An Inside Look at How Cash Goes Digital in the Middle East and Africa

Developing economies such as the Middle East, Asia, and Africa are all poised for massive growth as cash goes digital and consumers embrace mobile. As different as these markets are, they have one common theme: consumers are driving the change. MasterCard’s CEO of ElectraCard Services Ram Chari, sat down with MPD CEO Karen Webster to discuss the role that ElectraCard Services plays in helping these markets turn the consumer’s desire for better ways to pay into safe, reliable and cashless solutions.

KW: You have a fascinating seat at the payments and commerce table where so many exciting things are happening. How did you get into payments and end up in such an interesting role? 

RC: I started my payments journey with American Express in the early 90s. That enabled me to understand the whole closed-loop and acquirer relationship. From then on, I helped American Express create global processing and centralized capabilities. That’s what attracted me to payments, and then I continued my journey and today am proud of what I have created in the payments business, building market leading products and services. Two years back, I joined MasterCard, and our philosophies align – we are focused on creating a cashless society that has the power to expand connectivity, build opportunity, and create prosperity for individuals and business. There is also the belief is that this will help create sustainable solutions in emerging markets. This has what really has attracted me to the position.

KW: Give us a sense of the environment for payments and commerce in the markets that you serve. There’s a tremendous amount of potential as a mobile device brings the capability for payment and commerce to many people for whom that opportunity wasn’t available before. Tell us what you see as the opportunity today, and where you see it 3-5 years from now. 

RC: If I reflect back, ECS (Electra Card Services) operates in an exciting region in the payment industry. If you take Africa and Asia, there is a lot of cash that is prevalent. That is attractive to us because one of our strategies is to replace cash and bring in domestic elements. The region that ECS operates in today enables us to convert cash into electronic forms of payment, and there are three factors that drive this change in the payment industry across these markets.

One is the technology itself – a lot of these regions do did not even have a legacy of systems to replace, so this presents an opportunity for them.

Second is the changing consumer behavior – whether we take Africa’s electronification experience or government benefits programs and financial inclusion market strategies in India – consumer behavior is compelling the change to happen.

Third is that digital convergence is driving these things to happen much faster, and we have seen this as a key driver to leapfrog into a technologically advanced solution in terms of the size and value of the transaction. The technology solution could address a micro-transaction at a cost that makes sense and brings in domestic elements to enable cross-border. The other thing that has become important in the change, especially when you think about 5 years from now, is the data mining that is happening, and tracking of customer behavior, as well as a regulatory framework further driving this digitalization.

If you look at Asia-Pacific, there are different stages of development. If you take Singapore, for example, there has been a complete evolution and society is becoming cashless with more sophisticated electronic technology. If you look specifically at India, and what’s happening with regulators, they very clearly want to encourage electronic payment systems and encourage a cashless society.

Finally, the transaction from cash to electronic payment in African economies still needs support. Governments in Kenya, Egypt and Nigeria have supported the adoption of non-cash payment by implementing programs to improve technology, and MasterCard has done a lot of work around these programs. For example, MasterCard partnered to deploy 13 million national identity smartcards that have electronic payment capability in Nigeria. Prepaid programs are also seeing double-digit growth rates in Africa.

There is a huge change that we are seeing in moving out of legacy programs and transitioning to mobile.

KW: What’s the role of regulation in driving the electronification of payments. As I’ve looked at mPesa and things like that, the natural question is why aren’t there more of them if they are working so well. What’s your view as you look across Africa, Asia and the Middle East as to the role of regulation in stimulating payments and commerce going forward?

RC: We do see the digital convergence happening for societal need and use. However, 85 percent of retail transactions are still done with cash and check, so there’s a huge disparity. In the educated and more developed world, there is a huge acceptance of electronic payments and their benefits. There is an understanding, however when it comes to the execution, we believe that regulators are addressing it as an evolutionary process for financial inclusion.

A lot of times, the electronification would have to work in tandem with governments, partnering with a government program driven by financial inclusion. We would have to determine what it costs the government to manage cash, as well as address the whole issue of the un-trackability and how to bring inclusion in on the consumer size. We know that with electronification, customers have increased convenience and protection that they don’t have with cash. However, there is still a challenge to address and MasterCard is keen on working on these types of programs like its debit biometric program for Social Security recipients in South Africa.

We believe that change can happen, and it continues to be a focus for us, especially with the products that we have through ECS.

KW: From the consumers’ perspective, though, it’s really about acceptance. One of the things we’ve learned in looking at mPesa is that cash is really very important because ultimately, in the villages, there isn’t acceptance for card products. What are some of the innovations that you’ve seen that leapfrog a POS infrastructure and enable payments acceptance without a device to enable it?

RC: One of the things that MasterCard is investing in is the transition to digital, and one of the ways it is doing that is through MasterPass, which is a digital a service that brings together all of the ways we pay for things from traditional plastic to digital wallets. It also gives consumers the ability to make a payment from wherever they are with one simple experience. With the acquisition of ECS, which gives us the intellectual property ownership both on the issuing and the acquirer-processing platform, we can offer turnkey solutions both for merchants and merchant acquirers online and offline to enable the network to accept MasterPass. That helps consumers use MasterPass both in stores and online across many mobile technologies including NFC and QR codes. We believe that this will greatly accelerate acceptance of our products and solutions and services, and also enable adoption in larger geographies like India.

KW: MasterCard has been doing business with ElectraCard for many years. What prompted the acquisition?

RC: MasterCard is focused on the processing business. The primary driver for this acquisition was to strengthen and accelerate this ability to execute a strategy of processing more transactions in more markets.

The investment was made around 2010, with a 12.5 percent stake in ECS. From 2010-2014, MasterCard acquired the company 100 percent. We learned a lot about the product, the customers, and the markets served, and it really fit in to the MasterCard global processing strategy. It also enabled us to expand the product offering, types of services offered, and the geographies that we could operate in including Asia, the Middle East, and Africa. As part of the overall product processing strategy, we remain committed to raising the bar on innovation and investment on the product. The intention of the acquisition was also to grow and build on the product capability with more platforms and payment solutions.

We have to remember one thing: In the payment ecosystem, processing becomes the central part that drives customer relationships and engagement. Value-added capabilities that enhance customer loyalty, allow us to reach new segments, and analyze key data captured from the first point of interaction fit neatly into both MasterCard and ElectaCard Services’ strategy of driving greater efficiency in many segments of the world.

KW: You mentioned that there were things that you had the opportunity to learn since the investment in 2010 that really helped you position both MasterCard and ECS well to serve the customer base in Africa, Asia, and the Middle East. What did you learn, and what does it give you the ability to do that you couldn’t do before?

RC: ECS operates in a very exciting region, so there’s a geographic asset – it’s where we want to be as a company. Also, there’s a strong product intellectual property. The ownership of this property enables and propels the MasterCard processing strategy. We have seen very significant change that we can build to our organization in these new geographies now that we own this product. These two things have been key to us, and prompted us to make this 100 percent acquisition.

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