Payments: Times are a-changin’

Mastercard, a global giant in card payments for over five decades, believes that the next wave of innovation will see people increasingly using wearables and mobile-connected devices, instead of plastic money, to make payments. In an interview with Fortune India, Ari Sarker, co-president, Asia Pacific, Mastercard, spoke about the future of digital payments in India and data security. Edited excerpts:

What is the scope of the digital payments space in Asia?

The digital payments market is fairly nascent in most parts of the world. If you look at penetration of digital payments even in developed economies such as Japan, there is still a long way to go. Japan still sees around 80% of transactions using cash; in India, it is 90%. So there is a huge scope for long-term growth here. The next wave in this space will see us moving from plastic money to wearables and mobile-connected devices. Globally, today there are about 5-6 billion connected devices; in the next 10 years, this number is likely to be 50-60 billion. A large part of that will be in the Asia Pacific region.

What does the investment picture look like in India?

In the last three years we have invested over $550 million in India. We remain bullish on India. We don’t have an investment target, but we will make the right investments when we need to. The Indian economy is still largely informal. The push towards the formalisation of the economy is an important agenda of the government. We’re excited that the government is driving initiatives such as Digital India.

Are there any collaborations on the cards for schemes such as Digital India and smart cities?

For about five to six years we have been involved in the transit space where there is a big opportunity to provide solutions. We are currently engaged in about 130 projects around the world, of which 25-30 are in the Asia Pacific, where we are working with agencies to simplify payments for transport. For example, we helped take Transport for London (TfL) from a closed loop prepaid product to an EMV (Europay, Mastercard, and Visa) open loop system. This has led to significant savings for TfL in infrastructure such as top-up machines and cash service points, etc. In fact, TfL has said it has saved over $380 million. Our team in India is driving significant engagements with smart cities agencies to try and develop similar capabilities. In a smart city, new-age transport systems can cut down travel time, but if it takes a lot of time to get a ticket, then it doesn’t help. An open loop payment environment—where one can just swipe their debit, credit or prepaid card at the turnstile while entering—can solve that. So, convenience is the key driver for smart cities. But this is easier said than done; many of our engagements in India have taken years. It’s a very slow process. But we have remained tenacious and committed.

But online ticket booking for suburban trains and prepaid cards for metro rail are already available. How will your system be different?

When it comes to payment technology, it is not an “either-or” question; it is about providing more choices to consumers. It’s about ubiquity in usage. In an open loop system, customers don’t have to pull out different cards for things. One will be able to get much more out of the same product. I strongly believe that regulators and agencies should not pick winners and losers for such services; the consumer must pick what works best for them. Such an environment leads to the greatest innovations.

How is Mastercard focussing on encouraging innovation?

We are creating an in-house fund to look at interesting fintech investments. We are in talks with NASSCOM to find Indian players we can collaborate with who will add strategic value to Mastercard. We are looking at a variety of players across regions. I can’t share more details right now, but we are making significant investments in cutting-edge security tech. One such player is NuData Security, which we recently acquired. I call their work artificial intelligence (AI) on steroids. They are working on a system where AI can gauge whether it is me operating my phone by the way it is held and the pressure of the touch on the screen.

What’s next for digital payments? Will we see wearables coming into the picture soon?

We are working with partners to develop a wearable accessory like a ring that can use biometric authentication and enable payments for various products and services with just a tap. Plastic money is now morphing into a wide variety of things. We could soon have a refrigerator with an in-built payment system to order groceries and pay for them as soon as one checks the fridge. I expect wearable payment tech to make its way into the lives of consumers very soon. I will be shocked if it doesn’t happen in the next five years.

Data security has been a concern in light of the recent data leaks and breaches at top tech firms. What is your take on this issue?

After the Cambridge Analytica incident, people are now becoming careful about permissions they give to apps and other services. Data is the new oil, but misusing data, without consent and disclosure, is unethical and should be penalised. But it is important to keep in mind that a rushed regulation which hasn’t been thought through could put the industry’s growth at risk. Data is a powerful social en - abler and economic lever; authorities must be responsible when they bring in any regulation to this space. We at Mastercard have always been conservative when it comes to security measures. We are now trying to come up with an innovation where biometric and personal information need not be held with us. The data will be with the customers; we can just ping it under encryption and receive an authenticated response from it. We have spent around $1 billion in the last three years on safety and security measures. I don’t see us stepping back on that front.

In April, the Reserve Bank of India directed that all payment data must be stored in India and asked companies to comply within six months.How will this impact your business?

We are in the process of evaluating this directive, so it’s early to comment on how business may be impacted. We are engaging with the RBI on this and trying to understand what are exactly the risks they are wary of. We are confident we can convert their concerns to tangible solutions. The digital growth story in an emerging economy such as India cannot be undermined. Hence, we believe that both the RBI and the government will take sensible steps without compromising India’s economic growth and the formalisation process.

(The interview was originally published in June 2018 issue of the magazine.)