MasterCard’s Cairns: “We’re a tech stock … which outperforms Google”
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MasterCard’s Cairns: “We’re a tech stock … which outperforms Google”

In a wide-ranging interview, Ann Cairns, MasterCard’s president of international markets and resident statistics buff, talks to Euromoney about tech-sector valuations, the digital revolution, acquisitions, regulation, and a yacht called…

In March, the Financial Times published an article that talked about the stock valuations of MasterCard and Visa being in “nosebleed territory” and asked whether their share prices could be justified, or whether the online payments industry that they dominate was moving into a “bubble”.

Given that stock price of MasterCard alone has rocketed by more than 400% since it was listed on the New York Stock Exchange in 2006, it’s little surprising that questions around its stock valuation are being asked at all.

It’s even less surprising when using a price-to-book multiple to value MasterCard’s stock because on this measure, which is typically used on financials, the company trades at more than 12 times book, the FT article said.

Visa, by comparison, trades at about six times book.

When large global banks such as JPMorgan trade at close to book value, MasterCard’s valuation using this measure is striking in comparison.

 Ann Cairns
Ann Cairns, MasterCard’s
president of international

For Ann Cairns, however, it was the wrong measure applied to the wrong type of company.

“[The article] was quite surprising to me because tech companies are not valued on book value – that is how you would value a bank,” she tells Euromoney in an interview ahead of the New York State-based company reporting first-quarter results on May 1.

“[After all,] we’re a tech stock, which actually outperforms Google,” says Cairns. “We do not take financial risk at all. We just effectively use our technology to move money from one place, quickly and securely in over 210 countries around the world.”

MasterCard doesn’t just outperform Google, it outperforms Apple and Microsoft too. In fact, there are few tech stocks MasterCard, or Visa, haven’t outperformed since 2006. Amazon is arguably one of the few.

Cairns knows a thing or two herself about technology and financial risk after a 20-year career in banking, involving 15-years at Citi, where she was most recently chief operating officer for its global e-business.

She was also chief executive of ABN Amro’s transaction banking business, and led Alvarez & Marsal’s European team in managing the complex estate of Lehman Brothers Holdings International through Chapter 11.

A pure mathematician and statistician by training, Cairns started her career as an offshore research engineer for British Gas off the west coast of England, becoming the first woman qualified to go offshore in the UK.

Given this, Cairns no doubt experienced rising swells before, but on whether or not there is a bubble bubbling in the tech sector, she would not be drawn. Instead, she draws a distinction between those technology companies that provide a pure online or digital platform and those, such as MasterCard, which offer a powerful blend of the “physical and digital” with a business model that is more easily understood by the market.

“We make money through transactions,” she says. “We are connected to 27,000 banks, 35 million merchants, and there are 1.9 billion cards out there with around 1.3 billion consumers, so there is a tremendous transaction flow.”

MasterCard’s first-quarter results highlight that flow is growing. The company reported a 14% rise in net income to $870 million compared with a year earlier, supported by a 14% increase in net revenues to $2.2 billion and driven principally by a rise in spending by consumers worldwide.

However, the geopolitical crisis and US sanctions over Russia are problems that could potentially impact MasterCard’s future earnings. The Russian government is pressing ahead with creating its own domestic payments network, something that MasterCard’s president and CEO Ajay Banga is concerned about.

During a recent analyst call he said: “There are provisions there that I believe would create serious complications for the way that we can operate in that market.”

Given Russia accounts for roughly 2% of MasterCard’s revenue, any impact, while a concern, is still unlikely to throw its growth off course.

Indeed, beyond enabling consumer spending, Cairns says MasterCard’s business model is supported by one of the most profound global cyclical trends – the move from cash and paper to electronic and digital. It’s a trend that is accelerating.

“Given that 85% of the world’s transactions are still cash and paper – it’s even over 90% in some of the countries under my remit – this cyclical trend is big and with advent of greater internet access and usage worldwide it is bound to accelerate further,” she says.

