There have been a number of wide-ranging changes in the payment business over the last few years. In your opinion, what have been the most important?
An important change that is very much on the horizon right now is the development of the Single European Payments Area, which will require a number of players in the payments industry to re-evaluate how they are structured, in order to achieve compliance. It's actually a key driver of change at the moment and one that we see as being a great opportunity, as it will help speed up the replacement of cash and cheques with more efficient payment cards.
Consolidation has also been a big theme. In the last five or six years, there's been a consolidation of players in the US and an invasion of the UK card market by American players. Now, we're starting to see UKcard companies enter the US and other world markets and a consolidation in the UK market, as well as in continental Europe. A recent example is the acquisition of the German headquartered HypoVereins Bank Group by Unicredito – a big Italian banking group. Cards are a key part of both of those businesses.
In addition, there have been a lot of new entrants into the card-issuing business, intensifying an already competitive environment – retail groups like Tesco, Marks & Spencer and Carrefour, plus other types of financial institutions, like Prudential with Egg, who have seen healthy profit opportunities but have inevitably contributed to general margin erosion.
JL: What about the technology side?
JN: There's been a relative explosion of debit card use over the last decade. Whereas credit cards used to be the leading kind of plastic card payment in the UK, debit cards now account for more transactions and more total transaction value. We're seeing the almost complete demise of cheques and people are getting more and more used to using plastic rather than cash.
We've also seen the development of chip and PIN – the deployment of integrated circuit chip technology – in the UK. Approximately 85% to 90% of transactions are chip and PIN. But this is not just a UK phenomenon. It's actually part of a near-global move to what is called the EMV technology standard.
Payment cards have been based on magnetic stripe technology for almost 40 years. This new chip technology standard allows more secure transactions, which is obviously very important in terms of the rising cost of fraud, but also gives far more flexibility with the card to store data. Now that the infrastructure is in place, the question will be 'What other things can you actually do with it?'
JL: There has been a lot of optimism on the development of smartcards but that development has been slow. What's holding it back?
JN: Smartcards represent huge investments in terms of changing the infrastructure, particularly around the terminals – where you currently swipe your card or dip your card in. Whether one is looking at bank-owned terminals supplied to retailers, or the integrated point of sale systems owned by the bigger retail chains, it takes time to get agreement because there has to be a business case for all parties.
Infrastructure rollout is always an issue. A feature of the cards business is the chicken-and-egg phenomenon – having people out there using cards and also the places to use them. You don't want to find that, three years after launching a new product, finally someone turns up with it and your checkout staff have forgotten what they're meant to do with it!
But we're getting to a more mature stage now that chip and PIN has become standard. So in the next couple of years, banks in the UK are likely to start replacing their first issue of chip cards with more sophisticated chips and they'll be thinking of different things to do with them. Certainly, I think you'll see more creative thinking about smartcards in the near future.
JL: Europe seems to figure significantly in MasterCard's approach. What are the priority countries on the continent? (see Figure 1)
JN: Europe is very important in our global strategy. The major markets for us are the UK, France and Germany, but there are other important markets as well.
Spain and Italy are developing very fast. Italy, in particular, still has a high prevalence of cash payments so, in terms of our war on cash, Italy is a key target country. Poland is another important market because 97% of transactions are still made using cash. Turkey is also very interesting because it's one of the most sophisticated card markets in Europe, if not the world. And, of course, the Benelux market, where our regional headquarters are based, is particularly important for us as well.
In terms of our bank customers, some of the major banks are developing in eastern European markets and where they go is important for us. We see ourselves very much as a global company, so we need to be putting the right solutions in place for particular markets. And Europe is quite different to many other parts of the world, so it's important for many of our customers that they have specifically European-flavoured solutions.
JL: Your CEO was quoted as saying that MasterCard was in a bubble away from the realities of modern business. What did he actually mean by that?
JN: One of the really positive aspects of our business is the fact that there is a long-term underlying trend for people to use plastic in place of cash and cheque, and so we currently enjoy a healthy growth rate. This can tend to insulate a business a bit. While I wouldn't say we are a protected business, we are in a business where this underlying growth trend is set to continue. It's a fact of life that younger consumers have never really known the practice of writing cheques to get cash. They're growing up with cards. There's been an explosion in online transactions. In the UK, this grew by over 30% last year and we also saw a growth of 67% or so in cross-border online transactions.
