MasterCard (MA) Presents at Deutsche Bank Technology Conference (Transcript) - Seeking Alpha

MasterCard Incorporated (NYSE:MA)

Deutsche Bank Technology Conference

September 13, 2017 11:20 AM ET

Executives

Ed McLaughlin - ‎President, Operations & Technology

Analysts

Bryan Keane - Deutsche Bank

Bryan Keane

Okay. I think we will get started. My name is Bryan Keane. I cover the payments processors and IT Services Group here at Deutsche Bank. So we are excited to kick off the morning with Mastercard and Ed McLaughlin, the President of Operations and Technology. What we will do is, kind of keep at the same format, and we will do a fireside chat and then feel free to raise your hand for the last five minutes or so, and we can get to your questions.

So with that Ed, you are the President of Operations of Technology at Mastercard, that sounds very-very impressive. So what exactly does that mean, and what role do you do?

Ed McLaughlin

Sure. And let me give you some quick thumbnail on how we got here, and if it's not readily apparent, I am a recovering coder. So that's the approach we are going to take to these things today.

Yeah, most of my early career was actually in technology startups. Had an IPO in 1996, packaged software for data modeling and design and it's relational data warehouses come out. So I have been in that mix on the technology side for a long time.

Had a first wave internet payments company, Paytrust, now part of Intuit. It was fintech, before we knew to call it that, and about a dozen years ago, I joined Mastercard. It was part of the management team that was coming, as we are getting ready for our IPO, as you are shifting from being a bank-owned association to being a public company. And in my time at Mastercard, I have done things, I have run the global franchise, I was responsible for all the emerging payments and digital area, and about a year and a half ago, swung over into operations and technology.

And from that part, it is pretty simple, the O, it is our operations, right. Like any great payment processor, we are what we do. And so I have the privilege of running the world's fastest, most reliable global payments network. So we think about every day. Those are the promises we keep. And the T side, the technology is what we build. So as we relentlessly apply research and adapt and grow our businesses, and one area I know we will be talking about is, how we are diversifying through a lot of the services. So there is digital or loyalty, processing, the analytics and advisor services we have, that are now about 25% of our business. All of these are technologies we are building and adapting through O&T.

Bryan Keane

So just thinking big picture here, obviously, a ton of technological change going on. What does this mean for Mastercard and how do you prioritize what you guys are going to do going forward about?

Ed McLaughlin

Yeah, I think the framing is really important for that. And we have talked about this, Bryan. This is -- we are truly -- as a technology, we are truly living in amazing times, and I think what's driving all of it, is this convergence between the physical and the digital worlds. What used to be segmented, is now blurring and coming together. And we see that, I am sure you see it, not only in your lives, but across all the industries you may be covering. So it's changing how we interact with each other. If you think of the last election, it's changing the public policy and public discourse around it. It's changing really how people interact for education, entertainment, socially. And our thesis is, these changes in how people interact will also fundamentally change how they transact.

So when we talked to our board about all the new technologies, a lot of the conversation we are going to have today. Really the way I try to present it is, this is a third wave. And what I mean by that, is the story and what we have to think about is the wave, not any of the individual surfers. Oh, this handset is selling more than that one. And from the Mastercard perspective, for those who have been with us for a long time, 50 years ago, we started completely physically, charge plates, knuckle busters and what we had was so compelling for consumers. You can get what you want right now. So compelling for merchants, you can make that sale you couldn't otherwise, we got the franchise started.

I think in the second wave, is when we moved to electronics, and that was incredibly audacious, right? We put a machine readable magnet stripe on the back of every one of those plates. Put a bespoke robots terminal on every merchant's desktop that we could think of, and we tied it together with the secured real time network. We started doing that in 1974.

Now I'd say, about 25 years ago, we saw a third wave begin to build, because that's when we got our first e-commerce transactions, and that has been profoundly transformative. When you sell that again about a decade ago, as we celebrate the launch of the iPhone, is digital became ever more pervasive. So the question is, as this transition happens, as to how people interact and transact changes, what do we do and how do we apply that technology?

