Q4 2019 Earnings Call
And gentlemen, thank you for standing by and welcome to the Mastercard incorporated Q4 full year 2019 earnings call.
At this time all participants are in listen only mode. After the speakers presentation will be a question and answer session.
Ask a question during the second only to press star one on your telephone if you require any further assistance press star Zero I would now like to hand, the conference over to your speaker today Warren Kneeshaw head of Investor Relations. Please go ahead Sir.
Thank you Marcella good morning, everyone.
You for joining us for four corner in 2019 earnings call.
There are three bonga or president and Chief Executive Officer, touching our Chief Financial Officer.
Comments from our transaction operator, we'll announce your opportunity at another coupon acuity session. There's only then that the Q open for questions.
You can access our earnings release elemental performance data in the slide deck and accompanying this call and the Investor Relations section on our website Mastercard Dot com.
Finally in the release was furnished with the FCC rules.
Morning.
Our comments today regarding our financial results won't be on a non-GAAP currency neutral basis, unless otherwise noted as a reminder, in Q2, we updated our non-GAAP methodology to exclude the impact of gains or losses on our equity investments when excluding these items as we believe this will sell attain a better understanding of our operating performance.
In meaningful comparison of our results between periods.
non-GAAP Theres also exclude the impact of special items, which represent litigation judgment and settlements on certain ones.
In addition, we present growth range adjusted for the impact of foreign currency.
Police and the slide deck reconciliations of non-GAAP measures.
To GAAP reported amounts.
No the growth rates, we provide for switched volume switched transactions and cross border volume have been adjusted to normalize for any effects differing switching days between periods, starting this quarter or further adjustments these growth rates to normalized for the effects of different number of carryover days between periods.
For days are those where transactions and volumes from days, where we do not clearer and settle a process.
Currently we do not clearance settled all message transactions on Sundays.
These adjustments have been made to current Empire corners.
Our mission is being provided so you can better understand the underlying growth range of our operating metrics.
Our comments on the call today will be on the basis I mean adjusted growth rates.
Normalized GDV growth range.
Finally, as set forth in more detail in our earnings release later.
Today's call will include forward looking statements regarding mastercard's future performance actual performance could differ materially from these forward looking statements information about factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings a replay of this call. We posted on our website for 30 days with that I'll now turn the call over time.
Then chief Executive Officer.
Thank you water boarding everybody.
So it goes dark 2019 on a strong note for the your revenue was up.
18% and EPS was up 23% on a non-GAAP currency neutral basis I think these results reflect broad based growth across each of our agents and the ongoing execution of our strategy as they continue to invest for the longer term.
On the macro economic environment.
Well the funding remains relatively healthy and we expect us to continue in 2020.
We are however, monitoring a number of economic and geopolitical factors as does the potential effects.
Third our wireless let's put it back to Doug.
The U.S., we are seeing stable growth, but low unemployment and healthy consumer confidence.
Spendingpulse estimate for Q4 show a detailed sales remain solid up 3.1% versus a year ago X auto ex gas.
In Europe , we see continued modest growth you get spending I see held up reasonably well again, according to our spending bumps estimates with year over year retail sales people.
Well said in Q4 X auto gas a restaurant despite uncertainty around the potential impact of Brexit.
In Asia Pacific, We think modest GDP growth in the regional we're all in part due to the support a favorable monetary policies in several markets.
Pleased with the recent they deal with China and I'll, just say, we'll continue our efforts to pursue a license to participate in that market domestically.
Yeah look in Latin America as mix of growth in Brazil, and Colombia.
Actually offset by weakness in Argentina in Mexico. Meanwhile, we are driving healthy double digit volume and transaction growth for Mastercard across most of them up consent. These results are a function of us growing our co products.
Finishing with our unique services of expanding our digital solutions and footprint and our leverage.
Multibillion capabilities to capture new payment flows.
So let me start by talking about driving growth in the cool for we've done that through new wins as the key renewals and expansions.
Wondering what they do the body's since you announced extension with Citibank, we're excited to announce renewal and extension of our relationship with capital one.
There are also signed an agreement with software pay us to launch new debit credit and payroll solutions for small and medium sized businesses later this year and they renewed on deal with the standard Bank group so that.
The largest bank in Africa, which includes new issuance will help us grow our Shannon that market and throughout the region.
On the Coburn front, the Amazon rewards Mastercard has launched in Canada, Moneyline U.S. based mobile consumer finance platform has selected Mastercard is that exclusive partner for the new credit co brand program and the flip that existing consumer debit portfolio to us as well.
In the travel space, we run a new.
Oh, great deal with this thought of Airlines in India, and then also expanded a longer gobank relationship no vision cruise line in the United States.
