Bernard L. Schwartz Lecture With Ajay Banga

Tuesday, May 25, 2021
Eduardo Munoz/REUTERS

Executive Chairman, Mastercard; Chair, International Chamber of Congress; CFR Member


Dean Emeritus and William R. Berkley Professor of Economics and Finance, Leonard N. Stern School of Business, New York University; CFR Member

Ajay Banga discusses sustainable economic recovery, the World Trade Organization and international standards for trade, and policies to promote financial inclusion and address the digital divide among communities with and without access to technology.

This meeting was rescheduled from April 8, 2021.

The Bernard L. Schwartz Annual Lecture on Economic Growth and Foreign Policy was established in 2002 and is funded by Bernard L. Schwartz, retired chairman and chief executive officer of Loral Space and Communications. The lecture focuses on two areas: the evolution of the relationship between business and government in the making of foreign policy, and ways for government to make better use of business in solving foreign policy problems.

HENRY: Thank you. Good afternoon and welcome to today's Council on Foreign Relations Bernard L. Schwartz Annual Lecture on Economic Growth and Foreign Policy with Ajay Banga, Executive Chairman of MasterCard. My name is Peter Henry. I'm dean emeritus and the W. R. Berkley professor of economics and finance at the NYU Stern School of Business and I'll be presiding over today's lecture, which really will be a fireside chat between myself and Ajay. Many thanks again to Bernard L. Schwartz, retired chairman and chief executive officer of the Loral Space and Communications, who is the generous support of this lectureship. So, Ajay Banga really needs no introduction. He's had an extraordinarily successful eleven-year tenure as president and CEO of MasterCard, after a career varying across financial services, consumer packaged goods, technology; an extraordinary leader, and I'm happy to say a friend. So Ajay, I thought we would start by talking about your newest role. You increase the stock price of MasterCard some sixteen-fold over your tenure by delivering compound annual growth of thirteen percent. And now you're leading in a very different spaces as chairman of the International Chamber of Commerce. So if you would just set the stage for us. Why did you take on this role? And what's your vision as chairman of the ICC? What do you hope to get done Ajay?

BANGA: So first of all, Peter, it's a pleasure to be with you. And even though I've seen you after a year, all these changes, your hair has gone a little gray, but I love how you look exactly the same. (Laughs). It's nice to see you.

HENRY: (Laughs) It's nice to see you too, Ajay.

BANGA: (Laughs) So look, after ten, eleven years at MasterCard, I actually felt that it was the right time to get new blood to be the next decade of a company that is deep in technological change. And that happened simultaneously while the idea of getting a chance to become the chair of the ICC came up. And that's a part-time job. So I'm still executive chair at MasterCard, but I stepped away from day-to-day work there. And in a way the chance to get involved with the ICC was exciting. I've had an interest in trade and policy, and the interconnectivity between those across the world for some time. I served in prior presidential commissions and trade policy. And you and I have been friends for years, you know, I've got an interest in that. I know you do too. And so this gave me a chance to get involved with it. The ICC, the International Chamber, is a hundred years old Peter. And it's got 145 million or so to fifty million members, and large majority of whom are SMEs. And as you know, SMEs are normally between eighty and ninety percent of employment in a country. And they're forty to fifty percent of the business output of a country, depending on which country. Germany is different from the U.S., because Germany is more middle and smaller size businesses, and so on. But on the whole, that number applies. And so the role they play along with big companies and how trade works, and economics works, and prosperity works is actually quite high. And so I found in the ICC a chance to get involved with that. And the ICC called itself, the merchants of peace. That's how it started. If you go back a hundred years, that is a pretty good idea. And aside from the interlude, the bad interlude of the Second World War, in general, trade has helped to build boundaries, and break down the idea of violence being the way to settle a dispute in general. Now, I'm generalizing because there are many exemptions to that idea, from the whole, that has been the case. And so they were called the merchants of peace and the idea was the trade would drive prosperity and peace. And it did. If you think back, it has done so enormously. But it has had lots of challenges along the way, including, I think, the unintended consequences of poor handling of the people who were impacted by the globalization of economies and trade. And so poor leadership on that front, and the hindsight of 2020. But that, combined with the idea of driving prosperity, that's where we are today. And I think the ICC is uniquely positioned as a group of people and SMEs, and companies, to help change the dialogue on reviving the economy, reviving global trade, but then doing it for today's challenges of sustainability and inclusion at the core of how they go about it. So trying to make sure that we adapt the merchants of peace mission to what I think are today's societal challenges on climate and inclusion. The way we go about it at the ICC is also an interesting part of the answer.

The ICC basically views its role in three competences. The first one is to help to set standards. So what do I mean by that? If products and services, more so these days services, less so priorities to mostly products. Data and services are growing today the way they didn't in the past. But if products and services don't have standards for their export cross border, if your balkanized standards, train is full of friction, expensive to conduct, and basically out of reach for SMEs, it's large companies that have the capability to navigate complexity in global trade or in bilateral trade. SMEs can't deal with that. And so if you want to drive prosperity back to the ninety percent of employment, and forty, fifty percent of global GDP, etc., then you need to think about SMEs meeting a standard setting that can lead a level playing field. That's one role.