And so our thesis is pretty simple, we believe every connected device will potentially be a commerce device, and what will happen, as commerce becomes imminently contextual and the right interface is the right way to do the thing that you want to do, and removing from the bespoke card terminal to a whole range of interactive and connected devices that you are going to have, and what we will do is, safely and securely tie them all back to the accounts that you want to use through the Mastercard network.

So a lot of times we get questions, particularly years ago, we are just talking about, before we got it on, about versus. Remember, it used to be like, e-commerce versus mobile, or NFC versus a QR code. And I feel like, I should know the difference, because I know. For me those are just different contexts that we can buy into our network. And what I think Mastercard has in this third wave, is really one of the original platform companies.

I think digital and the internet have proven the power of this platform model, where we have 2.3 billion accounts, not the same as Facebook's, they have attached to the network, and an unsurpassed acceptance network, with the tens of millions merchants that are already connected to it. We can now relentlessly play [ph] value added services, new technologies to continue to leverage what's happened. But no one benefits more from being free to the Tierney [ph] of plastic than a Mastercard.

Bryan Keane

So taking it forward then, as we grow in digital payments, can you talk a little bit about MDES and tokenization. Tokenization is obviously the form of authentication and to securitize the transaction, and there was a lot of interest in that over the last couple of years, and so, can you just explain what you guys are doing there and how that's developed?

Ed McLaughlin

Absolutely. And this is one of my all time favorite initiatives; because again, as you move from the physical issued plastic into the digital world, how easily can you enable all of those devices that will now be connected, to connect back to the network. And that's really what MDES does.

So at Mastercard, we actually put the first MDES specifications, our digital enablement system in the network in April of 2013. And the reaction that we got was brilliant, but I can't really do it just for Mastercard. So we worked to establish industry standards around that; we have based it on the secure EMV technology. The way I think MDES is taking what you would do in the trip on the card and using the chips of the devices. But this is one of those great ways that we can make the network more accessible. We can make it more convenient for consumers, and we can simultaneously make it more secure, and that's really paying off that promise we talked about earlier, the shift into digital environments. It's not about what compromises you have to make to support new devices, especially how you can use them to make things better, and MDES does that.

So since that launch, since we first started putting into the network, the reception has been tremendous. We have over 1,100 issuers, almost all the major issuers are already enabled for MDES. The vast majority of the cards in the U.S., preponderance of cards in international markets [indiscernible], and the way I think about it, as important as MDES is, this digital foundation now lies in 29 countries around the world, that's the technology.

Part of the platform is also what we call our Express Program -- the Digital Enablement Express Program. And just using the U.S. as an example, we have over 600 participants, which will have any new device manufacturer, or whether it's -- we are doing a Fitbit or GM or appliances or even a merchant with a card-on-file system. Get access to these digital tokens; and any bank participating in MDES, which is just about all of them, access to all of those devices.

So this is really how you take that franchise model, that platform model, and replay it for digital enablement, and the phrase we use is digital by default. What we have really already accomplished, is if you have a plastic Mastercard, you should be able to put a token representing that account in any of the devices that you now want to use for contextual commerce.

Bryan Keane

So that's why, I think -- think of MDES simply as a technology may miss, really how it's an extension of the platform brand and franchise, natively for the digital realm. Does MDES differentiate, is it different from some of the other card networks and what they are doing, like VDAP or what Visa does or what AMEX does?

Ed McLaughlin

Yeah. So the way I think about it from a technology standpoint, coming on the [indiscernible]? There is things that are below the waterline which suggest how it works, and that's where industry standards are so important. And what we do is, we have to find and design the right standards for what we all need to do for safety, security and things like that. So we are a big supporter of getting standards out there, that help advance and accelerate what we are doing. So a lot of the baseline technology we took from our MDES system, that we had in April and really worked with other networks and through EMV code to establish industry standards, which are inherently inclusive. So any manufacturer that knows they want to be in working with tokens has a baseline frame. That said, once the standards are established, you can peak above that waterline, by being better at how they do it. So things like the Express Program, the speed to market that we have and first to market with digitization in markets around the world, that's how we use the standards to compete better.

