Ajay Banga | CEO of Mastercard | Named in Financial Services Group of Trump’s Great American Economic Revival Industry Groups. (Image: Reuters)
The third-quarter earnings conference call of Mastercard Inc on October 28 started as a routine event. It didn’t end as one.
The call was a farewell of sorts for the US payments giant’s India-born CEO, Ajay Banga, who will hand over the reins to Chief Product Officer Michael Miebach on January 1, 2021.
It was Banga’s last quarterly earnings call as CEO. In case the occasion was lost on anyone, Miebach reminded the audience towards the end of the call that after a decade, Banga will become chairman, a largely ceremonial role.
Banga’s response to Miebach had an emotional touch. “I actually was counting back during this call, and this is my 44th earnings call,” Banga told Miebach. “And I hope you, Michael, have a similar run.”
To be sure, Banga will still be the CEO until the end of the year and will take over as executive chairman only at the start of next year, according to Mastercard.How Banga played his cards
Miebach has big shoes to fill. Banga is leaving Mastercard as an accumulator of superlatives. The payments giant now operates across the globe in 150 currencies. During the Banga decade, Mastercard’s revenues tripled, and market cap zoomed more than 15 times.
More importantly, Banga transformed Mastercard from a card company to a payment platform, expanded the business to more geographies and talked to more governments for business. “He came with tremendous experience in the financial sector. The expansion was rapid and there have been significant investments in research and development,” said a Mumbai-based analyst. He did not want to be named.
Banga is moving on as CEO at a crucial juncture and a challenging period at that. The pandemic has already taken a toll on the card industry. In Q3, Mastercard recorded a 30 percent YOY drop in profits and a 14 percent YOY fall in revenues as cross-border transactions fell sharply.
People have cut spending and borrowing fearing a bleak economic future. If the virus endures, Mastercard like many businesses is in store for more blows.
The Indian connection
In May 2019, Mastercard announced its plans to invest $1 billion in India over the next five years for business development. The company said its workforce had grown from just 30 people in India in 2014 to about 14 percent of the global workforce (in 2019, May).
Pune-born Banga is one of the few Indians who made it to the top of a global corporate giant (the others include Microsoft’s Satya Nadella, Google’s Sundar Pichai and Pepsico’s former head Indra Nooyi). Banga’s ascent in Mastercard was quicker than expected.
He joined MasterCard as president and chief operating officer in late August 2009. In April 2010, he was named president and CEO, effective July 1, 2010.
Banga previously served as chief executive officer of Citigroup’s Asia-Pacific Region. He also had stints at Nestle India and PepsiCo.
Under Banga’s watch, Mastercard ramped up its operations across the world in the last decade. The payment company now enables transactions through its network in more than 150 currencies and in more than 210 countries and territories. It has delivered a 13 percent compound annual revenue growth from 2009 through 2019, and around 16 times increase in the stock price during Banga’s tenure.
“Michael has an awesome company with a wide array of assets and capabilities in an industry with secular tailwinds. Yes, we have to continue to execute while investing for the next decade,” Banga said during the call.
Banga was also instrumental in driving Mastercard’s technology, data and analytics, and cyber-security capabilities and building the company’s position in real-time payments to catch up with the competition across different markets.
Then came the Apple deal.
In 2019, Apple partnered with Goldman Sachs and Mastercard for payment handling and processing, to launch a new credit card called Apple Card saying the new service will replace the traditional credit card “with a new, smarter and secure payment method across online and offline stores.”
Credit card companies have been growing at a breakneck speed and the market expects the run to continue. According to a Reuters report, Visa and Mastercard would each be worth over $1 trillion by 2023 if their average annual gains of the past three years were to continue, surging past the likes of Facebook Inc and Berkshire Hathaway Inc.
The only villain in the story is COVID-19.
Challenges for successor
Social distancing, travel restrictions, and falling discretionary spending and travel are hurting card companies. In Q3, Mastercard reported third-quarter adjusted net income of $1.61 billion, or $1.60 per share, compared to $2.19 billion, or $2.15 per share, in the year-ago quarter. Net revenues declined year over year to $3.84 billion from $4.47 billion. The company attributed the drop to a 36 percent decline in cross-border volume.
The third-quarter worldwide gross dollar volume dropped to $1.648 trillion from $1.652 trillion year over year. As of September 30, customers had issued 2.7 billion Mastercard- and Maestro-branded cards. During the third quarter, Mastercard repurchased approximately 6.5 million shares at a cost of $2.1 billion.
Due to the pandemic crisis, people across the world have cut down card spending and postponed travel plans. But Mastercard is hopeful that credit will return.
“It (business recovery) will tie closely to the vaccines and the therapeutics. Very important for us to kind of keep line of sight on that because at the end of the day, consumer confidence is going to be a very key determinant of how people feel about getting on planes for 12, 13, 14 hours,” said CFO Sachin Mehra during the quarterly call.
Local focus key
The pandemic will force global card companies to focus on more local business, said industry experts.
“Over the ten years, Mastercard has evolved from a card company to a payment service platform. They have invested significantly in start-ups. The fact that Apple chose Mastercard as a partner shows they have the latest technology,” said Mandar Agashe, Founder and MD of Sarvatra Technologies, a Pune-based banking technology service provider.
Going ahead, as the pandemic forces people to travel and spend more locally, global card companies will have to reshape their strategies focusing on local markets, Agashe said. “Local travel has improved. People are discovering things to travel and spend locally, which wasn’t the case earlier. This will force the big companies like Mastercard to focus locally.
Siddharth Purohit, an analyst at SMC Global Securities, said the pandemic has impacted overall card spending. "When travel and hotel spending goes down, it is bound to impact payment service providers as well. It is unlikely that recovery will happen quickly," said Purohit.
As it happened, Banga took over as CEO at an uncertain time, when most of the world was ravaged by the 2008 global financial crisis. It is a coincidence that his exit too happens at the time of yet another global crisis.