Mastercard Incorporated (NYSE:MA) RBC 2022 Financial Technology Conference June 14, 2022 8:00 AM ET
Company Participants
Ed McLaughlin – President, Operations & Technology
Conference Call Participants
Dan Perlin – RBC Capital Markets
Dan Perlin
All right. Well, thank you all so much for being here today. I can’t tell you how delighted I am to be back in person after two years of doing this virtually, right on, come on. Let’s do this.
There’s clearly a certain energy in the room that you just felt that you just don’t get on Zoom calls as exhausting as those damn things are. For those of you who I’ve not had a chance to meet, my name is Dan Perlin. I head the fintech practice here at RBC. And I’m super delighted to have Ed McLaughlin joining us today with Mastercard to kick it off again back in person. So, Ed, thank you so much for being here. I know your time is super valuable. And it’s great to see you.
Ed McLaughlin
It’s great to see you, man.
Dan Perlin
We were talking earlier when he came in and I said, when last time we saw one another, and it’s I think in person literally five years, which I’ve aged a lot, I’ve gained some weight, I have lost some care and you, on the other hand, look better than ever. So that’s just the way these things work.
But at any rate, being in charge of operations and technology at Mastercard is to say the least someone who wears many hats. And so what I thought we could do is to start off a little bit is, give us a background kind of how you’re into this position? And then what are you responsible for? Like what does all that mean from an operations and technology perspective and then we’ll just roll with.
Ed McLaughlin
Sure. And I’ll give you clearly a quick version, and hello again to all the folks I haven’t seen in so long. It really is great to be back together. Really, really quickly, started as professional geek, programming systems design, things like that, then they make you talk to people and you go from there. I guess I’ll give you most relevant is and we talked about some of the earlier days in the tech industry, I started out packaged software. We had a company logic works that did data modeling and design tools. We IPO-ed at 96. I ran all product and marketing there.
It’s just a great learning experience. Out of that I founded my own company, which I think as we were just talking about a company called Paytrust, which is first-wave Internet online bill payments, sold that to Metavante in 2002. I was Co-Founder and CEO there. And then in 2005, when Mastercard, which at the time and people often forget was a wholly-owned nonprofit bank association was looking to go public. I joined as the management team that came in for that IPO, which we accomplished in early ’06.
Dan Perlin
Which was a tough IPO.
Ed McLaughlin
It really was.
Dan Perlin
Which is mind-boggling, right? If you guys don’t remember this thing, like it broke IPO price.
Ed McLaughlin
Yes, we came at a low range.
Dan Perlin
Yes.
Ed McLaughlin
40% to 44%, we opened at 39%.
Dan Perlin
Can you believe that?
Ed McLaughlin
Adjusted Warren’s look at me, then we split 10 to 1. That would have been 390 compared to where we are now.
Dan Perlin
That’s right.
Ed McLaughlin
Warren was to keep these things accurate. Yes, it was really cool because when I came in, we really starting to develop like the product function, the product management, engineering functions around that at Mastercard. And I focused on what we called alternative ironically payments like bill pay and health care. In other ways, we could expand what we were doing as we became a public company.
Got to run the global franchise, which is still one of my all time favorite gigs. So the rules, the compliance, I always say, you know what makes a Mastercard, a Mastercard? And it’s what we say, it is like the, how it works. Then for a lot of time, we were just talking about Apple Pay earlier. I ran what we called the emerging payments area. So the whole shift to digital managed through that came into a CIO role. Got me here, told you to try to do the faster.
Dan Perlin
No, that’s fine.
Ed McLaughlin
And now, I am responsible for operations and technology. As I tell my mom, it’s nice to finally have a job where the title is pretty much exactly what I do. So daily operations, everything that we do. Mom always says, you are what you do. So making sure every consumer experience, every Mastercard works everywhere, every time, as flawlessly as we can because that’s the promise we make, promises we keep.
And then I love the technology side is what we become. So as we integrate in amazing new technologies from companies we’ve acquired is, we have teams focused on building the next generation of the systems we have today, prototyping the next set of systems were going to come out there, working with them to really build what Mastercard will become. That’s also Ops and Tech.
Question-and-Answer Session
Q – Dan Perlin
Ops and tech. All right. Well, let’s talk about top priorities within ops and tech and in particular, some of the larger technology investments that you’re really focused on that are enabling you to continue to drive the network at Mastercard specifically?
