Podcast: Mastercard developing gen AI tool for businesses

Vaidik Trivedi 10:59:09
Hello, and welcome to The Buzz, a bank automation news podcast. My name is Vaidik Trivedi and I’m the associate editor of bank automation News. Today is March 26 2024. And we will be talking to Jane Prokop. The Global Head of small and medium sized enterprises at MasterCard. Jane has been in the financial services industry for over two decades, working at multiple companies in a variety of roles, like as an investment officer at AIG, and as the chief executive of principles capital, a privately held speciality finance company that provided financing to small and medium sized businesses in US and Canada. Today, we will discuss what challenges small and medium sized businesses are facing how MasterCard is working to resolve those issues. Where does generative AI fit in the picture? And what’s in store for MasterCards SME division for 2024. Welcome, Jane, thank you so much for jumping on the podcast today. Can you give a little bit of introduction about yourself and what you do at MasterCard?Jane Prokop 11:00:16
Absolutely. Hi, Vaidik, thank you for having me on the podcast. It’s very exciting. So briefly, my background, I’ve had over 20 years of experience primarily in the financial services sector, and in various areas of financial services. And about half that time, I’ve spent really deeply immersed in the small business financing space, where I ran a company that did unsecured high risk lending to small and medium sized businesses in the US and Canada. And what I discovered during that journey was just, you know, the magnitude and diversity of the challenges that are faced in the small business space, but also a great deal about the promise of growth that lies within that space. That’s very exciting for me, and I’m coming to MasterCard. My role here is to lead our global strategy for supporting the small and medium enterprise segments. So we drive innovation, we drive strategy and product development for that space globally. And of course, in doing so we we build on and leverage MasterCard strengths in card and non card that is multi rail payments, as well as a full set of assets across the data space, cyber, software and network assets. So our goal in the in the group is to develop high value, easy to use products that meet SMEs, key needs, across payments and a number of other areas.

Vaidik Trivedi 11:01:49
That sounds really exciting. Small businesses are the backbone of the US economy and a lot of economies. Can you tell me? What’s the state of small and medium sized businesses?

Jane Prokop 11:02:04
Absolutely. It’s been really an interesting experience over the past several years, I would say, if you back up a little bit, and go back five to 10 years, you’d see, you know, a huge proliferation of new technology and new tools, abilities to customize. And those tools and really an expansion, massive expansion and alternative data. And these are general tailwinds, I think that have driven innovation and improvement in the small business space, then you go two years forward and hit the pandemic. And there we saw that it was, you know, it really drove a lot of businesses to go online, and to enter the digital world if they had not already at that point, because it was a matter of survival for many companies. So the the issue was that, in the case of SMEs, many of them weren’t fully able to embrace these new new tools, for a number of reasons. You know, fear of fraud, transaction costs involved, lack of bandwidth, to evaluate some of the new tools. And so I think the result of the pandemic was mixed in that we saw a number of companies become stronger and, and really, greatly expand the way they did business. Others were unable to survive. So now we move into post pandemic time. And we’ve seen very recently that 2023 was a was a tough year for a lot of small businesses. And I would say that was that was driven by all the different threats we’ve seen right geopolitical threats, with the various conflicts that have sprung up in the past couple of years. macro economic factors. We saw inflation, we saw disruption of supply chains that created uncertainty for many of the small businesses. And although we did see a big recovery in sentiment, some of these factors still I mean, in the economy today,

Vaidik Trivedi 11:04:09
that makes sense pandemic was really a massive disruptive for almost every sector of the economy and our lives in general. Can you tell me what was the biggest pain points that SMBs felt in going digital? In the types of pandemic?

Jane Prokop 11:04:30
Yeah, absolutely. I would say that there are a few different things. One is that there has been a surge, as I mentioned earlier, in companies that are developing point solutions for SMEs over the past 10 years. So there are lots of different new software’s to handle accounting, or invoicing or marketing or website building, and so on and so forth. And, you know, that’s, we’ve tallied the count at being hired than 750 new companies that have emerged in the past few years. But in fact, that creates a management problem for SMEs. So first, they have to learn about the tools they have to get educated on, then they have to learn how to use them, and they have to teach their, you know, their, their staff to use them. And then they have to figure out how to pull together the data that’s been generated by these tools. And of course, the data that the tools need to consume as well into a holistic view. And that’s been a challenge for I would say, most SMEs right up through the lower middle market, because, you know, they have a fragmented landscape of tools today. So at the same time, they’re facing and many of them now have aspirations that go beyond their local markets. So they look to both source product internationally and to sell internationally. And the, the tools including payment methods, that enable that are often not fully developed. So they face a number of issues in in actually be able to sell and be able to source globally. So some of the needs that we see are really about simplifying that experience for SMEs. And that’s really critical to serve the sector sector is to bring together the critical tools that they need to manage their business operations into one place and make them relatively easily consumable. Then to provide the intelligence that results from those tools, to the owners and the executives of, of small and medium businesses, that gives them the intelligence to understand how to prioritize their activity, you know, they have limited, as I mentioned earlier, limited bandwidth to spend. So they need to spend it quite precisely, you know, and have a laser focus on what they need to do to move the needle for their business. So those are a couple of things that have kind of come out of this push toward rapid push toward digitization, in the past few years. That makes

