“I’d much rather be in the business of selling painkillers than vitamins,” says Ken Moore. Pain points mean opportunity to Moore, who heads up Mastercard Labs, an international network of innovation labs for the financial giant. “That’s because while vitamins are elective, if you’re in pain, you’ll take a painkiller. So I would rather focus on material problems for clients.”
Elimination of customer pain points is just one part of Moore’s job at Mastercard Labs.
“We create and deliver the new products and services that are going to drive our growth in the future,” says Moore, an EVP. “Clearly, not everything’s in my shop. We bring it down to risk, because there’s risk, or at least commercial uncertainty, associated with every new product.” That is, where there’s a new idea or a new twist on one, the project begins in Mastercard Labs, unless the effort is so close to something the company is already doing that it makes sense to keep it in one of the company’s product groups.
Starting off the edgier ideas in the lab is important because, as Moore explains, product development in financial services has changed significantly in recent years. As agility and heightened competitive conditions have become the rule, development cycles have shortened considerably out of necessity.
“I could give you examples of products and services that we’ve rolled out where, from being an idea in someone’s mind to delivery to market ran three months,” explains Moore.
Some of these innovations might not carry a brand name you’d see in a Mastercard ad, but they address some specific challenge. “The solution might be something that’s an inch deep and an inch wide,” Moore explains. “But it tackles a particular problem or addresses an opportunity. Then we’ll use the market’s feedback, or the input from the pilot customers, to inform where we go next with it.”
Developing New Products (Most of Them) at Warp Speed
This is a major shift from the way financial products used to be developed, says Moore, who has spent over two decades in financial innovation.
“You used to spend a lot of time internally, analyzing a market seven ways from Sunday, and then you’d spend nine to twelve months, minimum, building a much broader product. Then you’d fire it out to the market,” he says.
Today, the market itself has become part of the development process, part of the lab. Think about the way software development has changed. Instead of moving from “2.0” to “3.0” and so on, many applications are now in a state of more or less continual updates and improvements — constant evolution. Descriptions of financial apps on either Google Play or the App Store, for example, highlight the latest features (and fixes).
Today a vocal public will toast or roast apps in their comments and ratings right in the app marketplaces, so developers know very quickly and very specifically how they did and what needs work.
“I often think of Mastercard as kind of the original fintech,” says Moore. “We’re somewhere between a bank and two guys in a garage in terms of the way that we operate and the speed that we work at. It’s pretty quick because we’re using the market to tell us what’s working.”
That said, Moore explains that not every new idea can move at such speeds. “Some products and services operate in very heavily regulated areas so such speed is not always possible,” he says. “Sometimes things take a slightly heavier lift. Even there, we are trying to apply the same principles and practices.”
Mastercard does business in more than 200 markets globally, and attitudes on regulation and products vary all over the lot. “Things that are relevant in Asia are not yet relevant in North America and vice-versa,” Moore says. So the company pushes innovation out regionally and designs new products and services as a set of standardized components that can be adjusted individually.
“We serve those [components] to the regions, where they can be tweaked and customized for the last mile without them having to completely reinvent the core product or service,” says Moore. “That’s been made possible through APIs and the growing relationships Mastercard has with fintechs and other partners who bridge the last mile.” Moore says the company may work with a different fintech in this country or that, in order to adapt new efforts to local requirements.
Moore says the roots of the shift in product development attitudes lie in the financial crisis.
“It was a series of lessons that were forged in a time when we needed to demonstrate value,” says Moore. “We needed to be able to break from the old in what we did. It was forced on us, and so we found a new way of working.”
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Learning to Work with Tech That’s Constantly Moving
Something else setting product development apart from the past is the rapidity of technology change and the way it is taken up into the financial services business. Those who are only comfortable using a technology after all the t’s are crossed may not be able to keep up.
Constant fine tuning or even re-thinking should be regarded as normal now. “You’ve got technology that is real and delivering today, but that is still fundamentally changing and evolving toward its endpoint,” says Moore. “And we are seeing more of this now because the technology is more complex.”
