Mr Nice Guy

Javier Perez, President of MasterCard Europe is one of the few company leaders who believes the economic downturn be good for business. He meets Diana Milne and reveals why less is more for the credit card behemoth.

“We want to make sure that in this changing environment, we continue to provider to all our stakeholders the best possible product that would enable them to face difficult times”
-Javier Perez, MasterCard Europe

You’d expect the head of one of the most successful businesses in Europe to rule with his organisation with an iron fist. But according to Javier Perez, President of MasterCard Europe, being a “nice guy” is the key to running a successful business – even in today’s cutthroat banking industry. “I believe that being a nice guy gets you results,” he says. “Today to get the best out of performing teams of people you need to have an environment where people are appreciated, recognised, praised for the good things that they do. And being able to have a frank and honest discussion about the things that didn’t work out is the secret to having a performing organisation. If you don’t have a nice environment with nice people it’s very hard for that to happen well.”

And judging by MasterCard Europe’s results for 2008, Perez has been very nice indeed to his team. The company is one in the few in Europe to have experienced double digit growth in a year when most were battling to survive. The company’s gross euro volume grew by 15.5 percent, purchase volumes by 15.7 percent and purchase transactions by 13.2 percent. In the same year alone, European customers made 6.4billion purchase transactions with their MasterCards. Beaming proudly as he relates these latest results, Perez clearly has all the evidence he needs to support the fact that being nice gets results. And seemingly not even the prospect of worsening economic conditions across Europe can wipe the smile off his face.

Indeed, he believes that MasterCard could profit from the changes in the spending habits of consumers during the credit crunch – particularly the pattern of spending little and often rather than making less frequent high value purchases. “We have a situation in Europe, like everywhere else where we have worsened economic conditions. What is the consumer doing to deal with that? Well the way people are behaving is they are simply doing what they want to do but they are doing it differently. A typical example is the spending behaviour of a Belgium family on holiday. In the past the family would travel by plane and paid say 1000 bucks for the four of them. Now they will drive instead and make lots of smaller purchases along the way such as paying for gasoline, buying meals en-route, then when they get there buying food from supermarkets instead of paying for big meals in restaurants.”

This situation, he goes on to say, is beneficial to MasterCard because it relies not on the value of single transactions but on the volume of transactions that are carried out: “MasterCard is not that sensitive to the economic conditions as long as customers keep spending money. It is not so dependent on volume but is very dependent on transactions. So for us it’s more attractive to us to have 10 transactions of €80, than one transaction of €1000.” Another attraction of the credit crunch to MasterCard, claims Perez, is the fact that consumers will increase their usage of credit cards in a bid to better control their finances: “[In this climate] people start to be a bit more mindful and rather than happily using cash, we have seen in the past more usage of plastic in order to keep the money in the bank longer and take advantage of the card. When you have a lot of money in the bank and you’re not that concerned you just burn cash and it’s fine. When you’re a little bit concerned, you start thinking, ‘ok so maybe I can match my salary with my expenses by taking advantage of my credit card and paying by the end of the month.”

That’s not to say that Perez believes MasterCard is immune to the woes affecting financial services providers across the world. He acknowledges that there could come a point where the credit crunch is bad for MasterCard’s business. Going back to his earlier analogy, he says: “The other end of the spectrum is that if that Belgium family becomes unemployed and they simply don’t have any money to spend that is bad for MasterCard.

“I know from experience that if indeed the consumer stops spending the impact it will have on MasterCard. To what extent the incremental spending of small amounts will compensate for that remains to be seen.”

While he bases his predictions of consumer spending habits on the patterns displayed in the past, Perez knows that the payments landscape has changed dramatically in the 30 years since the MasterCard brand was launched. To date the number of MasterCard cards issued by European financial institutions is a massive 195 million and making payments by plastic is now a global phenomenon – fuelled in recent years by the explosion in the popularity of online shopping. Today technology is revolutionising card payments further, and addressing many of the public concerns that proved obstacles to their wider adoption. In particular the introduction of the introduction of chip-enabled card through the EMV standard, has addressed security and fraud concerns. Over 50 percent of the MasterCards that have been issued in Europe are now chip enabled. However, according to Perez, this is not enough. He says progress on the introduction of chip enabled cards in Europe has been disappointing – given that it was a decade ago when the company first introduced the technology to its customers.

He blames the slow progress not on customer uptake but on the response by retailers.
“We thought chip would come out faster. And we thought the multi applications would come faster. The first time we recommended chip was ten years ago. It’s been slower than we expected. It’s relatively simple to modify the cards because they expire every three years, more or less. But it is hard to modify the acquiring infrastructure, i.e. the terminals that are placed on the retail side. I think we underestimated the magnitude of the technology change and expense that would be necessary on the acquiring side in order to deploy chip. You would have to change every terminal in Europe without exception in order to deploy chip.”

