MasterCard CEO Ajay BangaTim Fraser/The Globe and Mail
Ajay Banga has a cash problem.
At a recent dinner, the chief executive officer of MasterCard Inc. found he had no change to tip the coat check person. His wife was eventually able to produce some money from her purse, but he called the episode "very embarrassing."
As head of the world's second-largest payment processor, Mr. Banga can be excused for having an affinity for plastic over cash. But for his company, it's not a lack of cash that's the problem – the challenge is that there's still a huge amount of it being used.
Around the world, cash is consumers' favoured method of payment, with 85 per cent of retail transactions paid in bills and coins, according to the Purchase, N.Y.-based company.
In Japan, three quarters of retail transactions are cash. In emerging economies such as Russia, India and China that figure is as high as 99 per cent.
MasterCard would like to replace many of those cash transactions with electronic payments. But while technophiles may tout the benefits of mobile payment systems, Mr. Banga cautions that the day when most customers will pay with a swipe of their cellphone or tablet is still a long way off.
People are just beginning to warm up to contact-less payments – ones that allow you to pay by waving a credit card with an embedded chip above a merchant's terminal – and many have yet to be convinced that paying with their phone offers them anything better.
"I think [some] people are thinking by next year it'll be done. I can just carry my phone around, wave it around and magic will happen," he said. "Ain't gonna happen."
But that doesn't mean never, so MasterCard is focused on developing a variety of technologies that could become the next mobile or e-commerce solutions.
Canada is an ideal market to test these ideas. Only 25 to 30 per cent of retail purchasers in this country pay with physical money, MasterCard says, which is even lower than the United States. And Canada ranks second only to Singapore in terms of a willingness to adopt mobile payment technology.
MasterCard is already dipping its toes in the water to test consumer reaction. In early November, Canada's first credit card transaction using a smartphone paid for a Tim Hortons coffee via a new payment terminal that connects with mobile devices. The purchase was made in a MasterCard partnership with Rogers Communications Inc. and Canadian Imperial Bank of Commerce.
Mastercard must keep an eye out for potential competitors. Some are the usual suspects: Visa Inc., American Express Co., and Discover Financial Services. But the list also includes China UnionPay Data Co., which ranks third in the world by size when it comes to total spending, and already dominates in its home country.
Last week, China UnionPay launched a new business unit to encourage growth in foreign markets. The Shanghai-based, state-owned company has already issued millions of cards in 30 countries.
Mr. Banga said he doesn't feel threatened, and trusts his assets and technology are sound enough to endure the clawing of competitors. "I have 33 million acceptance points around the world. China UnionPay is at a fraction of that," he said.
MasterCard noted in its recent third-quarter results that credit-card purchases had increased 11 per cent worldwide. To stay ahead, the company is watching how consumers react to banks and other competitors introducing mobile-wallet technology, and how using a phone to pay might converge with online shopping.
Mr. Banga wants to be a unifier. "I think ultimately we are a company whose job is to simplify this multiplicity for customers. We're trying to be the guys that bring all these wallets together."