Vaidik Trivedi 11:07:15
sense. Fragmented tools are really difficult to work with. Can you tell me what is MasterCard doing to help small and medium sized businesses?

Jane Prokop 11:07:24
Yeah, that’s a that’s a great question. A couple of things. One is that we’re introducing all sorts of means to drive the ability of small and medium businesses to accept payments, you know, because one of the first things they need to do when they’re going online is figure out how to collect payments. So we have tools such as our tap on phone functionality, which enables small business owner to use any smartphone that has near field communications, enabled and use that to accept payments, digital payments ran on the phone. And we’ve seen we’ve really grown that network enormously. we’ve more than doubled those locations since 2016. And so that’s been that’s been an important part of ensuring that the capability to accept payments online is extending out beyond areas that are you know, have very good sort of legacy broadband wiring, and so on that that under underlay the traditional POS terminals. We are also doing things like creating a program called click to pay online, which is a streamline guest checkout that spans across merchants so that solutions, consumers can use the solution to securely checkout instead of entering their data in every different website, every different portal separately. So it’s a very simple and secure checkout experience. And that is helped quite a bit. To make consumers more comfortable about buying from small businesses online. The other we’ve also done some work to simplify cross border payments for SMEs. So there are pain points around Cross Border Services. And I would say that the biggest ones there are that, you know, there, there’s fear of data security, when when SMEs are making or accepting online payments, across border, fear of fraud. There’s also a lack of transparency about the costs and the timing, when of when these payments are going to be made. So we have a solution called cross border Express, which we introduced last year, which enables any financial institution or FinTech, any player basically, to embed our functionality into their online presence, whereby the, their small business customer can click on a link, and then make a payment very securely to an international receiver. And they get full transparency about the fees at the time, they’re arranging the payment, and they they have full transparency of when the payments going to hit. Most of them are virtually instant. So it’s it’s very close to real time. And they know exactly how much money has been received on the other end. So this is this is really critical to helping them drive, you know, they’re they’re built, they’re sourcing and they’re selling internationally,

Vaidik Trivedi 11:10:41
having cross border solutions in a globalized economy is very essential. Have you seen at MasterCard that a lot of businesses, they don’t want to expand beyond a certain geography, because they there’s a lot of friction in accepting payments and going through regulatory compliance for a different geography.

Jane Prokop 11:11:04
We actually see, I think that a lot of the companies would like to be able to, to have scope of operations beyond their local economy. And, you know, 75%, our research are showing that 75% of them agree that sending online cross border payments has helped there has helped our business to grow post pandemic. So we do see, generally speaking, a, a a need and a desire to act on their local markets. You don’t see many businesses who are saying no, I want to stay local specifically. You mentioned

Vaidik Trivedi 11:11:46
that macro economy has been a bit harsh in the last year. And I wanted to know, how is MasterCard working with financial institutions or fintechs to expand capital access to these SMBs?