Bryan Keane

So we talked about this a little bit before we came up here, but how was tokenization, how has it helped push adoption in some of the front-end technologies, beating NFC, QR codes, how has the adoption been? I mean, at the point of sale, physical point of sale, it's starting to gain some traction. We have seen better traction internationally than we have seen domestically. So how does this all translate the tokenization to have that secure backbone to get more adoption at the physical point-of-sale?

Ed McLaughlin

Actually, that comes from two layers, one is having the right base technologies that are there, and we have established that. Then it's every individual consumer, it's us deciding that they prefer to do it this way than what they had in the past. And what we want to make sure, is every Mastercard holder knows that when they are ready for this, we are already there for them. So it has been lumpy, which is how you seen transitions happen. [Indiscernible], the future is already here, it's just not evenly distributed. So when I look at something like Transit at London, who we worked with for years. Well now, over 40% of their rides are contactless and native network contactless transactions, and that's what you will see, as consumers shift over. With things like contactless, we know after people tap two or three times, it's in the data. They don't go back to their prior behavior, because it is faster, because it is more convenient. And that's the build you will see.

We have had a -- it's not quite a 100, I think it was like over 140% in MDES transactions in the year, that's what you will expect to see, and we can all do, how you compound that over the next couple of years. But I want to get, I think part of your question, if I am parsing it right, was around the different payment interfaces and technologies and the adoptions around that, and that's why having the foundation tokens is so important. Having the right API and interfaces, with things like the Express Program are so important. And then, with contextual commerce, it's whatever way works best. So NFC is great for high speed, high volume environments, right?

If I want to get on the tube, that captain go in a couple of hundred milliseconds or less is what I need. And that's we see transit agencies, I think we are looking at over 90 around the world. If you look at a market like India, six of the last eight transit gigs went to Mastercard, because of the technology and speed we can provide around that. But that's not to say, something like a QR code -- I will stay in India, the Bharat QR initiative that we were talking about, allowing any merchant to just be able to hang a QR code and begin accepting payments. From a cold start, we have over 400,000 merchants already engaged in that, and again, it's getting a standard rate and the right context for that.

Even things like Bluetooth connectivity; I remember years ago, we got one of the first pre-production -- I guess we are all pre-production right now, Google Glasses; and in labs, about a week and a half, they came up with Blink-to-pay, which I loved, because it was so silly. I said, don't sneeze, you may never know what you just bought. But the whole point is, with the right token, APIs and interfaces, whatever device and whatever way people want to transact, we will be able to support. So we don't say that this way versus that way and NFC is right and QR codes are wrong, we are saying what's the best consumer experience for this channel and how easy can we make sure, that in a safe and secure way, they can get access to their accounts using it.

And the last point, if I could, the foundation of all this though, and again, these are things we know, because we are all consumers. Number one thing people say, isn't [indiscernible] rather use this interface method than that interface method, because I want it to all work together. I want to have all the rights and guarantees of a genuine Mastercard transaction and I want to be able to take advantage of whether it's a chat bot, a card-on-file, a contactless payment, a QR code. But make it all work together for me, and that's really what the network does.

Bryan Keane

And you mentioned APIs, that strategy seems like you know, we have seen more and more push for opening up the APIs to integrate a lot of different partners there. Can you talk a little bit about what you guys are doing there?

Ed McLaughlin

Yeah, and that part simply. APIs are everything we do. You can call it an API for a strategy, but it's how our systems talk to each other. If you think about how we can bundle value-added services, and it's also how progressively we are interfacing with anyone who wants to have access to our systems. So we launched, what we call our developer zone, about six years ago -- over six years ago now, to really begin surfacing Mastercard capabilities. We have over 60 public API capabilities, six different languages we are supporting for. It's a really rich environment for partners to be able to go in and get access to things like a Master Pass or a Mastercard Send or our learning system, our loyalties and rewards. And Mastercard Labs uses this all the time. We have a blockchain up in the API framework in the dev zone, if people want to begin playing with that.

So it really gives us a great and new way of interfacing with all sorts of existing partners as well as new partners who want to work with us. The one thing I will say though, because I have had a lot of conversations around APIs, you got to realize too, APIs don't do anything, all right. What an API is, is a gateway or an interface into the services that we provide. So for the ability to have a really simple way to get access to the transaction sets, the fraud screening, the operations we have, it's really the O in O&T is what we publish through those APIs. And the art and discipline of running a global payments network, that's what we are using APIs as a gateway, to let people tap into.

