CHAPTER 15 Strategic alliances and networks MasterCard cashes in on smart transit MasterCard is building a network of partnerships to realise the potential of contactless and mobile payments to make urban transit systems work more efficiently, as it looks to the trend for 'smart cities' as a means of expanding the market for its cards. In tests from Philadelphia to Gujarat, MasterCard has begun to integrate payment systems for train, metro, bus and road toll systems. '85 per cent of the world's payments are still in cash. To me that's our largest opportunity', Ajay Banga, MasterCard's chief executive, told the Financial Times. MasterCard analysis found that transit systems - along with coffee and newspapers - were one of the largest markets in which cash dominates payment cards. 'It's $200bn a year in different cities around the world, which has the opportunity to be transformative for our business', he said. The company announced a partnership in March with Cubic Transportation Systems, which uses traffic data to advise network operators from London to Chicago whether they need to change routes or pricing to cope with rush hour demand and to alert commuters through their smartphones of the best options. Other new partners include Masabi, which allows users to buy tickets through their mobile devices and Parkeon, a parking company with which MasterCard this week announced a plan to turn parking meters into kiosks that offer coupons for local businesses. Mr Banga said MasterCard's aim in cities such as Philadelphia, where a pilot programme is due to expand into a full consumer launch later this year, was to cut the time train passengers spend buying a separate bus ticket and 'intelligent personal routing', using data to advise users of their best routes home. 'All transit systems are built for the peak of the peak. If you could find a way to take 5-7 per cent of the peak of the peak traffic off to less used routes you could reduce the cost of how you build and plan transit systems enormously', he said, estimating that large urban transit systems could save $150m-$200m by being able to delay upgrades to their infrastructure. Citing the example of Transport for London, which has opened up its ticketing systems from depending on its Oyster Card contactless payment system to accepting ordinary bank cards, Mr Banga said MasterCard could save transit system operators the cost of maintaining their own systems. 'It's actually cheaper for them' than maintaining their own systems and handling cash, he said. 'It takes out the friction'. Hooley et al, Marketing Strategy and Competitive Positioning, 7e, Instructor's Manual 110 Pearson Education Limited 2020 Mr Banga said that getting transit systems to accept payment cards could be a 'critical factor' in expanding MasterCard's market. It processed more than 11bn transactions in the first quarter from the 2.2bn MasterCard and Maestro cards in issue. Mr Banga added that most MasterCard users are in cities, which are home to more than half of the world's population and about half of the world's 'financially excluded' - a group MasterCard has been targeting through separate initiatives with the UN, the World Bank and others. The company is among several, including IBM and Google, to have identified the business potential in the rise of 'smart cities' - increasingly automated and connected urban areas whose authorities use data to inform the provision of public services. More public-private partnerships would be needed as urbanisation puts a strain on cities' networks, Mr Banga added, saying the challenges transit systems face were 'too vast, too deep' to tackle alone.

Discussion questions

1.What is the problem in this case, looking to solve problems around growth and the 4Ps?

2. What are the issues facing MasterCard?

3. How is the Company attempting to address these issues?