The Purchase, N.Y., company has decided to open up its software platform, letting independent software developers create payments applications that would use MasterCard's network for … just about anything they can come up with.
Observers say letting anyone build payments tools could open the innovation floodgates. Though MasterCard should be prepared to see plenty of half-baked concepts, they say, a few breakthroughs could also result.
Apple Inc. has used the same approach to great success in the app store for its iPhone. PayPal Inc. opened up its platform last year and has already announced key partnerships with companies that have adapted its payments technology.
A growing number of start-ups have developed payment alternatives to facilitate transactions in ways that the traditional card networks cannot support. These companies can now focus on building technology that reaches the end users but no longer need to design an accompanying network, said Joshua Peirez, MasterCard's chief innovation officer.
"If that means that there are less opportunities for someone to come up with an idea that excludes us as an alternate payment — but rather includes us — that's great," he said. "Instead of competing with us, use us to achieve your objective. … That's good for us, and that's good for our banks."
Peirez called online auction sites a good example of an emerging application that could have used MasterCard, rather than excluded it, if the company had opened its platform sooner. "Had we done this 10 years ago, there probably wouldn't be a PayPal," he said, because developers would have been able to incorporate MasterCard's existing network instead of trying to build out PayPal's.
But PayPal became the dominant payment system for such auctions because few viable alternatives existed for bidders to pay electronically. eBay Inc. bought PayPal in 2002.
Though MasterCard is following PayPal's lead in opening its platform, Peirez said this means MasterCard can learn from PayPal's early efforts.
"Sometimes, if you move second, you end up with a better system," he said. "You always see something or learn something from the first mover that you can leverage." For example, developers have been sending MasterCard hundreds of e-mails of feedback on their early experiences with PayPal's platform, he said.
Peirez still sees MasterCard as an early mover and sees advantages to that as well. "I'm certainly excited to have moved faster than a Visa or an Amex or any of my core competitors," he said.
PayPal opened its technology in November and has since announced noteworthy examples of developers' adapting its system in new ways.
Fidelity National Information Services Inc. blended PayPal with its bill-pay offering, and Green Dot Corp. added PayPal as a funding option for reloading its prepaid cards.
Dan Schatt, a PayPal senior director and the head of financial innovations, said its strength is not only in its first-mover status. PayPal's reach is not limited to its existing user base, he said. Anyone with an e-mail address or a phone number can receive payments through PayPal's system.
"We're a little bit different in that we're aligning ourselves with the Internet" instead of one card brand or one issuer, Schatt said. "Our network is basically anyone with an e-mail address."
Though most of the more ambitious banking applications of PayPal's system came at about the time it opened up the platform, Schatt said more are to come. Banks, for example, are looking at PayPal as a paperless alternative to small-business invoicing, he said.
