The following is a transcript of the podcast episode between Jorn Lambert, EVP, Digital Solutions at Mastercard and Ryan McEndarfer, Editor-in-chief at PaymentsJournal.com. During the conversation Jorn and Ryan cover the following:
- An overview of the announcement
- The features that Mastercard is bringing to the partnership
- Mastercard’s view on the feature of physical cards
- Will this partnership force other tech companies to develop their own digital-first approach to payments
Ryan: Big news coming out of Apple’s presentation that Apple is going to be partnering with Mastercard on a new credit card. Jorn, I was hoping that you could walk me through from Mastercard side with a little bit more of the details of this partnership.
Jorn: We announced on Monday, March 25, a partnership with Apple and Goldman Sachs to launch the first digital-first product. With this we are actually, together with these partners, turning the construct of a card as we know it on its head. Cards have always been designed with the physical card in mind that people use at point of sale. In recent years, we have incremented that physical experience with a digital experience that provides that people can also load their physical card in a digital support be it phones or wearables or other types of interfaces. Now, this card is actually different because it has been designed from the ground up as a digital-first product with the physical piece optional. That reflects what the world is seeing all around us, namely that consumers think digitally first. They listen to music digitally. They are engaging in social conversation digitally. They consume entertainment digitally. And also they move for commerce in very much a digital way. So that concept we’ve obviously recognized together with these partners and said that requires us to set a digital-first product out there. All this was made possible because of a technology that we call tokenization, which is the way to digitize very securely what we have in the physical world. It allows consumers to store their cards and all the details related to their payment instruments in a digital wallet in a very secure way and transact in a very secure way with full peace of mind. Apple Pay was the first user of this technology.
Ryan: During the presentation, Apple talked about the additional features that it’s going to be bringing to the partnership, but I’m curious to get the Mastercard side of things. What are some of the features that you’re going to be bringing to the partnership?
Jorn: The first thing obviously that we bring is our acceptance network. People need their payment products to be ubiquitous, to be able to be everywhere in the world on all channels be it online, in-store, in app. Our acceptance network with over 50 million merchants allows us to bring that to bear. I think crucially as well, our technology powering that solution has been an integral part, and I would say foundational part, of the solution, and that technology brings security and the peace of mind to consumers.
If you think about the actual process of what happens physically, a consumer that wants this product applies for the card on their device. It’s a very easy application that Apple has put in place. What happens the moment that the consumer presses the Apply button is that the message goes to Goldman Sachs, the issuer, to verify if that consumer is eligible for the card. Assuming that Goldman gives the thumbs up, they provide us, Mastercard, a message, which says yes, your Lambert [in this case] is eligible for the card. What we do instantly is we produce a token, which is a representation of the card number. We send this over the air to the phone. That token together with a cryptographic equation is stored in the secure element of the phone on a chip in the phone, where it is very securely stored. From that moment on, which is literally seconds after the consumer has applied, the consumer can start transacting and for every transaction a message goes back to us to verify whether that transaction has been produced from the right phone, authenticated by the right person, in which case we validate that and send back authorization.
So the entire security protocol is something that is brought to bear through our technology that we call the Mastercard Token Service. That’s the first key element. The second piece, which is also a quite different way of thinking compared to the past, is that consumers can ask for a physical card optionally, because there are still some use cases were paying by phone is perhaps less common. Think about eating at the restaurant and having to pay at the end of the meal. Thinking about leaving a tab at a bar. Leaving your phone at the bar is perhaps not a very intuitive thing to do and so some people want that physical card, so we’ve designed together with Apple a physical card whereby the actual data that is usually on a physical card is not there. The card has a chip. The card has a name but does not have the 16-digit number, doesn’t have the expiry date, doesn’t have the security code, because all of these data elements can be found back on the phone and as such it is truly digital-first product because even in the physical card, information will be found on the on the app itself.
This is a good example of how we are ensuring maximum utility for the consumer, but the consumer can still leave the card at the bar, but they have the maximum utility of it through the devices.
Ryan: I’m constantly hearing through this conversation this hold the digital-first message. I’m glad that you brought it up because it really begs the question of what from Mastercard’s point of view is the future of physical cards, and is there the potential of physical cards disappearing altogether in the future?
Jorn: The world is a big place, and we believe it’s not so much about physical card or a phone or something like that. I think our belief is that we will see payments increasingly moving in a variety of underlying supports, underlying form factors if you like. We were convinced that every connected device in the future will be a commerce device and that counts for the phone obviously, as we’ve seen, but that can also for smart watch or other wearables. That could be your car, that could be a white goods like a fridge, and so every connected device has the potential to become a payment device. And so we expect to see a wide variety of potential commerce devices or payment devices emerge.
Card in our view will be there for a long time simply because it’s a very useful, very easy experience. It’s also very well known, and people across the world are very familiar with that, and merchants across the world are very familiar with that. So we don’t see that disappearing. We don’t see it as a bad experience either. It’s a very convenient experience. There is no one-size-fits-all. I think you see a multiplicity of solutions and our strategy around this is to make sure that we are honoring consumer choice. We’re enabling all the devices, all the use cases that the consumers want to use. But as we do that we want to make sure that security is top of mind throughout all of these use cases. Convenience is top of mind. Privacy is top of mind. And finally transparency that the consumer knows exactly what is happening as they move in that direction.
Ryan: The headlines and publicity around this announcement, lead me to ask the next question: Do you think that this partnership is really going to start to push other tech companies like Google, Facebook, and Amazon, perhaps to move more toward this digital-first approach when considering their own cards?
Jorn: Apple was the first to move with us into the direction of digital-first payments. Frankly, I believe we will see great adoption and great welcome of that in the market. As such, I think other players are interested in moving to payments or supporting consumer choice around that. Maybe some of the players that you mentioned could be interested in that. We’ll see perhaps telephone companies or a whole new generation of fintechs wanting to serve those consumers in that way. So yes, I believe others will show an interest in that. I think the actual move toward digital first is probably some way off in terms of ubiquity in the world, but I think this is a turning point just like at a certain point people stopped buying music on CDs and moved toward direct digital streaming of music. We will see that increasingly happening in payments as well. So we’re very excited to be the partner of some very powerful brands out there, very excited to create the first step of what is probably be a very meaningful trend in the industry. And I think we’ll see the consumer will vote as of the moment that the card or the product hits the market.
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