Welcome to Kobe Time, a podcast series on Markets and Economies from D BS Group Research. I'm Tamur, be chief economist. Welcoming you to our 128th episode. Today, we will talk about payment trends in Asia as well as some broader trends around the world. And we have a veritable source of data from the horse's mouth. If you will. Mastercards. Chief economist David Man is with us.
David has been with Mastercard for a few years, but I have known David for a long time as the chief economist, both Asia, as well as global chief economist for Standard Charter. I think you spent over 20 years there. That's right. That's right
time.
But Mastercard also quite a few years now.
Yes, it's close to four years now at Mastercard too. So yeah, it's been quite a ride.
David Manne. Welcome to copy time. Thanks for having me. It's great to have you, David. Let's start with the data that we're going to talk about today. How large is the universe of Mastercard data?
Well, it's something where it really is one of those truly global companies where if you think about payments in particular it's very hard not to think of mastercard as being a key part of that. But I would stress that it's not just to do with the card side in the same way that say Apple doesn't sell Apple. It's just the name of the actual company itself doesn't quite capture just all the different areas that it's actually in. But just
for context, it has about 143 billion transactions. For example, there's about $9 trillion of gross dollar value of that actually is going through the system. And we also do have 100 million acceptance locations around the world. So it is a very significant sized business with more than 3.4 billion cards outstanding worldwide. Now, of course, it can vary country to country of just
how many cards are actually in use. I would say in general advanced economies, you would see a much higher portion, for example of card use and therefore it's much easier to see it. But there are increasing numbers of different rails and payment rails. The mastercard is involved in, I would probably say even just beyond just actually confirming a transaction and having that ability to think of it. Like a tech company in the payments space is probably the best way to really go about it.
So all the new things that you're seeing would say digital wallets, use of tokenization, anything that helps to make transactions secure online, all of these things mastercard has been involved with for a very long time all the way through to things like central bank, digital currency and even Blockchain applications,
right? In terms of the different rails being used, I was in China a couple of weeks ago and I got to connect my Apple Alipay QR code to mastercard.
Oh, that's great. Well, that was actually one of the most exciting times actually is in the last few months and even just in the last week or two where we actually have just launched the domestic switching as AJ V in China and we're adding huge amounts more I would expect of the acceptance locations because previous you would have been say having a card issued in China that was being able to be used internationally on
the Mastercard Rails. Now it would be one where that same uh the Mastercard switch which is doing all of the uh the, the I would say the approval and the clearing and the settlement. Now all of that can be done too. And that just means that we're able to really understand even more about what's going on domestically as well as internationally. A
little later, I want to talk a little more about what took China so long and now that they've done it what it means. But before that David in mid June, you spoke at NRF 2024 National Retailers
Federation. Ok. Yes, that's right. So it was, it was very exciting in that the folks from the, from the NRF that were organizing, the event were saying they were planning to have this first major event outside of the US where it's been running for more than 100 years and it has thousands of participants and anyone in the retail space seems to know all about
conference even around the world. But then COVID happened and so they had to wait until they got to the right time when it would feel a bit easier to be going ahead with something like this. And so it was thousands of people at the Marina Bay sands coming in from, as the organizers told me around 40 different markets, people were coming in
from not just American retailers. Oh no,
this was retailers from, you name the place, there was someone there from literally anywhere I could think of. They were like, yep, there's someone who's come in from there and you had this sort of the, the, the sort of set up where you have the whole exhibition hall with the various vendors and people from all types of areas. But then also the actual main event space where they had speakers, for example, uh the head of Don Don Donkey,
for example. And that was very exciting to uh to hear the story of how Japan and, and a company that's been so successful in Japan, how they've done it and also what their plans are for the future. Ok,
we can probably spend many hours just talking about the scope of a conference like this. I'm super curious but give me some top line takeaways. How are the retailers feeling in the middle of 2024?
Well, it's, it's, it's one of these times where there's plenty of reason for excitement in particular for this region, sort of things that we would have been talking about. So from a broader growth drivers perspective even say 10 years ago where it was quite clear, the center of economic gravity had been shifting east and it's not really changing. I would argue even with the slowdown in the trend pace of growth in for example, China, you do still have the strength, for example, in India
and the contributions to global growth being so big. That exciting story, I think is something that retailers are still very focused on the rise of consumers, the growth in middle class and higher income consumers that I would say is the biggest long term part of the story that
people were were really really wanted to talk about. But of course, there are shorter term challenges that come from the rise in the cost of living the higher levels of interest rates, the persistence of particularly us interest rates being as high as they are, how long and how quickly they come down. Of course, was a major question that was coming up quite often because
it matters for markets in this region. Too take, for example, Indonesia, where we've seen interest rates going up, where really it was more about the external defense that the keeping the currency from going much weaker rather than it being for domestic reasons themselves. Even here in Singapore, we're seeing with say the retail sales numbers year on year have been softening and we know the cost of living, the cost of interest are major factors
that are playing a role in that. So for a lot of retailers, what they're trying to do is navigate this challenging short term environment space. And a key way to do it is to think about how they can retain and gain new customers, draw customers in through personalization services or loyalty programs.
What types of offerings they can actually come up with how to segment the customer groups and also how to think about what else they could be doing for alternative, not just marketing but direct sales channels getting involved in say marketplaces or directly selling and that role of ecommerce. Of course, all with these things coming up, talking to someone like mastercard was ok. We want to do more of this. But also how do we do it in a safe and secure way?
Sure, I just hope they're not pushing BNPL more because this whole buy now pay later in my view at this time, the cycle was raised being where they are is a recipe for stress.
