MasterCard’s mobile payments guru talks Apple Pay, Android Pay and more

September 4, 2015, 5:00 PM UTC
Photograph by Getty Images

MasterCard sits at an interesting vantage point overlooking mobile payments. That would be the emerging technology that lets people use their mobile phones to pay at the store checkout counter instead of cash or credit cards.

Silicon Valley giants like Apple (AAPL) and Google (GOOG) are trying to capitalize on the opportunity. MasterCard (MC), the nearly 50 year-old credit card company, is also trying to keep up.

One way is through what’s known as contactless payments, whereby shoppers can merely wave their phone in front of a reader at the cash register. Their credit card is automatically billed without them having to take it out of their wallet. MasterCard is also involved in peer to peer money transfers. People link their debit card accounts online or on a phone so they can transfer money to friends, family or anyone else.

Fortune sat down with MasterCard’s chief emerging payments officer, Ed McLaughlin, to talk about the company’s partnerships with Apple’s mobile payment service, Apple Pay; Google’s alternative, Android Pay; and what’s next for the company when it comes to mobile payments. The following was edited for length and clarity:

Fortune: In Mastercard’s experience, how’s the consumer adoption of Apple Pay?

McLaughlin: We are seeing strong uptake. But these technologies will take time to grow. Particularly with Apple Pay you need to have a new iPhone to start using Apple Pay [older versions of the iPhone are not compatible]. But we’re seeing adoption track really well.

What about Google’s mobile payments technology, Android Pay?

McLaughlin: Android Pay is going to be more interesting because it will be compatible to Google’s latest version of its operating system, meaning that most Android users will be able to use the technology after upgrading to the new OS. I think there are over 1,000 different handsets that are out there that will be able to accept Android Pay, giving it a bigger installed base for that. So it will be interesting to see how quickly that moves.

How many MasterCard credit cards have been integrated into Apple Pay?

McLaughlin: We haven’t released that number. But we do see a lot of users using their cards with Apple Pay. We’re also analyzing where and how people are using Apple Pay with their MasterCard cards. It’s also really interesting to see what’s happening with contactless payments outside of the U.S. In the UK, I can tap my Apple Watch to pay to get onto the Tube, and that is a great experience. And I think it’s those anchor experiences that will build usage around contactless payments. We have not published tracking stats on that yet, but it’s being adopted, and it’s being used.

Do you see Android Pay and Apple Pay as partners or competitors, since you have your own contactless payments system, MasterPass?

McLaughlin: We see all of this as highly complementary. Whether you use the plastic card, whether you use the device, we’re tying it all back to your MasterCard account. And I think the most important thing that’s often missed: You get all the rights and benefits in Android Pay and Apple Pay that you get from a genuine MasterCard transaction — all the protections. So whether it’s rewards or cash back or zero liability, all of that’s retained regardless of the environment you use it in.

Initially with Apple Pay, people would say things like, “Well, it’s an Apple Pay transaction.” But It’s a MasterCard transaction that’s being generated from that environment. If you have a MasterCard account, we want to enable whatever makes the most sense for you in your life and make sure it works really well.

What are your thoughts on Samsung Pay, Samsung’s Android Pay competitor?

McLaughlin: We think there’s going to be lots of environments for payments. One of our mantras is that every device is going to be a commerce device. Your game system and your car could all become places where commerce takes place. And we will see payments on wearables that are coming out. As more devices get connected and smarter, those create opportunities for commerce.

But are the security standards on some of these non-mobile devices enough to handle payments and credit card information?

McLaughlin: Our mission is to make sure that digital payments are as secure, or even more secure than anything we can do in the physical world. So when we enable any of these devices, we’re using a token, not your real card number. So it can be only used from that device for what that device does.

There’s also an encrypted key, which is a unique security key that’s put on a transaction. So every transaction is a one-time transaction. It can’t be captured or replayed.

The other good news: If anything happens to that environment, we just burn the token. You know, the transaction is blocked at the network level and we burn the token down. None of your other environments are impacted. So you don’t have to replace the card.

What do you think is next for contactless payments?

McLaughlin: I think you’ll see markets emulate what we’ve already seen in Canada and Australia, which is when people tap to pay more than two or three times, they don’t go back to their prior behavior because it is faster and more convenient. In Australia, around 60% to 70% of our transactions under $100 are already contactless because consumers like the speed and convenience.

In markets like the US, where 80% of VeriFone’s new terminals are already shipping with contactless payments enabled, you have merchants like Best Buy (BBY) and Target (TGT) and Rite Aid (RAD) now turning contactless back on. We think that’s just going to be part of the payments infrastructure.

It feels like peer to peer payments is having sort of a renaissance. MasterCard announced its peer to peer payments technology recently, MasterCard Send

McLaughlin: When you move into a connected world, things change. I wouldn’t necessarily go home and log on to send you $20. I’d probably hand it to you. But if you’re in my contacts on my phone and I’m texting you, I might flick it to you because it’s right there. So I think peer to peer payments are taking off because people are getting more connected. It’s changing how we interact and changes in how you interact will change how you transact.

And what we keep hearing from people is they want all this to work together from the accounts they are already using instead of opening a new account.

What are your thoughts about companies like Square, for example, that are taking on the point-of-sale world? [Square sells merchants software and an adapter that turns smartphones and tablets into point of sale devices that can accept credit cards].

McLaughlin: Square is not competition to us in any way. In fact, we did a lot to help them get started. I think one of the great stories with Square, is that it is part of “bringing your own device” movement. Now, with a simple adapter, you can take this incredibly powerful smartphone you have in your pocket and turn it into a full-fledged credit card terminal.

Around the world we’ve seen millions of merchants with Square and Square’s European competitor iZettle and other providers now able to take electronic payments because it’s lowered the barrier to entry for that. And we think that’s a great thing. I think there’s always vigorous competition on who can serve the merchant best, and we think that’s really healthy.

What are some of the payments companies MasterCard has invested in?

McLaughlin: We have a program called Commerce Innovated, where we’re working with innovative young companies around the world to take advantage of payments, take advantage of MasterCard technology, and take advantage of the expertise we can offer. We help them develop and incubate their businesses in partnership with Silicon Valley Bank [which also offers them resources]. Sometimes we actually provide funding and investment for early stage companies that are part of this program.

One good example that’s gotten a lot of attention is investing in a company called BioMed. They have created a wearable band that actually reads your EKG. And we think we can use that to help validate transactions.

We’re not in the business of trying to pick winners in these highly competitive markets, but more facilitating these type of transformative innovations which help extend what we can do and offer to consumers.

Do you have a separate fund?

McLaughlin: No, we don’t have a separate fund. What we have done is that we’ve worked with some of the venture capital funds that are out there and taken positions in those funds. We do direct funding into companies that we find are particularly interesting. But large dollar, late-round, high valuation investing—that type of thing isn’t as interesting to us.

What’s are some of the new technologies we’re going to see in the payments world in 2016?

McLaughlin: In 2016, you will see payments built into all the major operating systems, which will allow an access and convenience that hadn’t been there before. You’ll see an acceleration of consumer interactions, particularly around commerce, in all devices. So the ongoing sophistication of mobile shopping apps and more merchants accepting electronic payments will be essential. And we will see the acceleration of e-commerce transactions, which represent 15% of our business.

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