The second role is dispute settlement, world class dispute settlement. Because in trade disputes will arise between parties. And the ICC is definitely the leader, although there are others in that space as well, and they are growing over the years, but the ICC is definitely the leader in that space. And the last part, you can't do both of these things if you don't influence the mechanisms of trade, whether that be through simplifying documentation or trade facilitation agreements, the old TFA that we were trying to do around the world, and so on. And then of course, all that connects up to what's going on in the WTO. And I'm sure we will get into that. But that's how I got involved with the ICC, just out of interest and curiosity. I got dragged into it by Paul Polman, who was my predecessor. As the chair, Paul has the ability to twist my arm in unimaginable angles, which he did. And it started like that, but now I'm quite enjoying it. The guy who bleed the ICC, the president is John Denton, an Australian, who's now been in Paris for the last few years. He is definitely part of the change in this institution for the next hundred years. He's just doing a great job. So it's a nice time to be there.

HENRY: That's a great frame Ajay, thank you for that. And as I was listening to you, you know, one of the things that sort of jumps to mind. You know, you are the president of an enormous company, as is Paul Polman. And you've articulated how important global trade is for the SMEs, and the challenges of frictions for companies that aren't so large. So just talk to me for a second about how you as now executive chairman, former president and CEO of a global behemoth really can relate to the challenges of the SMEs? And why do they trust you to articulate their mission?

BANGA: The first thing for almost every big company is we are built through SMEs, our supply chains are SME dependent. And so it is almost no big company CEO who will not say this, what I'm just saying to you, because they all know that they rely on these SMEs for their system to work. And so you will find among large company CEOs, a very varying audience, when you come and speak to them about SME challenges. If you go through what happened during the pandemic, one of the first things a lot of large company CEOs did in an effort to create the push of cash into the system, was that, if necessary, we would pay our vendors even earlier. And the logic of that was even if you had a thirty-day deal with a vendor, and in good prosperous times, you might try to squeeze that to thirty-five. But in bad times, you need them to be healthy and survive as well. It's in your own self-interest. That's the first thing. And I think most SMEs who are partnered with bigger companies as part of their supply chain, get that point.

But the other part of this issue, Peter is that I have an old belief that problems in the world are on three sides of a triangle. And in a different call this morning, we were discussing something like that, at least portions of that. But one side of the triangle is the challenge of inclusion of one versus many. You can call that financial inclusion, economic inclusion, or it can be you know, gender, ethnicity. You and I are of different ethnicities, both of us have faced challenges of different types, but we don't carry that on our shoulder. So we've absorbed it a certain way. But we both have faced it and it could be sexual orientation, it could be growing up on the wrong side of the tracks, it could be born in a developing country in Africa instead of being lucky enough to be born in a country that gave you more opportunity. Who knows? But that one versus many; education, health, financial, how you were born is one real challenge. Including that is the comprehension of the importance of SMEs and micro SMEs, because without them, you don't get jobs, you don't get societal prosperity. If you grew up where I did, and where you did, we didn't grow up in this country, we grew up elsewhere. We've come here. We are the beneficiaries of the immigration system of this country, but we haven't forgotten our roots, where you could see this ahead of you. That's one thing.

The second side of the triangle is climate, is humanity versus nature. All the things that are getting discussed about green and regeneration, and nature conservation, and water, and the air, and hydrogen, and battery power, and all of that is the other side of the triangle. And my belief is that the reason that these two sides are able to stay aloft is because at the bottom end of the triangle, what keeps it supported, is the tradeoff between long term and short term. And there are too many incentives in our society, whether it be for a CEO, for a professor, for a board member, for a parent, or for a politician to operate on the shorter end of that frame. So you end up applying what are shorter term solutions to what are very long-term problems on the two sides of the triangle. And therefore you end up putting a band aid on an open wound. That's the problem. So I think, now this is not, again, I'm generalizing, there are plenty of people who don't do that. But the point I'm making is that those two sides of the triangle combined with this trade off of long and short term, is kind of what you see in an ICC, it's what you see in your job, it's what you see on boards, it's what you see as CEOs. You see it when if you’re teaching students around the world. It's just, it's what I see all the time.

HENRY: Very apropos to that Ajay, you talked about some of the short-term challenges during COVID that SMEs faced. So taking your triangle and thinking of the long-term view, help us understand as chairman of the ICC, what are your top priorities for, you know, from an inclusion perspective and a climate perspective, what things would you like to drive, let's say, your top two goals in some sense as chairman?

BANGA: So I'll say, the ICC is a little different from what I do here at MasterCard, right. So interchange. 

HENRY: Oh yeah let's go back and forth.

