Ajay Banga leads a company that is synonymous with plastic, yet he encourages his staff to focus on cash.
The CEO of MasterCard Inc. sees the fact that 85 percent of all transactions around the world still take place in cash as an opportunity. He argues that targeting those purchases and payments provides far bigger growth prospects than competing for the comparatively small share of debit and credit transactions already handled through processing networks like the one he runs.
As he jets from continent to continent _ Banga's schedule keeps him away from the office for at least two weeks of each month _ the former banking executive in some ways personifies the Purchase, N.Y.-based company that gets more than half its revenue from outside the U.S.
The India-born son of an army general has roots on three continents, having settled in Manhattan after living in London. A self-professed "foodie," Banga says he has to live in a city with museums, culture and a choice of restaurants. During a recent visit to The Associated Press he mentioned that he enjoyed a meal at celebrity chef Marcus Samuelsson's new Harlem eatery "Red Rooster" even before President Obama held a high-priced fundraiser there.
Banga commands a room, his conversation filled with quirky asides and a somewhat salty vocabulary. Yet he also defers to the expertise of his staff, most of which was in place when he took over last year. Below are excerpts, edited for clarity, from a broad conversation in which he offered his views on the economy, MasterCard's latest technology efforts and growth around the world.
Q: What do current consumer spending patterns say about the U.S. economy?
A: There is definitely, for the last six to nine months, something changing in terms of spending. Whether it will persist for another year or two will depend greatly on how employment behaves. And it will depend greatly on how housing prices actually behave. Housing prices are the one I'm most nervous about right now, because I don't know where the bottom is. I don't look at housing starts, I look at the way the prices are flowing by different metropolitan statistical areas. I used to be an economist in a previous life, so I have a nerdish tendency to play with the charts, and you can look at certain charts and housing prices vis-a-vis MSAs and it's pretty interesting how there's still a degree of softness in that sector.
The reason spending is picking up is, I believe, is that the 90 percent of the people who are employed, compared to the 10 percent who are not, no longer believe their jobs are at risk. And therefore their willingness to spend a little has changed compared to six, nine months ago, when there was this fear of, you know, the proverbial Damocles sword hanging over your neck and you didn't know when you'd get a pink slip.
Q: Has the recession created a lasting change in how consumers use credit?
A: My general sense is no, but there is some kind of temporary impact on how people think about credit. The recession created a change for the period of time that people were suffering really seriously from unemployment fears. Those who no longer feel this fear of unemployment are beginning to spend a little more.
Whether it's good for our economy to go back to a 2 percent negative savings rate, I would be the last guy to say that. I believe that's a bad thing, not just for our economy, it's bad for our people. That's not something you solve in a month or a year, that's a long-term imbalance in the system where we consume and the other guys manufacture, and you can't carry on like this indefinitely, whether it's a federal deficit or our personal deficits. But whether a 6 percent savings rate is good for the United States, I don't know if that's the right answer either. There's no science in this, there's an art form, and I would hate to be the president trying to manage it all, because that's what he's trying to do and everybody and their grandfather is offering him free advice.
You have a segment of the population that only knew that the tide rose; so home prices increased, the stock market increased, credit was wildly available, cheap and easy to get. We've gone through this reset period during the recession where I think people now are going to, not permanently, but certainly for a three- to five-year period, be much more attuned to their financial management. They'll be wary of getting overextended and counting on their home equity to finance their retirement.
Q: Are rising gas and food prices affecting behavior?
A: The fact that gas prices are going up means people are spending a little less on other things. But I'd be very careful to draw too many conclusions from a month or two. Everybody expects food prices to go up 4, 5, 6 percent this year. I suspect if food prices increase that much, a certain segment of society, which is relatively budget strapped, will cut back. But will that impact the majority of the spending in the United States? Many people spend only 5 to 10 percent of their income on food, so not really. When you look at the total, you may see a more neutral impact than if you looked at each segment of consumers.
Q. Do you think gas prices are what's encouraging more people to shop online?
A. I think you'll only be able to conclude that there actually is a real impact from rising gas prices if we were able to show that e-commerce sales were growing in the segment of consumers who earn less. Because that's when a gas tank that costs $50 becomes $55, and five bucks makes a difference. It's like food. If you paid an extra 10 cents for your milk carton, you probably didn't notice. But if you were living on a very tight budget, you would notice when you finished shopping that day at Costco and you spent 70 bucks instead of 55, right? And then it might change your behavior. I don't believe that the cost of gas driving from here to Wal-Mart and back makes a difference for a more affluent individual. I do believe that at the lower level, it makes a huge difference.
