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March 28, 2007

Risk and reward in Europe

Mark Barnett, head of MasterCard Advisors UK, spoke to CI about the changing face of the payment industry and how the company is positioning itself to take advantage of new opportunities. 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

By Verdict Staff

MasterCard Advisors is a payments industry consultancy dedicated to helping banks optimise their card operations. Mark Barnett, head of MasterCard Advisors UK, spoke to CI about the changing face of the payment industry and how the company is positioning itself to take advantage of new opportunities.

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.

“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.”

CI 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.”


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.”


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.”

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