Ed McLaughlin
Okay. So let me start with the intent on the network side, right? So we have three big areas we’re focused on. One, we’ve talked a lot about how we continue to expand in payments. So whether it’s account-to-account payments, buy now pay later, where there’s a lot of activity you’ve recently seen now, continuingly expand what were traditional credit payments or debit payments.
There’s a lot we’re doing across the network on data flows and then also the external payment or the gateways, how the systems interconnect, and we’re spending a lot of time really bringing systems together for unified experiences for our customers. So first is just the unbelievable opportunity we have to continue to grow and expanded payments.
And that secular shift we’ve seen for so long accelerated through the COVID period of more and more shifting into the virtual digital world. And no one benefits more than Mastercard as payments digitize. Second big thing, though, on top of that, while we’re growing payments is the services side of our business.
And this is something at the Investor Day when we were together we’ve talked about a lot. We’ve continued while we’ve grown payments amazingly, grow even faster in services. And what this allows us to do is add more value. So, we can go back and work with merchants on how they can sell more. We can work with financial institutions on how they can prevent fraud or identify the customers they’re working more clearly in a digital world.
So, we see the services as a big expansion and accelerator of our business. And then, the third one I’m particularly excited about is we’re building new networks. So if you look at the investment and work we’ve done with things like digital identity, or all of the opportunities in open banking, where we’ve really taken a leadership position.
So when I think about the business drivers of what we have, payments, services and new networks. Now to your question, what does that mean from a core Mastercard network foundational tech? And given we only have like 45 minutes to spend today, let me take a couple of key areas that we’re spending a lot of time on that I think we’re really leading.
One of which is it all starts at the edge. I have a huge passion for edge processing. So, it’s who we’re working with changes from fintech to engaging more deeply with merchants to everyone else connected to the network. We’re meeting them where they are, whether it’s in their traditional data centers, whether it’s over the open web or more-and-more private link connections in the clouds that they’re operating in.
So our Cloud Connect or we put out a couple of years ago, is leading the industry as partners shift their loads into the cloud or fintechs are born in the cloud. They have a direct native connection, high-speed, highly secure into our network. It’s really cool technology. So we’re thinking about a lot about our edge. With our Mastercard processors, the MIPS we used to talk about, we’ve always had an architectural advantage, and we’re doubling down on the edge side of it.
The edge also is all the devices. So think about how commerce is changing, so whether it’s my favorite thing. I’m tapping my Mastercard. I saw to get on to the MTA or I make a digital twin of exactly how this operates and use it in a pure metaverse digital sphere. It’s just an edge of the network that we can continue to bring in. So we keep pushing where and how consumers and merchants and others can access that edge.
Where does the edge get you? Second big thing for us is the network fabric. And this is much richer than it’s ever been in the past. So a lot of you, particularly if you’ve followed banks or financial institutions, giant data centers, massive, massive, impressive beasts. But that’s just a place. We’re thinking much more about the overall fabric.
So with our core network, we’re massively upgrading our backbone to continue to support the traffic and growth and resiliency and speed we need. But on that backbone, things like zero-mile interconnections to all the major cloud providers. So, we can shift loads across the fabric, bring in newly acquired companies, interface with our partners better. So, you’ll see a mix of sort of traditional data center loads, particularly for our customers.
You’ll see the private clouds that we’re running where we need to and for regulatory purposes as well as interface to all the external proprietary public clouds that are out there we can bring together. So, if you think of it as a network fabric that, that intelligent edge can get transaction instruction to wherever it needs to go. Two more than all.
Dan Perlin
No, no, it’s okay.
Ed McLaughlin
Didn’t you tell me? I think the other thing which is really important is across edge fabric is just speed itself. Steve Bagby is our Head of Architecture as the line I love, which is instant is getting faster. And we all know that as consumers, right? If it’s not instant, it’s broken.
If you look at things like 5G and acceleration of everything. So our ability to push compute storage, whatever we need across that network fabric, so it can be faster. Moving to event streaming. So the data is immediately available as we continue to enrich the services that they can just subscribe to events rather than something that would have to be built into the switch.
So major architectural changes to really envision a real-time environment while maintaining the backward compatibility. So it’s not breaking changes for our customers. But those who want to take advantage of within the core can really move to a real-time environment around that.
And then the last one I had is just the applied research, the advanced technologies we’re doing. So if you look at what we’ve done, I’m sure we’ll talk about more with things like machine learning and artificial intelligence to make the network operate better to prevent fraud. Work we’re doing now and put quantum resistance into things like contactless.
