MasterCard, which yesterday beat Wall Street earnings expectations with a 21% increase in second quarter profits, has put some more heft behind its innovation strategy.
The credit card company rededicated itself to innovation yesterday, saying it expects a clearly defined portion of its future revenue growth to come from new products and services.
Ajay Banga, president and chief executive of MasterCard, was asked how much of the company’s future growth “is going to be attributable to some sort of innovation that MasterCard is developing today”? Banga said that over the next three years, MC innovation will be responsible for 2%, 3% and 4% of the company’s growth per annum. Those hard numbers imply a cycling up of innovation activities and revenue at MasterCard over the next three years.
Banga was more specific than he has been in the past about where MasterCard would find that innovation:
[I]f you think about our three year projection on revenue growth, those 2, 3, 4 percentage points at the end that [MasterCard’s CFO] was talking about are from innovation in new products from things like data analytics, which to me is a relatively new product all the way to the changes in market share and growth whether it be U.S. credit or frankly U.S. debit or all the things we are doing overseas as well.
So you can see it in that ballpark in that block of 2%, 3%, 4%. My whole attempt around innovation was to change the way we went to market, so that we didn’t just sell credit, debit, prepaid and commercial, but we looked at diversifying that growth from the core products both in terms of geographies and in terms of the kind of clients we worked with. So there you can see 30 odd deals that mobile telecom operators in the last two years — we had none three or four years ago. In fact, the dialogue used to be, how they wouldn’t need the banks and the networks to be able to grow I think that demonstrates clearly that we have been able to show that our product set and technology adapted to mobile payments can work with them. I just was talking about Telefonica. So there are examples like that and a number of others. I talked about SingTel and the other Telcos in my call, as well. … We’ve done a lot of work in information services and data analytics.
Beyond analytics and teleco deals, Banga pointed squarely at mobile as a growth engine:
The second part around innovation has to do with mobile payments, eCommerce and the whole aspect of information services. We are making a lot of progress on all three.
It is interesting how MasterCard views innovation products. To MasterCard, innovation does not only mean wholly new revenue streams, but deviations off its current product set. Here’s how Banga explains it:
I don’t have an innovation index that I’m going to give you publicly because the issue is what’s the new product. In a consumer product company, you can evaluate it in different ways. What’s the new product for us, is a credit card with a new set of features a new product or a new product only that which comes in a new delivery channel and then we’ll get into endless discussions about that. I’m much more focused on measuring our ability to generate new ideas in the company, do solution-based selling to our clients and see the impact on our brands.
Banga said MasterCard’s innovation activities have already paid the company dividends. He credits the rise in MC’s global brand ranking to 20 from 87 in 2009 on the company’s innovation efforts.
But lest you think that all this talk at MasterCard will have the company looking vastly different in the years to come, think again. The company banks on 4% to 6% of its annual, long-term revenue growth on “the conversion from cash to check to electronic forms of payment.” That’s the banking equivalent of sitting on a couch and letting the money just pour in.