Within the payment industry, MasterCard Advisors is one of the
few dedicated consultancies that is helping banks to optimise their
card operations and take advantage of new opportunities in the
market. CI spoke to Mark Barnett, head of MasterCard Advisors UK,
about the company and what it sees as the main trends emerging in
Europe’s payment industry.
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“MasterCard Advisors is a fairly young business, and we celebrated
our fifth birthday last year. We exist for three reasons – firstly,
to help MasterCard Worldwide win new business. Every time there’s a
new business deal, Advisors is involved, as we can help customers
in converting from one brand to another, and we can help them bring
new and interesting products to market. Secondly, we help
MasterCard’s customers grow their existing business, and that has a
beneficial knock-on effect for MasterCard. Thirdly, we exist as a
new and diversified revenue stream for the company – a professional
services business within MasterCard,” he explained.
“Are we just another consulting company? I hope not – we’re very
focused on one industry sector, cards and payments. Our unique
selling point is that we bring two types of skills together. We
have really deep industry knowledge in cards and payments. We have
marketing acquisition specialists, we have marketing portfolio
management specialists and we have risk specialists.
“We have precision analytics teams, we have strategy groups, all
with deep subject area expertise, but we combine that with
consultants – people who have the professional problem-solving
skills and different management skills to help clients solve
complex business problems. It’s really the bringing of those two
things together. Can we compete with the likes of McKinsey? No, but
can we compete with them in the payment industry space? Yes, we
can.
“Our clients are almost exclusively banks, issuers and acquirers,
monoline or high street. Geographically we work across Europe, and
we’re increasingly doing more and more work in Eastern Europe,
which is the new frontier. Although we do some work in the
processing space as well, generally our focus is on banks.”
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By GlobalDataCI asked Barnett about the company’s work in the commercial cards
sector, where card volumes are rising significantly.
“We’re fighting a war on cash, and cards are a more convenient,
more secure and cost-effective way to make purchases. Commercial
card volumes are indeed growing, as are consumer card volumes, but
commercial cards are rapidly outstripping that – they’re growing at
15 percent per year on average. We did a survey recently and 74
percent of the companies that we spoke to across all industry
sectors, from very large corporates down to small organisations,
still said cheques were the most common form of payment, as opposed
to just over 56 percent who used a commercial card of some sort.
That tells me that there’s still a lot of room for growth, there’s
another 50 percent who aren’t using cards.
“We have products that suit all sectors, but probably in the
smaller businesses, companies with fewer than 100 employees,
there’s a lot of opportunity to move people from using cheques,
cash or even consumer cards within the business to commercial
cards. We’ve been working with a number of issuers to try to help
them develop products and persuade corporates to use these products
more frequently.”
Analytics
MasterCard Advisors is also prominent in the provision of risk and
analytics tools, and the company has a suite of products geared
towards helping banks to identify and track emerging trends.
“We’ve got a team of people who do data analytics for a living. At
the beginning of almost any engagement that we do, we have a heavy
analytics component upfront. What would we use that for? It might
be for helping banks identify new targets to acquire, it might be
helping them identify opportunities to increase spend, increase
usage, increase activation rates, and displace cash.
“We have a series of proprietary products. One is called Commerce
Intelligence. We take all the data from credit cards in the UK, and
then we group that data into what we call ‘purchase clusters’. From
that we get profiles of groups of people who spend and behave in
certain ways. We then use survey techniques – we go out and talk to
those customers to get a deep understanding of what those
customers’ needs and preferences are. We can then look at an
individual bank’s portfolio and examine the areas where the bank
may be underperforming, where it may be overperforming, where it
has opportunities to develop products to address particular market
segments, and so on.”
How easy is it to integrate these solutions with a bank’s existing
systems?
Barnett said: “With Commerce Intelligence, we don’t need to build
any interfaces to anybody because we’ve got the data already, which
is one of the big advantages of that product. To enrich it and make
it even more powerful, you’d need to take a bank’s master data into
your warehouse and use that in your modelling, which is something
we do all the time. You can add to behavioural spend data, you can
add information on borrowing and various other demographic
parameters, which makes it all the more powerful. We then obviously
have to be extremely rigorous in protecting the integrity of that
bank’s data.
“There’s also a lot of bespoke analytical work that we’ll do for
projects. One product is called Portfolio Analytics, which banks
can just switch on, and it tells them how they’re performing,
mainly from an operational standpoint. It can tell them how their
fraud rate compares to the rest of the market, how many chargebacks
they’re processing, how efficient parts of their operation
are.
“We also have a team of risk specialists. In terms of emerging
trends, we’re familiar with the issue of net credit losses in the
market, and most of the banks are on top of that, although they
still have some bad debts to contend with. I think the real
difference now -– and we were working with one big UK issuer last
year – is really understanding where the bad debt comes from.
“We’ve got some models now that can very accurately tell you what’s
coming down the pipe in terms of bad debt, and what’s causing it.
It could be that a bank has a policy rule set up that accepts debt
onto the bank’s book from people of a certain profile, and we can
identify that it’s that group or profile, triggered by that one
policy rule, which is bringing debt down the pipe two or three
years later. Equally, it could be collections issues or
applications processes. I think banks are getting much smarter
about identifying what is triggering the bad debt and therefore
being able to alter it, without it impacting too heavily upon the
overall portfolio.”
Is the focus on bad debt an argument for more data sharing between
banks?
“We work in a lot of territories around Europe where there isn’t
even a bureau system in place, and given the sophistication of our
bureaux and the fact that there’s several of them, there is a level
of sharing going on,” Barnett said. “If that bureau structure
didn’t exist, clearly something would have to be done. In those
countries where there aren’t bureaux, then an awful lot of
institutions wanting to take on lending portfolios are encouraging
the building of those bureaux via a trusted third party, or the
Experians and Equifaxes of the world are setting them up. I think
sharing data between banks on certain risk elements is absolutely
fundamental, but obviously the banks’ competitive integrity needs
to be preserved.”
SEPA
With regards to the Single Euro Payments Area (SEPA), does
MasterCard Advisors anticipate a lot more processing consolidation,
and how will SEPA’s implementation impact upon merchant acquiring
in Europe?
“We’ve worked with several banks on helping them work through what
their post-SPEA processing architecture will look like. Most of the
big banks have got SEPA teams thinking about its implication for
all payments, not just cards. The big banks are thinking about two
or three things – the first thing is that most countries have a
domestic processor, an interbank-owned processor, and the banks are
thinking about how that’s going to work in a SEPA environment. If
they operate in more than one country, do they get those processors
to work together, or do they ask a big company like First Data to
do the job for them? These are very big complex questions which the
banks are working through at the moment.
“One thing I would say is that MasterCard provides them with the
opportunity to switch their transactions at the highest level, and
MasterCard has a brand, Maestro, which is very strong in the SEPA
world in terms of acceptance and positioning on cards. I think
we’re in a good position to help banks work through their
processing. There’s different strategies emerging – First Data is
out there buying up a lot of companies, and the rationale’s
understandable. SEPA is not too far away but I think the
implications of it will rumble on for many years beyond, until we
have a settled processing landscape.
“On the acquiring side, I think that’s even more complex, and
probably even less certain. One thing’s for sure – all acquirers
have to undertake a fundamental rethink of their long-term strategy
– are they going to focus on niche customers or on certain niche
merchant categories or on certain markets, are they going to stay
domestic – all those things have got to be worked through. Again,
we’re working with a couple of acquirers on working through some of
those questions, but they’re thorny issues.”
