Mastercard (MA) Presents at Evercore ISI Payments and FinTech Innovators Forum Conference (Transcript)

Mastercard, Inc. (NYSE:MA) Evercore ISI Payments and FinTech Innovators Forum March 8, 2018 11:00 AM ET

Executives

Warren Kneeshaw - Investor Relations

Ed McLaughlin - President of Operations and Technology

Analysts

David Togut - Everycore ISI

David Togut

Welcome to Evercore ISI Second Annual Payments and FinTech Innovators Forum. I’m David Togut, I research the payments processors and IT services industry stacks here at Everycore ISI. We’re really delighted to have with us today Mastercard management joining me here up on stage, Ed McLaughlin, President of Operations and Technology; and here in the audience Warren Kneeshaw. Welcome Ed and welcome Warren. Glad to have you here today.

Just to start off, Ed is President of Operation and Technology for Mastercard. Can you tell us a little bit about your role and what’s responsible for?

Ed McLaughlin

Absolutely, and that may actually influence some of the conversations we’re doing here. So, Operations and Technology, we’re responsible for pretty much everything Mastercard does. We run world's fastest, most reliable payment network. We’re certainly proud of the fact that you can get on the plane, if they are flying, land anywhere in the world and your Mastercard is going to work. That’s what we do. So, the core network, the value added services, we run technology for the Company. That’s the operation side.

The technology side is what we built. So, the development of those projects, the advancement we have, taking concepts to scale, so all of the engineering teams are also part of operations and technology. So, when you think about Mastercard as a technology company, I'd like think the people and operations and technology are the beating heart of that organization.

One of the quick things, just how I got there today because I know this usually comes up. I was actually part of management team brought in just prior to our IPO in 2006. And my background before that was all technology start up, I had one IPO in 1996 company called Logicworx, LGWX. Unfortunately, known as leg wax apparently, and so joining Mastercard then spent a lot of the time in the product area. We’re in the global franchise area for a while and spent quite a few years in the emerging payments for digital side before I went into run O&T. So that's where I am coming from.

David Togut

Great. And as President of Operations and Technology, what are your top priorities from an investment standpoint?

Ed McLaughlin

So, the top priority always and our organizing principle, as we’ve talked about the experiences and journeys of everyone who works with us, and that’s the consumers that uses the Mastercard products that depend on that, that providing their fantastic experience every time we use the Mastercard anywhere in the world, but it’s also our customers. We don’t work directly with consumers. We work through merchants and banks and government institutions and NGOs and digital players and all source of people who precipitate in payment infrastructure. We provide a platform. We provide services that may put they do work better. So, we’re very conscious of the journeys and experiences that everyone who works with us for the business, they’re delivering to their customers.

And lastly, I really want to emphasis this from an operations and technology standpoint, so how should we experience of our employees. I think we’ve all felt it in fact may people in this room prior to be extreme of this where the workplace of today is digital. It’s the technology to work with and so making sure that all of our employees could be as effective as possible in bringing their best everywhere in the world that they do business, and Mastercard operates out of 210 countries. So, it's a big challenge there. So we anchor on making sure that we’re delivering the best experience to all the constituencies we serve, couple of more things if I could on that on though.

As you deliver that experience, a foundation of all it, not oppose to it, but a foundation of it is making sure it's secured. And security is a principle we bring to every family and I think the more secure you can make things the better you experience of it is and that is something we do. So, we’re making sure we secure every transaction. We secure every environment. As the world is moving to digital, I think that is not the time or it’s not a reason to say things have to be less secure. I think it is an incredible set of opportunities to make things more secure leveraging, technology is never available to us. So, it's the experience backed by the security.

Third thing we think about a lot is what we called contextual commerce. I think a lot of people identify with Mastercard originally maybe your first Mastercard was a plastic rectangle you can use. And I always saw that as kind of access device into the network, we gave it to you because we have to give it to you. No one is benefits more from Mastercard being free to the tyranny of the physical world than we do because we can provide all sorts of access points to the network. So, we talk about every connected device being used for commerce, it's because what people do. And as you move into those devices, all sorts of new payments experiences can be made available.

