Harbouring a vision of a financially inclusive, digitalised society and working relentlessly towards realising this mammoth task are two distinct realities. Raghu Malhotra, president for Middle East and Africa (MEA) at technology giant Mastercard, has the unique opportunity of not just having that vision, but also bringing it to life.
“We want to get one billion people financially included into the formal economy by 2025,” says Malhotra, who is currently overseeing the company’s growth strategies across 69 countries. That the Covid-19 pandemic and its economic implications left the world reeling is nothing new. In the weeks and months following the outbreak, a new ecosystem seemingly cannibalised the old, causing a departure from the traditional ways of how people worked, shopped, and lived.
While it posed an existential question for some, it created a challenge of distinctively different but overwhelming proportions for companies such as Mastercard, which were keen to help millions of people transition seamlessly towards a new world order.
“If I just step back and think of the pandemic, it has had an adverse impact on various global economies and people, but in many ways, it has also been a catalyst of change. Everybody understood that the cost of cash was very high. I think what the pandemic did for payments was that it changed consumer habits – in the Middle East and Africa, 73 per cent of people are shopping more online than they did prior to the pandemic. That’s a staggering number,” adds Malhotra.
E-commerce: Rapid Growth
Digital adoption on an individual and institutional level were arguably the redeeming features of the Covid-19 pandemic. Consumer spending habits are now digitised and the opportunities for stakeholders – be it retailers, financial institutions or fintech operators – to leverage the space are unprecedented.
“Our current estimate is that between 20 to 30 per cent of the Covid-related surge in e-commerce spending is going to remain permanent. And that’s just the immediate shift. As people get their infrastructure in a better place, the consumer experience will get better, and then you should expect more of a change to come through,” predicts Malhotra.
According to Mastercard’s New Payments Index, 97 per cent of UAE-based consumers are considering emerging payments such as wearables, biometrics, digital wallets and currencies, and QR codes. In Q1 2021, Mastercard witnessed one billion more contactless transactions globally, compared to Q1 2020.
Malhotra adds: “The three trends that I see on the payments side are that, firstly, e-commerce has gone up a lot. But more importantly, it’s not just that it’s scaled during the pandemic, because you’re sitting at home and you still need to shop; it is now that consumers have tried it and are comfortable with it, and as we go forward in the future, it will be a channel that consumers will use more often than they have ever done in the past. So, in effect, the quantum shift from one channel to the other is one part that’s come through. The second is contactless – when one suddenly starts to think that physical contact has issues, cash has issues. And the third trend is domestic spend, which has actually gone up.” Mastercard’s domestic volumes in MEA grew by 38 per cent year-on-year in Q1 2021.
However, the rise in online transactions and digital payments has been accompanied by a surge in threat actors who, as is often the case, have exploited uncertainty and global events to perpetuate malicious activity. According to a McAfee report, with global spending on cybersecurity expected to have exceeded $145bn in 2020, cybercrime is now a $1 trillion drag on the global economy.
To mitigate cyber threats, Mastercard has launched several initiatives. In 2020, it unveiled Cyber Secure, an AI-powered suite of tools enabling banks to assess cyber risks and prevent potential breaches. In 2019, the company protected stakeholders from $20bn worth of fraud through its AI-enabled cyber systems. Regionally, it launched its Global Cyber Forward programme in partnership with Dubai International Financial Centre (DIFC) earlier this year, combining its capabilities in cybersecurity with those of public sector organisations to create secure digital ecosystems.
“Our programme is actually looking at cybersecurity at a national, city and an ecosystem level for institutions,” opines Malhotra. “We use sophisticated artificial intelligence (AI) and machine learning techniques to actually do predictive behaviour. The kind of technology that is coming through is taking machine learning and data and converging them together to give customers a better experience.”
Eclectic business ecosystems are built as a concerted effort undertaken by private and public stakeholders and underpinned by supportive regulatory frameworks and enterprising entrepreneurs. More so, to keep pace with the speed of digitalisation, investment in emerging technologies and key growth sectors is imperative to secure consumer retention and economic viability.
“The amount of money various industries are spending on tech to digitise is huge. Also, governments now realise that they have to build very resilient economies. To build such economies, which are beyond oil and travel, they have to start identifying sectors that actually drive growth and get the small and medium sized enterprises (SMEs) going. SMEs employ a lot of people and not all were able to sustain themselves during this [Covid crisis],” opines Malhotra.
SMEs are a mainstay of long-term growth across countries around the globe. According to official statistics, the wider SME sector contributed an estimated 53 per cent to the UAE’s GDP in 2019, up from about 49 per cent in 2018. Meanwhile, SMEs also accounted for approximately 95 per cent of the companies in the country. Keeping its sights on the potential of the SME sector, Mastercard has donned the role of an enabler, fostering the entire landscape.