CASE STUDY: A 'PRICELESS' CAMPAIGN
In 1997 MasterCard was experiencing intense competitive pressures and was lacking consumer relevance. Member bank confidence and support was failing and global support was eroding. MasterCard needed an idea to cut through old perceptions and misconceptions, to be pulled from the conventional, predictable competitive set and to be elevated to a new brand space. The criteria for this idea was that it had to be relevant, newsworthy, memorable, change behaviour and prove itself by driving measurable and quantifiable preference for MasterCard.
Thus, the 'Priceless' campaign was born. The mission of the campaign was to grow brand awareness and gross dollar volume in each market MasterCard was present.
In order to create communications that are real and genuine, the campaign was developed using real and genuine anecdotes, narratives and experience. 'Priceless' was positioned as 'emotional function' plus'functional role', equalling the global payments leader. This developed in to 'the best way to pay for everything that matters' and eventually emerged as 'There are some things money can't buy, for everything else there's MasterCard'.
The key elements of 'Priceless' commercials are the purchases, the priceless line, the theme line, functional and acceptance message and iconography. They portray MasterCard's core emotional association – the things that really matter in life: relationships, shared emotions and quality time – the things money truly can't buy. Creatively, they reveal real human insights that strike a chord and move people. The 'Priceless moments' reflect core human values and truths in a moving and surprising way.
It is a transcendent idea that is based on universal insights. Examples of this are US 'Pets' which has run in seven markets and global 'Swap' which has run in 37 markets. However, in order to seed the campaign locally, it was critical to produce work with different profound local relevance, for example in Canada – 'Our Game' celebrates the Canadian national sport, hockey, and its integral place in Canadian culture.
The power of 'Priceless' is its flexibility, elasticity and adaptability as a global communications asset and a powerful marketing platform. It fully supports and embraces the drive for profitable revenue growth; it addresses a variety of local challenges and establishes a relevant, emotional bond with consumers throughout the world. It is a branding device, sales tool and mindset which works across business objects, executional formats and mediums, products, promotions and partnerships, languages and cultures, targets and lifestyles.
Now Priceless is celebrating its seventh anniversary with 365 TV ads in 105 markets around the world, in 48 languages. The format has the ability to transcend media vehicles to evolve from the traditional 30”, three purchases TV format. This is demonstrated in evolving TV format, print, OOH, internet and POS executions. There are a number of contributing factors to the success of this global campaign: one global agency network (McCann Erickson) coordinating advertising around the world, one brand footprint around the world, one global brand position, one campaign around the world . . . that crosses borders and boundaries, one campaign that resonates around the world, all of which equals one success story.
It is one of the most awarded advertising campaigns including two Gold US Effie awards, Bronze Effie (2000) and a Gold Effie (2001) in Europe, a Midas Gold Award in Germany (2001), Silver in the NY Festival International TV, Cinema and Radio (2004) alongside global, Asia and Latin American awards.
Since the launch of Priceless, MasterCard volume has increased 62% – over a trillion dollars. The card circulation is up by 52%, totalling 559 million cards worldwide, and acceptance locations have reached 28 million worldwide. The mission for Priceless was to prove itself as a great campaign. This has been achieved and will continue to strive and develop. Larry Flanagan (CMO, MasterCard International) confirmed this by stating that >'Priceless is our largest corporate asset and strategic difference'.
Arjen Kruger, Vice President, Marketing and Communications MasterCard Europe
Also, of course, we are a stage removed from the end cardholder because our customers are the banks that are either issuers of cards, or the banks that process transactions for retailers. So, although our focus is on all the stakeholders involved, including the cardholder, we are still slightly removed from them. The banks are at the sharp end, fighting it out in the market to win customers to their card and that's a pretty intense fight. There is also intense competition on the payments processing side of the business at the retailer end.
Another factor is that MasterCard has grown up as an association of members. We're now much more customer focused and commercially minded. A huge part of the success we've had in recent years hasbeen because we've focused on the commercial success of our bank customers and shown we can help them to build their businesses and increase their profitability.
So these days we are certainly no longer in that bubble!
JL: How exactly do you see the competitive frame?
JN: We think of our main competitor as cash. But on the card side, there are other large players in the game. In some of these markets, we are number two; in others, we're the market leader. There's American Express, which is putting renewed energy into developing its position, but Visa is the principal company we measure ourselves against and we seek to be a better business partner for our banks than they are.
