In the field with Mastercard

At a glance

• By making huge bets on designing for modularity and empowering its ecosystem partners, Mastercard has – despite entering the digital and mobile revolution as an incumbent – emerged as the orchestrator of a global payments platform that powers a large share of the world’s commerce.
• In the process, the company successfully anticipated and shaped trends that are often associated with born-digital players: disruptive innovation, ecosystem thinking, platform business and Blue Ocean strategy.
• The transformation has enabled Mastercard to deliver value across a sprawling ecosystem that connects banks, fintechs, governments, retail e-commerce players and other partners in a rapidly digitized global economy.

There are few sectors in which technology has created as many opportunities for digital startups as the payments industry. The rise of digital and mobile solutions set off a chain of transformation not seen since payment cards were introduced some 50 years ago. Once the domain of a handful of high-performing juggernauts, payments can now be performed on any device and through a multitude of channels.

For Mastercard, the challenge was to pre-empt the fate shared by many incumbents faced with disruptive innovation. Instead of clinging to its unrivaled experience in plastic payment cards and continuing to serve large customers in affluent markets, Mastercard set out to transform itself from an established payment processing provider into a technology company and partner.

The broader issue

The underlying issue in the story of Mastercard’s transformation is one of developing modularity and optionality: Mastercard’s leaders chose to anticipate and actively inform technology trends in global commerce. To that end, the company had to design and implement a series of technological and organizational architectures, within its own structures as well as with its partners. Mastercard took it upon itself to find new ways of connecting customers, merchants, regulators and other parties in a self-renewing ecosystem of continuous innovation.

The company was able to draw upon several strong fundamental constructs and management philosophies that had been in place for a long time. For instance, its traditional business model, developed in the 1960s, was already a form of platform business. That existing platform now had to be reimagined to accommodate a digital services ecosystem and to sustain the ecosystem’s health and continual rejuvenation.

A new approach

Our discussions with Mastercard executives brought to light the deliberate choices the company made to collaborate with the fintech community. Rather than viewing the fintech wave as a source of competition and disruption, Mastercard opted to establish itself as fintechs’ worldwide partner of choice. Its approach to the fintech arena was one of consistently facilitating access, opening doors and sharing tools with partners. As a result, any fintech builder can sign up to be part of Mastercard’s global community. This openness created a win-win cycle: The collaborations have enabled new product and service development, which in turn has benefited consumers and businesses.

Underpinning this partnering strategy was Mastercard’s commitment to application programming interfaces (APIs) and API-first collaboration models as a cornerstone of its product development and platform building. Mastercard perceptively recognized the role that APIs can play in enabling easy-to-use modularity (i.e. interoperability and scalability) by providing a standard way for software applications or components to communicate and exchange data or functionality. In addition, APIs integrate with a variety of platforms and offer flexibility to businesses that require customized payment solutions.

In sum, Mastercard adopted a mindset of relentless partnering to foster an ecosystem – all the while designing solutions that could reliably coexist within a multifaceted industry like global payments. To support that trend, Mastercard would give its partners and customers the tools to build their own solutions, at speed and scale. The future it envisaged for itself was to connect payers and payees in ever more intricate networks of value creation, rather than just processing their payment exchanges.

Did it work?

During our fieldwork, we established that Mastercard’s deliberate and systematic use of open APIs and other digital interfaces slashed the cost of collaboration and accelerated innovation. It successfully streamlined processes and acted as a powerful enabler of payments in networks around the world. Participants in those networks were then able to use a growing array of electronic forms of payments seamlessly and securely.

To date, embracing the wave of fintechs and pivoting to an API-first strategy has powered Mastercard’s commitment to modularity and fueled a continuous creation of new value networks with a wealth of partners in all segments of global commerce. The company has become the de facto operating system of the world’s digital economy. One could go so far as to suggest that without Mastercard, innovative disruption in the payment space could not have taken root.

Upholding and reinforcing the principles of modularity means that, regardless of the partner, Mastercard prioritizes providing a single point of entry to technology, products and partnerships, along with flexibility. It continues to optimize at scale. This is the way Mastercard has signaled its openness and readiness to collaborate with everyone in a tech-, product platform- and device-neutral environment, thus working together toward the achievement of an interconnected and innovative financial system of the future.

Reaping the benefits

In our conversations with global Mastercard executives, they emphasized that in tandem with actively shaping and regulating the ecosystem’s inner workings, the company also significantly improved its own performance. Notably, it closely integrated its product engineering with product management teams. Externally, the company worked toward simplifying the otherwise complex challenge of drawing together a large, robust, loosely connected and widely distributed network of organizations. At the same time, it provided them with platforms that enhanced their productivity, improved stability and stimulated novel thinking.

“What we’re trying to do is to disrupt something that is already very successful. And it requires investment, prioritization, pushing toward an organization that is more futureproof.”   – Mastercard executive

Mastercard continues to add new startups and partners in areas such as AI, blockchain, open banking, financial inclusion and sustainability. Through these processes, it is upholding the importance of trust as a catalyst of innovation, enabling companies to take innovative leaps to create and enhance their products. Throughout, it continues to lay out the key practices that help maintain and deepen this trust. Concurrently, Mastercard is building on the power of data insights to enable other organizations, including governments and financial institutions, to develop cutting-edge new capabilities.

Studies by IMD have proposed that achieving modularity – i.e. breaking down complex, monolithic systems into modules – enables greater speed, faster modifications and better scaling. New functionality can be added to a software solution without overriding other components. This gives companies the extra flexibility and resilience to meet the demands dictated by the growing diversity of their global customer base and regulatory requirements. Furthermore, open APIs and other digital interfaces directly fuel collaboration and innovation with global partners. This is a crucial feature, as few organizations today can go it alone in addressing the pressing challenges their business and customers face.

This article is based on the IMD case IMD-7-2455 available from The Case Centre at www.thecasecentre.org.

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