Bryan Keane

So what are the -- you know, when you think about mobile payment adoption in MDES and tokenization, obviously these things are all promoting mobile and mobile payments. Besides just moving further, moving the trend towards electronic transactions, what are some of the other benefits that Mastercard gets? I guess I am thinking, do you get to see more data as a result of these transactions? And then secondly, don't you also switch all these transactions, so you don't lose a transaction to some of the domestic processor?

Ed McLaughlin

Couple of elements to that, and the only thing if I could, is we think it was much more than [indiscernible]. When we think about it, mobile is a device, it's not the device. So when I do system design, we talk about the edge of our network, we intentionally leave the box, what we call the 'as of yet unimagined device', because we have the right tokenization, we have the right APIs and interfaces, we know we are already ready if you will, for things that haven't happened yet. And that's an essential part of the design principles.

So the value of a platform is everything that you can do with, and you are right, recreating a single interface that we could have, is a relatively straightforward technology exercise.

We think everything Mastercard can provide for a consumer. Not only the way you can use it, but the safety and security that comes with the network, the zero liability that you get and the guarantees that come from it, the rewards programs that are associated with that, that's really the value we are trying to bring together and express through every channel, with the right interface for that. In doing that, it continually increases the value as a network, and that's where we think -- nothing is static. You are either becoming more irrelevant or more indispensible, and we think all of the technologies we can bring to bear, make it more indispensible, and whereas a few years ago, as mag stripe environments had kind of matured out, it would be pretty easy to set up a stripe for a static mag stripe transactions.

When you look at what we can do today, with tokenization and fraud scoring and the value added services in the API interfaces, and things like the Express Program, to connect all of these new devices, I think what we have done is we have raised the bar from an entire payments industry, and the future looks like stuff that we are really-really good at.

Bryan Keane

So you mentioned safety and security of one of the hottest topics, no surprise here in the tech conferences is, people talking about AI and how that is translating to all of the technology. What are you guys doing with AI, and is that part of making sure the network is safe and secure?

Ed McLaughlin

Yeah. AI is a huge topic. I mean, we could probably spend the rest of the day on it. And I think this is a great example of technologies that have been around for a long time, that are now coming into the fore. And what we think about in that [indiscernible] time is applied research, right? How do we take these new capabilities? Not for what they do, but to apply them to what we do to make them better. So broadest thing that I could give you around the topic as big as AI, machine learning, automation, a lot of these new capabilities that we can now leverage.

I think about the three broad categories; the first, is how can we use it to eliminate, what we call, toil, and that's to separate it from work, all right. Work is how you add it. Work is what you make and create and where productivity and economic growth come from. Toil is just doing the same thing over again and over again and over again. And I think there is a whole trend in the industry, the idea is you take your toil and try to package it, try to offshore it, try to get to the lowest cost location as possible, and for me, that's pretty much over.

Now we have the ability to eliminate it entirely. And so, Andrew Ng, a Stanford Researcher, was with Baidu for a while, calls it the one second rule. Pretty much today, any decision will take you about a second, is it blue [ph]? We can use AI to automate. So we are going through relentlessly each of the workflows we have and say what our longest running, what our most expensive process is, and you can begin applying these technologies to eliminate net [indiscernible] to free our resources up for more value added work.

Second big category though, right? Because there is, again, like anything else as it comes in, it's so compelling, it tends to get overhyped, is how we can use it? And I think there is a lot of opportunity here for work augmentation. So one simple example, change management. You run a big shop like I run, and you are changing things all the time, you are packaging, you are upgrading. So you are applying machine learning, to looking at every change we have ever done, to say, you know, what's the potential blast radius? What could this impact? What's the risk it has around that, to allow the people doing the chain, to get a lot better information, to inform them for the work that they are doing. And that's [indiscernible] being applied like medical and other fields. We are actually applying it into our operations and into other expert type systems, because we can make the people doing the work that much smarter.