BANGA:  But the ICC level, Peter, because it's connected back to companies and SMEs in a big way, my biggest concern during the beginnings of the COVID crisis was the drying up of cash and credit to SMEs, particularly in the case of cross border trade. Now, fortunately, financial regulators and politicians around the world, we learned a very hard lesson, the 2008, 2009 crisis, which was very well applied in the current period which was ensuring liquidity and cash in the system. And we, frankly every country that could afford it has taken unprecedented actions in that space. Now, that's actually in some ways, I think, exacerbated the divide, because those who could not afford it, have a new challenge ahead of them. But we will come back to that. So that fear I had of the freezing of markets for trade and credit for SME, while it did happen to an extent, it didn't happen to the extent that I was fearful of. Now I think over the medium and long term, we need to think about how do you make sure this gets embedded. And one of the things that happened in the last crisis was that we created something called the Financial Stability Board, which the G20 got together. And in fact, Mark Carney, Tim Geithner, Thurman from Singapore, these are all amazing people who were involved with it. And they drove the idea of doing no harm between the cross border flow of financial services, and the ability for the markets to work while trying to improve their own countries. And I think we need some thinking like that big picture in different spaces to do with data and technology, given the balkanization we're seeing. But again, we'll come back to that as we go along. Back to this point, I think that was one big issue that I worried about.

The other one was just if you weren't digital, when the pandemic hit, you are pretty much dead as a business. Because there was no place for you to service anyone, nobody could come to you. There was no physical movement. If you were a restaurant, that is curtains. If you were a grocery store and you didn't do digital delivery, curtains. If you are Walmart and you want good additional delivery, not a good time. On the other hand, if you were Amazon, this was a great opportunity for you to demonstrate how good your services were, and how much even better you could be. So everybody had a challenge of some type at this period. But SMEs don't have legions of people helping them go digital. They don't even know how build a website or manage inventory on that website or accept payments from a website, on how to keep data safe, and how to manage it. They couldn't do it. So I think you find people struggling to do that. Lots of companies ours including, stepped in to help bridge this and build digital doors. We call it digital doors, an effort to help SMEs go online, in everything from websites to payments, to inventory to security, to data, to analytics. And I think a lot of people have made a lot of progress in that space, but that to me was the second big concern. And I think that's a concern that will stay with us for some time. If you want to go a little bit more on the individual basis, we saw this digital divide play out every day, even in the United States. And forget about urban vs rural. We saw it in New York City, where kids who had to do remote learning, those who had access to broadband, okay, not ideal for a better experience. Those who didn't, were sitting outside their libraries, their centers of senior citizens, other places, anywhere where they can get free Wi Fi in an effort to keep pace with their school curriculum. That's bad stuff.

So access to infrastructure, the affordability of it, all this Peter, comfort with dealing with it, these are issues that are present, even in the US, let alone outside. And so you know, there's a lot going on in inclusion that the pandemic has exposed. I would, please don't blame it on the pandemic, I think these issues have been in our society for a while, the pandemic has just shown a very harsh light on them, and maybe made them more visible to our eyes in a far more kind of slap in the face way than it was in the past. That's kind of one angle. I think, on the green side of it, again, climate change is not something new. If anything, the pandemic actually showed people in many countries around the world, when economic activity and travel ground to a halt, the skies became clearer. There are n numbers of stories about that. When the skies became clearer without activity, that's a bad trade off because that says you're going to halt the economy in this current trade off to get back the air you breathe. That can't be the right answer. And I think that just brings again, deep and center how important this issue is in how we rebuild back better over the coming period, caring about people and planet, as everybody says, right. So that's just one person's view.

HENRY: Yeah, so let's continue to run with that Ajay. And I want to think about how to connect that also to your work at MasterCard as well. But you've started this [ INAUDIBLE] an announcement back in March, the ICC about the state of technology forum, which is kind of a way of, as I understand it, of trying to think about how to create more interoperability among sort of technology platforms, and so on for SMEs to an inclusion side to make things easier. Could you tell us a bit about how that work is going on? I know you're trying to get it on the G7 agenda, how's that moving forward?

BANGA: So there are three things we were trying to do. One on inclusion is exactly that. It's called the digital standards initiative. And the idea was to use the pandemic's sort of drive on digital as a way to help coalesce like-minded people into thinking about standards around documentation, complexity, the whole trade facilitation agreement, idea, but done digital, and make it simpler for people to get access to import export, as well as cash flow, credit insurance, all that. And then underlying all that is the idea of digital identities, which we will need to have in some way, in a coming digital world. And this digital standards initiative has been set up in Singapore, with the Singapore government being one of the partners to kick it off. And the idea is to start with some couple of pilots in the space of trade facilitation and paperwork and the like. But then grow it into digital identity, cybersecurity, data privacy, the kind of things that will help make for a safer environment for digital trade in the coming years. So that's one big space.

The second big space that we are trying to work on is the idea in sustainability, where things like blended finance, which could be very helpful in the future, both for inclusion but also for green, and how to drive that into system. So Indonesia, and the Indonesian government are taking a fairly strong lead in trying to drive this as an example. But there are other governments around the world and there are a number of institutions around the world discussing this topic. And the ICC is trying to put its voice into that space as well. So there are a couple of these initiatives that I think you've got turbocharged over the course of the pandemic. But again, they date earlier, but they've got a little more energy. And then of course, there's the whole aspect of vaccines and equitable distribution there. So there's a lot of work going on with co-vax and the WHO which John Benton, our president of the ICC has been quite actively involved in, in an effort to allow for equitable distribution and the keeping aside of manufacturing capacity, and so on. Things that we at MasterCard are trying to do as well and other companies are as well. I mean, there's a lot of people working in that space and the ICC is one cog in that wheel trying to lend its voice to it.

