Why Mastercard isn’t a credit card company, according to its outgoing CEO Ajay Banga

This edited Q&A has been condensed for space and clarity.

Guiding capitalism

Ajay, you’ve had a remarkable tenure—Mastercard’s revenue is up an annualized 12.7% over the past decade. Profit has climbed 18.7% a year, and return on capital has soared at a 40% annual clip.² These numbers blow away the comparable stats for Visa and American Express. But your CEO playbook seems to start with an unconventional play—at least as far as Wall Street is concerned: Invest in your employees first.

Banga: I’m actually an old-fashioned believer in capitalism. It’s lifted a lot of people out of poverty. But what we need to do today is to reposition it for stakeholder capitalism—which is just capitalism with guide rails. And the first of those guide rails is to take care of your employees. One way we do that at Mastercard is through stock plans. About 70% of our employees get some kind of stock incentive award. When I first joined 11 years ago, that number was minuscule. It was in the single-digit percentage of employees. A stock plan aligns the interests of two of your stakeholders—employees and investors. Or take a simple thing like retirement plans. Today, if you’re at Mastercard and you save 6% of your salary into your 401(k) or your defined contribution plan, wherever you are in the world, we’ll give you 10% [for a total of 16%]. And we don’t have any deductions if you leave early.

So our idea of stakeholder capitalism starts with our employees. We can then figure out what else we need to do in our community, including our efforts at financial inclusion—but doing all that in a way that is commercially sustainable as compared to checkbook philanthropy, which is limited to the size of your checkbook. And of course there’s always shareholders who need to be rewarded too. Because if you don’t do well, you can’t do any of this. You’ve got to do well and do good at the same time. It’s not an either/or.

You mentioned financial inclusion.³ Why is this so fundamental?

When I was at Citi in India, a colleague began teaching me about the power of microfinance. And I began to comprehend how you can actually get even the poorest women to become economically independent through microfinance. And if you do that, then she makes her family better off, and so you get a multiplier factor that is many times what you would get just for giving one person more money.

Which you saw as a business model too.

Yes, commercially sustainable solutions make a big difference because they create multiplier effects far beyond the check that you write. That was my second learning. But when I came to Mastercard, I found that my biggest competitor was not other forms of electronic payment—a Visa or American Express. No, our real competition was cash. Cash was 85% of all retail transactions at that time. So cash comes from governments. The largest single source of cash in an economy is the government. It’s veterans’ payments, Social Security, salary, pensions, benefit distribution, all that. 

We decided we’re going to go after cash—but 2 billion people were excluded from the financial system, and many were getting these benefits from government. That led us into the financial inclusion space. And so we kind of backed into it from very strong commercial reasons. How do you go after the 85%? We found that our technology and our partnerships could make a difference. That made it commercially sustainable.

COVID-19 has greatly limited travel and cross-border commerce, which are key to your business. What are the near- and medium-term outlooks for Mastercard?

We said we would manage the company through four stages: containment, stabilization, normalization, and growth. Containment was the free fall of March/April, when everything was shutting down. The world was shutting down. Stabilization was the bottom end of that cycle. People had to buy toilet paper and medicines, but that was about it. Normalization is not really normal. Compared to stabilization, it feels normal. But, you know, there’s no mass sporting events. There’s no travel in the way we used to travel. We’ve all got to wear masks in public. We’re not going out with friends to a party. That’s not normal, but it’s a new normal.

Most countries seem to be at some stage of normalization right now, and real growth would be when you have a vaccine that’s equitably distributed to adequate numbers of people for consumer confidence to begin to come back—when we probably get back to a pre-COVID kind of life.⁴

Can a business based on spending thrive in this new normal?

Consumers are spending. Look at U.S. domestic spending: It’s actually plus over last year for the last few months, which is interesting. So that’s a good thing for our business. The second good thing for our business is that digital is here with double the power of anything. It has been on afterburners. Everybody has embraced contactless commerce.

The good thing for our business is that digital has been on afterburners. Everybody has embraced contactless commerce.

Ajay Banga

So seven out of 10 people are now doing e-commerce in some way or another; eight out of 10 people are using contactless methods of paying because they think it’s safer. Digital sales, e-commerce sales in the U.S. are double what they used to be pre-COVID. So digital is a tailwind for us because that converts cash to electronic bits, just as consumer spending is a tailwind.⁵ And then we’ve got a headwind.