But the final area, that third bucket and we really think about and this is what I am most excited about, is how we can use it to do work we have never been able to do before. And I will give you one example, we survey every transaction that comes through the network. We have this real-time in-memory grid, that looks at all the transactions that are happening, kind of applied to transactions as they occur in real time. All right. No human can do that. So we have a product called Safety Net, which has really saved our issuers hundreds of millions of dollars, literally, over the last few years; because what it does, is it acts like a circuit breaker. We can see a pattern so abhorrent, that you know you have probably a fraud condition, which is usually based on something on the issuer side, on our partner side, or something wrong in the ecosystem. You are not paging someone or stopping those transactions, and then we are bringing the experts in, to figure out what's happening and to do that. And so that ability to automate and do work based on their real-time learning that no human could hold in their head, there is tremendous applications you are going to see on that going forward.

Bryan Keane

Want to switch gears a little bit here and talk about kind of the opening up of the market I think, for Mastercard to B2B payments and real-time payments, and that's getting a lot of interest from investors, because it was something that we didn't really see as a new opportunity. So can you talk a little bit about the acquisition of Vocalink and how does fast ACH fit into this picture to get you guys into this market? I guess you have touched on some of the B2B market and some of the government markets, but how does it actually promote and push further into these markets?

Ed McLaughlin

Yeah. And I think Vocalink is a great example. In fact, one of the things that I am sure, as you have been tracking Mastercard. You see, we have been really thoughtful and strategic in some of the acquisitions we have done, to bring in new capabilities to augment what we do, going back to things like C-SAM for mobile application development. I should have indicated, when you asked about AI, we have Brighterion and we are really excited to now have Brighterion as part of the company. We have worked with them for years and some of the best AI engineers that are out there, that are now part of and dedicated to working for Mastercard.

So one example of working with the Brighterion and I shall get to your question. Right now, one of the fraud tools is just [indiscernible] [23:17] instruments. They are declining more valid transactions than the fraud they prevent. This allows us again to really increase the sophistication, to make sure every valid consumer transaction. We can also make sure it goes through. And again, that level of sophistication, to get back to one of your earlier questions that a Mastercard network is global scale, an ability to bring in companies like Brighterion could uniquely provide.

We thought about the same way for faster ACH. And this is why I will address this, because I get questions on this. You had Mastercard Send and there is things like Visa Direct out there, and how does a faster ACH fit into all that. And I will just give you an engineering perspective on this one; these are just very-very-very different fits, different horses, different courses. And when I look at what we have, with things like Mastercard Send or a Visa Direct, it's like trying to pound a nail in with your shoe, for some of the markets we are going after. It's not just the right tool for the job.

So very quickly, we years ago, started making our debit network run backwards or run bidirectional, so we could push payments through the debit network. We built on that to launch Mastercard Send a few years ago, which is more than just simply pushing it through the network, it wasn't a Mastercard DIRECT, right, if you can reach it with my network, I can do it. Send became a gateway, that you could literally send or push money in your real-time to every bank account in the U.S. that we could reach, and we would gateway across different networks, if we didn't have a direct connection to it. That's why people like Uber and Lyft use it to pay their drivers. That's why an Allstate can say, if I want to give a real-time claims payment, pretty important topic right now. I can give that immediately to the consumers, in the bank that they already have. That is a fabulous of the existing debit network in card rails. With Allstate, the claims adjustor can really tell you what you deserve, swipe your debit card, not to take money, but to push that money into your account. So we love what we have done with Mastercard Send, and that is how you apply debit style payments.

When you get to a faster ACH, it's an entirely different environment. And probably, the easiest way to think about it, is in the U.K. today. We are doing about $1.5 trillion worth of transactions in the faster ACH network. While it still has a really healthy and existing card and debit ecosystem, this expands our business. The faster ACH works directly from an account to account. It gives us the ability to work with governments, regulators, banking coalitions that want to set these systems up, as the 30, 40 year old batch-based ACH systems inevitably get upgrade.

So not only do we have the systems that are running in the U.K. for a while with the volumes we talked about, Thailand, Singapore, the clearinghouse in the U.S., are all using the Vocalink faster ACH software, because it's fit for purpose for what that purpose is. So for B2B payments, for payrolls, for moving big amounts of data along with the payment, backwards through the network, you are not going to do that with the debit transaction. But what we now have with Vocalink is perfectly tuned for that, which is why, in our Investor Day, when we are talking about, here is a huge addressable market, and we are going after with the card rails and systems and here is an equivalent, or an even bigger addressable market, that the new assets we have around faster ACH I think are just better at addressing. And that's why, we see it as an expansion into the network and additive capabilities for what we are doing.