HENRY: So talk a little bit about the levers Ajay because when you're CEO and president CEO of MasterCard, certain levers you could pull and push to drive growth and change in any organization. So talk to us first about the how, how is it different trying to drive change both of the ICC, and then talk us also then about some things you tried to do now as executive chairman at MasterCard.

BANGA: I mean, the ICC, it's like an amoeba. You push it into one end, and it comes out the other end. They don't really realize where it has, because remember, it's not a company with, you know, employees in a place who all report up into hierarchy. The ICC is a loose federation of chambers of commerce in a number of countries. All the countries around the world, all of whom have, because they've got local membership, they do have local constraints and issues that they need to deal with. And the ICC attempts to find the common thread across those, to the extent possible, you got to be careful not to end up at the lowest common denominator, whether that's not going to get you anywhere. And so, it is truly like managing a complex negotiation of an association, very different from running a company. And so it couldn't be more unalike in that sense. The difference is I as chair don't actually have to do what John Denton as the president truly deals with on a daily basis.

HENRY: I see.

BANGA: I am able to raise issues at a board level or with the chambers when I speak to them, or when I get a chance to travel, which I've not done through this year as the way I used to, but get a chance to communicate what I think are overarching issues and get some alignment. The good news is there is fairly clear alignment on economic growth, sustainability, and reviving global trade. There is clear alignment on setting standards, dispute resolution, and influencing the mechanisms of trade. The challenge often comes in the detail of what that means. So if you're in a country where fossil fuels are still important, as a big contributor to your economy, obviously discussing humanity versus nature is going to be a more complicated discussion than it is in another country. Doesn't mean that you shouldn't have the discussion just means you need to be thoughtful about the migration path. And the good news is the world seems to be moving in a different way, even when you saw the international energy authority publish recent papers asking its members to really think in terms of moving away from fossil fuels. And that's an unimaginable event just one year ago. So I think there's a lot going on here that's tailwind in the sails of institutions like ours. But it's tough Peter. It's very though. There is a lot of work here that it's a lot of diplomacy and a lot of arguing that goes into it.

Then there's the issue of institutions like the WTO, which the ICC could go to the WTO or go to the UN and multilateral agencies, and attempt to exert influence through that a decade ago. The past decade has seen multilateral institutions diminish in their stature, diminishing their capability to deliver quantifiable agreeable outcomes, and as a result, the UN, the WTO, the WHO, a number of these institutions, are not as capable of driving change as they were a decade ago. Now, that's a bigger and more serious challenge ahead of all of us because, you know, we can talk about WTO reform and things that I believe there, but that's kind of a whole space that the ICC is very committed to. We really want to work with the WTO and countries around the world, the G7, the G20 and others, to help drive the right kind of reform at the WTO. Because we believe that that's going to be really critical if we're going to get the trade system working again globally. I don't have nothing against bilateral and regional deals. Lots of those are happening and they do help to set a bar, and they do help to set, to move the needle forward, but they also can create balkanization of standards. And balkanization of standards, back to where we started, is the enemy of SMEs. And so I worry about that as we go along.

HENRY: So I want to pivot to MasterCard for a second. I could continue to ask you questions about this but I'm sure that our audience would have questions about this as well. Tell us about, so you talked about the differences, driving change, kind of a cheer level for the ICC, versus, you know, a business level MasterCard, what is your day to day look like at MasterCard now? What are you working on? What are excited about? What's ready in this?

BANGA: Yeah so what I do right now is, Michael who is my successor, terrific guy. He has been here close to a decade, and I've known him for two decades. He runs the company, runs the business. The business reports to him, that is very clear. In fact, he and I put out a note to the entire company in December, clarifying exactly what he would do and what I would do, more what I would not do so that there would be no confusion in the company. And my job, in addition to being the chair of the board, is to help him with clients and regulators where I might know them better than he might just because I have been here more than a decade. I have spent a decade and a half at Citi earlier and time at Nestle, and worked in many countries around the world. I might just know more people that he does. And so when I can help him with clients, when I can help him with regulators, when I can help them with opinion leaders, I am trying my best. And my task is to get him to know them and then allow him to build his own relationship of trust with them, so there he can continue to work we started. That's kind of one big job that I'm trying to do. The second job I'm trying to do with him is be a sounding board for things that are difficult for him. You know, when you're a new CEO, no matter how well you might have been prepared for the role, there's always something new. You knew that when you became dean of NYU Stern. There was stuff that came in view from left field that you had to sit back and scratch your head and say where the heck did that come from? 

HENRY: That's why the hair is gray now (Laughs).