Well, it's one of those things where you look at the different sources say B NPL, that had been certainly something that grew very strongly, I think at first in Australia. But what's interesting about it though? And I, I do agree that there are certain areas where you've, it's just got to be cautious on adding to the amount of what is effectively credit at times when consumers are more stressed. But at the same time, it was offering something where at least consumers were feeling ok. I
just have four equal payments to make. There's no interest on it. But of course, it needs to be done in a way where people actually are able to do that and it actually just helps them with their cash flows rather than ends up seeing them in more stressed positions. But it is an interesting application of an older type of idea that's been reapplied with modern technology thrown in. And I think from that perspective, I think that's quite interesting, right?
I mean, I think I've seen reference to installment payments, you know, in South Asia, you know, decades ago, even before the ecommerce was a thing. I also know that Apple recently discontinued doing B and P I think it came out just a week ago or so.
Um So David uh from these, these retailers who have gathered from all over the world in Singapore, I mean, did they pick Singapore because it's just a nice comfortable travel destination or they see regional hub for retail being in Singapore as a business proposition.
I think it was a little bit of both. Certainly the organizers that when I was talking to them, they did their homework on where should this be based? And they came back with the overwhelming feedback. It should be Singapore. That made the most sense. I think you're right. The ease of travel in and out is clearly playing a big role in that wherever you want to come from around the region, it's a, it's a
key hub in that regard. And also I think the, well, the the the the actual conference space itself, the ability to network the sort of availability of of accommodations made it much, much simpler. Um But I think also it is a place where you still do see that bias on having regional hubs and picking Singapore as a location
for that. I think that's something that is, is very, I think quite persistent really, even though there's lots of other places that are looking to try and take some of that sort of role, it does look like Singapore is still in a leading position, especially at a time when there's been more problems and issues or questions over elsewhere, including say in Northeast Asia, including Hong Kong.
That's right. And I hope I'm not wrong when I say that mastercards Regional Headquarters also Singapore. Yes,
that's right. Yes. Yes,
travel trends. 2024. You send me a link to the report. I found it really interesting. I wish we could have done like an interactive show where we can show off your charts. But this time audio podcast with, on the video, only us showing our faces tell me about travel trends. 2020
four. Yeah, I mean, maybe next time next to this nice greenery in the background, we can put a screen up and I can start out with some of the Absolutely. And it's actually on the Mastercard Services website. It there's no gate gating on it.
We'll put the link in the show notes of the great.
So what we do each year is and I think it's now the fifth year that we've done this where we've done a travel report for the world. And what we try and do each time is think of what's the new view that we could build? What are the extra points that would reinforce some of the interesting thematics
that are coming out. So part of the story, firstly on travel is that while there are challenges on broader consumer stories, we are still not done on the recovery of travel in this region that the pandemic since the pandemic, like levels of say just passenger volumes are not in general. Some exceptions, which I'll come on to especially the Japan story, which has been dominating a lot of the stories and and attention for good reason.
Actually, we're not fully recovered. If you take the example of China, we're only around 83% recovered of passenger outbound international volumes versus 2019. You compare that to domestic volumes that had fully recovered even more than a year ago. So there's a big divergence story that we're seeing there. And of course, this matters the most because
pandemic China was the most important spending traveler worldwide. It was actually even a big macroeconomic topic actually of just how much of the services balance on the current account actually was being dragged down by the expenditure of travelers abroad on a net basis right now. Interestingly, we just launched, relaunched the priceless Beijing experience
uh just literally a few days ago. And part of the timing of doing it, one was uh with our operations in China growing in that way, more acceptance points uh that it was becoming a big story. But also you may be noting, I I certainly have been seeing more adverts uh for the wonderful things you can do on a trip as a tourist coming into China. And to your point earlier, the big challenge had been making payments as a foreign visitor in China has not always
been so easy. It's changing right now. It's changing in a big way. You mentioned, you're able to say put your mastercard into big relief into your wallet that is accepted and that means all the acceptance points just light up straight away, but even directly to be able to just go in and use the mastercard directly in multiple more acceptance points. That's something
that's growing very rapidly. So now what, so that net number might get a little bit more balanced if indeed we do start to see a lot more travelers coming in. There's certainly plenty of exciting, interesting things to do uh when visiting China, many cultural uh locations that I think many people would love to, to go and see. Uh now on the travel side though, coming back to it, the full recovery was seen in Japan. So inbound travelers in particular, coming from places where the
FX had become particularly attractive. And a great example of this is Singapore into Japan as a corridor
armstrong exchange rate vis over the yen.
That's right, that sort of move that, that it's been a 38% move since early 22 22. That type of move actually, not only did it attract that extra volume. So that corridor has been really booming. It's more than 40% above where it had been pre pandemic compared to other corridors that have not really come back. And we can talk about the Thailand story as well
if you like a little bit later. But on the Japan one that F FX rate has not just been this big move, attracting people in to just go and have their holiday there, it's even changed what people do when they go there because in general, since the ending of COVID restrictions worldwide when it comes to travel, we have been seeing experiences dominating what people wanted to spend on. It was all about go to that fine dining experience or go to
the restaurant be with people concerts. Of course, the Taylor Swift concerts were a big one. We've been focusing on a lot over the last uh last 6 to 12 months. But I think this story of inbound into Japan was not just experience it. We actually were seeing the share of wallet going up quite dramatically, particularly on retail for the markets, the inbound markets say Singapore or us where the FX was so attractive because you can go there and it's really good
value going to the stores. So it was not just about experiences. It was also about things when it came to Japan, the transaction volume sizes were there,
the growth rate was clearly there. You could really see the impact of big FX moves in driving traveler behavior even actually, it was just in Thailand recently talking this through on that corridor and actually even Thai visitors to Japan were also breaking with the cliche of it all being about experiences and you were seeing there also retail spending doing particularly well because even though the Thai baht has not exactly been very strong, it has been against
the yen. That's right. I think that's the other big one that along with the Korean one actually or two that have actually become quite attractive in that way because of the pricing moves in the FX
rate, right? In my China trip. A few weeks ago, first thing I realized that Shanghai is only a couple of hours by plane from Tokyo and in Tokyo, if you go to a retailer coming from mainland China, they will immediately show you the price comparison that in RMB, you pay this much in yen, you pay this much. So it's of course, a value proposition you should buy. So to your point of patterns of spending changing and the orientation of tourists changing.
