India will likely be among the global leaders in the adoption of digital payments, said Ajay Banga, CEO, Mastercard. In an interview with Ashwin Manikandan and Saloni Shukla, the executive, who would assume the role of chairman after a CEO mandate for a decade, said that out of the total 65 million merchants in India, only 5-6 million accept digital payments. Therefore, the scope for expansion is huge. Edited excerpts:
You have been at the helm of Mastercard for 10 years. Why the transition now? Was it on the cards for a long time?
I have always said I will give this 10 years if the board wants me there and I have had a great run. Life is 50% luck — I have said that often. I have been lucky to be here. The other 50% is what you do with your luck. As a company, we have seized our opportunities. We have had a 13% cumulative average growth rate on revenues, our stock is up 16 times in these 10 years, and we are among the top few companies in the world in terms of market capitalisation. The thing a leader does very well is to develop a good bunch of people; we have had several very good people in the company. And I am convinced that Michael (Miebach) can take the benchmark to a whole new plane. It’s a properly planned succession — something you don’t see enough of these days.
You have been vocal about government and regulatory policies. NPCI has government support in the Indian payment landscape. Does that give you a level playing field?
Companies like ours bring in global technology, scale and capability and therefore the value of that to a market like India. I have often said that we operate in countries at the pleasure and desire of the local government. At the end of the day, just because I bring in good technology and skill doesn’t mean India needs to always roll out the welcome mat. We are trying to enable a digitisation agenda in every country.
From a regulatory perspective, what need to be done to push digital payments growth?
I think the regulator has been very fair and transparent; I don’t have a lot of advice for them. The RBI is one of the best regulators in the world. We have been telling them our views on data predictability, and we are also talking to them to enable payment directly from your bank account using our facility called ‘pay-by-account.’ RBI is very constructive.
India conducted a demonetisation drive in 2016, but the cash usage in the economy is still substantially high. Do you see digital use picking up?
For reduced cash in an economy at a personal consumption level, many things have to fall in place. You need the fintech part, the ability to provide the consumers an easy way to connect with their money. My general view is that there is much more required, like the acceptance infrastructure across the merchant ecosystem. We are working closely with the Confederation of All India Traders, which has 65 million merchants, to help increase acceptance. The government is actively working on expanding digital payments in trains and buses.
Won’t tell you the answer for the percentage reduction of cash as against digital payments. I have not seen that happen over a decade in any country in the world. You can look at countries where cash is a very small percentage of personal consumption. Countries like the US still have 40-50% transactions in cash. Don’t know the right number for India but do expect digital payments in India to grow substantially than in the past 10 years. About 5-6 million merchants accept card payments in India which is way more than what it used to be four years ago when just 1 million merchants accepted cards. But, the scope is huge as there are nearly 65 million merchants in India.
The government decided to remove the merchant discount fee on RuPay and UPI transactions. Will that help spur payments growth?
Wherever in the world MDR has been reduced to the levels where it makes it uneconomical for the acquirer or issuer to participate in the natural business of electronic payments, you tend to lose the momentum. It’s a balancing act.
Different countries do it differently. We need to find a way to ensure economic sustenance for this model. My general view is that commercial sustainability in these decisions is very important; there are a lot of studies done around the world to show that this is the right way to think about it.
Small ticket payments around the world have a revenue model. Now, if you squeeze these revenue models, obviously then how would you get the investments? That’s why there needs to be a balance. There is no evidence that reducing MDR takes the growth in the acceptance to the next level.
Your name has often been floated as a possible candidate to succeed Aditya Puri at HDFC Bank. Have you been approached for the role?
No, and this is factually incorrect. I have never been approached. Why at the end of 10 years after taking my company to a $300 billion market cap would I want to at this stage of life give up my opportunity and go to a different company? I love HDFC Bank and I love Puri. Aditya is one of my best friends and Deepak (Parekh) is an outstanding individual as well. Why the heck would I go back? I have never been approached and even if I were approached, while it may be flattering, but I have zero desire to go for another role in India.
You have cut your revenue forecast. Is this largely because of the Covid-19 outbreak?
In the first quarter of this year, our revenue will be 200-300 basis points lower than what we had originally expected. We haven’t made further projections because we honestly don’t know what will be the impact of coronavirus on a go-forward basis. I think the situation is still fluid and unfolding. As you can see newer cases in China are fewer, but it looks like there have been newer cases in certain other countries. The impact on our business is the effect this has on crossborder travel and commerce. Big conferences or travels are either being reduced or cancelled.
You dropped out of the Libra project. But what are your views on cryptocurrency in replacing fiat currency?
I think blockchain is an important technology. We as a company are one of the largest patent holders on blockchain. We are yet to figure out the ways to enable it in its full potential. Bitcoin or cryptocurrency is one of the uses of the blockchain. My problem traditionally is that the predictive value is neither stable nor transparent. With India being serious with its anti-money laundering stance, there is a concern about who is paying whom as there is a lack of transparency.
My general view is that I don’t know yet the use of blockchain in the currency environment. We have participated with different players including Libra, where we dropped out just now, but any such model must fit in with the policy view of the countries concerned.