BANGA: Yeah, exactly. That's an excuse. But it's not a good enough excuse. So (Laughs). So that, you know, I think that is a challenge for everybody who runs someplace. And I think Michael uses me in a very constructive way I find. He'll wander by to my office, when I'm in the office three days, I'm here three days in a week typically, and I'll try not to come in five days a week. And I'm available from home, work from home the other two. And he will walk into my office and three times in a day, five times in a day and say, hey I just have a peculiar situation, here's what I'm thinking, what do you think? And that enables a trusting sort of friend system to stay in place. And that includes everything from people, organization structure, MMA, anything, and all that. What's frustrating? Very little. I could not be happier. You know, when I look back on the transition, I look at the work that went into it for the last few years and look at how well he is doing now, I could not be more proud of the guy. I just could not. And I say this to him privately and I say it publicly.  I am his strongest cheerleader. And I wish only for him to succeed. And he's doing a really nice job thus far. And I hope therefore that I would never have to feel otherwise. That doesn't mean he doesn't make a mistake and he doesn't need help. I do that too, every day of the week. But that's the idea. The driving change in a company Peter is a fascinating exercise in itself. And I think I've been getting a ton of interviews recently about the change in culture at MasterCard over the decades. And it all looks very clear and simple right now, but honestly, they have figured it out as we went along. We blundered into blind alleys, we went down one-way streets, we hit home runs and we also got struck out, to use baseball parlance that I didn't know twenty years ago. I would have gone back to cricket that you and I knew, but we did all that and now it all looks like it worked out well. But life is fifty percent luck and I've had my share of luck in that process. And I will always wish that upon anybody who's trying to take on a cultural change.

HENRY: Well you're very modest Ajay and I think what you've described is a process of, you know, inductive change rather than deductive change. But I would say that one of the things that's always struck me about your leadership style was a comment that you once shared with me many years ago we were in a meeting together, in a sidebar. And you said, I always say to my employees, my team, bad news takes the elevator, good news takes the stairs. You always been very clear about wanting bad news to come to you very quickly.

BANGA: That's correct

HENRY: And looking it in the eye and dealing with it. And I suspect that's has a lot to do with why people want to perform for you, why you've been able to navigate.


BANGA: So there are two or three sayings like that that have stuck with me in my head. One was that bad news takes the elevator, good news takes the staircase. Because you know that when you're the boss, people love giving you the good news, the problem is, that's not really going to make you more successful.

HENRY: Exactly.

BANGA: And so that's an issue. And so you need to make them feel okay with bringing you bad news. That was my way of communicating that. But you have to live up to it by not shooting the messenger as well. So it's okay to say it, but you've got to actually live up to it. And, but if you bring me the same bad news two or three times and you're the principal cause of it, that will not be a good conversation. But otherwise, it's a good thing. The second one was that you have to listen to everyone, and you can learn from everybody. And so the patience to listen combined with the urgency to feel the pressure to take a decision is a rare trade off that you have to make. And you can see I speak in tradeoffs, right. One versus many. And same way here. It's the nuance, and I'll come to this nuanced topic of working between listening with patients but acting with urgency. And so that one translates into God gave you two ears, two eyes and a mouth for a reason. There's a ratio for that. There's as ratio there and there's a reason for the ratio. But most of us tend not to pay too much attention to that ratio. Like I'm not doing it currently because you're the one asking me questions, and I'm the one quacking so my mouth is operating more than my ears and in my eyes. And so that's another one. I think the third part that really matters is you have to be competitively paranoid, you have to question everything, always. That's important. But you got to figure that out. But you have to do it in a way that's constructive for people to come with you. Meaning you can't throw rocks at them by questioning. You have to involve them in this journey of being competitively paranoid. So you have to empower them, therefore, but then hold them accountable for that empowerment. That's the only way you will enable this idea of taking a risk, taking it thoughtfully, empowering them, holding them accountable. That's the journey of being competitively paranoid. It doesn't work otherwise.

And so underlying all this, the thing that you won't shoot the messenger, the fact that you will listen to everybody, the fact that you're willing to take a risk and be competitively paranoid, underlying all this is the idea of bringing your heart and your mind to work. And what we in the company say not enough to bring your IQ and EQ. You have to bring your dq, your decency caution to work. And if you bring that then people will work with you and for you all the time. Now, there are times when you lose your temper, it's normal. I'm not going to hold myself to some exalted standard. I'm not. I've got feelings. My children and wife, as you know well, will tell you that. But you have to try. And so those three things, this idea of, you know, good news and bad news, the status in the elevator, the two eyes, two ears and one mouth, and the idea of finding a way to allow people to feel that your decency is what you lead with, is really important.


HENRY: On the spirit of bringing people along the journey Ajay, we've got over a hundred participants who'd like to ask you some questions. So I'm going to be quiet and open it to our moderator to open up to the floor, so to speak, for questions from the CFR audience. Floor is open.

STAFF: Let's take the first question from Hari Hariharan.

Q: Thank you. I'm Hari Hariharan. I am CEO of NWI management and asset manager in New York. Ajay, thank you for some great comments. I want to bring you to the here and present relating to the U.S.-China relationship. Because, you know, probably you have dealt as well with your experience. And what I find interesting is that the inclusion of macro political into macro-economic is complete here. And you know, the Chinese, for example, are very concerned that national security, when that becomes a dynamic on which things like trade policy get calibrated, it's very difficult to come to any kind of intelligent exit ramp. So here's the question, how do you think this plays out this relationship? Are we going to force the world to make a choice between the U.S. and China as you know, to disparate entities? Or do you think there's a chance that at some stage, we do get to some sensible exit plan, especially on trade, thank you.