So we’re constantly looking and saying, are there better ways to do what we’re doing, the ways that will enable us to do things we’ve never done before and embrace that and incorporate it back into the network. So, the payments services and new networks really all share this interoperable foundation of how we provide the run environment for.
Dan Perlin
Yes. That’s fantastic. When we think about having this conversation prior to the pandemic in the pandemic, and now we’re sitting here talking about it today, I’m interested to know how your partners and your constituents whom are asking for your help in many instances, kind of requiring demanding your help? What are they asking you to invest in that maybe is something that would not have been the case? Have we not gone through this chasm of the pandemic?
Ed McLaughlin
Yes. And I love that you’re talking about all of the constituents because that’s one of the great things about running a Mastercard network. So let me start where the mind always goes first, which is on the consumer side. And we all know how profoundly different our lives are even think, God, we’re all coming back together into the real world skills, behaviors, things we learned during that shift are persistent.
So we saw a huge shift over into digital transactions. It really was a couple of years of trend line, which jumped. And we haven’t reverted back to the trend line. I think there’s been a permanent shift with certain behaviors moving online. So that’s really important to consumers, making sure that however they want to interact, they can use all of the products we have for it, making sure they have choice.
We continue to see proliferation of payment method things they want to buy and interact with, to make sure it’s easy for them to have access to that. And I think one of the biggest things that happened and it might not be directly related to the pandemic, but much more awareness of both security as well as the privacy of formation.
So things like our data bill of rights that we put out there that you know what data we’re collecting. We will tell you what information we have. You have the right to know how we use it, and we will only use it for purposes then benefit you for the service you intended to sign up for. And we’ve seen a much higher focus on that from the consumer side.
And then maybe the last thing is it helps in a pure digital world in some ways, you’re even more dependent on our reliability. You have less of a fallback. That thing you want to do we’re enabling it. So I always think about there’s now about 3 billion accounts attached to their network.
So that’s how in a digital realm people get to their sets, how they get to their salaries, how they get to their fallback line of credit, all of those type of things so heavy emphasis there. A couple of more I’ll touch on.
For the financial institutions, that shift in consumer behavior has also impacted them and their services profoundly. So things like how do you offer smarter account opening? What’s the digital equivalent of walking into a physical location with a government-issued ID in order for me to safely know who you are engaged business with that.
So a lot of things where they’re trying or not trying, they’re enabling more and more rich remote interactions. And a lot of the services we used to traditionally do to secure the payment channel are far more applicable across their channels as that element of what they’re doing is virtualizing and will continue, I think, permanently to virtualize. So that’s really important for them. Also just cost efficiency.
The stresses we’ve seen going through a pretty significant economic downturn, they are looking more and saying, what are shared resources, shared services I can use from something like a network so I don’t have to do that heavyweight or expensive processing myself.
I can rely on a partner like Mastercard to give it for me. Last two, other side of the transaction, what we see in, I don’t like the term, merchant, right, and the retailers and all of the other folks that we work with and they’re engaged in commerce. They’re also now — if you saw every small business suddenly trying to go multichannel.
People always walk into my coffee shop, how can they now order ahead? It brought so much of that to the fore. As they’ve opened up, things like cyber security become incredibly important for them. So the heart will always say the foundation of the acceptance network, I think is the heart of what we do is we’ve always helped merchants sell more. The requirements they now have to engage their customers in new ways, to rethink things like loyalty programs to understand how multichannel will really work and what we can bring from a network.
It is profound that just shifted and changed their businesses. I think there’s also a revitalization we’re seeing. We’re small businesses that we lost during the pandemic. They’re coming back now, but they’re coming back in different ways. And we’re seeing new configurations, which I think are profoundly I guess they’re helpful and interesting.
And maybe the last thing is from a constituent standpoint, governments and regulators as they try to put stimulus into the economy, their ability to like social benefit distribution and how we were able to help with that with prepaid cards and payment networks and things like Mastercard Send, so they could connect directly to bank accounts became really, really useful. What we’re doing for sustainable economic development and financial inclusion?
Certainly became much more important across that time and the investments we’re making in small business funds. And the other side is it helped regulators see just how vital and important digital payments were. And I think the safety and stability of the systems that enhance the focus there. And that’s certainly something which is a top priority for us.
Try to get even higher than it was. Hello, hello, can you hear me?
Unidentified Company Representative
Better than it was Okay.
