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"Innovation is a big word".

Summary: Raghu Malhotra is the President for Middle East and Africa for Mastercard. In this interview, Malhotra explains how his business has changed and the opportunity new technologies present.

For Raghu Malhotra, Africa and the Middle Eas t are an exciting place to be. Having seen the rapid rise of countries across Asia he is cautious about the outlook but it is undoubtedly "the most exciting part of the world in which to do business", especially as we witness the complete transformation of economies. But for Malhotra, the big question is how do you convert that potential to reality, and more significantly how quickly? Given what's happening in the digitisation of the world, he feels that the transfor- mation model for the emerging markets will be very different to what we have seen in the US, Europe or even more recently in Asia. Technology will create a new value chain itself on how things work, including in the business that Mastercard are in. The emergence of mobile money is one such example.

He is confident in Mastercard's ability to deal with these new entrants and believes that new innovations for the group as a whole will actually emerge from their work in frontier markets such as those in Africa. "Increasingly innovations will be 'exported' to more developed economies. Maybe not in manufacturing, but in banking and in the fintech world, absolutely."

For a company like Mastercard there are three areas where growth can come from. First is general economic growth which leads to greater transactions. That growth is ultimately correlated to the economy. Another, and here is the greatest potential, is moving from a cash (or cheque-type) economy to a more effi- cient electronic one. Which is their big focus in Africa. In countries like Nigeria, South Africa, Rwanda or Egypt, they have worked closely with governments to create efficient, safe and foolproof payment solutions, ultimately by providing cards with multiple function- alities, generally a card with payment functionalities and loaded with other data and information. In Nige- ria for example, the government will be able to issue biometric ID cards with a securitised chip enabling the government to pay seamlessly every month civil servants, pensioners or groups of individuals they need to pay. This has not only increased efficiency, saved costs for but also increased accountability, removing in one fell swoop the ghost workers that managed to make their way onto old-fashioned payment systems.

Such innovations will also create greater financial inclusion and help generate a credit history for a large section of the population who had hitherto been fi- nancially excluded. Given that in Africa less than 10% of the transactions are electronic, such innovations are truly transformative. To put those numbers into perspective in some more sophisticated economies, up to 80% of transactions are electronic.

The third area for growth are the new innovations that are coming on board and the changing financial landscape and interaction that we're seeing in mobile and online peer to peer payments. The big change from the 60s and 70s, according to Malhotra, is that then technology was in the hands of the few. Banks had it, very large merchants had it, and to some degree governments had it. The technology now exists in the hands of the people. Transactions are changing from a brick and mortar model to a digital one. "The transaction of today, and most likely the transaction of tomorrow, is going to change to some degree and will become what I call a 'push transaction'. Because I already have the technology in my hand I don't have to do a transaction in a traditional way [taking the 'plastic' to a merchant for them to process the pay- ment]. This requires a different infrastructure and already there is an opportunity to leapfrog."

For Mastercard this has meant a shift in what they do and who they are today. "If I look at ourselves, as a company, we are the platform for the digital economy. People ask me, how did you transform yourself from a credit card company to this technology firm? In many ways, 40 or 50 years ago we were a debit firm; we worked with only one stakeholder, which was banks, simply because that's the only addressable constituency at that point of time. Now you can address governments, you can address merchants, and therefore, our stakeholder map has changed from a single to a three party stakeholder map."

When asked whether telcos presented competition, he considered them simply part of the value chain. For him, telcos are like merchants, that is another stake- holder, and they work with them. Mastercard would provide the electronic wallet. He also does not believe that telcos will be able to capture the entire value chain, principally because these transactions need to work in an interoperable way so as not to create a parallel economy, which would not suit governments.

For Malhotra, Egypt have got it right in this respect. "The government, the central bank, the telecom regu- latory authority all came together to create one com- mon infrastructure and they mandated the telcos to all join in. So very recently Vodafone, which had their own sort of proprietary wallet, have just converted their entire wallets in to this ecosystem with them." Previously, mobile money was limited to one network, but this solution means that the payment system is a completely integrated payment solution, as opposed to closed within one infrastructure.

Regulators (and he feels that generally speaking they're moving in the right direction at a decent pace) are key, because they can contribute to enabling change. And small changes in the current frame- work, such as that around prepaid cards can result in massive changes for the way transactions take place. Egypt for example moved their whole payroll to prepaid cards, with sufficient layers of authentica- tion to reduce the risk associated with fraud, crime or money laundering.

So innovation will be the way to bring to the fore the 500m new consumers they are targeting globally by 2020, even if he feels the word innovation is too often misunderstood. "Innovation could be something small like tinkering around with a process that drives efficiency to the next level. Or it could mean creating a new platform that drives millions of transactions." At Mastercard they treat it in two separate ways. They run "Mastercard labs", an innovation facility, like an R&D lab. The second aspect of innovation is very local. A country needs a solution, and they will use an existing platform or customise one for that particular problem. Which they will then adapt and roll out on a country, region, or worldwide basis depending on the needs and scalability. But one thing is for sure, wherever there is the possibility of a transaction, Mastercard will not be far away, whether driving the transaction or operating the back end platform.

If I look at ourselves, as a company, we are the platform for the digital economy.

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Publication:African Banker
Geographic Code:6SOUT
Date:Aug 31, 2016
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