Mastercard Solved These Pressing Issues

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Ever had your heart skip a beat 😳 when a payment gets declined while you are standing in line at the store, or worse, you noticed a charge on your card that you did not make?

Unfortunately, that is (was) the reality for millions of people dealing with payment fraud and transaction issues every day. But it all gets interesting here.

While most of us feel frustrated, there’s a story about how a global company addressed these problems head-on 🤗 and completely changed how people pay worldwide.

What brand is it? How did it overcome such pressing issues?

Let's dive in!

Mastercard has long been a global leader in the payment industry. People identify it for innovation in digital transactions and financial services.

Over the years, it has faced various challenges. In response, Mastercard solutions handled these issues and changed how people and businesses do financial transactions worldwide.

What problems did Mastercard face? How did it overcome?

Problems in the Market

Mastercard faced several challenges in the payment industry that required innovative solutions. While addressing these could help the global finance industry, Mastercard could become competitive:

Rising Fraud and Security Risks

As online payments surged, so did fraud. In 2020 alone, $32 billion was lost globally to payment fraud. Cybercriminals exploited weaknesses in online and in-person transactions.

That created a threat to consumers and businesses alike. Mastercard needed a way to protect cardholders from these risks while maintaining the convenience of digital payments.

High Costs for Cross-border Transactions

International payments, especially for businesses, came with high fees and slow processing times. Consumers paid 3-5% in fees per cross-border transaction on average.

Additionally, the money to get deposited could take up to five days to process these payments, which caused frustration for both individuals and companies engaged in global trade.

Lack of Financial Inclusion

In 2020, about 1.7 billion people worldwide could not access banking services. Many lived in remote or underserved areas where traditional banking infrastructure was absent.

This lack of access limited their ability to participate in the global economy, raising a social and economic challenge for Mastercard, which aimed to bring more people into the financial system.

These issues were gaps in security, affordability, and access, which Mastercard needed to address to be competitive and inclusive in the global payment industry.

Solution Proposed

To tackle the problems of fraud, high cross-border transaction costs, and financial exclusion, Mastercard came up with three solutions:

1. Tokenization and EMV for Boosted Security

To address the fraud in online and physical transactions, Mastercard implemented tokenization and EMV chip technology.

Tokenization replaces sensitive card information with a unique digital identifier (token) during transactions, so even if hackers gain access to the token, they cannot use it to make unauthorized purchases.

By 2021, Mastercard processed 80% of its transactions through tokenization. In addition, the EMV chip technology on physical cards added another layer of security, making it harder for fraudsters to clone or misuse cards.

As a result, countries that adopted EMV saw a 75% decrease in card-present fraud within a few years. Check out this video Mastercard made years ago educating people about EMV chip:

2. Blockchain for Faster and Cheaper Payments

Mastercard turned to blockchain technology to solve high fees and slow processing for international payments.

Blockchain allowed Mastercard to create a direct, transparent, and secure link between banks and businesses without relying on multiple mediators, which was the main reason for the delays and high costs.

This solution reduced cross-border transaction fees by an average of 60%, and processing times were down to less than 24 hours in many regions, compared to the previous waiting period of up to five days.

By the end of 2021, over 80 financial institutions were using Mastercard’s blockchain platform for international transactions.

3. Financial Inclusion Programs

Mastercard launched initiatives to bring financial services to the 1.7 billion unbanked people globally, especially in developing regions.

They partnered with governments, fintech companies, and NGOs to create programs like the Mastercard Farmers Network and Mastercard Community Pass.

Mastercard Farmers Network connected farmers in remote areas with formal banking services. Doing so allowed them to receive digital payments, save money, and access credit. Here’s a video by Mastercard showing how it helped East Africa’s farmers:

By 2022, the program had reached 2 million farmers in Kenya, India, and Nigeria, while Mastercard Community Pass offered essential services, such as healthcare, education, and banking, to rural communities.

By 2021, over 40 million people accessed financial services through this program, making it one of the largest financial inclusion efforts worldwide.

Mastercard overcame the issues in the market through these solutions, improved customer trust, and created more accessible and efficient payment systems globally.

Implementation of the Solution

Mastercard rolled out its solutions to ensure maximum effectiveness across security, cross-border payments, and financial inclusion.

Tokenization Rollout

Mastercard integrated tokenization directly into its global payment network, starting with key markets in North America and Europe in 2019.

To ensure widespread adoption, Mastercard worked closely with banks, merchants, and payment processors to update their systems to support tokenized transactions.

By mid-2021, tokenization was processing over 80% of Mastercard’s online payments worldwide. It also took tokenization beyond card payments, applying it to mobile wallets and wearable devices.

Mastercard’s security team uses artificial intelligence (AI) to monitor real-time transactions to identify and stop fraudulent activities before the transaction is over. The AI system could process over 75 billion transactions annually, spotting suspicious patterns in milliseconds.

Blockchain-based Cross-border Payments

Mastercard began implementing its blockchain-based payment solution in 2019, starting with Asia-Pacific and the Middle East.

It involved integrating blockchain technology into its existing payment infrastructure, which allowed financial institutions to use Mastercard’s blockchain to make direct payments to other banks globally.

Over 80 financial institutions partnered with Mastercard by the end of 2021 to use its blockchain platform. These partners saw an immediate benefit in reduced fees and faster payments.

Mastercard trained its customers to integrate blockchain into their existing systems without disturbing the ongoing operations more.

The blockchain system supports transactions for small businesses and multinational corporations, making it scalable across various industries.

Financial Inclusion Initiatives

The rollout of Mastercard’s financial inclusion programs, such as the Mastercard Farmers Network and Mastercard Community Pass, was strategically targeted at regions with large unbanked populations.

Mastercard collaborated with local governments, fintech startups, and NGOs to adapt the solutions to each region’s specific needs.

For example, Mastercard partnered with 30 local banks in Nigeria to implement digital financial services for smallholder farmers to let them open accounts, receive payments, and access loans via mobile phones.

Mastercard ensured that people would understand these programs and widely adopt them with training and education.

The team also implemented offline technologies like smart cards in areas with poor internet connectivity to ensure access even in remote locations.

Collaborations and Partnerships

Mastercard partnered with over 100 banks, fintechs, and technology companies to deploy these solutions globally.

These partnerships were crucial for integrating new technologies, like blockchain and tokenization, into existing banking infrastructures.

They also provided technical assistance and resources to help banks upgrade their systems in regions with less-developed financial systems.

Mastercard also did extensive testing and pilots before fully launching its solutions in new markets. For instance, the blockchain payment system underwent a pilot in Singapore before expanding to other regions.

Results and Impact

• By 2022, there was a 33% reduction in fraud losses for Mastercard transactions globally. Card-present fraud saw a 75% decrease wherever people used EMV chip technology, making transactions safer for customers and merchants.

• Fees for international transactions dropped by up to 60%, while transaction processing times were reduced from an average of 3-5 days to less than 24 hours in most cases.

• By 2022, the Mastercard Farmers Network had reached over 2 million farmers in Africa and Asia, giving them access to formal banking, digital payments, and credit.

• In 2021, Mastercard's revenue increased by 23%, reaching $18.9 billion, because of the growing demand for secure, digital payment solutions and the expansion of cross-border transactions.

Conclusion

Mastercard’s ability to address pressing global challenges, from security concerns to financial inclusion, shows its adaptability and forward-thinking approach.

The company strengthened its security and created more efficient payment systems by implementing tokenization and blockchain technologies. These innovations boosted Mastercard’s revenues and redefined how payments are processed globally.