“We’re seeing the Lego blocks of a new financial ecosystem emerging.”
— Ken Moore, Mastercard Labs
Blockchain and bitcoin and related technologies are a strong example of this, according to Moore. Some scoff at such tech, but the initial “hype and hysteria” has dissipated, he explains. “Now the focus is on distributed ledger technology and how it can be conformed, how it can be brought together with interoperability, governance and trust,” Moore says.
“We’re seeing the Lego blocks of a new financial ecosystem emerging,” Moore observes. Among the “blocks” are APIs, artificial intelligence, identity solutions, distributed ledger technology, the Internet of Things, 5G communications, and increased focus on customer experience.
All of these technologies are converging in the ability to create what Moore calls “hyper-personalized experiences.” He says this will go far beyond customer experience as it is known today.
Working with an Evolving Fintech Sector
For Mastercard Labs fintechs play multiple roles. They can be enablers of services the company wishes to develop. They can be customers. They can be partners.
And they may also be beneficiaries. One example is Mastercard Accelerate, which streamlines delivery of tools and services from the company to both new and emerging fintechs. This also includes APIs for numerous Mastercard services that fintechs require, as well as participation for selected fintechs in Mastercard Start Path.
The Start Path program is specifically intended to help later-stage startups develop further. Moore describes these as firms that have made it through several successful rounds of fundraising and which have a proven product, but which haven’t yet reached the scale they need to be successful.
Start Path is intended as a follow-up to the company’s participation in fintech incubator programs and related efforts around the world. Mastercard can also play matchmaker for companies that are seeking a particular type of fintech to work with.
“We need companies that we can work with that are proven at a certain level,” says Moore, “and what we can give back to them in return is a mix of expertise, access to our customer base, and the ability to stand with them to negotiate partnerships with clients. If required, we will invest in some of those fintechs as well.”
On the horizon Moore sees further evolution among fintechs, including a slowdown in the emergence of new fintechs in some areas. He says that consumer-oriented fintechs will be one such group.
“It’s becoming increasingly difficult to capture a consumer,” says Moore. “If you were a new fintech launching today, you would find that the cost of consumer acquisition would be high.”
As a result, Moore expects to see a growing emergence of business-oriented fintechs. “We see this in the U.S. already, and in other parts of the world,” he says, “fintechs that focus on B2B from the outset.”
One type of fintech that Moore does not expect to waver is the neobank. In part this will be the result of international expansion as existing neobanks reach for additional markets.
Controlling the Risks of Financial Innovation
Financial digital innovation isn’t usually discussed in terms of risk management, perhaps in part because of the wow factor and due to the small likelihood that anything in a financial lab could blow up, compared, say, to an industrial or defense lab. But Moore, who set up Citigroup’s first innovation lab prior to coming to Mastercard and expanded it globally, sees innovation in financial services holding three forms of risk: desirability, feasibility and economic viability.
Each of these can arise when some part of a financial services organization ventures beyond its historic comfort zone.
“If you are in a product group at Mastercard you’ve got some history,” Moore explains. “You know your customers, you’ve already got a product or set of product out there in the field. You know the value of the services, and you know how to price them.” But as Mastercard moves in additional new directions, Moore sees the labs as the means to take the risk out of new activities by using a structured approach to move a product or service into the marketplace, transition it to product groups, and then drive it at scale globally.
Moore says this is occurring at Mastercard increasingly as it moves far past being a “card company” into a much broader set of products and services. Beyond that evolution, Mastercard’s customer base grows broader, as it adds fintechs, business banks, mobile network operators, telcos, governments, and non-governmental organizations to its base, moving far past its traditional retail banking and consumer payments connections.
Increasingly, Moore says, Mastercard is becoming, similar to the pattern of the fintech industry, a B2B2B company, including in that last “B” both small businesses as well as larger companies.
“There isn’t always going to be a consumer at the end of things,” says Moore. “That’s brought with it a need for us to build new products and services for businesses and to understand the use of those things.”