A Decade at the Helm

  MasterCard's recent incarnation as a public company is just one big event among many for Robert Selander, who is serving his 10th year as president and CEO of the payment network now known as MasterCard Worldwide.
  In 1997, when Selander took the helm of MasterCard, the card association managed its card acceptance in alliances with multiple payment entities around the world, including the European payments organization Europay International, which it did not completely control.
  In October of that year, MasterCard replaced a variety of branding and advertising campaigns with its "Priceless" advertisements in 98 countries and 46 languages. The campaign continues today.
  Shortly after Selander took the helm of MasterCard, the network began a five-year, $160 million renovation of its core technology infrastructure, rewriting the codes of all of its core operating systems.
  In 2002, MasterCard merged with Europay to create MasterCard International. The merger helped unify MasterCard's worldwide card-acceptance network with one management team. It also converted MasterCard to a private-share corporation, which set the stage for future changes in MasterCard's corporate structure.
  That same year, MasterCard launched its first trial of PayPass, a contactless payment technology that MasterCard is rolling out today.
  Along with other card networks, MasterCard has over the past decade been the plaintiff and defendant of several major lawsuits involving merchants, consumers and issuers. Many of those suits have come and gone. But one key decision forced MasterCard to allow member organizations to issue American Express and Discover cards. Another allowed merchants to opt not to accept debit MasterCards if they take MasterCard credit cards. The latter case cost MasterCard $1 billion to settle with merchant plaintiffs. And a merchant class-action suit charging MasterCard, Visa USA and some of their larger issuers with collusion in setting interchange prices helped nudge MasterCard to change its corporate structure.
  On May 25, 2006, MasterCard moved from being an association of member card issuers to being a public company through an initial public offering. The opening stock price that day of $40 per share pales in comparison with the $151 per share the company's stock was selling at in early June.
  The following discussion is from a recent interview with Selander by Cards&Payments Senior Editor Nadia Oehlsen.
  Q. What was the biggest challenge of the IPO process for MasterCard?
  A. We didn't set out to do an IPO, but there were a series of things going on in the marketplace, which we responded to. Consolidation and globalization in the industry brought about our need to integrate a series of companies we were involved with, Europay and MasterCard being the two principal companies that merged back in 2002. To facilitate that deal, we converted MasterCard from a nonstock to a stock corporation. Because of the number of shareholders, that necessitated our registering with the U.S. Securities and Exchange Commission. The IPO was the result of recognizing that, for us to do the kind of job we wanted to do with our customers, who are issuers and acquirers, we needed a much more stable ownership and governance structure from which to do our business.
  Q. How has going public helped MasterCard?
  A. Our IPO was an industry-defining event, and I'd rather be the one defining it than following it. We've positioned the company to have a unified global structure, which is the right structure for a consolidating and globalizing industry. We have a more-versatile and rigorous competitive profile. And the current structure is more open, with a board that is comprised principally of independent directors not related to banks, who are our customers and, in some cases, shareholders. We also have ready access to public markets, not only to raise capital, but also to help structure the rewards we use to attract and retain talented professionals.
  Q. Many industry insiders have speculated that one reason MasterCard went public was to help shield the network from merchant lawsuits related to interchange. Was that part of the IPO decision?
  A. One advantage of becoming a publicly traded company was we were able to address the perceived conflict of interest in our ownership and governance structure by enabling a broader diversity in our share ownership. There is no doubt in my mind that, during the years prior to that change, we handled ourselves in an appropriate way. But sometimes perceptions are important, so we responded to that in terms of a change. The U.S. marketplace is a litigious environment, and our new, more-open and independent structure should enable us to better navigate in that environment.
  Q. How has going public changed MasterCard's relationship with merchants?
  A. Having more transparency since the IPO is one change. We were the first in the industry to announce and publish our merchant rules and procedures on our Web site, making them available to everyone. We subsequently have put on our Web site the interchange fees in Europe and the United States. That makes it possible for merchants to have conversations with better insight when they are dealing with various acquirers.
  Q. How has going public changed MasterCard's relationship with issuers?
  A. What hasn't changed is our customers are still tough negotiators, and we still work hard to improve the profitability of their businesses and ours. That said, prior to going public, we'd be sitting across the table talking with a customer who also was an owner. But the IPO has made it absolutely crystal clear: Our banks are customers first and shareholders second. We're working to help that customer implement a particular payment strategy to realize profitability for their shareholders. And they have a level of discretion in terms of whether they continue to be shareholders. They no longer have any obligation to be an owner.
  Q. What were the biggest technology risks that seem to have paid off the most for MasterCard?
  A. Our technology infrastructure needed work when I became CEO, so in the late 1990s we committed to a five-year program-at the time it was about a $160 million program-to rewrite all of our core operating systems, including our authorization, settlement and clearing systems. It gives us today a very reliable technology platform that is highly secure, very flexible and capable of growth at reasonable cost. Without having done that, we wouldn't have been able to support and generate the growth we've seen over the last several years. The second big technology risk that paid off is PayPass contactless technology. We've been at it for several years, starting with pilots, getting our lessons in place, and we're now in the position where there are 14 million PayPass cards and devices around the world and PayPass activities taking place in 15 countries.
  Q. Will the U.S. ever embrace EMV smart cards to the extent Europe has?
  A. We're eventually going to see global adoption of chip card standards. In those markets where chip cards have been implemented, it was a combination of telecommunications costs because the chip enabled transactions to be batched in an offline basis throughout the day, and also fraud. In the U.S., we have less fraud as a percentage of the volume going on cards than we had 10 years ago, so chip cards have less of a business case here. But several U.S. banks are involved in issuing those cards in markets that have migrated to chip, and we also know there is a possibility that we will see fraud get worse in the U.S. And more value-added products will come along, such as loyalty and rewards programs, that eventually will catalyze business cases for chip in most markets around the world, including the U.S.
  Q. What miscalculations during your tenure has MasterCard made, and how has the network made the best of those situations?
  A. There were some things that we weren't paying enough attention to, frankly. The real wake-up call came for me in 2003 when, on the eve of the honor-all cards lawsuit led by Wal-Mart, Sears and other merchants against MasterCard and Visa here in the United States, we basically agreed to buy a $1 billion "insurance policy" and settled the suit. If anyone had suggested to me back in the late 1990s that we might be in a position where we're not involved economically yet we're sued and wind up having to settle that with $1 billion, I'd have said that could never happen. But it happened, and we're now paying significantly more attention worldwide to these types of legal and regulatory issues.
  Q. What legislative proposals in the U.S. worry you?
  A. There are clearly some issues that are on our radar right now, including data security, e-commerce transactions and interchange. Rather than worry about specific bills, we seek to be active participants and partners in the legislative process. We try to ensure policy-makers understand the role we play, that we're neither an issuer nor an acquirer, that we're focused on helping facilitate the development of new card offerings for consumers and more acceptance and better value for merchants.
  Q. What makes you excited about the business?
  A. We are in a great industry. We're incredibly well-positioned as a company with great brands and a fabulous presence in over 200 countries and markets around the world. And our customers are the movers and shakers of the payments industry. So when you put all that together, we're in a position to bring tremendous value to economies throughout the world.
  Q. What will MasterCard look like 10 years from now?
  A. We're seeing more rapid growth outside of the United States, but we're seeing very positive growth here. About half our business is in the U.S. today and the other half is spread among the other markets of the world. I would expect that 10 years from now, we're going to see an organization that is more balanced, with about a third of our business coming from the Americas, about a third from Asia and about a third from Europe.
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