He goes on to say that reaching standardisation among the card providers also hampered progress – an obstacle that was later overcome by the introduction of the EMV standard which was developed through collaboration between Europay, MasterCard and Visa.. “At the beginning MasterCard had one standard. Visa had another. Some domestic schemes had another. So we had to create EMV code in order to avoid language issues in which one chip doesn’t talk to another. Or a chip doesn’t talk to a terminal. “So when you put all those things together that is why we have been slower than we thought.” This slow progress is even more frustrating for Perez given that technology is now rapidly moving onto the next level, leveraging the EMV payment platform for contactless payment technology. In the UK alone MasterCard has issued one million MasterCard PayPass branded Barclaycard cards, and has been involved in partnerships with Royal Bank of Scotland and the UK’s Stagecoach bus company to introduce the first ever use of contactless bankcard payments on public transport in the UK and in Europe with Frances’ capital public transport system, La Banque Postale, Germans BW Bank and the VfB Stuttgart football team and the introduction of PayPass for students of the Warsaw School of Economics.

While slow deployment of the technology by retailers has delayed the widespread adoption of chip and pin cards in Europe, Perez said that where it is deployable, merchants have been highly responsive to contactless payment innovations - primarily because it makes their jobs easier. “We are receiving an extremely good response from retailers to the contactless technology. They absolutely love the PayPass product because it provides much more speed at the register and a very nice experience for both the cashier and the consumer. It makes the transaction faster and easier and quicker. So that is evolving really well.”The key to spreading adoption of the technology, says Perez, is to ensure that it is not proprietary and that branded contactless cards or those made available through partnerships with transport providers for example, can also be used to make payments at other outlets: “Retailers like the subway in Paris have realised that proprietary technologies are not the way of the future. If they want the consumers to use the card they need to make sure it can be used everywhere. In other words, if you as a consumer can have a card that can be used everywhere, the chances are you can also use it in the subway. Therefore (in the future) you will see a migration from proprietary technologies like Oyster was originally to more like PayPass. The same thing but a global technology that can be used everywhere.”

Another innovation MasterCard is hoping to introduce, taking advantage of the EMV technology is the In Control technology, which allows customers to control their spending on credit cards by customising them to have certain limits on spending amounts and where the customer can actually spend money. This, says Perez, will appeal not just to the budget conscious but also to parents and to companies with corporate credit cards: “We’re rolling out something called In Control which means the consumer through accessing a website will be able to set spending parameters for their credit card. You will be able to define where and when you want to spend money and how much you can spend per transaction. Whenever your card does something that you want to be informed about the system will send you an SMS. This is very useful for the consumer but also for companies and for families. For instance children can be given cards that they can only use for school transport or school cafeterias.”

Ever the nice guy, Perez claims that the thinking behind the product is will enable customers to better weather the financial storm. I guess in a situation like today the first question we ask is how MasterCard is going to wrestle with the economic environment. I have already said that it doesn’t impact us much directly. But it does impact our customers, the consumers, the banks and the retailers. So we are very keen to make sure we continue to deliver value to all our. We will deliver value to society in general by providing a means by which people can spend money wisely and be able to continue to have access to payments in an organised and safe way. We as MasterCard want to make sure that in that changing environment, we continue to provide to all our stakeholders the best possible product that would enable us to face difficult times.”

The successful introduction of MasterCard’s new products relies less on current economic conditions however than on the company’s aggressive branding and marketing strategy. Perez says the “below the line” approach, i.e. direct mail, still continues to deliver strong results for the company, however the company’s continued success has allowed it to embark on a high profile above the line campaign. One of the keystones of this is sponsorship of international sports events – most notably the UEFA Champions League, which according to MasterCard, resulted in profits of €38.54 million for the teams that reached the knockout stage of the game. At the time MasterCard commissioned a study by one of the world’s leading marketing experts Professor Simon Chadwick of the UK’s Coventry University, who said at the time: “In uncertain economic times, sport’s universal appeal remains strong, making it one of the most lucrative industries to be involved in.” Backing up this claim, Perez says: “We have the best sponsorship platform in the world, which is football. The consumers like it, the retailers like it and that’s giving us excellent results. We continue to use those assets. They deliver good results. And we intend to continue using them.”

Like the captain of a good football team, Perez has proven that keeping his team happy gets results. But as playing conditions in the financial services sector get ever tougher, and with competitors hot on his heels, Perez must now work harder than ever to ensure MasterCard remains at the top of the league.

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