“We believe in ‘doing well by doing good’. As part of that, there are a few commitments that we’ve made. Firstly, we want to get one billion people financially included into the formal economy by 2025. Secondly, we want to enable 50 million SMEs to enter into the formal ecosystem globally,” notes Malhotra.
“SMEs require access, money and expertise to go online. At Mastercard, we work with partners in the public and private sectors to provide solutions and technologies for SMEs. To give you one example, we have ‘Simplify Commerce’, an API-based application where an SME can be onboarded in 10 minutes and can start accepting digital payments. Lenders are also happy because they can see a transparent flow. We are almost creating a whole ecosystem that allows everybody to participate and such partnership models drive what I call sustainable and equitable growth.”
The conditions for fintech growth in the GCC are equally opportune with a technology-savvy consumer base at the helm, high smartphone penetration and growing consensus among key stakeholders for an all-inclusive society. However, Malhotra believes that fintech operators involved in digitising SMEs and supply chains, those involved in the cybersecurity end as well as microlenders who do crowdfunding, will fare particularly well.
What will provide a further boost to support the ecosystem going forward is the strong backing of an enabling support structure.
“[Key fintech enablers] include governments and entities that offer incubation pilots because they drive innovation and efficiency in the economy. They also drive convenience and transparency. We have two programmes, Start Path and Fintech Express where we invite players to offer them visibility, connect them to our customers, and sometimes invest a small seed funding to keep them going as well. Additionally, there are PE funds and angel investors that can invest capital, so I think it’s a plethora of players,” adds Malhotra.
Managing a corporate footprint that runs across the MEA region, Malhotra has overseen the company’s strong presence in Africa to foster its digital landscape, which he considers a potential hotspot for the world. According to a McKinsey report, Nigeria, which is Africa’s largest economy, offers significant opportunities for fintechs across the consumer spectrum including the SME, affluent and mass-market segments. Nigeria has a population of 200 million, 40 per cent of which is financially excluded.
“We have been heavily invested in Africa for many years. However, our footprint there is very different today than what it was in the past. But I think the Middle East can also be a gateway into Africa because Africa provides a different trajectory of growth for the world,” Malhotra explains.
Beyond traditional finance, Mastercard has also inked partnerships with key non-banking players in the region and beyond for cross-border alliances and growth. Earlier this year, Mastercard and mobile telecoms operator MTN announced a strategic partnership to enable millions of consumers across 16 countries in Africa to make secure global e-commerce payments.
“Our partnership with non-financial institutions is very strong. A good example of this is our partnership with MTN, which is the largest telecom provider in the continent. This and our other partnerships with major telcos, fintechs and digital players such as Airtel, JazzCash, Delivery Hero and Uber, enable millions of people to be included into the digital economy. These partnerships ensure reduction of costs, enable digitisation, and advance e-commerce and contactless payments,” explains Malhotra. “Our assets across technology, AI, data and gateways are helping drive growth and we will continue to ramp up. Overall, it is about enabling hundreds of millions of consumers [to enter the financial ecosystem].”
On a regional level, Malhotra feels that the GCC economies have started the normalisation and growth phase compared to other economies post Covid. However, emerging technologies remain vital to revolutionising local and regional landscapes.
“According to statistics, 5G will account for 10 per cent of the total mobile subscriptions across Middle East and North Africa by 2025. We know it is coming so we are working to enable the whole ecosystem to benefit,” he adds.
The people focus
While individuals and companies have and continue to adapt to the Covid-19 pandemic, key takeaways for Malhotra are potentially broader and more inclusive.
“We already had flexible working hours but as soon as the pandemic happened, we made a global announcement that the company will not do any pandemic-related layoffs. That was a very bold statement for a firm that didn’t know what the future would look like. But it gave people a sense of comfort knowing that they were taken care of and that we would ride it out together. What we saw in return, was how people responded. What I always felt – and during the pandemic became evidently clear – was maintaining a fine balance between running a business of the short-term versus one of the long-term. And one shouldn’t compromise on either. The decision of not doing any layoffs was a short-term cost issue but carried a long-term benefit.”
Strong on innovation and team building, it doesn’t come as a surprise when Malhotra’s tips to other leaders primarily focus around people and flexibility.
“You cannot achieve without great teams and people who actually work for the same vision. The culture at Mastercard helps drive that common vision. It’s not just about coming in to work. It’s not a task for us; we actually believe in financial inclusion. In the end, you need to have a culture that allows for people to have a cause beyond work. I also feel that sometimes you should be okay with imperfection. Great innovation is born out of imperfection. More so, don’t underestimate the power of learning constantly because the environment today changes faster than ever in our history. So having the flexibility to understand what has changed, to adapt, and enable your company to morph into what the environment wants, rather than trying to morph the environment into what you have, is imperative.”
Malhotra’s – and Mastercard’s – plans certainly appear poised to tackle the needs of the future.