Turning to prepare your venue daughter agreement with the network for direct expense, which is the largest be good program and the word this god issued by Comerica Bank is fueled by the U.S. government to big fast convenient and secure federal benefits in both.
And in Devon.
We've expanded our presence in key emerging market.
China, and India, and China, we entered a new deal would be the pepper debit part of China construction Bank. The second largest bank in China and also launching our first debit program, but China Citic Bank in India, Theyve maintained that Devin leadership through the new endeavor deals with Ford HDFC Bank and state Bank of India.
The largest public sector bank in the country.
So now after differentiated services, then gold products wins, such as these I've just talked about frequently intuitive.
Component.
We continue to grow these services, both organically and Inorganically and are making good progress in this regard for example, right beauty of artificial intelligence platform and new data behavioral biometric capabilities have been broadly integrated into our core security solutions to help customers minimize fraud and manner.
Yes.
Joining Mastercard Africa has signed over 350, new deals, including a recent agreement Microsoft.
Streamline that is to process and improve the cardholder extends.
What about on the topic of acquisitions I think we've pulled start on cyber intelligence suite a step further with our recent acquisition of this Greek on a leading provider of AI and data analytics solutions.
Got a best in class cyber risk assessment capabilities.
Design.
Financial institutions merchants corporations and government secure bed digital assets.
Okay and burned on their current customer base and develop new cyber security services. They piece out of it could go team as part of the Mastercard family and we look forward to offering solutions to our customers.
So on for digital initiatives in our footprint that we're expanding our digital solutions, but rollout click to pay with new deals merchant Tokenization solution and real progress on the contact lets front.
Click to pay.
We can announce that merchant such as fresh product.
Start calm and Saks fifth Avenue I'd now like enabling a fostered most secure guest checkout experience so that customers further beginning in mid 2020 this year.
We plan to streamline the checkout experience at participating merchants.
Leveraging provisioning to make to click to pay enrollment process much easier for city branded credit card orders in North America.
We've also signed several deals as much and put our tokenization capabilities, which as you know per well.
We already and that sort of a brings the approval rates improve and a better experience for merchants customers recent boxes to sign on to use. This tokenized carbon fiber solutions include Amazon stripe Mercardolibre is tape out several of the largest us violence and telecom providers.
In order to gone back less what I've said, it making real progress this quarter contacts that made up over 30% of global card present purchased.
Contact us provide the frictionless and fought payment experience, which is opening new category the spend including deflation displacing cash on small ticket purchases. The U.S. poised for growth on this front and the New York City empty. It is a good example of the potential for rapid adoption by consumers in fact this summer.
5 million Thats since the launch in May and MTS plants were rollout contact list acceptance system wide by the end of 2020.
And onto new payment fraud.
And then capabilities, which are using to penetrate new flows including recent successes Mastercard send.
Bank of America will now use Mastercard send for that business to consumer gone disbursements in the U.S. on an exclusive basis Indian shows fans Allstate will expand the use of must godsend across the enterprise coupled with instant insurance claims payments.
Neutralized Mastercard send in 10, new markets across Asia Pacific.
Startup to enable users to transfer funds from that people want us to that eligible comes.
It also leveraging our capabilities to help facilitate more efficient cross border payments. So you as an example Swiss Banco.
Swift prepaid card issuer launched a new money transfer service using Mastercard send that enables consumers to make secure payments to the simplest bank accounts digital wallets and eligible cod in 18 countries.
We also park moving.
Pickup which is the this switching in Russia, and the Central Bank in Russia to bring cross border functionality to the Russian domestic foster payment system.
Moving on to Bill pay we've gone live in the U.S. without pay exchange product, we are leveraging technology from our Transactis acquisition Bill pay exchange provides an enhanced the big stated for bags for consumers and for pillows and our initial launch partners include US Bank Ally's fire and our media bank with Jack.
Yes, so says agreeing to participate later this year, we plan to add additional functionality and new partners throughout 2020.
We've also entered into a partnership with find labs. So they provide the range of falling to sale and prepaid solutions to merchants across India Southeast Asia and the Middle East. This partnership is focused on offering installment payment solutions too much in some consumers across both car Andrew.
The time payment rates.
The Uh huh.
But also going to work with bind labs to all put a range of prepaid loyalty and cyber security services to customers and this partnership is consistent with our strategy to deliver greater choice to consumers and be the partner of choice for our customers.
And banking is another area, where good book sometime to develop the rights set of comprehensive solutions and services that work for all the players in the ecosystem bags fintechs merchants and consumers.
Solutions alive today in Europe , and we are focused on ensuring that the ecosystem can provide for the real time exchange of information and transactions, but most importantly, protecting the interest and data of all participants, including Fintech and bank customers.