Um Do you see this like as you just mentioned in Thailand, perhaps also if you can share some views on Indonesia, Philippines, Vietnam and so on that, this slowdown in Chinese outbound tourism into this part of the world. Um How deep is it uh is it being offset by, I don't know Russian tourism or American tourism?
Well, certainly into Japan, the US inbound tourism has also been helping to make up for some of the, the the the gap left behind, let's say by not yet being fully recovered on the China inbound uh China tourists going in to Japan, that's for sure. Now, whether we're going to see with some of these changes, that's being also the long term story too. Uh I think actually we probably will where
actually yes, the China side will come back. But the strength of the ASEAN demand particularly say it was just in Thailand, that corridor of other ASEAN economies with tourists coming into Thailand from the ASEAN has already exceeded where it was. And the spending numbers are quite
strong too. And I think this actually comes back to the point I mentioned at the beginning about the excitement of retailers, which is, it's not all about just thinking of when global growth comes from thinking, oh, the US and then Europe, they're really thinking about, well, what's the
India story? What's the story in Indonesia? And actually the a story another one again, in terms of inbound into Thailand has become exciting because for travelers from India, a number of markets had been easing off on visa restrictions. Part of the reason being, well, that's a great way of making up for some of the relative underperformance of travelers coming in from elsewhere. And when you look at the sheer volume of say
infrastructure build out air airplanes on order. Uh that we think about the India market, we think of the volumes of extra people, middle class and above that is just growing continuously over the next five years, more than 20 million people we think will be added into say the middle class groups. It's not just for domestic travel that they'll want to do, they'll go beyond the things and into the experiences realm. It will be doing these international trips as well.
It is absolutely fascinating. I fully agree with you, the increasing purchasing power of the upper middle class and the high income cohort of Indians. I think it's going to be if not as transformational as the Chinese wealth impact in the two thousands. But it will be pretty big up there. From a value proposition perspective, hosting a wedding in Goa is more expensive than hosting it in Phuket. So for Indian festival goers and people who want to arrange special family events,
I think talent is a very good value proposition. Even though the bath is not as weak as the yen, they still offer great
value. There's still good value in there. And actually you mentioned that story. I think I literally saw two or three weddings in the week and a half that I was on a holiday in one of the hotels in. There
you go, there you go. Um Let's talk a little bit more about Singapore. If I'm not mistaken, Singapore is the only country in ASEAN where the travel tourism is basically back to pre pandemic levels everywhere else. It's still lagging.
There is still, well, we had almost fully come back and then it eased off a little bit in the most recent data. So we're still below say 90% in terms of the volumes. But you're right in terms of say, total expenditure that's coming in from the inbound tourists. It has made that that pretty much full comeback, but we're not fully, we're not all the way over where we were in 2019, I would say part of the reason is actually the flip side of the Japan story. It's
expensive here when you have a currency. And even, let's say the Singapore dollar broadly, it's been as strong as the US dollar, let's say, certainly it's been stronger than any of the other currencies around the region. It has meant that there's been this uh and it's actually changed some of the consumer spending behavior for Singapore as well because we know, let, let, let's think about firstly the outbound story for Singapore and then we can go on the inbound outbound
for the uh broader mass market consumers. We actually have noted there's been a slight drop in the share of the wallet of spending actually going on travel. And now we're thinking, well, why would this be Singapore dollar so strong? It's particularly strong against regional currencies. So actually, there's more of that attractiveness of taking the budget flights, taking the shorter haul flights, let's say around the region and doing your holidays there,
maybe as far as Japan. Of course, we know that's the case but elsewhere to say Thailand, because it's such good value. And so the the consumers for sure with this world, we've been in with the spike in inflation, the spike in interest rates, everyone looking at some ways of trading down on certain essential goods, which has even with that being the case, taking up a bigger portion of the share of wallet.
What we really need to see next that consumers are looking at is where can I find some of those savings? And of course, traveling regionally, you still get your travel experience and you've got the value proposition as well right now on the inbound side, of course, yes, it's become a more expensive place for coming in to visit. And because of the exchange rate, that does mean that for example, say travelers coming in from say Indonesia, do you find
more expensive at this point? Of course, everything can change, let's say in another year from now as and when we may get the interest rate cutting cycle actually really getting going from the United States.
But also for the Indonesians. If they want to watch Taylor Swift, there's only one place to go in Asia,
right? And actually we did note on that front that when we look into say the restaurant spending around the sort of areas that were close enough to the venue for the of concerts, we saw a major lift like 25% plus lift in spending over that period of the Taylor Swift concerts with the biggest driver on the cross border coming actually from the Philippines.
