Mastercard's Strong Criticism: National Payment Systems Will Not Succeed, Libra Won't Make Money

Mastercard CEO Ajay Banga expressed his concerns about the development of national payment networks and the reasons for Mastercard's withdrawal from Libra in an interview.

Mastercard's CEO Ajay Banga expressed his concerns about the development of national payment networks and the reasons behind Mastercard's withdrawal from Libra in a recent interview.

Mastercard recently announced a profit of $17 billion in 2019, triple the profit from a decade ago. The stock price also surged from $20 to $320. The company has gained a significant advantage as consumers habitually use credit and debit cards for transactions on the global payment network.

Ajay Banga mentioned that this growth hasn't been as smooth as one might imagine. He stated that multinational companies could easily be rejected in some major markets around the world as people are increasingly emphasizing populism and nationalism.

Banga: Building isolated payment systems is foolish!

Regarding some countries' attempts to fragment the global payment system, Ajay Banga bluntly stated, "In a world where people travel across countries, it is foolish to build isolated systems. When you think about crime and technology being global, it makes it even more foolish."

Banga believes that catering to nationalist payment systems may lead consumers to revert back to using cash due to privacy concerns. He cited examples from his native India, Russia, and China, where these countries either tried to develop national payment networks or supported private enterprises in developing payment networks.

Banga pointed out that China, for instance, has a completely nationalized payment network. He argued that using a certain payment method to control a country is not a new idea, and many past attempts by countries have been unsuccessful.

He criticized the hassle of such localized networks, the need for substantial investment, their ineffectiveness in cross-border transactions, and how fragmented data could hinder fraud and crime tracking.

He further mentioned the downsides of electronic payments: people's fear of data transparency. While Mastercard only collects card numbers, transaction amounts, time, and merchant codes, electronic payments may collect more personal data, thus infringing on privacy.

Reasons for breaking up with Libra: Compliance, Lack of Profit, Calibra

Mastercard had three reasons for exiting the Libra Foundation.

Banga stated that he liked the concept of a global currency and joined the Libra Foundation, but it did not comply with existing regulations.

Secondly, Banga mentioned that he didn't see how Libra could make money – "When you don't understand how to make money, it will make money in ways you don't like."

Lastly, Banga believed that the Libra project was hijacked by Facebook's Calibra wallet, which did not align with his vision of inclusive finance. He found it hard to comprehend the process of receiving Libra coins in the Calibra wallet, converting them into fiat currency, and then spending them.

Is this a defensive statement?

In fact, electronic payments have been very successful in China. Privacy concerns mentioned by Banga don't seem to be a major issue in Chinese society. Chinese electronic payment brands like WeChat and Alipay have long supported cross-border consumer payments in many places. LINE Pay is also set to enable cross-border payments under a multinational alliance.

As for national payment systems, while international cooperation remains a long road ahead, cross-border payments are part of many countries' plans.

Some analysts believe that global payment networks based on blockchain, like Libra, will remain competitive in the future, and Mastercard's exit from Libra was purely a personal decision. With the increasing popularity of electronic payments, Mastercard may lose its competitive edge.

Banga is unfazed. He mentioned that Mastercard has partnerships with 30,000 banks globally, over 60 million merchants, and complies with regulations in various regions and countries. These factors give Mastercard an efficient and cost-effective niche.

Regarding the growing number of competitors in the payment market potentially leading to lower fees for Mastercard, Banga acknowledged it could happen. However, he anticipated that posing a fatal threat to a giant like Mastercard would be quite challenging.

Related Readings

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