Bryan Keane

How fast do you think it will -- faster ACH will take off? Will it take some time to develop?

Ed McLaughlin

So one of the things that we keep -- first, it's getting the system set up. Right? So countries around the world have always had their sort of now archaic, batch-based ACH systems. There are sets of RFPs that are coming in, how they are looking to upgrade. We engage with that, and it's really a multi-stage process, right? It's getting the framework in place, it's getting it connected, and then it's using it to drive volume.

So just as you saw the build happen in the U.K., as you are seeing it happen in Singapore, as you are seeing it happen in Thailand, we expect to see that happen in markets around the world.

Bryan Keane

Okay. Also at the Analyst Day last week, you guys were talking about the B2B payments market, and you know, MA has consistently delivered accelerated growth in that B2B vertical and commercial cards in particular. So I guess my question is, what competitive advantage from a technology perspective has MA had to gain share in that commercial payments market?

Ed McLaughlin

So two things, on commercial payments, right; this obviously gets back to the standards versus how you -- what you do with it, right? It's not about the commercial cards, it's about everything we do to make it work better. So just as we talked about, sort of a [indiscernible] of long range planning with what we did in digital with MDES, with their open API network years ago. So it was 2009, we bought a company called Orbiscom, which we folded in, which gave us capabilities to do things like virtual card numbers. Incredibly important for corporate spend.

We have alerts and controls, that are tailored for. We have value-added services like smart-data, which gives very rich information about where the corporate cards have been used, directly back into that corporates' tracking system. So this is really an example of the value-added services and how we can bundle it, and how it comes together. So recent wins we have announced with -- for example Barclays, around commercial, was a combination of those assets and our advisory services, to help them differentiate, compete better in the space, using Mastercard technologies. So that's why you are seeing some of the more sophisticated and faster growing commercial card portfolios prefer Mastercard and the Mastercard network, not simply because it's commercial cards, but because of all of the ways that we can make it work better, and the value added services we have been able to put around it.

And that leads to -- because there is a lot of conversation, I think you touched on this B2B hub that we just announced. And one of the ways, I like thinking about the hub, is again as it gets back to this network and platform play. So just like we talked about with the original network, like we talked about with what we are doing with the Express Program at MDES, the B2B hub, which my daughter likes to say, today-today, ties together over 130 accounting and other systems that corporates run, which we can now combine with everything in the Mastercard payments network, all this commercial and other products that we have talked about. And you can envision how a faster ACH and other payment rails would fit well into this.

So it's really established in that connectivity between the payment systems, directly into the ERP systems that are already in place in the small to medium enterprises, particularly around the world. For those small and medium enterprises, I will use the U.S. as an example, over half their payments are still in check. So again, this idea of relentlessly bringing and expanding the value of electronic payments, whether it's through the digital devices the consumers are using, or through a B2B hub to connect directly into the ERP systems that businesses are using, that's how we can continue to take cash and checks out of the system and bring them back into the Mastercard network.

Bryan Keane

Okay, if you have a question, just raise your hand, we can bring a mike to you. Ed, I wanted to ask you about, obviously, a hot topic about blockchain and cryptocurrencies. What is Mastercard doing in that area? These new technologies, can they help Mastercard or is it maybe a competitive threat?

Ed McLaughlin

Really, thank you for separating out the sort of cryptocurrency and blockchain conversations. I think speculative asset classes that you have in cryptocurrencies have gotten a lot of interest, and value is being generated there. It's just not a great transactional processing environment yet, there is a lot of regulatory and other considerations I won't even go into. The blockchain though, this gets back to applied research; I think it's a great example of new technology that Mastercard can look in to incorporate, to do what we do better, where appropriate. Almost exactly as the conversation we have with a faster ACH.