We see open banking is an important global time, and a significant opportunity and believed that our leadership and data privacy.
Thus scale in real time and cross border payments.
Very good.
To optimizing open banking solutions bank for Fintech for merchants and for consumers globally.
I'll be on payments made good progress on our digital identity solution.
Yeah digital identity aiming to lower individuals to own.
Troll and share their identity credential their way.
On the devices. They use every day, we believe that a commitment to the responsible handling a personal information letting consumer.
Ownership of their own data and giving them control over which date has views and how does use is critical to a consumers increasingly digital life.
Mastercard's network is able to check it consumers chosen credentials and confirmed them for the intended recipient and purpose without ever taking possession of the underlying identity data.
So mastercard's uniquely positioned in the same given not experience and governance and operating.
I'll focus on financial inclusion.
Announced a clear sensibility data privacy and our commitment to investment in a global interoperable infrastructure.
We recently launched pilots public and private institution in Australia, which actually is one of the countries at the forefront of digital identification and this set of pilots enables participants to use that digital identities to access so guffman and student services you also additional digital identity.
Well.
Pilots that you would see us introducing in more markets throughout 2000.
We look forward to continuing to innovate and grow and embed ourselves on this front with that let me turn the call over to such in for an update on our financial results and our operational metrics such as.
Thanks, Jay So turning to page three you will see that we've delivered strong performance in the fourth quarter two NDR, you're a few highlights on a currency neutral basis, and excluding special items as well as the impact.
And then losses on the company's equity investments.
Net revenue grew 17% driven by solid broad based momentum in our core products and services.
Acquisitions contributed approximately one ppt to this growth.
Total operating expenses increased 12%, which includes equal BBD increase related to acquisitions.
Operating income grew by 22% and net income was up 25%, reflecting our strong operating performance and which includes eight to BBGI and you reduction you acquisitions respectively.
Yes, the 8% usually you're the $1.96 cents, which includes a five cents contribution from share repurchases and two cents of dilution related to our recent acquisitions.
During the quarter, we repurchased about $1 billion most of stock and an additional 438 million through January 27th 2020.
So now, let's turn to page four where you can see the operational metrics on a full quarter.
Worldwide gross dollar volume or GDV growth was 12%.
CBS is down to BBD from last quarter, primarily due to the impact of the differing number of processing dance between periods as well as some lapping beavis wins.
US GDV grew 9% down approximately threepd from last quarter with credit and debit growth of 12% and 7% respectively.
Outside of the U.S. volume growth was 14% down two ppt from last quarter.
Cross border volume grew at 16% on a local currency being driven by double digit growth across most regions.
Turning to page five switched transactions showed strong growth at 19% globally, reflecting in part the ongoing adoption of contact us we saw healthy double digit growth and switched transactions across most regions.
In addition, cargos plus 5% globally, there are 2.6 billion Mastercard and mice cobranded caused issue.
Now, let's go to be six for highlights fueled the revenue line items again, despite currency neutral basis, unless otherwise noted.
The 70% net revenue increase was primarily driven by strong transaction and volume growth as well as strong growth in our services offerings, partially offset by rebates and incentives as previously mentioned acquisitions contributed approximately one ppt to this growth.
Looking quickly at the individual revenue line items domestic.
Grew 14% why Lula GDV grew 4% the two ppt defense is primarily driven by pricing.
Cross border volume fees grew 16% in line with cross border volume growth of 16%.
Transaction processing fees grew 18% one switched transactions grew 19% one ppt difference is primarily driven by mix.
Finally on other revenues, which were up 25%, including a full PPD contribution from ACA.
Right.
The remaining growth was primarily driven by our cyber and intelligence and deal until the solutions.
Moving onto page seven you can see that on the currency neutral long GAAP basis total operating expenses increased 12%.
This includes four BBD related to acquisitions as well as two ppt related to the differential in hedging gains and losses versus the year look good.
The remaining six PBT of growth related to our continuing investment in strategic initiatives such as Dan.
Moment safety and security geographic expansion and you've been flows.
Turning to slide eight let's discuss what we've seen through the first three weeks of January where each of our drivers are generally consistent with what we saw in Q4.
The numbers through January 21st part as follows.
Starting with switch volume, we saw global growth of 15% similar to the fourth quarter.
In the U.S. I'll switch volume grew 11%.
Mitch volume grew switch one outside the U.S. group.
So.
Globally switch transaction growth was 19% similar to the fourth quarter.
With respect to cross border our volumes grew 15% normally down one ppt sequentially.
While the Youre, we expect cross border growth to be in the mid teens range and this is contemplated and I apologize for revenue growth for the year.
Now turning now to slide nine at our thoughts for 2020, we expect the economic outlook to be similar to what we saw in 2019 a bit.