Ed McLaughlin
All right. For those in the back, just give me one of these, and I’ll try to emote better. Okay. Thank you. Okay. It’s great. Great stuff if you missed it.
Dan Perlin
We’re going to repeat that just. So that’s the technical glitch for the day. That’s right. That’s all we get.
Ed McLaughlin
We always have to have a shake-out period.
Dan Perlin
We got to have a shake-out, that’s right. So you mentioned security and into this big pivot to digital and the need to also be international increasingly. And the question ultimately is, it would seem to me that I think people under-appreciate the security function that you bring as a network in a world where payments is increasingly opening up.
And that’s true in Europe and the United States, Asia makes all over the world. So if you could speak to what specifically you’re doing in order to safeguard the network but also in the same context of safeguarding your partners, data, their information because it would just seem to me that it is going to be a real problem, and there’s going to be a pretty big bifurcation within the payment space, in particular, where you’re going to start to see people who actually do real security and others that are kind of patchwork quilt.
Ed McLaughlin
Yes. The security cyber is the story of our time. And one of the benefits or burdens of being Mastercard is just about any attack that’s going to happen, we’re going to see because what we do is so valuable. So we have an incredible focus there. And I’ll call out a couple of elements of that focus.
The first thing, like clearly, you do everything you can to protect, to prevent things from going wrong. And I’d say within our network, the ways that we enable encryption everywhere, the things we’ve done to harden and strengthen what we can do, the edge defenses that we just talked about, all become essential.
We’ve also, from an industry level, led in things like EMV, if you think over the last few years, the chips that are going on the card to make sure every transaction is dynamically signed with strong cryptology. So, they can’t be captured, they can’t be replayed. We’re putting things like quantum resistant algorithms into contactless to make sure that for theoretical attacks from systems that aren’t there yet, we’re already putting the foundation in place for that. And there’s more that I could go on.
Safety Net, it’s another great example, where when we see fraud surges in the network for patterns, we already know we can cut it off literally before the alert happens. We stopped that from happening. So we have invested incredibly over the years on everything we can do to prevent and harden not only our systems but the technologies both that we provide it at an industry level to help strengthen the payment systems. And when I look at the salts we’ve been under continually for at least the last decade, that part has served us very, very well.
The second bigger part I would say is as we’ve hardened the payment systems, and the world has moved into digital. Identity becomes so much more important. And I wish — I’m still on the line. I wish I could attribute one of the governors of the Kansas City Fed says payments is authentication after that is just accounting, which is a little dismissive for a lot of how I spend my life. So I’m not going to look that entirely, but there’s a huge point there of knowing who you’re doing business with digitally.
So we’ve layered a lot of techniques there to help with identity. We talked earlier about the digital identity technologies out of Vancouver, like data that we talked about, where we can start using how you use your devices and other signals in to get a richer signal passively without bothering the consumer of are you, you, do you have control of the account? Are you actually authorizing what’s going on? And as business continues to move digital, who are you in the metaverse, right? This idea of knowing who you are in a safe and secure way, combined with this ever strength in the payments systems is a really important mix that we have there.
And then lastly, I’d say it’s detecting because no matter what you do, particularly sophisticated gangs, nation state actors, you always have to assume you’re compromised. And for that, we run constant scans on the network. We look for anomalous behavior. You have data exfiltration policies that you in place. And this is where particularly working with our partners I think a lot of people need to do a lot of work.
And that’s what we’ve really learned is the vigilance and detecting and always assuming, you’ve been compromised is really the key for that. And that collaboration, we work with law enforcement all the time. We trade fraud patterns that we see through clearinghouse we work with government agencies to make sure as vulnerabilities are exposed or nation state action is seen. So, we have global security operation centers, which are not only connected across Mastercard. We also connect to all of our industry partners because it really takes a network to fight these criminal networks.
Dan Perlin
So if we’re thinking about the ability to monetize your level of security that you’re bringing to the market. Help us kind of tease that out? Is it just embedded in the network and therefore, people just come in with the view of trust and efficiencies and security and all the things that go along with that? Or is there a way in and around the services business that allows you to potentially have another monetizable opportunity, maybe not to be longer term?
Ed McLaughlin
Oh, I’d say that today, very much today.
Dan Perlin
Okay.
Ed McLaughlin
If you look at our C&I or Cyber Intelligence business that Ajay Bhalla runs. That’s where we take a lot of the core strength we have and the learnings we have and really monetize in making available as products. And that’s both taking things we’ve always done as Mastercard to run one of the world’s largest payment networks and prevent to secure that.
