In the not too distant future, we may not have much use for cash – digital money is going to be common. When that happens, MasterCard will be at the forefront. Though many people may think of MasterCard as a credit card company, it is in fact a major technology player in the global payments industry.
In a ground-breaking development, the company announced earlier this year the launch of a new digital payment service that lets people spend their money using a wide variety of devices, including smartphones. The digital payment service, known as MasterPass, securely stores card information, address books and more in a secure cloud, hosted by trusted entities. This allows customers to make purchases in stores and online. Banks and stores will be able to issue MasterPass-connected “mobile wallets” to their customers. The system will also accept credit and debit card information, including cards other than MasterCard’s.
Overseeing MasterCard’s operations in Japan is American Robert Luton whose core responsibilities include strengthening business alliances with MasterCard’s customer base in Japan, enhancing brand awareness and promoting the growing usage and acceptance of MasterCard payment cards. Prior to joining MasterCard, Luton worked in Japan for GE Commercial Finance and then Shinsei Bank for six years. He took up his current position at the end of 2010.
Japan Today catches up with Luton at the MasterCard Japan office in Shibuya.
How would you describe the image of MasterCard among consumers in Japan?
We’re well known as an international brand. When shopping online or traveling overseas, Japanese recognize MasterCard as a brand they can use or take with them. We are still evolving on differentiating the brand from our competitors by offering more specific benefits to our consumers.
How important a market for you is Japan?
Japan is a very important market, even though the card penetration rate is not that high. Japan is still largely a cash economy. The card penetration rate is approximately 20%, which is one of the lower figures for a developed economy where almost everyone is fully banked. About 80% of consumer-to-business payments are made in cash. We, as a collective group, have yet to outperform cash in enough areas for consumers.
Why is that?
When coming to the register to make a payment, there are still a number of concerns that Japanese have, such as privacy, ease, speed, convenience, safety ... all these factors go through a consumer’s mind. Japanese are very sensitive and private, so handing a credit card over the counter with their name on it is not as private as they might like it. They still hold the belief that the card might sometimes take a little longer to process than cash and doing so may hold the line up, which makes some people feel like they are inconveniencing others.
However, we are leveraging our technology to address these points of concern. We have introduced contactless payments that allow customers to just tap their card or smartphone against a payment terminal. In another development, our deal with NTT DOCOMO will come to fruition this year. The collaboration will connect DOCOMO’s domestic payment network to the world, enabling customers using iD mobile credit payments with compatible DOCOMO smartphones to make contactless payments outside of Japan wherever MasterCard PayPass is accepted.
How have the last two years been since the disaster?
We are very sensitive to cross-border trends. If Japanese are traveling less or there is less inbound traffic, that will affect us to some degree. So after the disaster, inbound travelers stayed away from Japan for awhile. Outbound travel recovered quickly before the summer was over. Inbound took longer and reached pre-quake levels about a year later, making 2012 a good year.
How do you market the brand?
You won’t see us on TV as much as in the past. The focus has mostly been on working with our 20-30 partners, who are the card issuers themselves, on supporting their marketing efforts. We do some billboards and web advertising. Last year, we focused a lot on cross-border promotions. We’ve launched a total of 23 Priceless Cities around the world under our Priceless Cities program. What that means is that MasterCard cardholders who are traveling to any of these Priceless Cities including, Sydney, New York, London and Honolulu, will have privileged access to the very best that each of these Priceless Cities offers. You will be able to gain exclusive access to events, some of the best seats in the house at concerts as well as other unique, one-of-a-kind experiences.
This year, we are not ready to launch Priceless Tokyo but we will start to offer cardholders more domestic benefits. For example, on April 23, MasterCard will host Asia’s first MasterCard Legends Academy in Kanagawa Prefecture. We will have the legendary Annika Sorenstam as a guest to provide MasterCard cardholders with a unique golf experience.
How does card usage differ in Japan?
