Mergers and acquisitions seem to be hallmarks of the payments world thus far in 2019, six months in, knitting together broad capabilities and broad reach, global in scope.
In an interview with Karen Webster, Stephen Grainger, executive vice president at Mastercard, offered a broad view of the challenges that confront companies tackling payments on a grand stage, and the mindset that drove the deal. Remarking on cross-border payments specifically, he said that such activity has relied, traditionally, on a correspondent banking system that had worked well for larger corporates moving high-value payments within certain corridors. The system works less well, he said, for transactions that lie below a $100,000 threshold.
Addressing Pain Points
The pain point is significant, he told Webster, because payments within that range are the hallmark of small to medium-size businesses (SMBs) that drive growth in cross-border payments — and the global economy itself. Think of Amazon paying its suppliers, or of YouTube paying its content providers, of the billions of transactions that may be worth just a few dollars apiece, but cumulatively add up to trillions of dollars. For smaller merchants, and even micro merchants, waiting several days for transactions to clear — or paying hefty fees to get paid in the first place — is not at all ideal.
“It's a different paradigm that we're operating in,” said Grainger of payment networks including Mastercard, “and that requires a different way of being able to think about how we service suppliers and buyers, and how we service the banks that are supporting those companies.”
That means moving beyond simply paying funds into accounts for B2B and peer-to-peer (P2P) transactions, and it also means being able to move beyond card payments. Flexibility is key — and ours is the age of choice and ubiquity, where businesses may desire to be paid via digital wallet or even cash, said Grainger. “It’s not a one-size-fits-all approach,” he told Webster, and through the addition of Transfast there is an ability for Mastercard’s corporate clients to broaden reach into new markets.
Gig Economy and Beyond
He pointed to Transfast’s origins as a remittance company and its current reach across 90 percent of the world’s bank accounts, as a way to deliver that ubiquity, to connect accounts and also pay out at endpoints (for example, where cash is desired).
The definition of remittance — and the payouts that Transfast enables — has been enhanced over the years well beyond the familiar use case of migrant workers paying their families, through money sent back to their respective home countries. Now it includes B2C payments on behalf of companies that need a more streamlined way of paying freelancers and gig workers.
It’s a model, concurred Grainger, that is swiftly gaining traction around the world as more people take on project-based work and want flexibility in how they are paid.
At the most basic level, said the executive, the SMBs that service and transact across online platforms do not want to be constrained in their effort to pay out to multiple endpoints. Grainger said banks have struggled to meet that demand from clients, and now will be enabled to do so via the Mastercard/Transfast combination. Use cases are likely to proliferate, he said, as cash and wallet payouts are strong choices in a number of developing markets — both payout endpoints now possible via Mastercard and the Transfast acquisition.
“The reality is if you're distributing money into a country that's been the site of a natural disaster or is suffering from some other significant humanitarian crisis, more often than not you're going to need people to send money not to a bank account but actually in the form of cash or to a wallet,” he told Webster.
The Certainty Principle
Among the most important offerings of any cross-border initiative, and especially for Mastercard/Transfast, said Grainger, is an intangible one: predictability.
Speed and payment method choice may be desired, and knowing where and when funds are going to arrive — and how much will hit the account, less any fees — is key. As he noted, if a business owner or consumer knows that a payment will arrive within hours, or in a day or two, they are then able to plan for their own cash flow needs with certainty. The certainty principle is at least as important as innovation, and it can leverage the trust factor that is already in place between banks and their clients.
Some industry observers (and participants) may point to acquisitions as a way to bring new technology (and faster payments) into the fold. Grainger said, “Technology is an enabler. But innovation should be led by the recognition and need to want to change rather than technology coming along. And you've got to change how you use technology.”