Yes, I should correct myself in Southeast Asia because she did go to Japan. But the reason I'm sort of focusing on this point is that for a country like Singapore, I think the contrast with Indonesia is interesting one Indonesia is cheaper, the has been weak. But the specific unique experiences that Singapore offers still keeps it in the sort of the planning horizon of tourists even though
Singapore is considered expensive. So it's both value but also the quality of things that are being offered.
Yeah, that's right. And also I think a lot of people see it as a place to start, let's say if you're coming in from Europe or the US, a great place to start or maybe finish your holiday or maybe a little bit of both at each end where you've done the long haul flight into Singapore, then you might do a shorter haul flight, the destination you were looking for around the region and then you see where you go from there that I think is the the way round that people I think would,
would think about it, especially you've got the attractions, for example, the night safari, that's quite a unique sort of proposition. The Universal Studios, there's plenty of these sort of experiences and just going around the Marina Bay area as well. And of course, during the Taylor Swift Concert period, no surprises the locations wise. Of course, the Marina Bay area in particular. So the biggest Swift lift.
So David, you may have touched upon this earlier, but I just want to be a little more granular. So we are talking about two things. One is number of tourists moving around the region and second is sort of the per capita spend the spending more or less. So just round it up for us both in those two metrics. Yeah.
So let's say we're thinking about firstly, passenger volumes, most places have not fully broken even on where they were in 2019. I think the only one off the top of my head that has for sure was Japan around October, November of last year. Passenger volumes exceeded certain corridors exceeded way more than 2019. Didn't just break even a great example, say being Singapore.
So as a destination, Japan has really been the most popular choice and we've seen that clearly when you look across anyone in the travel industry, they would not see that as a remotely uh say controversial idea. Um The issue with say uh Thailand has been that total passenger volume arrivals, numbers um have been a bit more uh a bit softer and than they were in 2019. Even today, there is still the upside on the way that will come. We think from the next leg up in China's outbound
tourist story. It's interesting when China first opened up about a year ago, we saw an ongoing surge up to about 50% of prepa levels for international travel and then it stalled uh from around July all the way through to late last year. And then it had another jump higher and we're now around 83% now, maybe it stays around there and then has one more leg up. I don't know exactly when, but we think we'll be
seeing that by the end of the year. So that should mean in general, the passenger volumes are all have been quite successful in their comeback. Uh Now for say, Thailand visitors from the ASEAN that's already been doing very, very well. Visitors from India has also been doing well and actually the cross border flows, I guess it's no surprise. Once you start adding in direct flights, you get a lot more visitors from that location.
The best example of this, which we did feature in the report actually was India into Vietnam when we saw those volumes surging. I think it's 2.5 times the amount of visitors. But actually even India, in terms of the strength of consumers and the sort of diaspora around the world too, actually India into the US was 59% above where it had been pre pandemic and into Japan was not too far off either. So again, you're seeing those clear preferences where either it's the FX rate that's
really driving it though. Of course, Japan has many things to offer beyond just while it's good value. And also it is uh these extra corridors being added or indeed getting rid of visa restrictions. So you can see all of these moving parts making a very big difference.
So now um we know high interest rates in economies that have a lot of leverage should, at least in theory, have a negative impact on people's desire to consume. Uh We haven't really seen that in the US. Despite a historic rise in interest rates, retail sales have been pretty robust, although I don't want to talk about us later on with you and then we see it in Hong Kong, for example, high interest rates are really hurting consumption. Now, elsewhere in
Asia we've seen rates go up with the exception of Japan. Yeah. Well, they have done a little so there's zero now. Yes, the impact of high interest rates on spending in Asia. Do you have any views so far?
Well, I think the there's no doubt that it does weigh on consumers when you have higher interest rates. It makes a big difference. I think the thing that's been most interesting in, well, in, in le le let's take a step back and start with, say the story everywhere that we had before we then had the reopening. And we know in Asia we opened a bit later during that period where you are effectively more restricted on what you can do.
And especially for consumers, especially middle or higher income, consumers spend a decent portion of their expenditure going on travel if you weren't doing it for a few years and then suddenly you have room to do it during that period of effective extra savings, the excess savings that accumulate. That's where I think we've seen the extra disorientating part of, well, shouldn't there be already much more of a response from higher interest rates on consumer spending? I think the US is a great
where that really did play out. We had $2.5 trillion of excess savings accumulate by 2021. And it has been in the process of being used up. Obviously, there's debates out there of exactly how much is still left and to what degree it even accrues any more to anyone other than the higher income groups. And we know that always and everywhere we look at this data, it always usually is the higher income consumers that did accumulate more of those excess savings.
I think some of that buffer is there in some economies. But that only really I would say in emerging markets probably applies to again, the higher income consumer groups, I think middle, lower income, it's not as obvious, but the other thing separate to excess savings. There has been a buffer which is not something we're used to. Economists usually don't pay attention to savings. Like historically, it's a very boring thing, but it became very important.