Jane Prokop 11:12:04
Yeah, that’s a great question. Lack of access to capital is probably the number one problem that SMEs face. So number one pain point globally, and the World Bank has estimated that there’s a gap of about 5.2 trillion between annually between the amount that the small and medium businesses would like to get any amount, they actually get some received none at all, and many others received less than they would like to receive. So really, I think the solution to unlocking that is to bring together some of the innovations that have happened in the FinTech space, with the financial institutions that serve as the conduit for the vast majority of funds that are flowing to you via lending in the world today. So when you think about syntax, and what they’ve done over the past, say 10 years to to revolutionize lending, what they’ve done is they have greatly simplified the front end experience. So they’ve made it digital. And they’ve made it very easy for a small business to apply. And that’s step one. Step two is they’ve been able to harness not only traditional but alternative data of all different kinds than having to do with transaction flows of the business, for example, or their their business banking transactions. There are a lot of sources of the alternative data, they brought those together to be able to create, I would say an algorithmic approach to lending which is instant. So rather than going through the traditional weeks or months long process that a small business would do with a bank, wherein they have a loan officer who receives an application, ask them for more documents, creates a model representing a forecast and so on. Looks at their audited financials. The fintechs have been able to say let’s let’s pull in all the different data gives us an idea of the risk involved. And let’s use scoring to give us the stratification of the risk of those applicants. And based on that scoring, then there can be an automated decisioning. And our automated formulation of an offer out to the applicant. So what that does is it vastly reduces the amount of expense involved in processing those applications. It increases the satisfaction of the small business who’s applying for the financing, and it ultimately creates a much better performing portfolio of loans for the lender. So that’s, that’s been the experience of fintechs. Where I think they run into headwinds is that cost of capital for fintechs can be who are involved in lending can be very high and very volatile. And the cost of customer acquisition is quite high. And so where the banks come in is, banks have to have, you know, access to very low cost, depository capital, and to intervene capital. So their cost of funds is low and stable. And they have, you know, a huge repository of customers for their other products to whom they can cross sell at a relatively low cost. So then they of course, have compliance, they have all the infrastructure for for security and compliance on the back end. So it’s really a perfect fit between the two, to bring the two together to offer that combined exceptional experience. And I think that as that progresses through the lending world, that is really what’s gonna unlock the flow of capital to a far wider range of small businesses, and in amounts that are quite appropriate, and that will enable, you know, obviously, better growth in these companies and also a more level playing field, which provides some, for some, you know, a better degree of inclusion in that lending scenario. So

Vaidik Trivedi 11:16:12
whenever we talk about payments and lending, fraud definitely comes to mind. And earlier, you mentioned that MasterCard is helping SMBs and safeguarding themselves from fraudulent activities. Can you tell us a bit more about that? How are you doing it? And what’s the success ratio that you have?

Jane Prokop 11:16:36
Absolutely, yes, cyber is really an important area for us at MasterCard, and we’ve been investing significantly over the last 10 years or and more into growing our, our set of assets. So to step back for a second and just quantify the the threat and what’s out there. Some of the big trends we see are continued rapid digitization of, of activity, and if we apply it to SMEs, we’ve already talked about them going online, and looking to the business in unfamiliar geographies. So that’s, that’s considered continuing to proceed a pace. We also see unprecedented levels of connectivity. And that’s both among SMEs and consumers. As smartphones proliferate around the world, and connectivity becomes more accessible, virtually everybody is connected into online activity. And then we see an exponential growth in data. And so these three things together have really turned cybercrime into an industry. So if you if you were to quantify it, you’d see that it’s cybercrime would be the world’s third largest economy, behind the US and China. There’s, that’s our biggest calm. And within that landscape, we see that 43% of cyber attacks target small businesses. At the same time, small businesses are less equipped and big ones, to be able to protect themselves against fraud and financial loss and cyber attacks. So very often, their IT services are are outsourced to third parties, and the owners and managers of the business actually don’t really know the nuts and bolts of how it works. So we have developed a multi pronged strategy at MasterCard with addressing the cyber threat. First of all, we have assessment tools by which we monitor 90 million entities globally. And that happens on a cycle that repeats every 10 days. We have protection tools that that help stop an attack once one has been detected. And that’s been powered a great deal by our AI technology. And then we also organize we work and we collaborate with industry players and governments to set standards and to influence policy that will help to spread these Innovations in these protections more broadly. So we think of this as these three things assess, protect, and organize as three layers of a portfolio of solutions that are designed to work together and to, and to provide protection at every stage of a transaction. For small businesses, specifically, there are a few of our products that are very relevant. One, one, I would say that I’d like to highlight is our tool called My cyber risk. And this is an automated tool that monitors the cyber environment of a business’s online presence, to identify vulnerabilities that they have before a cyber attacker can come and exploit them. So it gives them back, it kind of crawls, looks at the environment, and then comes back with a report to the owner to say, here are the vulnerabilities we’ve seen, here are ways that you can address those vulnerabilities. And, you know, that’s really critical to small business owners, because as I mentioned earlier, most of the time, they aren’t intimately familiar with how their IT environment has been set up, and it’s being operated. So they won’t be able to answer on a questionnaire based type of approach, they’re not going to be able to answer most of the questions. This takes away that barrier and does it for them. And we’re starting to pair that with some of the other protection tools. We’ve got some new tools that we plan to roll out later in the year, which are specifically designed for small businesses, to help them take the next step once they’ve assessed the vulnerabilities to address those vulnerabilities. So that’s a little bit about the way that we’re approaching this to keep businesses safe.

Vaidik Trivedi 11:20:58
So talking of automation, you’re already deploying automation in finding vulnerabilities within an SMBs digital ecosystem. Can you tell me what are some other use cases that MasterCard has in place, and they’re exploding with automation and AI? Sure.