So we have advisory services that we can go out and we work with our partners. We have security checkups and checklist that we can run for them. Things like RiskRecon is a great example of utilities that we have that we can help people with their own assessments. But then secondly, if you look about how all this begins working together, so I mentioned new data, the ability to have a biometric view of who you already have greater certainty.
Ekata another great acquisition, I’d love to talk about a lot, which provides strong digital identity of who this person is that we can bring together, matched with the payment flow inflation that we always have our identity check are going all the way back to things like 3D Secure where we’ve helped validate our new view across that.
All of these become incredibly valuable products that we can bring not only to the payments industry, but really any digitally oriented company. That has to worry about identity, penetration, attack detection, all these capabilities or services we have out there.
Dan Perlin
What about this — you brought up identity, and I think it’s a super fascinating topic that has a lot of moving parts to it right now. But like the concept, which has been around for a little while, is self-sovereign identification and the ability to kind of own your own data and then permissibly let it out. A lot of this happens in India even still today in kind of real time on what they’re doing. Is that a risk to MasterCard to the extent that those things become more prevalent, like I think there’s a lot of misconceptions about what that means for you guys?
Ed McLaughlin
I can’t imagine a bigger benefit. And I’ll take it from two ways. One, from a consumer standpoint. People want to know we’re working. They’re working with institutions that are handling their data appropriately. And I think the uncertainty of whom I’m engaging with how we do that.
It’s a huge opportunity for Mastercard because we are great stewards of that information. I think people will look to us for that. There’s also been a dynamic where almost everything we used to do to try to make things more secure, identity, more precise and more deterministic, usually diminish the customers’ experience and whoever they’re engaging with. So wouldn’t get the conversion into your app or a merchant might lose a sale.
So we have an unprecedented opportunity, I think, using the new technologies to make things both profoundly more secure, absolutely consumer permission. So they have control and understand how their data is being used and massively more convenient, which will lead to greater adoption of the services, more electronic payments, more conversion of behaviors into the digital world because you can be identified and trusted there.
So that’s really where I think we see the opportunity on the consumer side. Same thing support as we talk about financial institutions, we now have to — digital as their primary channel. How do you solve for identity? You solve for identity, a lot of the products we have come through that chain, we can provide services to help them do that. So, from the biometric work, which we’ve long been a leader in to what we’re now doing with the data flows and information, there’s a straight line for that into open banking and the opportunities that are there.
I see it as both a great commercial opportunity as well as an enabler for us in what we’ve done with identity. And one great example because we always talk about extending what we do business with, if you look at Ekata itself, almost all of the major cyber exchanges work with Ekata as part of what they need to do for identity. If you think of things like Buy Now Pay Later, if you think of a lot of the emerging fintech plays, they have challenges where they need to solve problems were already really, really good and that’s a great opportunity for collaboration.
Dan Perlin
Yes, I imagine it is. When you think about nationalistic networks as a topic that are out there, it brings a smile or face, obviously, what kind of investments do you have to make in order for Mastercard to be not just relevant, but also collaborative in those markets where they seem to have put up some borders on their own, but you have to work with them inside of some of their regulatory requirements. I’m just wondering what kind of technology investments you have to make to remain competitive.
Ed McLaughlin
Yes. And a couple of thoughts on that. And part of the reason why I smiled is, we’ve worked with local networks for the entire history of Mastercard. So you can look at great markets for us like Korea where there’s a local utility that we work with.
So first and foremost, we’ve always said that the standards, the interoperability, the way these networks work together is important. Through EMVco and other bodies, we’ve made sure that that’s out there. And a lot of the times, Mastercard is actually gateway-in instructions we get two other networks. So our ability, if you look at send and other products we have to say you can have payments choice through Mastercard, and we can route the different networks for that.
We’re also making great progress where in markets like Mexico and Japan, where traditionally, we haven’t processed domestically. We are now. We’re seeing a lot of what would be on us or private label looking to use the Mastercard network because of the ongoing sophistication and capability so what might be perceived as a local low-cost utility now that you need tokenization, you need stronger fraud scoring. You need to do all the things that we can do at scale across 3 billion accounts attached to it.
It makes much more sense to work with a Mastercard. We’ve also expanded remember we talked about the multi-rail strategy that you have. So in the Philippines or in Peru, we’re actually running the account-to-account systems for the country. Its assets that we have in UK with the [indiscernible] faster payment system or what we’re doing in the Nordics with P97. We’re actually working with a local scheme operator, providing technologies for that.