I think during this uh pandemic period. But the other one has been the labor markets in general. We've seen relatively tight labor markets. There was the surge in demand, people couldn't find enough workers, there was a relative lack of migration flows. And actually this brings me on to the point that when we think about all the variables. Since the pandemic, everything has really been fitting very nicely with the metaphor
of the bungee jump in my view. And what I mean by that is we had to jump off the bridge, the collapse in activity, the f the, the, the, the worst uh global economy growth rates in 75 years, then we knew we would rebound. That's the equivalent of jumping off the bridge and the first bounce, you know what's going on then that's the predictable part, getting direction, right
is fine. But after that, anyone say he's done a bungee jump myself, not included, would actually say they lose all orientation of even where the ground of the sky is, they've lost track. And because we've had such dramatic swings in so many variables all at the same time, it's been much harder to really definitively say, well, therefore this must come eventually, it will eventually the bungee finishes and you
settle down. I think that will be the story of next year where we're settling into the new, the way it is the last few years have not been normal in that way, high excess savings, ultra tight labor markets in some locations around the world. Major swings in migration flows to make up for the pent up migration demand that was just not able to be met in previous years, huge swings in inflation and interest rates in again, the jobs market,
almost any variable. We look at has had these wild swings that we're finally setting settling down into. So I think the final piece of this will be on the labor market front. If we start to see that softening a lot more than that combined with the cost of living challenges that are clearly there that are impacting consumers and also more time going by where if there were an excess savings story to be used up,
it would have happened by now. Then I think we come exactly back to your point where there will be more challenges but doesn't mean we have to have a recession. I would say no, the main reason being we didn't really have a boom. So why should we have a bust? We were shut down, we reopened. That's a base effects story. That's a disorientating feeling, but that's not the same as a regular economic boom that should therefore end in, in a
bus, not at all. Let me expand on that issue a little bit, David. So you touched upon some of these travel and tourism numbers being more relevant in the context of middle and upper income uh part of the population with your data. Can you get a sense of this um uh sort of the cost of living issue, how it's affecting spending pattern among the lower income groups?
So you, I mean, you can depending on the market, depending on say card penetration in different markets. Uh I mean, certainly we're we, we, we know that there is a growing amount of use of say digital wallets. Uh We're seeing a lot more use of say account to account the ach payments, uh where say in Singapore, that would be the pay. Now for those who are based in Singapore prompt pay in the case of Thailand.
And actually, uh mastercard is involved in the operations of around, in around 13 different countries around the world of these sort of real time payments, uh type systems. And the, and that is certainly one that can be used a lot more, I would say by a broader swathes of society, it does a lot more of, of bringing even more people into the system.
Um But it's still, it's a little harder for us to be able to, to draw, I would say full analogies of exactly what's going on, say across all of, say, Indonesia or all of say, India when you get such huge differences between, say what's going on anyway and say the cities, the tier one cities or the way through down into the more remote parts of the country. So that one is a little bit more tricky.
Uh But certainly if we're talking about the major metropolitan areas in most places and certainly, um, anyone who is doing any kind of say, travel in particular, that's where I think we really, uh we, we would, we would be able to see a lot more,
right. Um we have talked about China a bit earlier. Let's talk a little more. First of all, why were the Chinese so resistant to getting like a Mastercard or Visa interface in their payment system for all these years? And how come they capitulated all of a sudden? And now we're seeing rapid acceptance, which is good news for mastercard. But what's your sense behind the political economy of all this
that I'm not so sure on what the exact story actually is in any way. I think the one thing I would say that looks quite clear at this point is actually that one, if you want to have a lot more of those inbound tourists and travelers, then you do need to provide a system and have a lot more choices being made available to consumers, at least for the international inbound travelers as well as for the domestic consumers as well.
So adding in an extra network in that way to enable that extra competition where the banks can play an even bigger role versus the existing wallets that were there
that had become so dominant. I think there was my, my my sense and this is just my sense is that it was more about seeing or wanting to have more competition, wanting to actually broaden out the choices for consumers and go beyond the two big players that really had created effectively this super app, which is funny because most places around the world want to build this super app. But actually in the case of China, they've had it where there's so many things and services you can do from these
wechat for everything you
name it and that sort of thing. Really. I think uh it's to diversify what the use cases are to allow a lot more of the foreigners coming in. If you want to have tourists, you make it much easier for them at the same time. Uh with the say the domestic providers that are there uh adding a bit more competition. Uh and it would probably be at the margins. I mean, again,
there's about a 20 years uh head start there. At least, I think it is one where we we'll see, I think a lot more of those choices being provided and that probably I think is was a key driver of why that was happening at this point.
So in parallel to those two large payment providers in China and their payment rails around the world, as we've seen, sort of e-commerce take hold, there are many alternative ecommerce companies that have come up, right. I can think of like paypal and others and revolut who are creating sort of an alternative value proposition if you will, for customers who want to have wallets who want to make payments is mastercard embedded in these things or these are parallel to mastercard entirely.
I think it depends which, which one we're talking about. I think a great example of one where we're absolutely involved is the, and I think this is the key thing that as long as it's in an open loop network where we can be one of the providers and we're involved, that's what we're looking for is a sort of ability to be taking part in the system and, and, and, and really they us the opportunity to leverage our network including globally in
more than 210 countries. That story. I think you mentioned earlier on the sort of more old fashioned idea of say the the installments, correct? What about prepaid cards? Sounds like something you would think that sounds a bit old fashioned,
but actually, it's becoming very, very popular. And I think a key reason for it is that throwing some technology in there too, you have your app, I think one good example say would be Youtrip uh where even in say, Thailand, I was talking to people where there it's, it's we're seeing a lot more use of these different types of, of a technology for an existing idea. It's not a brand new idea, but redone in a, in a, in a, in a, in a really modern way that makes the user experience,
you can have multiple currencies, all sitting on your wallet. Actually, the regulator here actually just increased the total amount that you can put into these wallets. Recognizing actually that it's not just people who are purely on a budget that are, you know, really, really need to be super tight. It's also the really affluent consumers want to use it too because they see it as a way of, ok, I'm going to go to Japan. I love this exchange right now. I'm gonna already buy my yen in advance.
