With new tech-centric CEO, Mastercard eyes fintech prize

Despite having a comfortable position as one of two behemoths dominating the realm of electronic payments globally, Mastercard has made no secret of its desire to keep up with the rapid, tech-fueled evolution of financial services in recent years.

From its 2016 acquisition of U.K.-based real-time payments innovator Vocalink, to last year’s $3.2 billion purchase of Danish payments firm Nets’ corporate business (the largest acquisition in Mastercard’s history), the company has spared little expense to stay ahead of the curve and diversify its services beyond its traditional, bread-and-butter cards business.

“We’ve built a business over 50 years in credit cards, and making something complex really simple,” Michael Miebach, Mastercard’s chief product and innovation officer, told Fortune last summer. “But if we want to be a relevant partner to our customers, we cannot just say that cards are the answer to everything.”

Working under CEO Ajay Banga, Miebach has been the person guiding much of that strategy, with the goal of developing a “multi-rail” payments platform that would prepare the company for an eventual, card-free future. With established rivals like Visa making their own considerable moves in this regard, and younger enterprises like PayPal only growing in stature, the importance of Miebach’s mission has only grown more apparent.

And so, it was not a huge shock on Tuesday when Mastercard announced that Miebach would succeed Banga as the company’s CEO, effective January 1. Shares are down 5.4% since the surprise announcement.

Big shoes to fill

There’s no doubt that Miebach has considerable shoes to fill; in his decade at the helm of Mastercard, the highly regarded Banga has overseen a 16-fold increase in the company’s stock price. Outgoing chairman Rick Haythornthwaite noted as much on a conference call announcing Miebach’s appointment (as well as Banga’s own ascension to the role of chairman, in the wake of Haythornthwaite’s retirement at the start of next year).

But in Miebach, Banga said he believes Mastercard has found a well-rounded and experienced successor whose knowledge spans the more traditional areas of banking, payments and regulation—Miebach worked at both Citigroup and Barclays before joining Mastercard in 2010—as well as the more forward-thinking realms of technology and data.

As such, he would appear to be a good fit to continue Mastercard’s continued evolution beyond card-based transactions—which, as Banga noted, have gone from comprising “close to 80%” of the company’s revenues a decade ago to only around 50% now.

“I’ve dedicated the last decade of my career to payments innovation,” Miebach said Tuesday, adding that he sees “tremendous opportunity” in the potential of 5G technology, data analytics, artificial intelligence and open banking to continue pushing the company’s business forward.

He’ll have the means to do so, given that the company’s impressive results in recent years have supplied it with “billions in free cash flow” to continue investing in both its own technological capabilities and future acquisition opportunities, according to Bank of America Merrill Lynch analyst Jason Kupferberg. In the company’s year-end earnings report last month, Mastercard reported net earnings of $8.1 billion in 2019 (up 39% from the previous year) on revenues of $16.9 billion (up 13%).

“Staying on top of new technology is going to be on the top of [Miebach’s] agenda for years to come,” according to Kupferberg. “[Mastercard] still have a great core business, but over time it becomes increasingly important to diversify away from that core.”

With Miebach’s soon-to-be counterpart at Visa, Al Kelly, noting a desire to recalibrate his own firm’s focus toward “the movement of funds for any purpose around the world,” Mastercard’s new CEO will find himself in the thick of a fintech arms race that’s sweeping nearly every corner of the financial services industry. After all, Mastercard was a fellow investor in fintech startup Plaid before Visa swept in with a $5.3 billion offer to acquire Plaid in its entirely, and both firms also found themselves in a bidding war for cross-border payments firm Earthport—one that Visa eventually won last spring.

In Miebach, Mastercard has appointed a fintech believer with the chops to guide them into that battle as the company’s business model continues to evolve, according to Deutsche Bank analyst Bryan Keane. That includes new efforts in the business-to-business and accounts payable space, as well as initiatives designed to serve the health care and supply chain logistics markets.

“They’re moving beyond just being a card company and thinking bigger picture about a multi-rail strategy,” Keane says. With Miebach’s appointment, the company has rejected the notion of “a traditional card or banking executive” to lead the charge, and opted instead for “someone with a more tech-focused, expansive view of the [payments] world, and the role that fintech is going to play in that.”

On paper, it would appear that Mastercard has found the right man for that very job.