Pencils remains strong with growth driven by a mix of new deals new agreements and the expansion of our differentiated service offerings.
We expect net revenue to grow at a low teens rate on a currency newbies excluding acquisitions.
Rebates and incentives growth is expected to be highly euro we are driven by renewed and expanded deals that are you just commented on.
In the first quarter net revenue growth is expected to be about two ppt lower than this annual lesson.
Hi, merrily due to higher growth and rebates and incentives we expect that net revenue growth will increase throughout the balance on dealer as we implement new wins and season related volume.
Foreign exchange is expected to have a minimal impact to annual growth, but is expected to be about a one ppt headwind into first quarter.
In terms of operating expenses, we expect growth for both the Youre and the first quarter at the high end of the high single digit range on a current.
This is excluding acquisitions and special items.
This is driven by continued investments in digital analytics and security products and platforms to address new payment flows.
Foreign exchange is expected to had a minimal impact to opex growth for both the youre and the first quarter.
Turning to M&A as you know over the years, we've used acquisitions to supplement our organic efforts and diversify our revenues you have seen this in areas such as data analytics cyber intelligence loyalty.
Cost and developing Monkeying solutions for our customers.
This is healthy expand our addressable markets right, new revenue streams and strengthen our core product solutions. As a reminder, we're disciplined approach as we work with our acquisitions to breakeven within 24 months of goes.
That context, let me outline the expected 2020 impacts our recent acquisitions, which are progressing well.
In terms of net revenues, we expect acquisitions to add about two ppt do.
For the Youre and about one ppt for Q1, assuming that the transaction with nets tools in the second quarter, which is our current estimate.
Our opex acquisitions are expected to add an additional seven to nine PBT to growth for both the Youre ended the quarter.
Fully your this estimate includes the full year effect of the acquisitions mean in 2019, including purchase accounting and integration related costs.
It also assumes the anticipated closing of the transaction was nets.
A couple of other items of note beyond acquisitions.
In other income and expense line, we are adding quarterly expense run rate of approximately $50 million based on our debt levels. This excludes gains and losses from our equity investments.
With respect to tax you should assume what tax rate of approximately 17% to 18% for the euro.
So just to sum all of this up 2019 with an excellent year, both in terms of financial performance and in setting us up for the future.
We have signed a number of important deals developed a strong pipeline of products to address growth in the short medium and long term and made several acquisitions to broaden our capabilities. We're pleased with the progress were making and our outlook for 2020 continued strong growth with that let me turn the call back to warrant to begin to Q any session.
Thanks, Sachin Marcello, we're now ready for the Q and a session.
At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad.
Your first question comes from the line of Eric where some from FBR. Your line is open.
Thanks, very much and good morning.
Great I just wanted to see if we could get an update on the progress on a on Mastercard track.
And in terms of the U.S. experience and maybe Australia, which I think was was also recently initiated in the past year.
Yes, so track actually have got different elements, Australia was part of the old age.
Hi, good footing to US also happy to be help attract some or all approach to the Peter became space that starts with having the right merchant directories and then connect said.
Spoke of the some business directory that all compliance run through and but fully informed directory attached to invoice presentment engine, but also enables our bhavan optimization engine and the reconciliation system. That's all built insight that users.
The distribution channels water, which is something that could be to be hubs that we've talked about in the past, but it could also go to what our issuers agents and buyers agents and as a whole ecosystem that they're getting into and putting up footprint into.
So that's kind of area, we piloted during 2019 with customers the full business payment service kind of solution, which we've been developing in the U.S. and in fact also in Latin America, we're rolling it out globally, starting the us in the first quarter.
You will get to what geographies and more payments over time, that's what they're not that's where they're going.
Okay, and if I just have one follow up on that to the to the extent that.
Due to what extent is the or are the volumes and and revenue benefits from from the Mastercard track hub and you know the SMB b to B.
Space contemplated in a in the 2020 outlook.
As we told you wouldn't be worth discussing this at Investor day as well.
No more developed for example, our corporate budgeting cause our feet cards are that's I mean cards. Our virtual account combos are cross border Pablo payment systems. Those are all relatively well developed an hour van factor into the way, we think about 2020.
BBB hub to an extent because they've got bank of America first line and fifth third in the U.S. and invite will be in Australia, but that's my four customers across the board and put a company Oban side well that's important for me it.
It's a bigger picture, what you're really talking about is adding goes on over the course of the next two three years. So we don't have that built in any great way in 2020.
Thank you Dr. lights out of that'll be great, but I would view that this kind of thing takes a little time nobody has explained the ecosystem normally do build the technology across all those phases. You also have to sign up all the distribution that enables you to connect with this is relatively new ecosystem that talk specifically named.
