MasterCard president of operations and technology Rob Reeg says Eight out of 10 transactions here are contactless already.
MasterCard president of operations and technology Rob Reeg says 8 out of 10 transactions here are contactless already. Jesse Marlow

The president of technology for payments giant Mastercard has tipped that Australia will be a cashless economy within the next five to 10 years as wearable technology takes over.

Speaking to The Australian Financial Review Mastercard's president of operations and technology, Rob Reeg, said the idea of a physical card would also become obsolete in five years.

"Eight out of 10 transactions here are contactless already ... I definitely think Australia will be cashless before the US," he said.

"It's going to become about the convenience factor, be it a ring or a phone or a bracelet [rather than a card]. Wearables will definitely come into play and that will tie into authentication as well."

Mastercard is currently piloting what it calls "persistent authentication" in the form of the world's first biometric wristband, Nymi, which it developed with Canadian start-up Bionym.

The wristband authenticates the wearer by tuning into the person's unique cardiac rhythm, thereby eliminating the need for passwords and pins, and wearers are able to purchase goods with a tap of their wrist.

The payments company has also started rolling out Mastercard ID Check, which uses facial recognition technology to let customers authorise online purchases with a selfie.

Detects movement

But rather than store a picture of the customer in the cloud, the selfie matches up with a numerical representation of the face based on a proprietary algorithm. It also detects movement, so that it can't be duped by holding up a picture of the customer.

ID Check is not currently available in Australia and no launch date has been confirmed, but it was on display at the recent Australian Open tennis, suggesting that it will likely come to the local market.

The comments come as Australian retailers increasingly test the waters for consumer reaction to cashless stores. Asian restaurants in "Spice Alley" in Sydney, for example ,are totally cash free.

Mr Reeg said Mastercard often piloted its new technologies in Australia, because of the country's willingness to adopt new tech.

"Part of it is a size advantage. By having fewer people Australia is able to move quicker. I've always been impressed from a regulatory focus too, once Australia sets a direction people get behind it and you don't have as many naysayers as other markets," he said.

Last month Mastercard released its 2016 full-year results, showing its revenue was up 11 per cent to $US10.8 billion ($14.1 billion) for the full year. However, its share price fell almost 3 per cent on the back of its revenue for the fourth quarter missing analyst expectations at $US2.8 billion.

The business flagged that strong future growth would be driven by its investment in digital, safety and security, data analytics and loyalty and processing products.

Mastercard has a market capitalisation of over $US119.1 billion, while closest competitor Visa is valued at $US196 billion.

Flicked a switch

But it was not until the business went public in 2006 on the New York Stock Exchange that it started to position itself as a tech company.

"Until we went public we considered ourselves more of a brand company than a technology company, but when we went public all the financial analysts started rating us against tech companies," Mr Reeg said.

"That flicked a switch that said if that's who we are competing against, we better grow up and be a tech company."

This change in mindset led to the creation of Mastercard Labs, the company's main innovation engine, and the desire to embed creativity in the company's DNA, as well as prompting it to make investments and connections with start-ups and investigate the use of technologies like blockchain.

It has also led the company to become more connected with the fintech and start-up ecosystems, with innovations from these smaller firms something it believes need to be embraced, not feared.

Since 2006 new players have emerged in the payments technology space with businesses such as Square, Vend and Klarna all growing strongly.

Mastercard still stands to benefit from the creation of many of these companies, with most encouraging card, rather than cash, transactions, and Mr Reeg said he did not see a time when a third party would disrupt the Visa and Mastercard duopoly.

"I think people have drastically underestimated in the past what it takes to have a global network," he said.

"Processing transactions is an economies of scale game. I think what we saw with Google Pay and Apple Pay, they're tech giants, so they can leverage their networks to manage transactions. It would be very hard for someone to jump in and be another Mastercard or Visa."

Connected home and cars

Both Mastercard and Visa are investing heavily in blockchain.

Visa released details of a business-to-business blockchain dubbed Visa B2B Connect, created in partnership with blockchain start-up Chain last year, while Mastercard released its API platform in September which featured three APIs connected to its internal blockchain work, with the hope of collaborating with others in the sector.

Looking forward, Mr Reeg said Mastercard Labs, which now operates in Dublin, New York, St Louis, Singapore and Kenya, was developing technologies for the connected home and cars, with the idea that the internet of things will enable any product to become a commerce device.

"What I think worked really well was the first thing we told [the Labs employees] was that if they're working on something that is making money next year, they're not thinking far enough ahead. We want them thinking three to five years out," he said.

"The key is making everybody in the company know that innovation is everybody's job ... Because of the employees we have, and with the mindset that is being created, we can be the innovator of payments."

http://www.afr.com/technology/australia-to-be-cashless-cards-obsolete-mastercard-global-exec-20170123-gtwqfw