I know what my exchange rate is. And then you feel a little bit, you could argue, maybe it would be a sense of extra security around it too, of using something that's prepaid when you're traveling. And of course, the acceptance points with the example of U Tripp is everywhere, Mastercard
is accepted. I see, I see. Um and uh related to payments is of course security. I mean, not a day goes by that we don't hear things about, you know, the ransomware and fishing and uh scams and so on. I'm sure this is something that mastercard has to worry about in a real time second by second basis. So give us a sense of your challenges and your solutions.
I would say that the, when we think about the global business, the mascot has got the core payments division. Of course, the what everyone assumes that's all there is. And then you have services and the services part has
been the one that's been growing rapidly. And particularly of course, the cyber and intelligence sort of group to your point as we've seen this rise of digital payments of e commerce, we also have been seeing the rise in the security risks that go alongside that and any way of particularly say, feeling more secure when making those payments, of course, that's the key thing that we've really been focusing on in a very big way.
So a great example of this was say, click to pay that was launched not that long ago or tokenisation. So imagine something where you're much more secure online because let's say uh in the past, you would have say left a card on file with a merchant instead of leaving your actual card details with them. Think of it instead as you can just leave a token with them where even if that is somehow intercepted or taken at some point later, it only works with that merchant anyway,
it's worthless to anyone else. And so coming up with more of those uh solutions for tokenization for confirming a digital identity, in particular, the combination of all types of things that we see are coming through. That's something that Mastercard has been doing a huge amount of work on this whole, teams of people that are very, very focused on that on the spotting fraud, particularly in e commerce using all types of machine learning or A I, you name it.
That is a very, very big part. On the security side, the other parts though on the services division that I hadn't realized even myself until joining that are so dominant are on the marketing services to be able to help a retailer add more customers or it could be any
type of entity. Actually, it could be an F I as well or indeed the loyalty programs where we run billions of points around the world and making those sort of much more seamless and really get used and drive a lot more of the loyalty of consumers knowing that also that since the pandemic, we have been seeing an increase in the in many markets, Australia is a good example where we looked at this recently of the share of all the cards outstanding that are shopping at more than a
set number of merchants, let's say 20 or 30 that share has been going up since 2019. Now part of it could be, well, there's just more say maybe ecommerce providers out there. But part of it also is people are changing their spending habits because
in some places, we have hybrid work. So instead of everyone coming in the same routine every day, Monday to Friday, if they have a bit more variety in that, there's also a variety of where people are even living working and spending depending on which part of the world we're talking about. I think it was much more of an obvious story that was much stronger in say London or New York or even Melbourne Sydney than say was the case here in Singapore. But we even see evidence of it say in Hong Kong.
So that, that's another, if I sort of run through the list of the different services that, that, that, that services division, let's say really counts uh included in its business. Definitely the, the, the, the security and the cyber cyber security is, is, is very high up on the list. Uh,
loyalty marketing. The other ones are interesting in that there is, uh we bought yield last year, a personalization service to be able to try and help a lot of folks trying to get a lot more of the right sort of offers and, and uh and show the right things to consumers and do it in a, in a real time testing environment and then separate to that is a test and learn where they do experimentation for businesses which you can run regularly to be able to, even if it's just to get a little bit more
of uh enhance your business because maybe you're changing what you change your prices on even to try and do it with a scientific evidence based work on the back of that to test A B testing in that way. That's another offering that's been going down very well worldwide. Actually,
that's absolutely fascinating. One more facet around that is of course, data privacy. You obviously hold a huge amount of sensitive financial data of consumers all around the world and starting with the EU but becoming a broader trend is this issue of data privacy that you know, countries are asking companies like yours to have servers, domestically localized servers can share the data across jurisdiction and so on. But I would think that this is a particular challenge for a
company like mastercard, which is truly global in nature. I can have a Mastercard issued in Singapore, but I want to use it all over the world. But if Singapore demands all the data to be stored in Singapore, can you run risk analytics of my expenditure pattern across the border or do you have to like bring the data back to Singapore all the time? And does it then add extra costs of doing business?
Well, it probably is the sort of thing where you know each location has their own regulation and of course, that's the regulation that we follow very well. And in some cases, it does add extra layers to the process, of course. But the key thing I would stress is that even with say what, what you know, what we would be working with, it's all been already through the system privacy filtered, we already it's aggregated and anonymized versions of everything.
And I think so on that front, in terms of what the policies are, I think I've been really impressed actually with just how much time and attention and care is really paid onto those sort of areas. But yes, of course, if there's a different regulation that newly comes in, then you've got to of course change what you do on the back of that. Right.
Um But in terms of policymakers around the world, being in support of innovation in digital payments settlement and so on. What's your sense that 10 years ago, it was a bit of a wild west and now it's kind of a level playing field between banks, non banks and other start ups, or do you still feel that there's a lot of arbitrage going on in the system?