Thank you very much.
Your next question comes from a line of 10, saying from JP Morgan Your line is open.
Thanks. Good morning, Great result, chairs encouraged to hear the a the mid teens outlook for for cross border I think getting a lot of questions.
Credit virus and how to try to explain best I'll ask you guys. We don't mind, how much of your cross border book is is tied to the China region and is there a way to maybe look back or reference ours or.
Swine flu or something else to maybe get a clue on what what this one might do thanks.
It didn't didn't want to get such and let me give you a little bit color on cross border right. So as I mentioned, we could you see.
Double digit growth across most all regions as it relates to cross border.
And as I kind of sit back and I think about it we had good solid steady performance coming out of the U.S.
You know as it relates to me and that's at least in Africa, and Asia Pacific as well, we think we see solid growth.
We saw some softness and.
And Mexico, a function of the local environment out there, but biological businesses running in a very healthy pace. Your specific question around the impact of the core Novartis is what I would tell you. It's early days.
Fortunately a decent portion of our inbound and outbound cross border from China is E com related so it provides some level up a hedge.
And we'll continue to monitor the environment, it's too early to tell at this point in time Oh. This thing plays out.
About two people have.
Born and tickets and Disempowered out for the lumen area at this stage much bigger becomes a much more.
Urgent and image it crisis across many parts of the World then we'll take a look at those numbers once again, but you're going to take the size. It comes one step at a time and that's the only way to look at this carefully because remember when Sars goes on and that was way back in the early part of the last decade in 2000.
The 103 and for the total.
Business in China was also smaller the total size of our company was also smaller and our ability to be a real player in cross border across many corridors.
18 years ago was very different so I kind of wouldn't go too much of that I would rather think about the natural hedge that ecommerce provides the fact that there's still a lot of travel there, but that could change over the next few weeks, we'll keep an eye on it very carefully.
Okay. No. That's helpful. Thank you for that just real quick follow up if you don't mind just on the I think I heard you say bank of America Mastercard send that that was an exclusive arrangement is that the case I'm curious if that's maybe a new model that we can we can expect with with that product.
Factually correct you did hear correctly articles are in good shape engine, even if you had in the airport shoved insight.
But I'm not going to I cant tell you if that's a new model going forward.
In this particular case bank of America farm value from what we're doing I don't know yet.
You know some of these don't make a trend.
Great. Thank you.
Your next question comes from a line of credit more from autonomous your line is open.
Yes, hi, thanks.
The question about recent acquisition activity in the space.
Your largest competitor seems to have.
Got it or somewhat different direction from what we've seen from your acquisitions and.
I wanted to get your updated thoughts on acquisitions that moved to Mastercard closure to the consumer or closer directly to the merchant. Thanks.
Hi, Greg.
Got it closer to the consumer remember, we're b to B to C company.
And so we're not trying to do get in between our customers and their consumers that's really not or we are trying to do is to provide.
Services or capabilities or product sets off.
Sure.
Labels that customer could be a merchant it could be a commitment to transit authority.
Bank, a fintech reach that consumer better that yes, 100%.
Great and so for example in your specific question you know are around how you reach fintech. So the like I was getting thats, where the referenced our competitor comes from we've built a series of capabilities in Europe , where as you know PST to has changed the now between Fintech some banks.
Substantively and there have you actually live with the whole idea of connect protect and resolve and consulting capabilities across a number of fintech, some banks and high speeds Npis, Steve and all the time and obviously that has now become part of the day to day conversation in Europe that said fairly strong position for us.
What I do want to make sure in all of this bit merchants. For example, your question on merchant does Cds or transactions that provide data analytical and cyber.
Security services to merchants Africa is the most recent example, this week on more recent than that loyalty rewards schemes that we bought some years ago are connected to that right Tdm does a series of things with merchants bank and Fintech. So most of all acquisitions kind of cross this ecosystem.
What I am committed to its are doing it in a way that respect the rights and the privileges.
All the different plans with the ecosystem and doing it in a way then.
Hey, Dan privacy all through the system. So we will keep looking for acquisitions and adds both few words I, just pension security and privacy of data the responsibilities and rights on them and the priorities of different players in the ecosystem, you'll see us during that very carefully very sensibly and keeping at.
Okay, if I could ask one follow up.
Just on the on the guidance.
What's the thought process for rebates and incentives for the full year as a percentage of gross revenue.
All right could you get you broke out there.
Yeah, Yeah, sorry, sorry.
I think I got certainly made sense out of your question was what's the guidance on rebates and incentives I'm not going to give you specific guidance, but what I will tell you is we do expect the level of growth and rebates and incentives to pick up in 2020, that's on the back all the.
