Any interest cap regulations on credit cards will have unintended consequences: Mastercard’s Ling Hai

Price caps will have unintended consequences

• Interest rate caps may exclude high-risk consumers from formal credit access
• Fintechs could innovate new pricing models like BNPL if caps are imposed
• AI-driven cybersecurity is vital as payment systems become more fragmented

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Any price regulation, such as interest rate caps, will have unintended consequences for the credit card industry as pricing is determined by the risk taken by the companies, said Ling Hai, president, Asia Pacific, Europe, Middle East & Africa, at Mastercard.

US President Donald Trump has called for a 10 percent cap on credit-card interest rates, rattling the US banks.

“In the credit world, you do need to do risk-based pricing. Lower risk, you price lower. Higher risk, to be able to have a sustainable business model, you may have to price higher. It is the risk premium,” Hai said.

He pointed out that any price cap will have unintended consequences of excluding certain segments from accessing formal credit.

“So banks won't be able to serve those people, those consumers, because they are not able to charge a higher interest because there's a cap. And that is actually very unfortunate,” Hai added.

However, he pointed out that market innovation by fintechs, such as buy now pay later, could thrive in the market. In fact, a few BNPL startups have welcomed Trump’s idea.

“Fintechs will figure out new ways to serve consumers who are excluded by using a different pricing mechanism. An instalment is a great example of a financial innovation, where it is not in the same category as interest,” Hai said.

Hai was optimistic that innovations and products could emerge if price caps stick.

Recent geopolitical developments have also seen the rise of strong regional and domestic payment systems. For instance, India has developed a domestic card network RuPay, which is being given preferential treatment as countries want sovereign solutions and payment rails.

“We always support any country's sovereignty agenda. Payments are not just a domestic business, it's an international cross-border business. Therefore, it does create new opportunities for MasterCard in terms of interoperability,” Hai said, pointing out a large opportunity in a fragmented world.

He said that such solutions also require enhanced cybersecurity, which has emerged due to the risk posed by the rise of Artificial Intelligence.

“The biggest use case for AI is actually cybersecurity. You have to assume that the bad actors will take advantage of AI, try to commit crimes, scams and fraud,” Hai said.

He emphasises that trust is most important when it comes to payments, as agentic commerce might find favour with more customers.

“Our network's algorithm today is based on if you detect the transactions made by a non-human being, decline, well, tomorrow if agents are making those purchases and payments, well then that algorithm needs to change,” Hai said.