So that everything from having a better subscription out of Netflix, which we just announced because of what we can do with tokenization, using your mobile phone for payments in that context or my latest favorite something like my payment ring or I can be on transit to London and just literally wave my hand and the gates are open, I am on. It’s a great experience. So, we think what’s going to happen is commerce would be become more and more embedded in all sorts of different context and the number one thing consumers tell us is make all the stuff work together, and that’s what the network does and secure every transaction and that’s what operations and technology does.

And then two other quick things, and then I’ll get back to you. But when you think about shift to digital, the conversions we are talking about. We also want to make sure that we’re making easy for people to integrate with our technologies. We simplify those technologies and we simplify the access to it. So we’ve had a very, very strong for the last seven or eight years API based program to allow to make easy for all sorts of easing our traditional customers or new customers to connect to and take advantage of the capabilities the Mastercard network is providing, and not just payments, value added services around security, data and other things that we can do.

So leveraging the shift to connectivity to digital to really change how we interface with our customers to both simplify as well as improve it. And that leads to the final point which is just what I call applied research, right. So much experimentation we’re constantly doing to say how can we use new technologies to do what we do better, whether its payment technology, securing technology, identity technologies, we do a lot of co-innovation with our customers, do a lot of co-innovation with other industry participants like the work we’re doing with General Motors or connected cars to provide secure, commerce to have wholly different context for consumers.

So beside for the long answer, but when you asked what is the top priority is, I really would bring it back to making sure that best experience for everyone we serve, securing every transaction we have. Leveraging the shift to connect to devices to digitize and also introduce new payment flows, things like what we’re doing with the faster ACH, making the network by directional, integrating and simplifying the access to our systems through APIs, and then all of the experimentation in co-creation and everything else that facilities. So, that’s what we think about all the time.

David Togut

Well, faster ACH, that’s clearly an area where Mastercard has differentiated. Can you talk a little bit about the VocaLink acquisition? And what’s your plan to kind of leverage VocaLink to build out the fast ACH business for MasterCard?

Ed McLaughlin

Absolutely, and that’s why when we think about payment flows, it's not defined by how a card works. It's like what‘s the best way for a particular transaction to occur. And there is huge set of transactions that we serve incredibly well with our existing card networks. There is also all sorts of new and emerging transactions that we’re faster ACH is a great application for it. And if you look at the UK market, right, it's not only one of the most vibrant card markets in the world. Last year, several trillion dollars moved through the faster ACH system at VocaLink card. So we see this is completely additive to what we do with the business and it allows us to constantly, again go against our highest priority which is bringing the best technology, the best experience to bear for what we’re trying to stop.

So we now see governments around the world looking at these 30, 40-year-old archaic batch-based ACH systems and looking to modernize them. And VocaLink when we surveyed the market had by far the best technology to do it. They’ve already been successful working with the government of Singapore, implementation in Thailand around the world. You saw more and more either bank coalitions or governments looking to say, how we upgrade improve our ACH system. Mastercard should now be a big part of that and what it allows us to do is look at all sorts of payment flows, and say what’s the best way out, what’s the best tools to do it. And it really massively expands the universe that we can serve. So very, very excited about the work we’re doing at Voca.

David Togut

I think the original strategy with VocaLink was to sort of use that as part of the opportunity to address PSD2, fast ACH payments in Europe. What's the plan to bring some of the VocaLink capability from continental Europe, let’s say from the UK, the Continental Europe and advance the PSD2?

Ed McLaughlin

So in general I think the VocaLink capability or faster ACH capability in three broad topics. By one of which is just the structure itself, and that’s where when the clearing house is the bank collation in the U.S. was looking to implement faster ACH system. They licensed the VocaLink software. So, we have a great asset there with it and we’ll continue to work again with those who want to implement faster ACH and build the infrastructure around it and Voca is the great asset there. There is the next level though is really what do you use it for? And that's where you start having applications like bill pay, like request to pay, like the application that may use those underpinnings.

