The fintech industry has been hit with a sea change. Investors are no longer feeling a craze of FOMO, and startups are having to lean into actual value to survive.
Payments are one of the hardest-hit sectors. Led by a few giants, the industry is saturated, and only genuine innovation allows market entrants to claim a foothold. However, with so many vying for a spot, powering true innovative potential to success can be challenging.
In the third Fintech Blueprint Office hours, Scott Abrahams, EVP of Channel Partnerships at Mastercard, joined the Blueprint community to discuss the problem. The conversation centered on Mastercard’s strategies for partnering with innovative startups and how it works to carry them to success.
Swift market penetration for innovation
Mastercard, flanked by Visa and with American Express close behind, dominates the payments industry. Despite new disruptive participants entering the sector, many opt to partner with the giants instead of taking them head-on, allowing them to maintain their lead.
Mastercard’s business is built on five pillars: card issuance, acquisition, the global network, the merchant, and the consumer. Of the five, the most valuable is the merchant, making up large volumes of interchange fees that flow into the business. However, it is perhaps also the most vulnerable. Merchant relationships that were built over decades of door-to-door sales are now potentially vulnerable to new entrants with point solutions that appeal broadly to small businesses.
Regulatory backlash
Because of their dominance, both Mastercard and Visa, with their global network, face regulatory engagement worldwide, particularly due to interchange. In the US, Senate Majority Whip, Dick Durbin, is poised with a bill that aims to undermine their “duopoly” and bring reform to merchant charges.
However, the companies still hold value for the industry. Their established global network allows their partners to enter thousands of locations rapidly in one fell swoop. Consumers are accustomed to having global acceptance of their cards, and by partnering with either Mastercard or Visa, payment companies can issue co-branded cards that give consistent coverage to their customers.
Strategic Expansion to Avoid Friction
With their size comes great responsibility, and the payment giants must be careful to balance their expansion to create opportunities for innovation.
Mastercard’s acquisitions are centered on either adding value to their core or future business, which allows them to expand without creating friction. At its core, Mastercard is a card issuer, and acquisitions may add to its ability to issue more cards.
In the past, their approach has allowed them to gain innovative acquisitions over their competitor, Visa. In the UK, a significant win for the company was it’s partnership with Monzo and Revolut, while Visa had dominated the incumbent system.
Their success in the neobanking sector came down to two factors:
- An interest in the fledgling businesses that were emerging from the fintech ecosystem.
- A willingness to meet the new banks’ needs as they evolved
Mastercard’s partnerships with neobanks like Revolut have developed along with the neobanks’ business, allowing both companies to develop products and services at the forefront of financial change.
However, as the financial system evolves, Mastercard has turned its sights to other areas that fuel its investments. With the power of global reach, the company is now focusing on open banking and digital identity as two important arenas where Mastercard can provide support and velocity to innovation.
Adopting a similar strategy to the one taken with the neobanking sector, the company partners with innovative solutions in these sectors, leveraging Mastercard’s network to make an impact.
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