This was published 9 years ago
Don't believe the hype on Apple Pay says MasterCard global chief
By Shaun Drummond
MasterCard's global chief, Ajay Banga, has not yet seen a good reason for people to ditch their credit cards for mobile devices.
"If you add value, people will do it. But if all you are doing is saying 'instead of reaching in your pocket and taking out your card, well, now you are going to take out your phone and wave it' – I don't know what you are solving," he said, pointing out habits and cultural norms change much slower than technology.
MasterCard global chief Ajay Banga says the Reserve Bank needs to consider all the economic costs of cutting card fees.Credit: Dominic Lorrimer
Instead of being disrupted, the incumbent payment network, along with fellow global giants Visa and American Express, has so far remained integral to the numerous tech players' push into payments – including Apple, Samsung and Google's Android – and they are assisting its growth.
But Mr Banga said to discard cards for mobile devices, and beyond the "internet of things" – which means everything will have a payments capability, from watches, to fridges or cars –people need to see a good reason to do so, and security and privacy fears still need to be overcome.
"Apple is a great brand and so the whole world was talking about Apple Pay for a little while. But the noise has calmed down, and so [it] will for Samsung Pay and Google, and all the banks are launching their own version, then there's our MasterPass and Visa Checkout," he said. "All of this is because of the fact that this physical digital world is converging."
All these numerous different ways to pay, however, will coexist for a long time yet, he predicted. "The people who say things like 'digital will replace the physical' don't understand human behaviour – it is this combination," he said.
He said there is a growing backlash against the power that such minicomputers have to track people's lives and the security concerns they raise, citing his own children as an example. "They worry about having everything on their phone – if you lose it, there's your whole life gone."
Comments at odds
His comments are at odds with some banks and rival payment companies.
Commonwealth Bank said its recent offer of tap and go on phones was partly driven by high demand from customers as well as new Android security features. PayPal and Visa executives have predicted 2015 will finally be the year when payments switches over to mobile devices, particularly as numerous "wearables" such as Apple's new watch, replace digging around in your pocket, to pay with a flick of the wrist.
Mr Banga said a combination of factors was emerging that could make a difference, but the jury was out. "Whether it be the cool factor, which is Apple; it could be functionality, which is contactless; or it could be safety, which is fingerprints and tokens; your expense statements automatically updated if you press 'O' for office instead of 'P' for personal. But you have to be a little patient with this new, evolving thing."
Whatever the outcome, he said commercially it was of little consequence to MasterCard. As long as its network is used to pay, it is just one more step in its assault on cash. But there, as well, all electronic payment companies' biggest competitor is proving hard to overcome.
"It's like being a hamster on a treadmill," Mr Banga said. In several developed countries, including Australia, the fall in cash use has accelerated in recent years.
But developing countries keep adding to its growth, such that in the five years that Mr Banga has been at Mastercard's helm, it has barely budged from about 85 per cent of all transactions.
"You're always running and you're going nowhere – cash is reducing in more advanced countries but as the level of consumption in the emerging economies increases, people naturally use more cash," he said.
Clinging to cash for cultural, historical reasons
And some of the biggest developed economies still cling to cash for cultural and historical reasons. South Korea and the Nordic countries now have "minuscule" cash transactions. But in Japan it is still 75 per cent of all payments. Cards were originally issued with very high interest rates there and are now associated with people who are bad with money, and so are often not accepted. In Germany, he said, people don't like using electronic payments in part because people in the former eastern part of the country remember the high surveillance under communist rule.
Often, the key to seeing cash off is convincing governments they have a common enemy, so he makes a point of meeting with ministers and regulators wherever he goes. Cash has a cost to the economy as a whole, is the argument – not only logistically, but in uncollected taxes as well as crime – that is rarely acknowledged.
Australia's payments regulator, the Reserve Bank of Australia, is always an important stop when he visits Australia. But as it just released a plan echoing Europe's cuts and caps to the fees paid by merchants to card-issuing banks via merchant service fees, he has an additional impetus for his third trip since moving to MasterCard's HQ in Purchase, New York.
MasterCard doesn't receive these so-called interchange fees. Instead they are used as an incentive to banks to issue cards, with some estimates putting the total received by banks here at about $2.5 billion a year. Bendigo and Adelaide Bank, for instance, in February said it got an extra $1 million in the six months to December due to rise in the use of contactless credit cards.
He acknowledged the reductions proposed will ultimately crimp revenue if it leads to banks pushing fewer cards or less of the premium, loyalty cards onto customers, which encourage customers to use them.
"Of course, in the long term, if you don't issue cards, my revenue goes down. Equally if you issue cards that are not usable because merchants won't accept them because interchange fees are too high, my revenue goes down."
But he counters the price may be maintaining all the costs and inefficiencies of cash for a lot longer.