And again, we have really good assets to pay by bank in the UK as part of that, directory services that can go around that. So you’ll see us in market around the world as faster ACH is adopted leveraging those assets so because we can generate a lot of value for different shareholders using them. And again you’ll see that. And then I actually think there is a third level which is all of the associated things you need to do around of faster ACH, and I'll just give you one great example for this. We have a product, VocaLink has a product in UK called AML Insights.

And what we’re seeing in particularly in a post-Equifax world, fraud often is moving to account take over. The way that fraud is exploited is they try to pull money out of the accounts and they move it as rapidly as possible across institutions to reach the concentration account, so they can exfiltrate the funds from the system. That’s how the exploit happens. Because of the visibility in the UK, the VocaLink had around this faster ACH transaction because you would use the faster ACH to try to get the velocity to do that.

What we’re able to do is take from a very small seed of the known compromised account, find the concentration account, backhaul the other accounts that maybe compromised and then stop the flow of funds and actually cauterize it, and repatriate back to the people who have been exploited. That is an incredible solution which will become a requirement as again account compromise because more of the problem. And the faster ACH is actually are enabling and exploit that really wasn't there before.

So again, any market in the world moving to faster ACH is going to face with that. We have a great solution for it. So in some markets we’re actually modeling with the institutions as they are learning from the faster ACH, here just purely is the service, ways that we can help you for that. And the only loser is the people who are trying to exploit the system to do terrible things. So if you think about running the scheme itself from the software assets we have like we worked with the clearing house in the U.S., like we worked with the government in Thailand and building on that. All the products you can imagine they come from that expertise of having pay by bank being an example.

And then just the environment and the learnings we have being the world’s most experienced company in learning faster ACH system because the heritage of the UK to stop new problems like this anti-money laundering technique that we can bring to bear. So getting that security capabilities we have, the identity services we can have, things like anti-money laundering, the data and the analytics that have always come out of our advisors group that will be a much richer pool, we see just tremendous synergies with the faster ACH and Mastercard’s business.

David Togut

Historically, Mastercard’s services business which is approximately 25% revenue has grown at about 2 to 3 times the rate of the core business.

Ed McLaughlin

Which has been growing rapidly.

David Togut

Which has been growing rapidly. What is some of the biggest technology investments you’re making in services, particular Mastercard advisors that might sustain this high rate of organic growth going forward?

Ed McLaughlin

Yes and that growth we have in services, I want to emphasize on top of the pretty impressive growth on the base transaction set, but we think it’s really healthy to increase the services mix in our business. And a couple of areas I'll highlight, I'll get two advisors in the second. But, where we’ve seen really strong response in market is around the enterprise security solutions that we have. We usually call it our ESS business by fall into acronyms. And if you look at what’s happening there, it's really the art and discipline of running a payments network, well Mastercard can bring tremendous expertise today.

One of my favorite products is something we have called SafetyNet and it is actually a great example why I'll probably talk about later about using machine learning and AI. But again it’s again able to constantly monitor the network and it sees the specific exploit when we start and people try to drain ATMs. It can stop it before you can even react. And we see this, literally stopping billions of dollars worth of fraud that's just as to benefit of running on the Mastercard network, a tremendous value that we can bring back to all participants.

So we start with things we’ve done around security and we’re building on that. We have a new one, our early detection system. Again, the old pickup would look like fraud pattern and warn members or banks and others who are on the network before anything happens to them and what looks like could be more risky. So, all of this sophistication which is solving real problems and saving more money for our participants by making the network more secure, it’s been a great business for us and high scale, high growth business for us.