There are three ways to use a card. One is what we used to refer to as a charge card. You charge your card today and at the end of the month, the total amount spent will be deducted from your bank account and it is settled. Locally, this method is commonly referred as monthly clear. The second way is that you charge it up at the beginning of the month and at the end of the month, you make a minimum payment but not the full payment. The additional balance gets rolled over from month to month with interest accruing. We call that revolving balance. The third way is when you put the card in the ATM and withdraw cash. Basically, the same credit card has three functions. If you look at the U.S., the highest volumes are either shopping or revolving balances. In Japan, the monthly clear method is more common.
Before, you were talking about the card penetration rate. What areas are you still not in? Convenience stores?
Actually, we are accepted in most of the major convenience stores in Japan. Historically, there were three barriers faced by small businesses, mom-and-pop stores, and izakayas in accepting credit cards. One was for the business to get a very expensive machine. Second, they are all over Japan and very hard to reach in order to try and sell services to them. It is not as easy as it seems. The third is the risk involved, because an acquirer is standing in for a merchant and vouching for and guaranteeing that merchant’s product.
Is credit card fraud a problem?
Credit card fraud is a problem globally, but Japan has been relatively better off which is why we keep increasing the security levels. We are working to bring a product to the market this year where consumers will be able to use a one-time number for a purchase, instead of putting their own credit card online when they shop. By doing that, the merchant receives a valid number but it is not your card number. They complete that transaction but if the number ever gets stolen, it can’t be used again.
Tell us about MasterPass.
MasterPass is going to take some time to roll out and the reason for that is that it is not a product, but a platform. It’s basically an eco-system. I’ve been spending time talking to our business partners making sure they fully understand it. For consumers, it will be intuitive. Consumers no longer care where they are or where the product is, whether it is in your phone or tablet. However, when you pay, you want the process to be safe, easy and earn the best rewards.
How do we make that happen? In order for this eco-system to work, you need contactless acceptance, which we need to bring to Japan. That is step one. Then you need mobile wallet issuance where you can store your payment credentials and shop on mobile devices or tap the mobile devices at the registers. Once you have those two components, the third one is that we have to ensure online acceptance through collaboration with merchants and issuers of mobile wallets.
Now, when you are on your phone and you are shopping, the website says enter your credit card, and you have to type in that 16-digit number. With a MasterPass “mobile wallet,” you just click once and the purchase is complete. Ultimately, all consumers are going to expect faster and safer checkouts. Consumers will move away from using traditional plastic cards and increasingly use smartphones for everything including payments.
What’s unique about this approach is that we are building a digital wallet that our issuing partners can brand themselves. So when a company wants to create a digital wallet, they can leverage MasterPass as the engine but retain their own branding and they can shape the consumer experience. This differentiates it from other digital wallet models out there.
It needs to be online, offline, merchants involved, cardholders and issuers of mobile wallets. All of that needs to be compatible.
When will all this happen?
The deployment of the contactless terminals will take place over the next 2-3 years. Wallets will be issued maybe next year. So the ecosystem will start to become holistic 2-3 years from now. This is something that has been long anticipated.
What CSR (corporate social responsibility) activities does MasterCard do in Japan?
We’ve collaborated with Roppongi Hills for the MasterCard Purchase with Purpose program at the Roppongi Hills Christmas Market for the third consecutive year. The most recent collaboration with Roppongi Hills provided all MasterCard cardholders with the opportunity to support earthquake orphans through their Christmas shopping or when they dine using their MasterCard card.
The Purchase with Purpose program, which was first launched in Japan in 2010, represents a key component of MasterCard’s social responsibility and citizenship efforts across the Asia/Pacific region, and its commitment to delivering value to society through community involvement.
What is a typical day for you?
I show up anywhere between 6:50 a.m. and 8:30 a.m. I try and get out by 8 p.m. We have introduced flex-time. It is less about punching the clock and more about delivering to the customer. I’m not big on long meetings. I like the team to set a goal and then get it done.
Do you still use cash?
Since joining the industry, I challenged myself not to use cash. I never would have thought to use a credit card in a convenience store. But I do it at 7-Eleven and the clerk swipes it faster than it would ever take to give me change. I use my cards to make payments whenever possible because it’s so convenient and safer than using cash.
How do you like to relax?
I work on a bad golf game, swim and spend time with my family.