So, it’s always been gateways and partnerships and payments. And if anything, I think you’ll see more of that going forward. We also see it as a big services opportunity where some of the specific things we do like tokenization that Mastercard help put out there and led the industry with, local or regional networks don’t need to make those investments. Those are services we can provide for them.
So I actually think going forward, you’re going to see a much sort of integration with the gateways and working with these local players and a mix of the services, particularly as we separate from switching a lot of the value that we can add. And work both locally and globally.
Dan Perlin
Got it. So let’s talk about some of the — not that this stuff isn’t sexy, but some of the sexy technology around AI, machine learning, what you’re doing there? You kind of touched on it a little bit in kind of the opening response. But I’m thinking like, can you bring some of that stuff to life for us.
Ed McLaughlin
Yes. So let me start with what we’re doing in AI and machine learning because this is something where we have been long a leader. Really proud, I think it was in 2019, Forbes Magazine gave us the CIO Innovation Award for what we are doing with our decision management platform. And this is just an absolute engineering marvel.
We run, I think, the world’s largest GemFire in-memory grid for this. We have about 2 billion card credentials. 200 analytical vectors on that, that we’re constantly updating with every transaction flowing through the network. We have 13 now 14, just introduced a new modeling technique, if you only go into multilayer percent.
No, okay, does a much better job in dealing weighted inputs versus binary inputs, but we’ll go with that. But we’re constantly testing and looking. And what we benefited from, I think, in applied AI is, we both had an absolute business imperative. Using it to fight fraud, using it to make the network run better and what we can do with that as well as a really clear and well labeled data set for charge backs, fraud, what was falling through the network because that interoperability always had to have.
So two of the big challenges I see with some of my partners on applied AI is both screaming business imperative and great data sets to work with. And that’s why we’re able to be so advanced for that. And what I love about what we’re doing with the Safety Net, it gets right into the core of what we talked about with the cyber enabling is not only did we have a really a revolution as we went from a rules-based system to supply where it was over 3x increase in the amount of fraud we could detect. It was an over 6x decrease in false positives. And that’s the consumer experience we’re talking about.
That you as a legitimate transaction making it through and that’s the foundation that we’re building on. So when I think about how we apply machine quickly, AI and machine learning, I really break it into three big categories. One is just we call it toil elimination. There’s things where you need to do it, you need to do it again. And we’re seeing huge benefits to the business for things like software-defined infrastructure, where through a declaration of the systems you want, we can automatically generate without anyone having to do anything.
You’re going from literally days or months of work to instant perfect as we do that. So throughout our systems, we’re looking at what are the toil that we can eliminate through using machine learning through using automation techniques for that. I think where we’ve gotten the most benefit, though, is in this middle ground call it human machine interaction, where you can use the AI as an incredible analytical support for our experts, so just one quick example. We’re looking at all of the API traffic we have. And we’re just scanning that for potentially anomalous behavior called weird misdetection, when that kicks out, you don’t know why it’s that way.
But then the human agents can either immediately say, oh, we’re doing a conversion there or that shouldn’t be happening. And they can focus their intention and bring all of their expertise to that. And that makes any organization massively more effective.
And then the last — this really isn’t sexy stuff, I think is what’s all the things you could never do before because humans weren’t fast enough, you couldn’t arrive at that conclusion. So as AI makes things like prediction is really cheap. Not only can we do things like the safety and fraud prevention I talked about, stop an attack before we even know it’s happening. It’s like bots fighting bots out there, and that ability to take the models in fixture change in real time becomes very important.
But also, it’s an incredible business opportunities. Things like if you take a fraud engine, you run it backwards, you probably the ultimate loyalty and affinity program. Because you know what someone is most likely to do rather than looking for what they’re least likely to do. So it makes all our capabilities smarter, so things like our test and learn capabilities where we work with merchants around the world.
I think the famous example was in the breakfast all day, right? We help McDonald’s determine whether breakfast all day was a good idea. I think it’s an awesome idea personally, but you need the evidence for that. So being able to use these powerful analytic techniques against the really rich data we have is opening up a lot of business opportunities.
Dan Perlin
It makes me wonder like when you’re having to find these individuals for AI, I mean, it’s a very finite world. Where are you finding pockets of talent that is going to be able to really be a feeder pool for the scale that you’re going to need right, because it’s not getting smaller. And I think it’s more efficient, but.