But we’re spending on that, so that safety and technology is based on, you may have seen our acquisition of a company called Criteria, which we thought by far have the best AI basin framework for that. So, we had worked with them for a year as vendor in developing products like SafetyNet. We now have all that capabilities as part of the Mastercard family, so we could bring that to there more and more of what we’re doing, and there's an ops guy, I couldn’t be more excited about that.

But another really interesting thing is that the around the entire area of identity and that’s where new data what we saw as being an absolutely unique and incredibly compelling assets, which again now part of the Mastercard family. The quickest one I can do on that one is as we think about it, with things like the Equifax and the other bridge which is already occurred, past tense. In some ways it’s almost like they’ve already stole the teacher's key for the quiz that you’re going to be given.

So, we need to do more and more as identify people, not necessarily to the answers to the questions they can give, but better recognitions of the behaviors they have. And that’s what new deal was an absolute pioneer on it, so we can increase the strength of signal knowing you and you, knowing that you’re supposed to be doing this, knowing if someone is trying to impersonate you. Without forcing the consumer to do more work, without having an even more ridiculous passwords and questions and other types of things.

So security in the future will be in multi-combinatorial effect, and we want to make this seamless and as un-intrusive as possible and new data is a huge asset for that. We’re not going to secure the system by making the consumer do more and more staff because we’re all consumers. You know what happens we won’t do it, instead of what we need to expect the systems a lot smarter in the combination of --, the combination of the new data because this amazing assets that nobody else has to make the system that much smarter. So you see a lot and a lot of investment on the security solution side and we think that’s a great area for us.

Advisory is another mason one, how we use the data. The data analytics we have there, the ability and with a lot of to tap in the PSS2 in Europe. I see there is a huge affirmation of policy which has been in place with Mastercard forever, which is not to try to use specific tight customer identify information, but to doing tremendous insights from an anonymous information that we can use to support the business, that’s always been the foundation of advisors. How to use aggregated on randomized information across a huge data set to really learn and do things better.

And I would pause it, there is only a few data sets in the world that matter, right. There is search, there is social graph, there is commerce, we have one of them. And it's amazingly thing of what we can do with that again to serve everyone better for that and the opportunities where there. But we’ve really double down on that one too and a few years ago we bought a company called APT and Warren you may have the latest but a huge percentage of the cash registering in the U.S. flow through APT and it serviced to merchants. And one of the primary things that we’re doing and one of the big growth areas from Mastercard is helping merchant sell more, helping the merchandize better. So APT has incredibly sophisticated test and learn capabilities to help merchant, merchandize better, to make decisions to do that and that has been the foundation of the business

They've kept doing that. We obviously keep the merchant data segregated as appropriate for the merchants we work with, but both very analytical capabilities combined with our data set and the Mastercard aggregated and online data assets combined with the rich data that they get from the merchants is creating new value, and that’s why I think you’re seeing this red shift where we can leverage the payment process when we’re doing, but grow even faster in this side of the business.

Two more if we could, I've spend a lot of time in what we’re doing on the processing assets. That’s been a great business for us to, so issuing processing, acquiring process in the payment gateway services that we were doing is really the adjunct services you would see to our network, people work run at a Mastercard good level. So it allows us to create cross selling bundle even more capabilities and the people are issuing cards or accepting payments or need to transition to a digital era where we can bring the security and capabilities and quite frankly might not be served in the marketplace. So processing is another strong growth area for us.

And the last one is an interesting one which is a lot of the work we’ve done at labs in the service and this is taking our internal innovation methodologies and practices and what we found we’ve started working with our customers. They were enthusiastic and eager to take advantage of that. So what we do is labs and services which is a one or two week intensive thing where we gather people from the customers, we bring our expertise , outsiders may come in and at the end that we solved a real problem. In a way, they can go back and implement in the business and as a general methodology it doesn’t have to be about payments.