BANGA: So Hari, there's always a chance. I'm an eternal optimist, and there's always a chance. But I would say to you that you cannot earn that chance without confronting the challenges in front of the chance. And so I believe that for many years, when we followed the doctrine that if we open up markets and allow China to get access to these markets, by building their own institutions and their own prosperity, and their own innovation, and their own capitalist structures, that somehow that would make them more like us. I think that theory of the case has been called into question over the last decade or so, more transparently over the last few years than prior, but it's there. And I think it's not being helped by actions on both sides of the divide. So if you were sitting on the Chinese side of the divide, you would say that, by focusing on things like the China virus, and the Wuhan virus, was probably not the best way to help them to cooperate with us on fighting what became a global pandemic. You might well believe that it came from Guam for all the right reasons. That's what the news reports wrote. I believe that originated there, too. I don't know any better. But that doesn't mean that you should label it as somehow their fault, as compared to how do I involve them in solving what is a globally critical circumstance? So why am I saying this? I think there are a number of areas, the pandemic being one, climate change being another things of that nature, we're working with people who could otherwise be adversarial on other economic matters, is still something we should be very open to, and we should take constructive steps towards.

Now we, on the other hand in the United States, have felt for years that China has taken advantage of the opening up of the system, and it hasn't played on a level playing field, whether that be. You could say the WTO was not designed for an economy that is so dominated by state owned enterprises, and you will probably be right. And so there is that challenge as well to be surmounted and managed. And there's many other issues underlying that from intellectual property to the concerns that America as a democratic driver in the world has around human rights and Taiwan, and South China Sea, and rites of navigation, and the reaction to Australia's questioning of certain things, and I get that. So there's enough grist on both sides of this mill for us to now be in a place where we seem to be rowing in different directions. And I would argue that the balkanization that you're worried about began some years ago. We already have two internets in some ways. Google doesn't operate that, it's Baidu. Though you know, we as a company, until very recently, we only operate cross border. We are now in the process of being considered favorably by the Chinese government to be able to operate locally for local citizens, but with many constraints and restrictions that they feel, so their system. And so these are not easy answers and I believe that there's enough going on both sides, for us to feel that balkanization is inevitable. But it cannot be that the two largest economies in the world end up basically drifting apart. You know, think if you are [INAUDIBLE], knew Southeast Asia, if I asked you to make a choice between China and the United States, that's a Hobson's choice for you. And it's an unfair choice to impose upon either your allies or your neighbors, depending on who you happen to be. And so I think, both these large economies in the world and like-minded nations on both sides of this need to take a deep breath and start thinking about the shared prosperity of nations, and the shared prosperity of people, and the challenges of climate and inclusion that I talked about at the beginning. You're not going to solve them by balkanizing.

Now, my general view on a number of these things, take trade. My general view on data and services trade, which I think is going to be the future is that we need something like the Financial Stability Board that I referred to where Mark Carney and Tim Geithner, and Carmen, and a bunch of other people helped to establish that for the last crisis, we need a data and technology board now at the G7, and the G20. And shame on us if we don't get it going. We need the regulators and the opinion leaders, not so much corporations like mine. That's fine. You can take my opinion, but we need regulators and opinion leaders sitting around a table saying, how do we do the right thing on data and technology. So we take the world forward to enable the amazing power of the Internet of 5G, of 6G to come, of data, of cross border flows, while not sacrificing what is true national security. There are many ways through encryption of data, through anonymization of data, through structures of legal structures and organizational structures, the US MCA, the TPP, now CPTPP, the DEPA. These are all demonstrated ways in which you can do this in a way that allows for the commonality of trust between nations. And so it is time for the G20 and the G7 to step up and carry the weight on this topic, as compared to a lot of corporations to be at the front end of the arrow to fight this. That's nonsense. It has to change. So that's one example.

The same for trade. A little while back, I had the privilege of serving on a CSI commission, chaired by a number of very good people on publishing the ideas for trade, just before the prior administration was stepping down, unexpected of who won, it was meant for them. And a few things we talked about where exactly this, how about recreating a global trade compact with like-minded allies. How about trying to revive the entire operating and body system in the WTO, notification standards in the WTO, the trade policy reviews that even the United States has stepped away from this. So many things we can constructively engage in on old fashioned trade, as well as new trade and data and services that if you like I can talk more about but that's kind of where I'm going with this. So I'm an optimist. I believe leadership will come to the fore at the G7 and the G20 on this topic. I think that is the only way forward. We need to do it. I think the Biden administration is attempting to take a practical view on this, but they are clearly going to be more focused on how trade impacts their domestic agenda too, and how it impacts workers, and does not have the negative consequences that prior trade agreements did. I think all that is fair game. These are fine discussions. There's nothing wrong with discussions. There is a problem with abdication.

HENRY: Ajay, thank you for that hardheaded but constructive answer. We have another question.

STAFF: Let's take the next question from Cynthia Roberts.

Q: Thank you very much for doing this. I wanted to ask you about central bank digital currencies. You've referenced Mark Carney a couple of times on Financial Stability Board. He's also been an advocate of issuing a collective central bank digital currency. You've also mentioned China, which has been a leader in this kind of currency. So I wonder if anyone has been taking the elevator in MasterCard, to warn you of the implications when the US eventually gets around to doing this. And oh, I'm an academic from City University of New York. Thanks very much.