Um Well, I think the probably the most interesting stories that we see everywhere around the world probably would, would come into uh seeing a lot of innovation taking place maybe inside but a lot of the times also outside say the regular banks, but then the banks seeing, ok, this is
a good use case we can adopt that too. And then there's competition that comes in and then some of the challenges that creep in can come from the fact that actually for say a lot of the um the the challenger, new entities, the new say digital banks or any of the other groups that are trying to see how they can play a role in in various, of course, there is an advantage of being that those
bigger players, right? You have the lower cost of funding, for example, that really can be a big advantage almost anywhere I could think of. But I think that innovation is not just happening outside. I think even a lot of the banks are really paying serious attention because they're
seeing what's going on elsewhere. They're realizing that they need to at least have say, let's take the average app that people use when they are doing banking, they want it to really work or when they want to make a payment, something that at least works every time for the extra authentication, let's say in Singapore, you're making a payment, you go to your banking app to authenticate that should be a seamless enough process to try and find ways of making
it more efficient is really, I think something that all the banks uh anywhere that I can think of, they really are trying to do that as much as they can. But of course, challenges come alongside that when you have even more infrastructure and legacy issues that can make it a little bit slower. So there's, there are pros and cons depending on which part of the ecosystem you're really sitting in, I would say right,
right earlier, when we were talking about consumers around the world, you touched upon us, consumers who got the biggest cash bonanza possible in history during the 2020 21 pandemic response. And we've seen fairly profound impact of that in consumption patterns. To your point, some of the savings has been worked off. Um What's your sense in your data? What do you see in terms of American consumer spending pattern and where do they stand right now? What's the outlook of spending.
Yeah, it's, I mean, certainly we're, it's not as strong as it was, but at the same time, we're also not seeing any collapses. I think it's sort of settling down in that way where you, where we're going back,
going towards a sort of sustainable pace of growth. And I think in, in that way to your point, the amount of, of, of, you know, the kitchen sink and the kitchen being thrown at fiscal policy stimulus across multiple advanced economies around the world was this extra point about the bungee jump that was so disorientating to have had the lagged impact of having all this extra buffer.
I think the key part there will will come down to the jobs market that so far it has been showing very, very mild signs of softening but from ultra tight to just still tight, it's still a good position to be in. Uh I think the challenge uh will will be over the next 12 months or so that we if we don't see any rate cuts, then of course, that adds to the extra financial pressures. And it's interesting in the case of the US is not as painful as it is say elsewhere on say
mortgage rates, right? It would be of course for someone trying to take out a new mortgage where they have to then take the prevailing interest rate that they could lock in for 30 years. But actually all the existing mortgage holders be holding off. But that actually creates a bit of an interesting challenge here because if you're not choosing to move and there's therefore less supply less people selling as well, you get some weird dynamics that creep in in the
market at that point. And then maybe people end up saying, well, I have to rent or I'll just buy it whatever that I can actually get. Um, on the assumption that rates come down and they can
then refinance later in other places. Let's say most of the rest of the world by now, we have pretty much finished, not everyone, some people got say five year deals, but most people have probably finished whatever fixed rate, low fixed rate mortgage they might have taken out during the sweet spot time a few years ago and therefore they're at the higher rate. But I would stress this is another point of the bungee jump here once we do get those rate cuts and they've already
got going. We think, uh that they, they, they should keep going in Europe. We think we'll get going in the US by the end of the year. That should mean that everyone benefits simultaneously as opposed to on the way up when many mortgagees were, say it's able to benefit from not feeling any of that. And only eventually they started to feel it when you get a rate cut, it should benefit all at the same time. Of course, the flip side of that would
be true as well. If for whatever reason, in a scenario, not our view at all that you get a hike, then also the pain would be quite simultaneous.
Right. So you are in the no recession camp. That's amply clear.
Yes. Yes, we are
um, around the world. Um, there are jurisdictions where leverage is higher than the American consumer leverage. American households and corporations deleverage substantially in the aftermath of the global financial crisis. So that could be another mitigating factor that the debt service ratio is not particularly high. But then when I think about European consumers or Korean consumers for that matter or consumers in Hong Kong, it's a very different proposition.
So really that any insights on Korea or Europe, that their consumption seems to be a little more restrained than it is in the US.
Yeah. Well, I think straight away that point as I mentioned that the US benefits from is exactly not the case in those locations. You mentioned Australia and New Zealand also have these relatively high levels also on leverage. And therefore the longer you have interest rates as high as they are even more of the prolonged say burden uh means that eventually you start to see a few more cracks coming through. But that's actually part of the whole uh policy objective here to actually calm
down inflation. That's the the the key cha one of the key channels that's actually being used for it alongside, of course, expecting to see some softening in the labor market. So I think in all those locations, actually, I think Hong Kong is one that I think is a, is a standout from another point of view, which is we've now seen a full removal of all property market cooling measures there. Um And yet we've not been seeing certainly prices making
a major recovery. We saw activity that made them come back but not on prices. The other challenge that Hong Kong has and it's a bit of a challenge even for Singapore too is with the also the move in FX Hong Kong dollar against Renminbi, move N FX Singapore
dollar against Malaysian Ringgit. We've also been seeing some evidence of some leaking of spending cross border and in particular when, when we see some of the, the, the, you know, talk to people and they'll generally, they'll say either they were or they know someone who did uh cross over into the rest of the Greater Bay area and was spending on and it could be all kinds of, of, of goods and services. Uh People even say doing groceries.
Uh And I think that's the interesting angle as well that with some of the ease of transportation that has gone up, say for the case of Hong Kong with the Greater Bay Area integration or in the case of say with Singapore, we're just a couple of years away from having a train connection where it will be that easy to go back and forth. It does mean that you then spread out some of the spending. Of course, you would expect it to come back the
other way. But it's a bit more challenged with the FX rates being, having moved in the directions that we've seen in the last year or two.
Right. So I think those two are the most prominent examples, Hong Kong, Shenzhen, Singapore, Johor. I think Shanghai Tokyo seems to be another 1 may not be that obvious. But you know, at least when I was in China, it felt like it maybe not for groceries, not for groceries, but maybe for sushi uh David um outlook uh looking at the spending patterns in the first half of the year. What's
your sense for Asian travel and tourism? You said that other than a few jurisdictions, we're not back to prepa volume passenger. Are you optimistic that we're by the time December of 2024 comes, we'll be back to par.