We’ve designed new customer experiences, branches in the future, things of that nature but particularly when it comes into the realm of payments because they’re deeply involved in of the APIs and services we’ve talked about you can come out of this innovation exercise and have something with it to go right into a prototype that has a path to scale. It's usually a challenge with a lot of this innovation exercise. So we’ve gotten great response of working with our customers not just around things like payments but actually applying our own innovation methodologies to help them advance their business.

So four areas that I really highlight on and investment and return and my I actually think the value added services on top of our growth business have actually been a red shift area of this business moving faster.

David Togut

Thank you for that. In contrast of Visa, MasterCard has long worked with non-bankers issuers of corporate cards. For example flea corn, fuel cards, labs and travel payments, we actually. We actually have with us today management from unit international, Anthony Hines. So my question is. What are the major new investments you’re making particularly in the high growth area of B2B payments and virtual payments that are going to continue to drive growth over the next few years?

Ed McLaughlin

Yes, that’s a huge opportunity for us. And then again I'll defer to Warren for the numbers because I always have to, but if you look at corporate payments I think it's something like 120 trillion or billion out there huge numbers. 120 for B2B of which about 20 is really card-able and we have a low penetration of that I think there is a huge room of growth we can have in cards. But then you have the other 100 which you can also go after and just like the conversation of faster ACH, what is the best experience? What is the best technology to serve that? And that’s what we’re focused on.

So, we launched things like our B2B hub, which is much about the payment it’s a directory itself. The integration is already in place with all of the back and ERP systems to make that look. So combining those type of things with the underlying payment flows, what we can do with the virtual card numbers our spend capability to allow for instance secure disbursement really on anything to be based on a debit card number that’s the payment for that we can go after. If you look at a lot of the work which is now happening in automating contracting and proof of provenance and things like that at the end of that being done, there is a commerce opportunity.

And so again being able to do that six times all we have to think about internet things. We say when the sensors say, I’m hungry that the commerce opportunity. What it needs there's an API based really reliable underlying payment system which is exactly what Mastercard has always got. So we the B2B opportunity is tremendous, bring to bear things like making our traditional payment network bidirectional will send, bringing things like faster ACH capabilities to bear, working through tokenization and virtual card numbers to get commerce into new places, really working closely with partners that we have in the past to figure out how we get the textual commerce right in those environments really and then taking range of different rails like what we can with the faster ACH more information else like we dealing with the B2B hub.

David Togut

What are some of the major investments you’re making in technology, in operations in Europe to continue to gain share from some of the national payment schemes?

Ed McLaughlin

So I'll be the first to say because I work there every day, it's hard to work a payment network. And one of the, the main pieces I've had is we're really entering the whole third era for payments. And I usually talk about, we started completely offline where we charged plates since it incepts or knuckle buster depending on where are you from, but we have something still compelling by now pay later that we got it going. The whole second era which we’re still living in is when we made electronic payments and that's when you put the plastic in people’s pocket and the bespoke terminal on desk and build a real time secure network behind it, but for me we really started about 25 years ago when we had our first e-commerce transaction, those will be shipped to device based things.

And so as that becomes more complex as you need things like tokenization, you need things like the sophistication of SafetyNet and as you need additional capabilities like not only debit but perhaps the faster ACH integrated together in one comprehensive solution. This is something where maybe a 20, 30-year-old cost-center based collective share processing. Now a lot of the institutions and owners are saying, do I want to spend hundreds of millions of dollars to upgrade that, to make it ready or viable for a digital world. What does it make more sense to work with the Mastercard who has all of these capabilities, and it can be quite effective in bringing incremental volume on to the network investments that we already have.

So, mathematically, the requirement to build security, safety and digital capabilities into a network, the fact that we can put that across the very broad base; if you are institutions looking to make those investments in older processing technology I have or does it make more sense to work with the Mastercard. I think quite often it’s going to make a lot more sense to work with the Mastercard. In Europe with this preparation of the scheme from the processing itself it really the great way allow direct assets with a world-class processing assets. So we think there is a huge advantage there.

