Unlocking Growth: Mastercard’s Role in Empowering the Mighty Middle Market

Brett Turner:

Welcome to FinTech Corner, another episode here. We are at AFP, the Big Annual Treasury Show here in San Diego. It’s been a lot of fun and exciting, and Marie Aloisi has been so gracious to spend some time with us to talk about innovation and what’s a lot of different talk that’s around innovation that Mastercard is doing. So maybe just to start, tell us a little bit about yourself, your role, and then we can kind of get into it.

Marie Aloisi:

Sure. So I head up Mastercard Commercial Solutions in the United States. So it’s everything and anything that has to do with commercial from sales, product development, acceptance of commercial products, innovation of commercial products. And I also lead Mastercard Healthcare Solutions, which has a significant B2B flow as well.

Brett Turner:

Well, let’s talk about the middle market segment and how do you define that?

Marie Aloisi:

So when we think about middle market, it’s businesses that are between 10 million and almost a billion dollars in annual revenue, which is a very, very wide swath. So because a 10 million company has very different needs than one that has 750 million. Absolutely. So we break them up like between in four segments, 10 to a 150, 150 to 250, 250 to 500, and then 500 up to a billion. And what’s very, very interesting, it represents about 300,000 companies and they represent only 1% of the locations in force but 33% of the GDP. They’re significant and no one really understands that. So when you think about small businesses, they are serviced out of the retail bank. Large enterprises are serviced out of the Treasury Bank, they have a treasury desk. So it’s these middle market companies that are a bit underserved, yet they are growing and they’re very, very resilient. They’ve been resilient through the pandemic and they’ve outpaced the S&P by 12%. So this is a really strong and mighty segment of the business that needs some attention. There’s huge opportunities.

Brett Turner:

Totally underserved. A hundred percent agree, and we see that as well. So is it hard though, to really understand the voice of the customer in such a broad segment? I mean, as you mentioned, splitting it up, how maybe does voices vary a little bit? Because there’s, like you said, there’s a lot of persona in that broad swat.

Marie Aloisi:

So what’s interesting is we actually did a study, a voice of the study. We interviewed over 300 middle market companies, and the ones that were most receptive were kind of the lower end of the middle market space. Companies between 10 and 150 million. They wanted to be heard from their perspective.

Brett Turner:

I would actually thought it was sort of the upper end of that.

Marie Aloisi:

The upper ones, some of the larger end of middle market look more like large enterprises. They’re getting some more attention. It’s these smaller ones that have outgrown. They may be looked at as small businesses by their bank, but they’ve outgrown the products that they’re in. They need access to capital to grow their business. When we think about the card spend, right? A Mastercard, this segment is spending 420 billion collectively today on card, but the potential is 2 trillion. And what’s holding them back for growth is access to capital, having the right tools to digitize, to automate, to get into a place where they have so many more efficiencies because they don’t have big staffs, right? The treasurer, if there is one, is the cfo, he’s the accounts payable manager, he’s the account receivable, he does everything. So they need tools, they need capital to grow, and that’s where we need to focus.

Brett Turner:

Yeah, no, and then you look at a lot of that segment, especially on the lower end and the world is speeding up, everything is moving digital, they’re still dealing with a lot of the same things that bigger companies are dealing with. And in some ways, do you feel like, are you hearing a little bit unless they get help or they feel maybe they’re getting left behind a little bit, if they don’t get access to capital, they’re kind of playing at a bit of a disadvantage.

Marie Aloisi:

Exactly. And so what’s interesting is, so we’ll look at what are the trends with this group. So there is definitely a generational shift. This segment is predominantly privately owned companies. And so millennials are moving into the C-suite, but now you have Gen Z, believe it or not, they already represent 38% of the working population today, and they’re the first digitally native generation. So when they come in to work, they want a very consumerized experience. Their expectation is that the way they pay bills at home or the way they interact is the way they want it in the office. So in addition to the pandemic driving digitization, you have a millennial at the C-suite, this group is really going to accelerate. They demand it.

Brett Turner:

Is there a tolerance level almost?

Marie Aloisi:

There’s zero tolerance level. I mean they represent 38%. If you want to attract and retain the best of, you have to have the tools that they’re going to be comfortable with. They want to feel like they’re working in a very digital pool organization because they’re not going to have tolerance for friction. They’re not going to have tolerance for paper.