The deals between sign that 12 that news as far as I'm concerned because the way it kind of plays out as you the new and expand it was these expand deals go but incremental volume all of that kind of plays into the Paul it's up shape of southern anyway.
Okay. Thank you.
Okay. One last point on acquisitions, you should expect us to remain relatively committed to the idea of buying something that can break even at the end of year too.
And then it becomes part of our pace, we no longer pull it out and you should expect that discipline from us I believe has adequate targets in the ecosystem.
Our priority areas that can help us grow while doing that in some way that transforms our company as it has gone for the last 10 years in a sensible way that has the right way to approach the value of an acquisition.
Okay. Thank you very much.
Your next question comes from the line of Lisa Ellis from Moffett Nathanson. Your line is open.
Hi, good morning, guys. So.
Looking for a few comments on China not on the Krnfive. It's just more broadly it feels like with the recent trade in the agreement and then from these announcements with Alley pain, we chat pay opening up their wallets to cards.
I was I guess recent acquisition of side go pay there.
It feels like the market might actually finally be loosening up but on the other hand, we felt this way before.
I was just kind of curious what's your current you know sort of optimism level around Mastercard Jackie to access to the domestic China market sense of timing likelihood and then and then an update it do you maybe on how you're thinking about approaching this market given it's a different from that from others around the world. Thank you.
Yes.
I'm going to have to take away anything to do with the current provide a sad obviously in that answer because that's got an impact that I don't know how to predict specifically for China I mean.
We as a company have on that particular topic, we've actually given our employees to extra weeks work from all using that ability. So that we try to help manage their own families on their own situation.
Great Thats responsible for them. So we clearly third inovas like everybody else is about what's going on there. So just move on from that and I had said the trade deem itself.
It is the first time that I've seen a train deal backed companies are mention by name in terms of what should be agreed upon between two different governments bilateral trade deals.
I hope that means that all of us we're going to better chance to play in the domestic ecosystem in China and then we will bring then audible well Bharti and then we've probably done when what we can with a very late to the party because.
The digital players that have already built substantially good businesses and frankly very good offerings. So they deserve to have one what they have won the question would be how do we didn't break in and how well do we do in that and thats going to be our task in China.
My General attempt.
That's part of the business as I've seen that movie earlier, I'm going to only say anything about.
Actually see something is writing that changes where our position on the government is Meanwhile, we bring things we.
Publicly that speculation that we are looking at park those to be able to go into the domestic processing business.
That's kind of one angle, which everybody is looking at sort of.
There is clearly an effort to build out the acquiring footprint for that our acceptance expansion can begin to out.
There is an effort to bring about issuing relationships so that that okay.
And running Meanwhile, you put two Alibaba VJ accepting our cogs into that domestic water. That's also been part of some effort that conversations going on with them on all kinds of partnership opportunities, where we may compete or may not competes with its kind of there's a lot going on in China, we are hiring people.
We've been doing that put us towards.
Oh, we're building talent and skills on the ground so kind of that's very I think.
My first the market there is.
Well be infrastructure capability built acceptance brimberry partnerships build people its killed on the ground.
And our learn how to do that in a market that is as you said dramatically different from the others. So I think local presence local knowledge local capabilities will be really important in China.
Terrific and then maybe as my follow up just a quick update on the contact list deployment in the U.S. give any updated stats on sort of where we are in terms of card issuance merchant acceptance and and are you expecting in the 2020 outlook in an uptick in involve in U.S. volumes as a result etcetera.
Is it more of a 2021 dynamic thank you.
I'm pretty certain that use contact us will keep growing throughout 2020 quite attractively because if you look at the numbers of the number of bank partners that have committed to this should contact us called for a minute, let's even forget Apple pay and Samsung pay that enable every car through their modified T vices to be used.
If you just look at a number of cards. There's good talking about 70% My protocol the U.S. market would be reassured over this trend bump to 14 month period my own personal accounts already contact us from say and so I think you'll see that happening cabelas is doing that there's a bunch of others that are actually deeply embedded into the I'd.
Off of contact us codes.
Except inside.
You know kind of all all new terminals going out and embedded with contact us.
Large retailers targeted 711, and CBS have announced that they will accept contactless payments and in fact or half of us card present transactions and our happening at contact us enabled merchant locations and when the empty at all that on system barred in New York City and the other transit systems beginning to do the same.
In their cities I think you'll get the impact US now some of it when covered 22 tier earlier question more of it would come in 2021.
But I was.
He was that kind of growth pattern was pretty strongly embedded.
Got it Australia over 80% of transactions under 100 Australian dollars are gone backwards. So you know, there's a lot going on in that space.
Excellent. Thank you nice quarter is always guys. Thanks a lot.
Yes.
Your next question comes from line of Chris Donaghey.