And the other thing that you mentioned these are integration of the European assets we did, we did years ago where the star acquisition of Europac and look I’m going to have tack, it’s hard to do, it takes lot of your time. So the fact that we’ve been learning always as unified global network, I think gives us certain advantages when you look at how you approach situation like what’s going on in Europe.

David Togut

So, on that point, what are the major advantage from the technology standpoint that you have over Visa, having an integrated network in Europe whereas Visa is not really integrating its European business into VisaNet?

Ed McLaughlin

Well, let me contrast two things, right. One, yes, not having the burden of an integration is great because we can focus our time on the value added services, the security, the digital the contextual commerce that you’ve talked about, so that just a great a great place to be. The other thing that was, we've long had a pretty significant architectural difference in the network itself which has allowed Mastercard to really have just few reliability and off so in here of progressive requirements for on soil processing.

You may have heard, past talk about our mix, the Mastercard interface processors. We’ve always had an edge computing design. And as you commented really, I think the second phase of the post-cloud era that we’re looking at, people are recognizing the way you take maximum advantage of the ability to have shared to centralize, a last to compute capabilities having a lot of intelligence from edge of your service. I love the live, I am stealing it from someone from the Andrew Levandowski, your connect, your self-driving car isn’t going to call the cloud to figure out whether or not to stop.

So, the fact that we've always had an edge oriented network then control within our network where compute, where to storage, where processing happens with pretty great fidelity. I think it gives a just longstanding architectural advantage that we’ll continue to press for that. So, every network has different architecture, different device, different optimizations we do. I’m really, really happy in fact really proud of some of those earlier design decision that I now gets to take advantage of as we look at how we move into this digital future.

David Togut

How is Mastercard working with QR codes in India? And what are the -- I guess what are the other countries that you see adopting QR codes and what sort of the overall impact on Mastercard?

Ed McLaughlin

Absolutely, that’s my one of my favorite projects. I am so glad you asked about this. So, when we were talking about contextual commerce and how you move forward, I was thinking about what are all the devices on the edge of our network and we always have a box for what we call the, as of yet on imagine edge device. And if we can support that then we know we've got all the underlying APIs system and functionality right. So, there are a huge swaps of merchants, they will probably never buy a terminal because they don’t have to. They're already connected. They already have this, right.

So, how you take advantage of that and if you think in the plastic world with your card, you could swipe, you could tap, you could dip, you could type, right. In the device world, you’ll use the NSP wireless there is one, it will have an operating system, it will have the browser and it will have the screen, it will have a camera those are just sensors we can take advantage of to get transactions into the network. So, with brought QR, we actually work with the Indian government with the payment systems that they had there to come up with one standard.

So any merchant could present an interface that anyone with camera could simply take a picture of that, it could simply interact with that QR code to know who is the merchandize was, to give this all the information we needed for payment and transaction were up. So, suddenly all sorts of merchants that we’ve never been able to reach before now having easy way to get access to the network, so when we talk about how do we continue to extend the reach of the network because every do merchant we add, it's every Mastercard account that much slightly more valuable. QR is a great tool for that.

So particularly for expansion of merchants without the burden of getting a terminal, we think that’s great. There is other interactions that you’ll see where the consumers cash represent the QR code on the phone and it’s a different interface type. And it's almost for me certain people asking when the plastic go away, I always say in the last thing once more. I’m really not trying to judge the different interface types, maybe against tech guy talking. I just want to make sure they work flawlessly. And then every player in the makers will determine what’s best for that.

So quick digression about a few years ago, I had to do a presentation in Los Angeles, the Future of Everything Talk. They pull up in front of their hotel, the cap drive pulls out a knuckle buster, and you know what, transaction went through. I paid for the cab ride but whether I used that whether used I use a dongle mobile phone, whether I had a VeriFone in cab terminal or year from now, if you hung up a QR code and say send it to me that way. It's whatever made the most sense in that context for that merchant and we continue to provide those options in a marketplace. I think QR is a really compelling valuable addition to that, to extend the reach of the network and to serve omni swap that merchants better than we couldn't perform and India I just a perfect example of that.