Which is no cross-border travel.

Yes, I don’t know whether that’s going to come back, but I believe it’ll probably come back as consumer confidence improves. You can see domestic travel beginning to come back.⁶ The TSA is turning a million passengers now a day. They were down below a hundred thousand in the peak of the crisis. So clearly there’s some recovery, but it’s not on international. When that begins to come back, then that will become closer to the normal growth phase.

Crises are often accelerants for disintermediation. One question that hangs over the credit card networking industry is whether some fintech upstart will come along and disrupt your business.

Actually, the clue is in your question, when you said “credit card networks.” The reality is that’s what we are not—and we’ve actually not been that. We’ve got that label attached to us for a long time. So here’s the reality.

When I became CEO 11 years ago, it is true that a large percentage of the transactions that we used to see came out of the use of credit cards. Debit cards were smaller; prepaid cards did not exist; and commercial cards were also small. Fast-forward 11 years, and today one-third of our revenue comes from something we didn’t really have—which was analytics, cybersecurity, data, A.I., that piece. Of the other two-thirds, some comes from commercial payments and from real-time payments, including bank account to bank account. That leaves you with a significant amount from all the other types of transactions. Within that, debit and prepaid are now very big. 

So why am I saying all this? That actually we have embraced all the different forms of payments over a lot of years. And I think we’ve changed our company to be more capable of competing in this world without getting bothered about one or another rail of payment, which is where the disintermediation story comes from. 

So my view is, this is not about me disintermediating credit. This is about providing the consumer a choice on how they want to pay. Or providing a small business the choice on how they want to pay their vendor or their partner. Do you want to get paid now, which is by debit? Or paid later, by credit? Or do you want to get paid in advance (prepaid)? There are only three ways to pay—whether it’s on a card, a phone, a fingerprint, or you and I looking at each other and touching our foreheads in the future. 

Disintermediation of our own business is actually just providing consumers and businesses with choice. And the trick is to do that and then make money off of that. That’s what our business model is. 

You’ve said that “inclusion” is a fancy word for human decency. How so? 

I think decency is the bedrock of defining what makes us humans. Decency doesn’t mean being nice to everybody. It means being fair to everybody. When I was young, your IQ is what made you supposedly stand out. And then when I got to business school, people began talking about EQ. You know, you couldn’t choose your boss or colleagues, but how you conducted yourself with equanimity showed that you had the emotional quotient to be successful. And I say you need DQ—your decency quotient—when you come to work every day. Because you have to bring your heart and your mind to work. You have to care about the people who work with you, for you, above you, around you. That’s where inclusion comes in. If I can make it a part of my business, then I can bring the whole company to the party.

Between the lines

(1) From success to succession: On Jan. 1, 2021, Banga hands the CEO reins over to Mastercard president Michael Miebach. Banga will stay on as executive chairman.

(2) Annual profits: $1.85 billion in 2010; $8.12 billion in 2019
Source: S&P Global

(3) Bringing everyone into the game: In April, Mastercard pledged to bring 1 billion people and 50 million micro and small businesses into the digital economy by 2025. After the killing of George Floyd, the company also committed $500 million, and partnered with Black-owned fintech MoCaFi and others, to enhance financial security and help small businesses in Black communities in the U.S.

(4) Health equals wealth: Early in the pandemic, Mastercard committed $25 million to a program to speed up the development of medicines for COVID-19 in partnership with the Gates Foundation and Wellcome Trust. “You could ask, ‘What the heck is Mastercard doing in a therapeutic accelerator?’” says Banga. “Well, my view is, if I don’t get to normalization of growth, I can’t have a prosperous community around me. Without a prosperous community around me, this is not going to be a prosperous company.”

(5) From bits to bucks: Mastercard now connects some 3 billion cardholders to some 70-million-plus merchants through nearly 40,000 banks and financial institutions in about 210 countries and territories.

(6) Ramblin’ man: The son of a senior officer in the Indian Army, Banga had no shortage of domestic travel growing up. “I went to seven schools before I was out of high school,” he says.

A version of this article appears in the December 2020/January 2021 issue of Fortune with the headline, “The Conversation: Ajay Banga.”