Ed McLaughlin
Well, I’d say at least three areas, one of which is we’re applied research, we’re not pure research. So working with academia has been great. So literally, the new modeling I was talking about is you can always work with saying, what’s the research, what’s the forefront of that. And that’s a great feeder infra. So we have university partnerships, particularly around the tech hubs that we have around the world. We have large pools of our engineers. So that’s been really helpful for us.
Secondly, yes, with the recruiting in. I always say when you look to recruit someone, right. You get into a business because you get into a discipline because you have a huge passion there. So what we get to do on a global scale, in real time with one of the best data sets in the world, right? And this is your passion, there’s no better place than Mastercard for that because of how serious we is things we have available before it.
So, one of our data scientists was telling me, I’ll give you two quick ones on that one. One, there’s only a few really meaningful data sets. You have knowledge, right? You have search, you have geospatial and mapping, you have social graphs, you have commerce. We have one of the best views of commerce in the world. So being able to work with those data sets is just really cool.
Secondly is the impact you can have. Someone just joined us from a hedge fund here in the city, actually, not if there’s anything wrong with this, but I was saying he raised, he did his job in modeling incredibly, incredibly well. A limited set of people will get a little richer. If he does it at Mastercard, 3 billion accounts have a chance to be safer, have a better experience. So there’s a real mission to what we can apply it for.
We’re working with the city of St. Louis, one of our big tech hubs using our test and learn that I referenced that helps merchants figure out what to do on 911 call diversion. So those skills to say, how do you get the right resources at the right time. So police can spend more time policing and people who really need help can get the help they really need faster. So you get that sense of purpose, which is really important.
And then the last one is our ongoing investment in their employees ourselves. So we have a huge program when people continue to learn and grow, and we provide those opportunities. So I think one of the best ways and we’ve been at this for almost a decade now of working with the skill shortage is providing people the tools, techniques and training so they can become those experts that you’re looking for.
Dan Perlin
Well, let’s pivot for a second and talk about crypto. It’s a lot more prominent. It’s also proven to be a lot more correlated, and it’s also prudent to be as volatile as anything else we always thought. But the question is, I feel like if we were on stage five, six, seven years ago, it was, I don’t know, it was disruptive, but it wasn’t as prevalent and there wasn’t so many partnerships that you guys would have forged whereas we sit here today, and I’m wondering how do you think about the role of Mastercard and crypto, in general, maybe how you guys define it even in that regard? And then what kind of investments and partnerships do you think you want to participate in because that fits with your mission.
Ed McLaughlin
And let me — as I should start with the tech perspective, right? There are some really cool technical elements where you can do things that you could never do before. And whenever that happens, it’s exciting. It’s absolutely exciting again, and we were talking actually before the event about being there in first wave Internet.
And you knew there was incredible things that were happening and there was a lot that was theater and you had to recognize that. And there were some that was truly, truly material and meaningful. And I think that’s where we are with crypto. And the key is separating the differences between the two.
So the idea that you can have an immutable digital object that I can take this and have a digital twin with all the same characteristics that’s native web 3-sphere, that is profoundly interesting. I think the idea of digital goods embodied of smart contracts is profoundly interesting, but not the horseless carriage innovation.
We could do this before, and now we can do it slower and more expensively in the blockchain. That doesn’t make a whole lot of sense to me. But the idea that an artist could put a piece out there and retain a part of the appreciation. That if something which is a digital twin like a ticket for an event could likewise allow the artists to benefit from any subsequent trade and then become an ongoing loyalty mechanism for those who are at the event, we couldn’t do that before.
So I really like the idea of being able to create atomic digital objects. But if you think about it that way, it just becomes a good, which we’re really good at. So people who want to purchase them. They want to trade them. And we’ve had huge benefit in providing really the interfaces between the traditional financial systems, the real financial systems, and the virtualized financial systems that are out there.
So whether it’s programs that allow you to purchase digital goods and eventually compensate for that, things like rewards programs where we can bring traditional capabilities, allowing people with crypto vaults or purses to convert them to FIAT to use the Mastercard network in the real world and have access to tens of millions of locations they can use it through all secure technologies.
I see that really knitting together well. So one, just as goods and the exchange and the interlinking of networks and systems, huge opportunity for us, which, as you’ve seen with all the partnerships and everything we’ve already put out there.
I think secondly, though, is we talked about this with Ekata. A lot of the things that we’re really good at, I think the crypto industry is recognizing that they need. So things like identity services, fraud services, knowing who is there.