Jane Prokop 11:21:18
We have another product solution called a new detect, which uses machine learning and behavioral biometrics, and, and basically rests on billions of data points, to validate users in real time without disrupting the digital experience. So it means that customers get a secure and frictionless experience. At the same time, it’s able to understand whether there’s anything potentially fraudulent going on and to provide a warning of that going

Vaidik Trivedi 11:21:52
into 2024. Can you tell me what you’re seeing in the market? What’s on your Horizon? What’s something in the pipeline that has gotten you excited?

Jane Prokop 11:22:02
Well, I, I suspect I sound like many others when they answer this question. But AI driven technologies are definitely forefront. For us, you know, and the newest step change in terms of Gen AI, has been also something that’s fueling a lot of innovation at MasterCard, we’ve been using AI for four years, we’ve used it to protect against fraud, you know, to monitor transactions, and so on. And so, you know, that that’s been sort of a bedrock for us. But we are looking at what we can do with the newest, the newest advantages. And in doing that we’re, we’re spending, we’re turning that toward both our internal operations, and our customer facing operations. So one of the biggest applications of AI is to actually make it faster to develop new products, and we’re definitely moving in that direction. But in terms of customer facing ones, we’re in the stage of testing and learning a lot of those right now. And we see a bunch of I’ll talk about an example in a moment, but we we see lots of potential advantages for payment solutions of AI. Optimizing, optimizing payment performance, and security is really important because AI is better than, you know, human ever could be at detecting anomalies and data flows, errors, fraud, and then monitoring, managing the resulting payment risks from that. It can we can use it to leverage data, insight, data and insights. And that’s super important because not only are we using machine learning to to get better insights out of structured data, but we can use Gen Gen AI to get better insights out of unstructured data. So it allows us to bring the two together in a way that no one really could previously and And then a third big area is adapting to changing customer needs and preferences. So the the potential for customization and personalization of our services of our payment solutions and our other services is practically limitless. Because you know, AI can continue to learn from every interaction that it has with a customer, and then further tailor the content, suggestions to their specific situation. So one of the things that I wanted to mention about AI when this is super important for for MasterCard, we’re really approaching in a way that we want to ensure that it is ethical, and it’s transparent. And it’s also reliable. So we’re being careful in the way that we deploy anything that’s customer facing. But we’re starting to, as I mentioned, do test and learn in this area. And so one of the things that we have underway right now, which we plan to roll out at the end of this year is a small business AI tool that we’re doing together with a large media coalition. And the intent of that tool is to be able to use relatively unbiased data sources, to provide suggestions, general suggestions about that for questions that small business owners may have, again, relying on data that’s likely to be less biased than we normally see in the public Internet. So entrepreneurs, you know, who are looking to start a business, or they’re looking to figure out how to organize it better they can, they can ask questions about, you know, I’m in this industry, and what’s the best form of organization is that a partnership is LLC, a corporation, etc. Or a sole proprietorship for this type of business. And they can ask that it’s intended for general purpose using these sorts of sources. And that’s gonna be our first sort of version of the tool. We plan and we’re developing in parallel AI tools that can be deployed on proprietary datasets. So whether it’s our internal datasets, whether it’s our datasets combined with partner datasets, these are, you know, can be directed toward much more specific use cases. So what we see coming out of it ultimately is a suite of different AI tools that are suited to a range of use cases for small and medium businesses.

Vaidik Trivedi 11:26:51
Really excited. So it sounds like a chat GPT specifically catered towards entrepreneurs and businessmen.

Jane Prokop 11:27:00
Yes, and there are there are multiple AI tools actually Gennai tool. So we’re using we’re experimenting with not just the chat GPT but with others as well.

Vaidik Trivedi 11:27:10
Are you creating this tool in house? Or are you working with a vendor or a third party to create this tool?

Jane Prokop 11:27:16
The tool that I mentioned, that’s going to be out later this year, we’re working with in partnership with a company called Create Labs, which is going to be doing the build together with us. And as I mentioned, we have a media coalition that’s providing the data sources including black team, media group group, black, Newsweek, and some others. So we do see this as they kind of range of solutions, some of which we will produce in partnership with other either channel partners or tech partners of ours. And some which of which we will produce in house, you know, using and relying on a MasterCard data sets.

Vaidik Trivedi 11:28:03
Okay. Well, thank you so much for joining us on our podcast this week. And I hope we get to have a chat. So

Jane Prokop 11:28:12
thanks so much for it. It’s been a pleasure to be with you. And I hope to meet again soon.

Vaidik Trivedi 11:28:18
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Transcribed by https://otter.ai