Q: Your first anniversary as CEO is approaching on July 1. You're took the helm of a company that has a bit of a staid reputation. Is it difficult to create a culture of innovation?
A: It's always difficult to nurture innovation, even in a non-staid company. Because when times are tough, the first budget to get cut is marketing. The next budget to get cut is R&D, unless you're a pharmaceutical company, in which case you'd die without it. And so even in a relatively prosperous company with a degree of innovation built into its DNA, it's not easy to sustain.
We have one group within the company focusing is what I call growth-sustaining innovation, or "stealing shamelessly." It's a very simple thing. If somebody in the company did something in Singapore and it worked well, there's no reason why it can't work in at least 20 other countries, because people are more alike than different when it comes to dealing and interacting with money.
Food habits are a different issue. With money habits there are nuances, there are legal differences, there are elements of cash in an economy, there's all that stuff. But at the end of the day, your needs and desires to save and spend and do it in an efficient, transparent, secure way, those are pretty standard needs.
So I believe stealing shamelessly is a virtue and I'm kind of out there talking about it to everybody in the company. People have started telling me about it and I look at them and say, "Yeah, I'm the guy who thought of that name."
Q: Can you offer an example?
A: We worked with one of our best clients to find a way to get more youth to use debit cards. We redesigned the debit card product with its package of features, connecting it to music, and created a whole new marketing approach with the Commonwealth Bank of Australia. The results were dramatic. It did really well. I mean if you watch the ads, frankly I was ready to shoot myself when I saw the ads, but I'm not one of the young guys. I showed my daughter and she thought it was really cool.
This occurred a year and a half ago, but up until six months ago, it hadn't moved outside of Australia. So just getting that rolled out, now into 20 markets, is the stealing shamelessly.
Q: What about the more high-tech concept of innovation?
A: One area of development is gadgetry, which is interesting and actually can change our future, driving e-commerce, mobile, transit fares, that kind of stuff.
Then, there's a group in MasterCard Labs of basically young, trendy, inventive people developing new ideas, and trying to embed them into our clients. It's a way to build, for banks and merchants, new innovative ways to pay for goods and services _ such as being able to read a bar code from your phone and convert that to a purchase.
I don't know what we'll get out of this cutting edge group. It's a gamble. So I'm putting some money in the gamble. Even if one idea out of 10 works, it'll pay back.
Q: Can you describe some of the technologies you're using around the world?
A: We're trying to do something very interesting in India, based on fingerprints.
The Indian government gives subsidies for fertilizer purchases and it's a really inefficient system, because the rich farmer and the poor farmer get the same price for a bag of fertilizer. It's kind of biased against the poor farmer, because the rich guy has bigger land and buys more fertilizer and actually gets an even bigger share of the darn subsidy. So this is like a self-fulfilling double-whammy benefit. So the government is recording the fingerprints of 600 million people in rural India. Bank accounts will be opened with the state banks for those people. What they wanted us to do was to prove that we can authenticate and clear transactions based on a fingerprint, just as we authenticate right now based on either the magnetic strip or a chip and PIN.
But you can't install those machines in rural India, that will cost too much. What they're thinking of doing is installing a fingerprint reader on cellphones. So you touch a finger, it goes over the cellphone system, reaches us, gets authenticated and an approval is sent back. Now a rich and poor farmer can be given different amounts. They can also use the technology to shop for their daily needs in their village.
Q: How would you describe your management style?
A: I'm very passionate, but I take time to work my passion. I mean I study something and I try to understand both sides of the debate because if you've been a banker and worked around the world long enough, you kind of have to understand both sides of the debate. But you have to have a point of view, and so I believe in having a point of view on an issue and not ducking the issue.
Q: Does that make for an intense workplace?
A: I kind of call a spade a spade, and I don't have too much time for political niceties, although that sometimes gets me into trouble, in truth. It does. And I'm learning to be a little more careful, sometimes... Sometimes, not always. That's the truth.
I am actually very easygoing, I encourage my colleagues to say things to me that they would never have had a chance to say to most bosses. That is because I spend too many hours in an office, and they spend too many hours in the office to be stressed out at each other. It's not the bloody army. It's a company, they choose to be here. They could all go away and join somebody else. So if I behave like a, my father was a general in the army, if I behaved like a general in the army, I will get soldiers.