David Togut

What are some of the major technology and operations investments, card is making to actually domestic processing in China once the regulators open that market up to you?

Ed McLaughlin

So, yes, China is a very interesting environment. We are in the licensing process. I don’t think anyone can provide real clarity of when where what comes out of that. So we’re fully engaged, we’re enthusiastic about doing that and we have a great business in China today primarily with the cross border that is coming out of that. So what we’re doing is we’re now waiting on the licensing, we’re continuing to build our business in China based on what we can do and we’re continuing to bring some of the value added services we have that we can operate in the market and then we’re working closely with government and the regulatory authorities through the licensing process.

And as part of that, I don’t think it's something we’re dong specifically for China, but the ability to run on soil, the ability to run within the regulatory domicile, it

s just an asset that we want to have on the network. So it’s something where we’ll be able to take advantage of in China but its general investment we’re making because all the better network because of it. So you can imagine intelligent edge knowing what stays in the country or what stays in this regulatory domicile and what can go globally and things like that. So the architectural work we’re doing anyway we really lend itself well to a situation like China and then we can see how the whole licensing process plays out.

David Togut

What is the major use case as for MasterCard when blockchain technology and what are the major investments you’re making today in blockchain?

Ed McLaughlin

And thank you for asking about it as blockchain. We think blockchain is an incredibly compelling technology and you use it for what its best at. And I think with things like proof of providence of goods particularly in the all the work we’ve done to fight counterfeiting and things like that, great application. I think for things like contract management when the bill of levying is accepted, when transference of the goods happen in an irrefutable way tide oils indeed and things like that all makes sense.

So I actually think there is a ambulatory effect, we can take things you can solve for blockchains and bringing together were things that you can do with these payments systems that are there because they are actually better at it. And that’s engineering view point, right. Let’s look at what the capabilities the asset does and as we how we can apply best to solve the real problems that are out there not trying to use it for a natural ad where you may not be best suited. So what we’ve done is we’ve build our on chain.

I think it was October of last year we published all the APIs for it and we’ve had lots of people experiencing with it and using it. We’re working with several banks with things like can we use it for better cross border settlement and verification what's there. You see a lot of like I said compelling and used cases where when the ownership of the good transfers and therefore trigger a payment around that we might want to run through the existing payment systems that commentary effect. So we’ve been working with lots and lot I think we have the number 50 or 60 patterns we put around ways we could use it to apply.

But we’re looking at things like blockchain, we’re looking at things like quantum and we’re looking at things like the identity one really for us there is always a question of applied research, right. We understand deeply what it is, the blockchain we build around the habit. You open it up to allow that co-creation experimentation who done through has APIs. But then you turn around it’s not what can I do with this thing is what are we trying to do and can this thing help it. So that’s the applied area of the research and we look for those ways that helps our business and we’ll use it for us.

David Togut

Let me just pause for a minute to see if there are any questions in the room here.

Question-and-Answer Session

Q - David Togut

APIs seem more and more important in the way Mastercard connects with partners. What are the major investments you’re making to build out your APIs and really to extent kind of your partnership relationships?

Ed McLaughlin

Yes,so we were very early in the marketplace starting some of the works in lags and opening up the developer zone to allow people to have direct access in Mastercard capabilities. But the stake I see sometimes happens as people think of API as the front end that you bolt-on to a monolithic application rather than the approach we’ve taken where the interface between systems is really what's fundamental to that.

So within a goal given domain, having the right micro services to put together, we really use API as a connectivity between all of our applications as we begin the bundle having this foundation right. Then, API certainly exposed to very close business partners we’re working together intimately and then there is a set of API that you can actually open up to the marketplace. But that gently separate from the rest of it that actually has the inability or capacity you have how you design, how you think about it and for years we’ve been taking API first.