I personally your line is open.
Good morning, Thanks for taking my question and thanks for the work on contact list as an MK writer I deeply appreciate not having to swipe anymore.
Question I wanted to ask RJ was about.
The other revenue and the percentage or the portion of that that's organic.
Just how sustainable is this roughly 20% level of growth in or organic or other revenue and or or is that even possible to accelerate with some of your work.
On that data and and.
Other offerings.
So.
Touch and go ahead sure Aequus, so very quickly some color around the other revenue line item right I mean, you've seen that and then in Q4, we talked about the 2020, 5% growth rate and other revenues that had about four PPD coming from acquisitions, but that's where you come up with a number of about 20% for Q4, let me give you some context at a three main components, which are there in other revenues.
So far so this is lines roll up your things like cyber intelligence products data analytics consulting and managed services as well as loyalty right a significant portion.
Flooring in nature, although there are some such as consulting and loyalty engagements that a project base and can have some timing between quarters.
The second item, which is there another revenues as our Vocalink related revenues and again. This is recurring in nature and finally, we put a number of our recent acquisitions and I know you said net of acquisitions, but remember the acquisitions, which we have done will at some point, it's going to become the equivalent of organic growth to your sense.
And we put those into the other revenue because of the.
This model so net net net I would tell you a decent portion of other revenues as recurring in nature, Although we're not providing specific estimates for this line item I will say other revenues excluding acquisitions, we expect that to grow faster than the overall company growth rate.
Remember that the a lot of the acquisitions are basically that meant to enhance port Hudson starter kit, which is.
Our data analytics capability for our cyber security capability on our manager.
The loyalty capability.
A number of not all but a number when you do that and two years into acquiring them to become part of the base. The then become part of organic revenue and expenses. So we have to manage the business in a way. The ended the second tier breakeven each of them individually and then starts becoming margin accretive.
In the third here that the discipline, that's embedded inside the company DNL line by line with each business that acquired.
Single entity during the year.
Absolutely I expect that organic growth will continue to be good in that line item and as such and said probably higher than that of the whole company.
Okay, and just as a follow up such it on the project based component of that is that.
Thats relatively small, though right the recurring component of the other revenues.
Much more significant right.
Yes the.
I wanted is more significant than is the project based more and as I mentioned, it's the project based stuff is typically a consulting and managed services and loyalty pieces, but then again you go back into cyber intelligence recurring nature Vocalink regarding nature a lot of these things are you know things, where you signed agreements and then they tend to stay in play for for some time so.
Yes, there's been another effort going in to convert some of the nonrecurring into recurring in the manner in which we sign deals and has to work with partners.
One of the idea of what we like it recording them, but does nonrecurring because it opens the door.
Your next question comes from line Darrin Peller from Wolfe Research Your line is open.
Hey, Thanks, guys I just want to hold it a little more on cross border permitted just given that you know it did show a little bit of a deceleration into January that you said, 15% in comps do get easier. So just you know I know you talked about mid teens for the year, but can you give us more color on what type of activity you're seeing in terms of specifically E. Commerce is travel and then I don't.
I've ever heard you update what the E com percentage of cross border actually is if you can help us with that.
Yes, so on cross border E books, they would just kind of orphan and say we were three weeks into the month of January and.
The one ppt decline, which are seeing between 16% in Q4, and 15% and in the first three weeks of January it wouldn't make too much of that rate, hence, hence the comment I made about you still expect me in cross border standpoint, just but more specifically around some some color on what we're seeing in cross border standpoint steady growth in the U.S. right.
As it relates to our card not present cross border, we see that at approximately 20%.
Thats fairly consistent as we've seen over the past few quarters.
As it relates to reach by region.
You know.
In Q4, our apnea region, which is the combination of Asia Pacific in Middle East Africa saw some in accelerate.
Place as I mentioned earlier.
And on the flip side in LTC, we saw some level of weakness in Mexico in particular, but you know there are puts and takes every.
Every quarter on this thats really the color, which I thought it steady as it goes as far as cross border growth right now and it will pick it up from there.
All right just a quick kind of housekeeping I mean, you still expect next that's to close I think you said first half just want to verify that and if you could remind us of any potential financial impact that we should expect on a year with that.
On the top and bottom line and then also when you think of RJ just make sure that deal doesn't preclude you from doing other meaningful deals this year or you really on the act upon right now for something in the first half.
So number on the but the deal front I am.
I said earlier, we look at 40 50 60 deals in Asia.
And in some years, we closed non or one or two and last year provided more than that number and.
Let's say pivot for people who are light.
Homes in our incentives shop, there working very hard on the something like that reference.