Brett Turner:

I love you to understand. You have to understand the persona so well and so key. And I don’t think that’s done a lot, especially you think of a treasury conference. I know this is a little bit more for sure, upmarket, but a lot of young people, even entering the workforce coming into treasury, that next generation, if you’re looking at a lot of legacy tools, you’re at that tolerance level. And it’s almost like from that standpoint, it can kind of veer them or steer them the other way, wanting to stay away from that. Looking at it’s like, well, that’s no fun. Exactly. I don’t want to be doing reconciliation for five years right.

Marie Aloisi:

Exactly. And now they’re all playing with ChatGPT. So there are assumptions. I’m going to go into the office, what’s my cash flow? I’m just going to type it in somewhere.

Brett Turner:

Right, right.

Marie Aloisi:

No, here’s your calculator. Go do some forecasts.

Brett Turner:

So when you look at APIs coming on the scene now, everything is kind of speeding up. Everything is driving toward automation. You see how the generations are seeing that, and maybe some will see it as more opportunity, some maybe the factor creeps in a little bit. So how do you are looking at now driving into that, not how to take advantage of that. APIs is a big way to do that, right? Yes.

Marie Aloisi:

So Mastercard is an API first driven company. We have been because we build a lot of products and we want easy integration, we want companies to be able to integrate to us. We want to be able to easily integrate to them. We’re also a data company and APIs, we take in a lot of data in addition to the data that we see in our data and services organization. We overlay a lot of data insights on top of the data that we see. So it’s all API driven. You think about ity, right? Ity is a company that Mastercard bought open banking. It’s all API based, and it’s about getting easy permission based. It’s permission based to banking, but it’s all through APIs. And so we are starting to see thanks adopt APIs. Some are more advanced than others, but when we talk about to them about what are their priorities, we very often hear we want to be API first. So it is the wave of the future. I mean it really is, and it’s happening now.

Brett Turner:

And you look at the advantages now of having Finicity in the toolkit, so to speak. And then you talk about that mid-market, lower mid-market, that 10 million, I call that the QuickBooks demarche. Yes, whatever. It’s probably lack of a better, but so you move past that mark into that space, underserved, is it largely also because another reason is there’s in some ways on a different core of the bank APIs and where you can’t reach from a consumer banking perspective versus corporate. How will you look at the navigating that and how to tap into that? If it’s got to be data driven, you’ve got to be able to get that data.

Marie Aloisi:

So I believe the next frontier of open banking is wholesale open banking. I mean, clearly you have these smaller middle market companies, which I was surprised to learn. They have multiple banking relationships. Some have three to four of these small companies. They spread it out. They spread out, they deposit their, and so whenever they’re applying for credit lines, it’s a nightmare. I mean, they have to, they’re creating PDFs, they’re pulling down Excel spreadsheets, they’re going into all different banking places. They have to do personal guarantees. I mean to get access, to have a view of what their cash position is, a very manual, tedious process. They need access through APIs, real time access to their banking relationships, not only to share with an underwriter, but also how do they manage their day-to-day cashflow. You can’t do this on an Excel spreadsheet. Maybe the old world can, but the new generation, the new world digitization is not about Excel spreadsheets. They need to have things in real time.

Brett Turner:

So that being a real key to unlock that because if you can unlock that, then now you can serve them in a way that they might just not do that. And so therefore it kind of exacerbates the access challenge, right?

Marie Aloisi:

Yes. I think at this point in time, we would love to push it, but in less than a year, maybe it’s going to be a demand if they’re going to be pulling us to say, this is how I want my business to run.

Brett Turner:

Yeah, No, we’ve been living through that. So I mean, we can completely validate all it’s part of our journey is we in building Trovata, is really focusing on that underserved all the way up to maybe 2 billion, a little larger. But then it’s amazing how 200 customers through our journey, 99% of those, I think we’ve had maybe four that have come off a legacy TMS. It’s all coming off of Excel. And these are good size. You’re right, exactly. It’s amazing when you realize some of these are known logos that you think, how would they have some of those challenges, what they do.

Marie Aloisi:

In their way. It’s not broke, let’s not fix it. They’ve become used to it, but that generation is going to move on.

Brett Turner:

So I think we talked a lot about APIs. What do you maybe see moving in with a little bit of the tailwind starting to happen? They’re going to start to emerge more. Where do you maybe see the next few years to how to really leverage those? I mean, how does that really open the game and are you seeing just a number of opportunities how to really drive into that access layer to solve that? Which is, the stats are pretty profound.

Marie Aloisi:

Yes. So in terms of APIs?

Brett Turner:

And leveraging, APIs are probably other things that you can even rally around probably what you already have. Yes. I think what is cool, it’s also the APIs to get data, but really it’s about the data to kind of drive some of those things, right?