The reason why is I think as you move from monolithic applications to being able to combined capabilities APIs are great way to do it. And also when you look in the digital world, particularly there are a lot of the nontraditional partners we work with. It really is a commentary effect of the assets we can bring and as if they can bring which create that new contextual commerce and that’s why APIs become literally the primary delivering mechanism for that.

So things like our digital enable system and as we start as an API first environment because any one on the express program, anyone who was to connect to tokenization, it’s a great way to look is that so I say which really point where APIs are the native interface and then many of what you consider traditional applications are the nears we present, which actually wrapped and bring together the underlying services we have in a really compelling way.

So it doesn’t take your services and can you put an API off from the side it really is the foundation of how you build application and then we’re on the stack whether it’s internal, whether it’s with close partners that co-creation or co-development doing those things or something you put like we do the blockchain APIs out there for the open community to work with.

David Togut

What are the biggest investments you’re making to build out Mastercard’s B2B capability particularly Mastercard’s B2B payments hub?

Ed McLaughlin

Yes. So, the payment is one of the things that I talked about earlier. So, this is something we’re doing in conjunction with our banking partners who work particularly with regional banks who are very enthusiastic about that, Fifth Third is one of our first launch process partners for that. And what we’re doing in fact is we’re providing a hub capability at least all of the information in data flow problem first, because for most people in B2B flows it isn’t the ability to move the payment its knowing what it’s for, it’s the post ability of the information. The integration between the systems and it really is creating a two party platform around that.

And the way it starts is the integration in with the ERP systems and technologies that are already and that’s where the DoD hub we have it’s so unique, it’s the depth of the integration what businesses are already running, is the directory services, it provides so you can know who is honestly which is the training partners are available for this capability, it’s the channel we’re using which is the treasury management services that you work with this.

The bank work with all the time combine with the transactional foundation we have and you can think of card transactions, virtual card transactions things like Mastercard spend which is by directionally use of our network and now things like a faster ACH coming to bare all of the rails now become assets, but the assets are really on new thought, if you have a context for the commerce and in the B2B, it really is the connection of the different ERP systems the connections that they have with systems to receivable system and the information flow that has to come along with it.

So, our B2B hub really solves that hard problem first and in doing so creates an environment where believe still in the U.S. of our half of our B2B payments are checklist for god sake, right. That you have to ask yourselves not when will it happen you have to ask yourself why hasn’t it happens yet. And we think a lot of it is what we’ll saw when at the B2B hub, I think that’s the great example of the outside and thinking about what has to be sale before in all the things like electronic payment to really be enabled in that given environment and context.

David Togut

We've touched a little earlier on Mastercard’s leadership and some non-bank corporate card areas like travel, field cards and so forth. What is the some of the new verticals you're looking to expand into in B2B that are underserved today?

Ed McLaughlin

I think there is a lot of work to do B2B because in governments and things like that, there is huge flows around meetings and events, there is big flows around insurance particularly on the disbursement side which are well inefficient and we think that a lot of what we do can do that. Management construction and constructions spend, is really compelling, we have one which I just love which uses our control technology which is the site card, right. Here is for business, we have card out there, but can be on the site they could say, hey we have to go to our home depot to pick step up, you can turn it on, they go to shopping if you turn it off, he get a word on what they bought, it’s a perfect example of how you can more efficient using what we have, but honoring what they want to do. Then we also think like healthcare, media and advertising.

So from Mastercard the enemy and efficiency. So, when you look at all of these flows and we say what’s in the way, what could be a better experience and then what relevant assets do we, but more importantly new partners and new tight partners have that we can work together, he will solve that problem. And that guys what we do in the spaces and that’s where you’ll see these opportunities really coming together.

David Togut

Great. Ed, thanks so much for being with us. I greatly appreciate your participation in our conference. Your insights and Warren thanks so much again to you as well.

Ed McLaughlin

All right, thank you very much. We'll appreciate the time. Take care.

David Togut

Thank you, Ed.