Africa and Italy, all of which have chosen MasterCard for new electronic payments programs.
The wins translate into more transaction volume in O'Fallon, where officials say they upgrade the 11-year-old data center's computers about twice a year. That isn't cheap, but moving the world away from cash is, as the commercials say, priceless.
URL: http://www.stltoday.com/business/columns/david-nicklaus/mastercard-ceo-says-company-is-winning-the-race-against-cash/article_9b7e1ae0-08ef-11e2-a48a-0019bb30f31a.html
Start your merchant processing at: http://internationalibcbanking.com/
Banga, who was in O'Fallon, Mo., this week to visit MasterCard's global technology center, says his focus these days is on a much older and much bigger competitor: cash.
Worldwide, 85 percent of consumer transactions use cash or paper checks. Even in technologically advanced Japan, paper has a three-to-one edge over electronic transactions, and in the U.S. the ratio is close to 50-50.
“You can think about getting more of the electronic share, but then there's the other 85 percent, and every percentage point we take from that is a very big gain for us,” Banga says.
MasterCard has in fact lost ground to its traditional competitors. Its share of U.S. credit card volume fell to 25 percent last year from 37 percent in 2006, according to the trade journal Nilson Report, and it ranks third behind Visa and American Express.
Mastercard's global transaction volume, though, grew 18 percent last year. At O'Fallon, the company's primary payment processing center, MasterCard has expanded into a second building and added 350 employees since 2008.
In O'Fallon, 2,000 workers and banks of computers process a transaction every 130 milliseconds, which adds up to about three card payments in the blink of an eye.
They're about to get even busier. After March 1, the federal government will no longer mail Social Security checks, and recipients who haven't signed up for direct deposit will get their money on a prepaid MasterCard.
The government will save $600 million a year, and Banga says people without bank accounts will pay much less to use an ATM than they now pay at check-cashing stores.
Prepaid MasterCards also are solving a government payments problem in India's Punjab state, where Banga grew up. The government's grain-buying agency uses the cards to pay small farmers, cutting out middlemen who tended to keep a lot of the money for themselves.
“It's the first step toward getting the farmers out of a corrupt system, eliminating leakage,” Banga says.
In the developed world, meanwhile, policymakers sometimes impose rules that slow the electronic payments revolution. In the U.S., the Durbin Amendment limits the “swipe fee” that banks can collect from retailers who accept debit cards.
MasterCard is doing well in debit cards; it has won market share from Visa since the Durbin amendment took effect last year. Still, Banga believes the fee limit has cut into growth.
“The incentive to push a card to anybody becomes a little less as it becomes more expensive to be a bank and comply with all the regulations,” he says.
Banga can't let a conversation about card fees go very far, though, without turning it back to his paper nemesis. He ticks off the ways in which cash costs merchants and governments money: Handling. Security. Tax evasion.
“My case is very simple,” he says. “Cash is expensive. It is not free. I want a public dialog to happen on the cost of cash.”
That argument didn't persuade Congress, but it did win new business from the Social Security Administration and the governments of India, South Africa and Italy, all of which have chosen MasterCard for new electronic payments programs.
The wins translate into more transaction volume in O'Fallon, where officials say they upgrade the 11-year-old data center's computers about twice a year. That isn't cheap, but moving the world away from cash is, as the commercials say, priceless.
URL: http://www.stltoday.com/business/columns/david-nicklaus/mastercard-ceo-says-company-is-winning-the-race-against-cash/article_9b7e1ae0-08ef-11e2-a48a-0019bb30f31a.html
Start your merchant processing at: http://internationalibcbanking.com/
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