MasterCard's Risky Gamble To Entice App Developers
These days, it's all about the developers. From phones to a social network, consumers want to enjoy a wealth of interesting applications. Today MasterCard (MA) announced it was joining the parade by opening up to outside developers. Unfortunately for them, a credit card makes a difficult platform for apps.
As consumers have become more open with their financial information, dozens of third party businesses have sprung up that allow people to share spending habits with friends or make purchases with a wave of their phone. "It's harder for more traditional banking folks to understand why a 27 year old would want all his friends to know that he just bought a Coke with his credit card," says Josh Peirez, MasterCard's chief innovation officer.
Refreshingly, the company admits that it doesn't have a clue what developers would create. The best uses, Peirez assured the NYT, will be those Mastercard hasn't even thought of. The hope is that a hot new social game or hip mobile pay system will encourage customers to use their cards more, or even attracts a few new folks to MasterCard. "The idea is to get people to care about which card they use, the same way they care which phone they use," says industry analyst James Van Dyke.
But unlike developing for a phone, programmers who create an application for MasterCard are beholden to a single payment system. Sure, they might have a revolutionary new concept for how people should shop or a great new way to monitor your credit score. But would they really want to restrict themselves only to MasterCard customers, when they could use the equally open PayPal (EBAY) to capture a broad swath of consumers?
To attract developers, MasterCard has to take a risky gamble. It's giving developers access to data streams that track consumer spending and allowing them to put third party ads within these apps. Advertisers would pay top dollar for placement in a system that is so cozy with credit card usage. But things could get ugly for MasterCard fast.
A number of high profile privacy incidents over the last few months highlight the kind of problems MasterCard could face. Blippy, a site which allows users to share their purchases with their social network, accidentally published credit card names and numbers. Then Facebook took a hit for accidentally sharing personal data with advertisers. "We're not going to compromise on security," says Peirez. "We think that the creativity and functionality this will unleash is a risk worth taking."
You can't fault MasterCard for wanting to push beyond the boundaries of what credit card companies typically do. If developers create even a few dozen interesting applications that work with its credit card, the company will be head and shoulders above its traditional competitors. But Mastercard is also putting itself in an uncomfortable position, where the best enticement they have for developers is sensitive customer data. Consumers may not be as forgiving with a traditional financial firm as they are with Internet start ups.
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