So years ago, early on, we build a chain, you can play it through our open APIs if you want to, they changed to a great job, I think in low volume, low trust environments. So as you see it being used for contracts and titles and shipping, billing, leading [ph] and things like that, really interesting stuff. I think combining that with the trusted payment systems for high volume transactions, will have some interesting potential. So what we constantly do, is trying to get past all the hype and handwaving, and say, what is this technology exactly? What is it good at, what isn't it good at, and if there is anything which allows us to do what we do better, we will be the first to adopt it. If it can help us extend what we do to solving customers or solving problems, we will do that too. But for the high volume, trusted network payments we do, it's not really an applicable technology, for a lot of things to get paid for, and a lot of ways we could potentially extend our value. We are working with it, and really interest in it.

Bryan Keane

Yeah, go ahead.

Question-and-Answer Session

Q - Unidentified Analyst

[Question Inaudible].

Ed McLaughlin

So the question is, with computing costs coming down, what would the future of encryption be? It will be fully distributed. I think this personally, but the only way to make data truly safe, is you make it useless, if it's used out of context, encryption is how we are going to do that. The foundation of MDES in 2013 when we first put it out there, wasn't to have a token, the alternate device number, it was to include the key, so you could generate a crypto and sign every transaction uniquely. So I think, the ability to have more and more powerful computing shifted to the edge, and I think you are going to see the future be much more of an edge play, than a centralized cloud play. All right, there is no perimeter, so you need to get as much security as possible, right to the edge of what you are doing.

So I think you will see it coming all the way down to things like chip level in devices that we will all be able to take advantage of, but very excited about what we can do around encryption.

Unidentified Analyst

Hi Ed. If we go to China, we see -- I mean, no one really uses wallets anymore, you have your smartphone with you, and that's done for everything. Is there anything, which Mastercard and other companies can learn from what they are doing, and in your opinion, why has adoption rate been so much faster in China, than what we see in the rest of the globe?

Ed McLaughlin

Two factors -- we will be in China about two weeks. Two factors on that one, right; one of which is how environments develop. You can look at it in things like, NFC payments are near universal in Australia and they are much slower to develop in the U.S., even though you have very similar economics and populations. I think there is a tremendous market need in China to move to digital and electronic payments. I think the -- for a variety of reasons, the banks and traditional payment networks didn't provide the consumers what they were looking for, and allowed some of these mobile interfaces, which really started with the social connectivity, to really get a rapid expansion that's there. And the lesson I take from more than anything else, is the only arbiter of whether or not, any of the stuff gets used, is the end consumer, and the only thing the consumer is going to say, is this is way better than what I have available to me today.

So we have spent, again, a lot of time looking at that. We are working with the AliPays and Tencents of the world, just as we work with large financial institutions and regulators in China, and that's where I think you are going to see contextual commerce. Means, there is going to be all sorts of different interfaces types. What we want to do is, make sure we keep leveraging those and bring them back to the account you have today, through the Mastercard network.

Unidentified Analyst

I have a quick question. I am with CBW Bank. So we see a lot of requests for, what do you call as, having a card in the front, which can authorize another card intelligently. You swipe the same card, and it could be an HSA, it could be a credit card. It's almost like having a wallet with a bunch of cards. But in the front end, you have a simple debit card, but that results in back-to-back authorization, right? You have double the interchange, or whatever. So does Mastercard have a solution, where banks can actually implement a multi-card wallet solution?

Ed McLaughlin

Probably over the last decade, there has been any number of, I will call it awkward or unnatural acts to try to change transactions around that. I think for a consumer, knowing precisely the financial institution that you are working with and the rights and the guarantees. So the access to any number of accounts we can do through the wallet solutions that are out there today.

I think universal sort of front-ending and skewering the underlying accounts probably isn't -- we haven't seen it being very satisfying for consumers.

Unidentified Analyst

That's what I thought, but we almost get one every month now, some fintech thing, I want to do that.

Ed McLaughlin

Yeah. And again, the great thing about what's happening out there, is all sorts of stuff is going to be tried. We just haven't seen it being very successful in the marketplace.

Unidentified Analyst

That's what we thought as well. Thank you.

Bryan Keane

Okay, with that, we are going to have to leave it there. Thanks so much Ed.

Ed McLaughlin

Hey thank you.

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