October 28, 2011
Shortly after his appointment as CEO of MasterCard Worldwide in 2010, Ajay Banga declared a “war on cash” and signaled a strategy shift for a company that was struggling to gain market share in a competitive industry. By making major investments in non-cash payment systems in emerging markets such as India, where as many as 600 million people do not have bank accounts, MasterCard has positioned itself to grow by enabling people around the world to shift from traditional cash payments to non-cash payment systems and avoid the “cost of cash.”
In a recent visit to The Fletcher School, Mr. Banga participated in a roundtable, fielding questions from Bhaskar Chakravorti, Senior Associate Dean of International Business and CEME Executive Director, and Kim Wilson, Fletcher Professor and CEME Senior Fellow, about the opportunities and challenges of moving away from cash in favor of alternative payment options. While clarifying that he doesn’t “think we can ever get to a purely cashless society,” Mr. Banga suggested that the current ratio of 85%: 15% cash: payment systems needs to improve, citing the various physical (printing, storing, etc.), convenience (online retailing), and facilitation (tax collection, cross-border illegal activity) costs of cash use: “The cost of cash is misunderstood by everyone.”
Watch an excerpt of his talk here:
Mr. Banga described MasterCard’s strategy as the center of “three concentric circles,” each representing an area over which the company can have more influence. The outermost circle represents general societal trends, such as urbanization, that influence consumer spending habits. Within this circle lie cultural elements that influence consumers’ behavior towards the use of payment systems that are challenging for MasterCard to influence. The second circle consists of government policies that can encourage the use of payment systems, such as in India, where MasterCard is working with the government to develop biometric (fingerprint) payment systems for millions of rural farmers.
The third concentric circle lies within the 85%:15% cash: payment systems ratio. Rather than gain market share within the existing 15% of payment system users, the company is focusing on gaining market share from the 85%:
“The real opportunity for business and for change is within the 85%, because that we can influence if we do the right things as a company and as an industry.”
Professor Kim Wilson, who focuses her research on microfinance and banking trends within immigrant communities, shifted the discussion to enabling opportunities for the “unbanked.” She asked Mr. Banga if an opportunity for a mobile wallet might exist for savings circles within these communities.
Mr. Banga hinted that MasterCard has employed strategies to provide services to the unbanked, but that obstacles exist to immigrant communities joining banks: “Banks with granite and glass and marble and air conditioning and lots of machines are not for them. A lot of immigrants just don’t go because they feel alienated.” Other challenges include inadequate or illegal documentation and the cost of banking.
“I absolutely think that electronic payments can be helpful. The problem is that the money has to reside somewhere… If immigrant communities find it difficult to put their money with a bank, I don’t know if they’ll do it with a cell phone provider either. The challenge is finding a way to anchor mobile payments for the future.”
Audience questions then broadened the discussion to the challenges of setting up reliable payment systems in Africa, security mechanisms to ensure non-cash payment safety, and MasterCard’s challenge in working with the government to stop illegal payments.
In closing, Mr. Banga painted a picture of a future in which individuals could make payments using technologies such as biometric fingerprint scanning and eye scanning. Within two to five years, however, mobile phone payment technology will be the main area of growth:
“I do think mobile payments in some form and fingerprint/retina-enabled payments in another form are within the next three to seven years. Mobile commerce will evolve through texting, and eventually reach the ‘gold standard’ of a smart phone shopping experience comparable to online shopping with a computer today. I think those [technologies] will evolve, and fingerprints will come in areas of the world where it is challenging to build a landline network.”
Mr. Banga's talk followed on the heels of CEME's April 2011 conference "Killing Cash: Pros and Cons of Mobile Money for the World's Poor" and was part of CEME's Inclusive Growth research initiative.
Article by Justin Ettinger, Master of International Business candidate F13