Such potential explains why so many firms, from telecoms companies to Google and PayPal, among others, are determined to transform the way people pay for things. Indeed, some of these upstarts foresee a post-plastic world that could put a large dent in MasterCard and Visa’s earnings. However, these companies and their peers are fighting back.

MasterCard, for example, launched its MasterPass – a digital wallet that holds a consumer's payment details in a virtual repository – in February last year. Visa launched its own digital wallet in November.

These services enable consumers to securely pay for goods and services via their mobile phone, tablet or desktop without having to input their card details every time. Instead, they just use a username and password.

It is, however, a similar digital payment mechanism to that used by PayPal and Google via Google Wallet, both of which are more widely known and used by consumers, something that’s not lost on Cairns.

“Our digital wallet is live and working well in the US and the UK, and seven countries in total around the world,” she says, adding: “We are working hard to drive awareness, understanding and acceptance.”

Cairns says the company is also working hard to keep up with the ferocious pace of technological development, a strategy that has led the company to make a string of acquisitions in the past four or five years.

The acquisition in 2009 of Orbiscom, a payment technology company, was critical to MasterCard’s innovation strategy. It was followed in 2010 and 2011 by the acquisitions of payment processing firm DataCash and Travelex’s prepaid-card programme management operations, respectively.

“We’ve got to do things internally and we’ve got to do things by making acquisitions,” Cairns says. “MasterCard Labs, for example, was born from us buying Orbiscom. It is headquartered in Dublin but we have new labs opening up all over the world, such as in New York, where we have our Silicon Alley lab, and in Singapore too.”

As the global research-and-development division of the company, MasterCard Labs is responsible for creating innovative digital-payment solutions, such as MasterPass. At a higher level, it is ultimately charged with keeping the company ahead of the upstarts in the technology race.

Cairns says product innovation in and around the secular shift from cash and paper to electronic and digital is a core focus for growth, as is deepening and broadening its processing capabilities throughout the world, and developing its consumer rewards or loyalty platform. Interestingly, MasterCard sees an opportunity for growth among small and medium-sized enterprises (SMEs) too.

“Globally, some 80% of SMEs don’t have access to full banking services, even in developed economies,” says Cairns. “That’s an area we are looking at. Our Simplify Commerce platform can actually help an SME get set up in 15 minutes and go from scratch to sell over the internet and accept card payments.”

MasterCard’s mission to bring about greater access to banking and financial services doesn’t end there either.

“One of the areas we are very interested in is working with governments and aid organizations around the world to improve and increase financial inclusion,” says Cairns. “There is a perception out there that this is just a developing world issue, but that is not the case.

“There are 93 million people here in Europe that don’t have access to basic bank accounts or financial products. Our research has helped us understand that even in developed countries, such as Italy for example, 25% of Italians are underserved and don’t have access to basic electronic payments, and this just isn’t right in this day and age.”

Cairns is equally passionate about defending her company from the threat of new financial regulation.

“It’s very important that regulators the world over understand our business,” she says. “That’s why a few weeks ago I was here in London talking to the FCA [Financial Conduct Authority] and their new payments division.

“For us its helping them understand the business we’re in, and allowing the business to operate with the correct market forces. Obviously we want to see the maximum shift from cash to electronic, and if we see anything that is going to discourage that shift we’ll stand up and say something about it.”

She adds: “They also need to understand that we don’t hold personal data or big data. We don’t infringe any privacy laws: we don’t know your name, address, bank-account details or telephone number – we just know the bank that issued your card and what you’re buying and where you’re travelling to and from.”

It’s the type of purchasing intelligence that is invaluable to large retailers. For instance, Boots is the UK high-street store where Japanese tourists spend most of their money while in the country. And the Germans rent more cars to drive around the UK than any other nationality, says Cairns.

However, it’s her last piece of insight that is arguably the most invaluable of all.

Cairns has a boat in Palma, Majorca. Its name? Priceless.