Marie Aloisi:

Yeah. So I mean, what we’re doing now, we are again, data, access to data. And it’s all about not only access to data, but when you talk about digitization, it’s about creating efficiencies. One-stop shopping, one platform where you don’t want to go to 10 different spreadsheets. You want everything digitized. You want everything in one place. Accounts payable, accounts receivable on one platform. So what we are doing, we build product. We have a product called InControl. It’s our virtual card platform. Through APIs, we are now integrating into ERP systems directly like a Coupa, Oracle Cloud, GEP, Talia. So now what’ll happen, we can talk to the banks that use our products to say, you have a new service for your corporates. They can literally make a payment of a virtual card directly out of their ERP. We’re able to do that.

Brett Turner:

That’s nice.

Marie Aloisi:

Through APIs.

Brett Turner:

Yeah, absolutely. That’s cool. Alright, so how is Mastercard partnering across the payments ecosystem to accelerate with so many areas of innovation? Right?

Marie Aloisi:

Yes. So this is something obviously the payments ecosystem globally is our business. So there are four global market forces that drive the payments ecosystem. When you think about, one is commerce, just what’s happening in general In commerce, we’re seeing every device is a commerce device, right? There’s digitization happening, there’s marketplaces emerging. So we look at that. We look at payments in general. New payment modalities are emerging. There’s crypto, right? There’s all universal walls, real-time payments, geopolitical have strong influences around the world, sanctions and things like that on payments, societal, we know people will buy from companies that they align with their values. And then technology, generative ai, all of these things. We keep an eye on these things and we want to understand how do they impact our customers. Our customers are banks, they’re merchants, fintechs. And so we look at this, what’s happening through all of these forces and say, what’s our right to play? What do these forces represent in terms of opportunity for our customers or challenges? And then we say, how do we close this gap? Do we buy, do we build or do we partner? In many cases, yes, we partner and to create innovation rather than us doing it ourselves or

Brett Turner:

It’s a lot of problems to solve.

Speaker 2:

A lot of problems to solve. We also will take our own product and align it with a FinTech and bring a solution to a bank. For example, we made an announcement not too long ago with a FinTech called Extend. They are, they create virtual cards. They can create virtual, they democratize virtual cards, they can create virtual cards off of plastic walk from plastic. And so we took our in control platform, partnered with them, and we’re now able to bring a service to BMO to offer their customers so that if you have a construction worker who’s on the job and his drill breaks, they can just automatically send a virtual card to buy a drill right onto his phone. A consumerized experience, which again, going back to this is what we need for this next generation to make things easy.

Brett Turner:

Well, I think here we’re at AFP and there’s global banks, there’s regional banks, I mean different purviews for different banks. I mean, Mastercard is a global company. So you think of all the things even contending the use cases even. And there’s, you got advances in Europe or the way that even behaviors of how people collect or pay is a little different, like traversing. So even in the context of all the permutations of those kinds of things, on top of everything, it just seems like a lot to,

Marie Aloisi:

And we talk a lot about data. Even the data privacy rules are different around the world. And we have to comply with all of the data privacy.

Brett Turner:

So how is Mastercard embracing AI?

Marie Aloisi:

So we have been very engaged with AI for more than a decade. I will say Mastercard, we’re a technology company. There’s a lot of data. There’s a huge ecosystem. And for us, it’s about being safe, being smart, being secure. We’re a brand that represents trust. And so we need to make sure that our ecosystem is safe. And so maybe it was about 10 years ago, our CEO at the time, Ajay Banga was asked, what keeps you up at night? And he says, cyberattacks, cybersecurity. And he said, because as things go digital, the more digitized, the more vulnerable you are to cyber attacks. So we made a commitment, it will always be safety and security first. And so in the last 10 years, we’ve made a ton of acquisitions. More than 40% of them have been security related. One of the first was a company called Brighterion, which is an AI company.

And we took Brighterion to be our, what we call secure net, our safety net. And what it does is it’s scores billions of transactions on our network a year for fraud to prevent fraud, to predict fraud. So we’ve taken that AI as a continuation to protect data, to protect fraud. We’ve also took those fraud scoring models and retrain them. As I said, I work in healthcare, I lead our healthcare solutions. We’ve retrained our fraud scoring models to score claims for fraud, waste, and abuse, which is 170 billion problem. So this is how we have been using AI predominantly around our brand commitment and promise to ensure we are safe and smart and simple in the way we do business.

Brett Turner:

Well, this has been great. Thank you so much for taking the time and being on FinTech Corner. Absolutely love hearing what Mastercard is doing and all the things around all the innovative things that it’s doing.

Marie Aloisi:

Great. Thank you. Alright.