Well, the first thing, maybe I'll start with the travel and then talk about on the on the spending trends themselves um on the travel front. And as we mentioned in the travel report, that's on the Economics Institute website, the the services website, we actually pointed out that nine out of the 10 busiest travel days in history happened, I think it was this year. So we are still doing very, very well. On how much we're seeing the strength of travel demand, even having not fully recovered in
this region. So there's more legs to that, we would argue that we will see even more of the tourism recovery. It's a persistent trend of consumer behavior that that seems to have been a big moments of reflection during the pandemic, turning more towards the being mode over the having mode. You could argue apart from when going to Japan and also retail therapy kicks right back in again. And that full recovery,
I think will keep going. And particularly that strength of the consumer from India, the fastest growing major market in the world that could if it can get to 7% GDP growth, that would double its economy every 10 years. It's not quite there but could could could get there.
Um That I think the travel side I think is still looking pretty good that that persistent demand now with broader consumer trends to enable some of that travel, with all these challenges we've been talking about, of course, still having a job and the labor market being strong matters, some excess savings that matters, but also some trading down has been taking place. And that comes into the story about what are we seeing on the wallet shares themselves?
And we actually drew a doughnut type chart in the 2024 report with the Asia Pacific section. It's also on the website where we looked at mass market consumers and affluent consumers. And we saw the rise in the share of spending on essentials compared to 2019 as a share of the wallet for both. And in general, let's maybe let's give Singapore as a worked example. We did also see the share of wallet accounted for by food was eating into the wallet share.
Food has been eating into the wallet share. That's the bottom line here, whether it's on dining or groceries. And we know on groceries when we look at places that do offer volume versus value numbers. Apart from the boom during the pandemic, where you saw people say buying uh toilet paper and loading up
on tinned food. Maybe we've not really been seeing a boom in volumes and therefore it's just been some trading down, maybe moving from the branded to generic products to try to counter the rise in the cost of those essential items. But delivery also food delivery ordering in is so much easier and also going out to restaurants. That's been the very,
I would say persistent trend. We even see it in the Singapore retail sales data, the official numbers, they're they're they're telling the similar sort of story that they're going out and about to eat particularly though trading down though. So it's not necessarily the broader, more full service restaurants. It's more the quick service and more say the Hawker Centers that have been doing a little
bit better. They're the out performers versus regular restaurants. So we get a bit of a trade off there still getting to go out and about. But I think you'll still see that story while we still have this challenge of the high cost of living and high interest rates.
So it's interesting on one hand, the affluent want more experience and they want to go to the Michelin restaurants. But on the other hand, for a vast number of the population, the cost of living is hurting and they're training down. So we actually have opposing dynamic within e society.
We are seeing that and a good example in the case of say the US, we did see an out performance of say the category of groceries in the budget and compared to say the middle range or the higher range even in 2023 that was already a broad story.
Uh David earlier, we were talking about um technological solutions available to consumers for ecommerce and payments and so on. And you talked about the B NPL and the complexities around that. Then you talk about some of these cold wallets that people are using to prepopulate their cards to go shopping. Uh So my final question to you is that just in terms of technology adoption, there's a lot going on out there. Uh What are you seeing as you know, interesting compelling trends out there?
Oh, wow. Well, I think a big one, of course around the region has been on social commerce where you could get quite a lot of sales coming through social media networking channels. I think we'll see plenty more of that again though. I think we'll also see in the markets that had historically been a bit more biased towards say yes, an ecommerce order. But then it's cash on delivery that they find more and more ways of going digital on the actual payment front.
Well, I think you'll see more and more of the, it's interesting even those innovative companies, as I mentioned, like say Youtrip, where you're seeing the prepaid idea but done in a really slick way, enabling a lot more of those payments and then leveraging a network such as ours to be able to then go, you know, increasingly global with it. I think you'll see a lot more of those types of ideas coming through. The key challenge though is that take the example of the buy now pay later.
The big challenge for a lot of those players that didn't manage to, you do as well was to do with the cost of funding. Of course, the bungee jump story and these huge swings in variables such as interest rates and the cost of funding was not probably part of their assumption as was the case. Even in say the for folks who took out mortgages with a stress test that would have been done a few years ago, we've gone through the stress tests in multiple markets right now. So we're
in that, that stress period. So I think that the, the new innovations need to also think through, as they think through their business plan. What about the scenarios that could be coming through? And I think we didn't really talk too much. I think it's, you know, it's probably material for some other time anyway, on just the sheer volume of different, what else is and what things should we really be worrying about? From say the geopolitical lenses or from how long do interest
rates stay up? What if it stays here for an even more uh prolonged period than we've already had? Can you still say your business model is robust in those sort of scenarios? And I think companies are, I think getting a bit more savvy on thinking through a lot of these things as well
savvy and perhaps worried because these are not easy challenges to solve.
No, no, not, not, not everything has an easy solution,
that's
for
sure. Not indeed indeed, David Mann. Thank you so much for your time and insights. Thank you. It's great to be here. Great to have you. Um Thanks to our listeners as well. Copy time was produced by Ken Del Rich Pilot, Lee and Daisy Sharma provided additional assistance. All 128 episodes of this podcast are available on youtube as well as on Apple and Spotify. As for our research publications and webinars. You can find them all by Googling D BS research library. Have a great day.