BANGA: Hi, Cynthia. Thank you. Well, so at MasterCard, again, one of our little-known secrets is that we are probably the world's largest patent holder in central bank digital currencies. Because we've been investing in them for the last three to five years. We are among the largest patent holders in the use of block chain in different ways, not just for currency, but also for smart contracts and proof of origin, and proof of provenance, and cross border trade, and the like. The reason for that is that somebody did take the elevator some time ago, and kind of said, you need to put your money where your mouth is kind of thing. My problem with digital currencies is actually not with CBDCs. It is with volatile, non-pegged currencies, which I think are actually more like asset classes, not currencies, that's a different issue. That's not your question. My general view of CBDCs and all the work that the devil is in the details. First of all, why do you need a CBDC? If all you're taking is taking your current physical currency and calling it a digital currency, then what are you creating and facilitating a deal with. You're trying to, what are you trying to achieve? Are you trying to in the case of places like the Nordics, are you trying to find a role for the government and the citizenry, the social contract of currency when cash has reduced to a level where there is very little physical usage. Interesting issue.

The same is true of the UK, which is beginning to think about it that way. In a lot of other countries, including the US, aside from the pandemic, cash is still a pretty large component of our economy in terms of percentage of transactions. But you might still have a role to play for CBDCs, which reduces cost or reduces friction in some way. And I believe we can actually be helpful in doing that. My general view is that even though I have a card in my name, I'm not attached to form factors. I am attached to being involved in the flow of transactions. That's what I care about. Whether it's a guardrail or real time payments, well, which we are very active provenance of, we are, we own Vocalink. We are the software provider of the Clearinghouse. And in twelve of the top fifty GDP countries in the world, we are the provider of real time payments from Saudi to the Philippines to hopefully Canada soon to Peru to, you know, the Nordics to a number of other places.

So I am really agnostic, personally, but your question is not about me, it's really about CBDCs. And I think there's an enormous opportunity there if we can figure out the right role. Some of the concern around CBDCs, there are two or three concerns. The first is how do you protect the rights of citizens in that circumstance? So if in the process of doing a CBDC, you now get to know everything about what everybody is doing even more than you already knew. And you now know that Peter, therefore, is buying glue ties and a suitcase, and Hawaiian shorts. And so he's probably going away somewhere that I'm not sure that's exactly what citizenry want in many countries. So therefore, your privacy, data standards, all that is going to be an important element of how CBDCs are put in. The second aspect of this is, is it single tier or double tier. Meaning, are you ending up opening bank accounts directly with the central bank of a country. What are the implications of that for monetary policy for how you control it for a run on the bank in the future where then it's the central bank directly with a digital system, where the run will be much faster. What exactly is the role of a commercial bank in the system? How do we really look at the monetary system in that case, and what a bank deposits mean any longer, and so on and so forth. So there's that. And then there's the whole aspect of cybersecurity and privacy in that new environment of a central bank digital currency. So there's many different rules that need to be worked through. But I'm generally, my view is we should embrace the idea and work with it and find solutions. Because this looks like a technology that has legs.

HENRY: Thank you for that Ajay. We have another question.

STAFF: We will take the next question from Fred Hochberg. 

Q: Hello Ajay, how are you? Just going back to the MasterCard model, can you help us understand the difference in the MasterCard model versus Visa? And looking forward with digital, with online payments and so forth, what are the challenges to sort of that the credit card model? Because I know a number of young people, I'm not one of them, looking more at debit cards versus credit cards, and that whole issue. So maybe you could just unpack that a little bit for us.

BANGA: Sure. So let's take the first question first. So there are a number of players in the model. What we are basically is we are a, think of us as a railroad or where we operate the rail. We don't actually run the cars that run on the railroad. So we provide interoperability, we provide standards, we provide the ability for you as a railroad operator to decide whether you would run passenger trains or freight trains or a mix of them to decide whether the passenger train should have a first class or only a second class. Whether they should be air conditioned or not, has sleepers are not, provide for food or not, serve booze or not, play music, have a disco bar or not, actually get somewhere or not, or just go around in circles. That's your call. I just create the ability for you to run all that in a seamless way. We don't have to get off every time you cross a border and get onto a different train, because the rails are of a different type and don't run the same tracks. That's the idea. Visa and in that sense, Visa, US, Amex, Discover, China UnionPay, lots of local schemes in many countries, you know. In Canada, in Australia with EFT pos, in France with card bank there, there are many such competitors across the world, Rupay in India, there are many. The difference between us and Visa, which I would consider to be our first and principal competitor, is along the lines of one, they're bigger than us, which makes them bigger. But two, our entire effort is that we've openly served via rail agnostic, which answers a little bit into your next question. I don't care whether you use a credit card, a debit card, or you don't use a card at all, and you use an account to account based payment or a block chain tomorrow, or for that matter, Fred, that you and I rub our foreheads together, and somehow that makes $200 come to be. I don't care about form factors. I don't care about rails. We are a rail agnostic form factor agnostic company, even though we have a card in our name, and my jokingly ask all my friends, you know, Tim Cook runs Apple is a friend [INAUDIBLE], but Apple doesn't sell apples for God's sake. And nobody asked him why he doesn't sell apples. And Amazon actually is a river in Brazil. But somehow, I keep getting asked about cards. And that's my feeling, not Tim's or Jeff's, they've done a better job than I am. And so the fact here is that I'm really agnostic, that makes us very different.