So, we have a hard set of principles and volatile principles that we took into this as we always do, to saying, we believe in stability in full regulatory compliance in principles and protections for the consumers in this area. But as long as those things are happening, we can bring a lot of capabilities to bear to a very dynamic industry.
And then, I think the last thing is work we’re doing with partnerships and governments around things like central bank digital currencies. We support over 150 different currencies in the network today. So things like a FIAT factor, a stable point could simply become another means or mechanism in exchange that the Mastercard network to handle.
And we’ve already modeled and we piloted those type of things. So the ability to have certified checks or bearer bonds or whatever term you would have in the past where the object itself is the bearer of value. That’s really just another addressable element for the network. So as goods market for services and then the idea is additional currencies that we can handle.
Great opportunity there, though. And a lot of silliness it’s going to wash out to that’s how you innovate.
Dan Perlin
Well, as you say, it was parallels that we saw in a lot of times with things back in the ’90s. The concept of open banking comes up all the time in the Q&A sessions. And sometimes, we talk about it in the context of opportunities, sometimes more often, actually, it’s brought up as a competitive threat.
So maybe you could just outline for us why you were just shaking your head and saying it’s not a competitive threat, given that a lot of those places in Europe seem to want to have more direct connect to banks.
Ed McLaughlin
Yes. And one of the things I remember we talked about this Investor Day a year ago, the way not to be disremediate is to be the best intermediary. And our ability with the network to bring all our skills and capabilities to these opportunities that are out there, and I am a huge fan of open banking. I can go all the way back to first wave Internet and screen scraping and things like that, that I put to great use.
So one, it’s another example of the new networking connectivity. So with Finicity, which is a company that joined Mastercard a few years ago, we have Open Banking Connect into over 95% of consumers in the U.S. So the ability to use that to create new capabilities, like account opening, like really intelligent multi-rail transaction routing. Of what’s the best way for this transaction to have across all available things. That just strengthens the network.
We had another company Aiia out of Europe, which has a great development environment in APIs and also connectivity into a lot of Europeans banks. So I really see as we continue to expand payment services and build these new networks, open banking is going to be a really important and very vibrant part of the industry.
But what does it provide? It helps strengthen everything we want to do with digital identity. It helps people open new accounts in a digital sphere, which is great for us because we can help bring it along. It’s a way we can assist consumers with handling their data securely and appropriately, which we know is it something that they’re looking for.
And I absolutely see as a growth industry as it becomes another way or another set of API’s we can offer, and it fits perfectly into the multi-rail strategy we had from the beginning. So I’m a real enthusiast there. I think there are some great things that we can do.
And in the end, it always — this is just pure tech, right? And then it comes back down to just what works better. So the more capabilities we have, we can look at any given environment and say, if you walk up to a point of sale today in the real world, what’s the best interaction for you?
If you’re having a fully virtualized interaction somewhere deep in the metaverse, what’s the better interaction for you there. And really, in the end, consumers don’t care. They want to get what they want to get.
They want to do what they want to do and they want to make sure we’re taking care of every and I see open banking is a big business opportunity and a great set of things we can bring into our toolkit to do that better.
Dan Perlin
All right. In the last 30 seconds Okay. If you were offering a technology that this audience should be focused on that you see as something that is transformative over the course of the next five, six, seven years. And they would be able to invest in something along those lines. What kind of technology would you tell this audience to focus on?
Ed McLaughlin
So let me do two, right? One, on consumer tech side, shift to digital is absolute. And like I said, I’m not going to go metaverse Web 3 on you, but we will continue to live more and more of our lives through digital intermediation. It just is. So I’m actually much more in the camp of AR blending. The digital experiences will continue to become richer and the technologies that help enable that, I think, will become profoundly more important.
Hopping over to sort of the deep tech side, everything we’ve talked about from cybersecurity from the defense, the prevention, what we need to do there, what we will need to do to harden our systems as, again, our lives become progressively digitally intermediated. And that’s why we’re putting such an emphasis on the skills and capabilities we have around cyber. I think that will continue to be, like I said, the story of our time.
Dan Perlin
Awesome. Ed, we’re out of time. Thank you so much for being here today. And there’s obviously a lot going on here, and I think your mom would be proud. So thank you.
Ed McLaughlin
Good know. Thank you very much. It’s great to see everybody. Thank you.
Dan Perlin
Thank you.
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