If you look at major card launches in the UK in the last couple of years, we've had all of the serious ones. Marks & Spencer chose to work with MasterCard on pretty much 100% of its card base. John Lewis decided to go with us. The big Sky launch that Barclaycard undertook recently as a major new card is exclusively ours. Harrods also uses MasterCard.(see Figure 1)
Although end customers may not see big differences, the fact that the big launches have all gone MasterCard's way is because, in the business-to-business sense, there's actually a clear difference in the way we work with our bank and retail customers and it's a difference that seems to be working for us.
JL: What specifically then are you doing to demonstrate your value to the retailers on the one hand and the banks on the other, that you feel is better than anybody else?
JN: Starting with the banks, we have invested in a consultative customer-management approach. This means having dedicated teams of people, each one focused on an individual bank customer, to understand all aspects of their business, benchmark their performance, advise them on how they can optimise their performance and introduce new ideas.
We've also put substantial investment in building up a consultancy business called MasterCard Advisors. These advisors are experts in portfolio management, customer acquisition through direct mail and direct sales techniques, operational fraud management, risk management and so on – all the aspects of the card business that our bank customers have to be very good at. It's a consultancy unit that is purely focused on payment cards that give banks the kind of advice and level of expertise they couldn't find anywhere else. So, building up top-quality advisory services has been a key route to differentiating ourselves from other people to our bank customers.
JL: And retailers?
JN: As far as retailers are concerned, we're putting renewed energy into working with our banks to understand what retailers' particular needs are and making sure that, when new products or new services are developed, those needs are properly considered.
Also, we're working more and more on the promotional side. Retailers are always looking for additional sales volume, so they're very happy to have someone like MasterCard working with them to develop new promotions and offers, which we can put to our banks' cardholders. And – with over 350 million MasterCard or Maestro-branded cards held by customers in Europe – that makes us a very attractive partner to work with.
JL: How is the MasterCard brand developing and what do you see as its main features?
JN: The breadth, strength and leveragability of our brand platform are very important to our competitive positioning.
We are a major sponsor of a number of very valuable properties that reflect people's passions. So, football is a major area of activity for us because it's the world's biggest sport and one that generates a fantastic level of passion and excitement. With the FIFA World Cup, the UEFA Champions League and Euro 2008, we have the best properties in football and we've struck our sponsorship deals in such a way that we can pass the sponsorship rights through to our bank customers and retail partners.
Obviously, that means we're an attractive partner because people who are selling sponsorship rights want to see the sponsorship property succeed. In the UK, we have the Brit awards, which has been a successful property for us for over seven years now. In other markets, we sponsor things that are locally important – such as tennis or hockey – depending on what the big national interest is.
JL: What, then, is the role for consumer advertising?
JN: In less developed markets, consumer advertising mainly has an educational purpose. For example, there are still markets that are heavily debit-focused, with not much of a credit card industry yet. So, advertising there takes the form of trying to educate people about the benefits of using a credit card over a debit card, cash, cheque or even loan.
But in more mature markets, such as the UK, our focus is driving spend. It's key for MasterCard to be top of mind, so it's clearly in our interests and in our banks' interests to have memorable advertising. The 'Priceless' advertising platform that has been developed over the last six or seven years is working now in more than 100 countries.
JL: How would you describe the positioning?
JN: In the UK market, it's only about seven or eight years since Access was the payments brand. So, when the banks decided to sell Access to MasterCard and move to a MasterCard platform, clearly there was a job to do getting the levels of awareness of MasterCard up to the same levels of awareness as Access. To do this, we felt we needed a major advertising campaign, if not an iconic one.
The 'Priceless' campaign, which has been enormously successful, seeks to position MasterCard as a more human, empathetic payments brand. The idea is that there are really important things in life – the human values and relationships – but, for everything that money can buy, there's MasterCard. We felt this kind of approach was the best way of building an emotional attachment to the brand.
JL: Even though it's apparently to consumers, it has a job to do with the intermediaries as well, doesn't it?
JN: Oh, yes, definitely. In some of our markets, our marketing activities are funded by both MasterCard and our member banks. They're very supportive of the 'Priceless' platform. They see it as being a great advertising platform that has really worked for them.
JL: By the end of this year, what do you hope you'll be able to say was your biggest achievement of 2005?
JN: We've put major investment into customer relationship management and into developing the services we provide our banks. So, I think that to have secured a preference among the major issuers of Europe would be a key goal for us. To be well on the way to being seen as Europe's preferred payment card, and generally regarded as best business partner by banks and also retailers, is what I hope will be achieved by the end of 2005.
This article featured in Market Leader, Autumn 2005.