Two, we have over the last some years committed to growing out our data analytics and services businesses. And I've invested heavily in that space from cybersecurity, to analytics of all types. And by doing so have now made that segment thirty-six to forty percent our revenue depending on the quarter. It was four percent when I became CEO, and that has been a publicly proclaimed strategy for us, which is not necessarily the case over the last decade for a number of our competitors, not just Visa. And the last piece I think has a great deal to do with the manner in which our technology is constructed. Our technology, thanks to my predecessor actually, goes back eleven years, is built in a hybrid form by which not all our transactions come back to some master base to be approved. They're approved at local servers at a country level, eighty percent of them based on intelligent logic that is downloaded into those servers multiple times a day. And consequently, our continuity of business, our local localization ability is very high. So if the undersea cable broke between Taiwan and the U.S., as it did in an earthquake, we can just switch from eight to one hundred percent, and all the transactions keep getting approved domestically, running a risk on the twenty that we're coming back for a more detailed AI based cyber check. That's kind of the thing. Now Visa is an amazing competitor. It's wrong to be wrong. These guys are hard, great competitors. But we have differences between us caused by the way our strategy has unfolded over the last few years. And that's kind of the nature of the model.

The second question about debit and credit. I've seen this topic of, forget about card. Because again, card is a form factor. And you know, that doesn't matter to me. But if you were to be using paying later, which is credit versus paying now, which is debit, versus paying earlier, which is prepaid, and there are only those three ways to pay, unless you choose not to pay, that's a fourth way, but that's not a good way. So you either pay in advance, or you pay now, or you pay later. And that's prepaid, debit or credit. Many often in my years before, this was fourteen years at Citi, and before that I was in consumer products so I didn't care as much, but I've heard this idea of credit demise, and debits rise, and it kind of ebbs and flows, depending on the circumstances that people are going through. In the last few years, first to the 2008, 2009 crisis, and now again in this pandemic, I've certainly seen a greater shift to debit. But I've also seen it begin to swing back to credit when the economy improves. These products satisfy different needs for different people, and they each have their own role to play depending on what that person wants. That they should do it with a sense of responsibility, yes, that they should do it knowing what they are doing, yes. But that you should give them choice, that's my view. So choice in real, choice and how you pay earlier, now or later. That's the game. I mean, I'm in the choice game.

HENRY: Ajay we have four minutes and one question. So let's have the question, please.

STAFF: We will take the next question from Jonathan Berman.

Q: Hi, Ajay. Hi, Peter. Nice to see you. My question Ajay, thank you both for doing this. My question is around a different kind of balkanization, and that is around vaccines. So whether at the individual level or at the nation level, did you see a risk of the economy being vaccinated by those who have and those who haven't had vaccines? And if you do see the risk, what do we do about it?

BANGA: Yeah, so I think vaccinations is the whole new divide, right, digital divide, the vaccination divide. To be honest, I think the administration is doing an amazing job of trying to get vaccinations out there and trying to educate communities to absorb these vaccinations, irrespective of either your education, or your location, or your ethnicity. But short of mandating it, which I don't think is an American system.

The only way you can do it is through encouraging with community leaders and advertising, and the like. My bigger concern is across geographies. And then I am deeply, deeply worried. And I think that you will see our company has made a lot of effort through our own commitments as a company with commitments to India and to COVAX, and to the Bill Gates therapeutic accelerator, but you will see more announcements of that type coming out from us and others in an effort to drive the equitable access to vaccines. And I've spoken up frequently about this. We have to realize one thing. You are only as safe as the weakest link in vaccination, just like in cyber security, we're only as safe as our weakest link. In the same way, in vaccinations, we're only as safe as our weakest link because of mutations and variants, and global travel, and the interconnectedness of our world. And I think therefore, your question is a great question. I don't know the right answer. Have I wondered about it? Deeply. Can I do a great deal about it? Whatever I can, I'm trying to by raising my voice, by putting our company shoulder to it, by putting my own personal efforts at it. I would encourage everybody to try that. Because this is gonna take everyone's shoulder to the wheel to make a difference. This is the single biggest crisis that we currently have ahead of us. And it needs good thinking and fair thinking to be applied.

HENRY: Ajay, they say that the role of a leader is to define reality and give hope. I think you've done that particularly well today, and particularly well with your last answer. I want to thank you for joining us for sharing your insight and frankly, your character with us. I want to thank all of you who've joined us here today for being part of this CFR Bernard L Schwartz lecture. And we would ask that you'll be with us next time as well. And that is it for today. As a reminder, this lecture will be posted on the CFR website. With that I wish you a good day. And Ajay thank you once again for that.

BANGA:  Thank you again Peter. Thanks again. Thanks everybody. Bye bye.


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