And what's really hard on the thing right hand, and they produce stuff and then we kind of located and said that one doesn't make sense either because it doesn't fit our strategic profile or the M&A numbers don't make sense or that somehow it doesn't respect those principles I was speaking about when I was asking Craig.
Answering your question or some of them.
Two and then you analysts to get lost longer because an acquisition doesn't work out well the due diligence Kazakh Carlos.
And so just studies on like that I don't know to give you an answer I would tell you nothing's changed I'm I've been on the hunt for their joint listed in our yeah.
I, just add dodges, Dom and you asked specifically about nuts.
Obviously, we're going through the regulatory approval process as we speak right now it's our estimate the tools and that's in the second quarter of this year, that's the basis of what I've given in the nature thoughts for 2020 aware I kind of mentioned to you that we'll see a base as we expected by two ppt contribution from acquisitions.
On revenues and somewhere in that 7% to 9%.
Growth in Opex related acquisitions.
All right guys. Thank you.
Your next question comes from the line favour Williams from Jefferies. Your line is open.
Hi, good morning, and thanks for taking my question.
Sorry to pile on the China theme, but I'm just curious on the outdoor outbound cross border volume from China, So as China, Unionpay, and we chat and alley pay had been partnering more with acquirers globally to expand their acceptance footprint outside of China.
I guess I'm, just wondering longer term how much of a risky think there could be to your outbound cross border volume Justice acceptance of those three big Chinese players reaches critical mass just at least in the major tourist today.
And I'm not sure if I caught this in response to the question from tension, but was just wondering what percentage of cross border is Chinese outbound.
Second part is there any do we just yesterday.
But first part I can tell you what's going on I mean look first of all.
This is going to new issue of these bilateral agreements between what Carl and the Chinese digital wallets with players outside.
You should know that.
The comps perspective concern.
Because the way the Chinese rules changed over time.
What used to be a dual branded card with just two large numbers there.
All the new issuance is single branded so.
And so that you shrink our cards in China, and VR issuing aboard protocols that every year. Those are all Mao's single branded and therefore, when they go overseas both cod can only be running on Mastercard rails and their transaction.
Cannot take them on to somebody else.
It's just section.
And so just as the puts and take on both sides that similarly indicates the digital waters or outbound while in both inbound and outbound used to be not Haas playing in obviously can be chat you're not ignoring that seem that they have announced for inbound and there's always been for that to work.
Good them like could already doing on different aspects of 10 outbound work well that lead to a complete.
Open system on our iron ore will that change we would also operating domestically because the total scale and size what operation with them would change I don't know, we'll see Meanwhile, there a lot of volume that comes out of China, which has been enabled by the new digital players that I don't believe is great.
Away from us.
It's the biggest sides of the pie game that we're also talking about and so our growth on cross border out of China has been drill.
Well the it goes through its quarterly ups and downs go through stuff, but it's relatively healthy and I presume balance and that way over the next few years, obviously corona wireless and stuff as we discussed already could change it quarterly report of that I don't know that yet very carefully keeping an eye on it but.
In the Big picture I can see lots of opportunity on our bond cross border from China.
Okay. No. That's really helpful. Thank you and just one quick follow up I was hoping to just get a little bit more color around some of that the mix dynamics. So I know last quarter was a bit unique you had negative mix across domestic assessments cross border and transaction processing and domestic assessments or is it a couple hundred base.
At this point benefit this quarter, just with pricing, but it looks like transaction processing was lower again due to mix just relative to processed transaction growth. Just curious if anything there that you can provide just color wise to.
Help explain the delta thanks.
Yes, so I transaction processing growth rate and as you know switch transactions are blowing it out at a nice clip at 19% needle we're pretty much in line from a transaction processing fee standpoint.
What I would tell you is as the business grows and as we do more in the nature of contact less payments on and so forth and you start to growth rate down into a smaller ticket payments. It does have an impactful and make standpoint, you would expect to see that <expletive> let depending on market and any question it wouldn't make too much.
Oh, the disparity between the do the other thing I would tell you is in transaction processing fees.
There are line items, which are beyond just the high correlation to switch transactions and other what some portion of our services.
Related revenues also our comprising the transaction processing fees.
Okay No that's very helpful. Thanks, guys.
Your next question comes from a line of Jason Kupferberg front the away your line is open.
Thanks. Good morning, guys wanted to start with a question just on a U.S. credit volume growth still remains quite robust here I'm wondering how many more quarters a tailwind do we have from Capella is before that labs are you seeing any.
Noticeable uptick from the Apple cart venmo card or any commentary on kind of the consumer burst the commercial pieces of U.S. credit and just at a high level trying to get a sense of the sustainability at least double digit levels as you do get to some tougher comps I think in the next few quarters.
Hi, Jason its option, so very quickly able to give you a little color on Oh I mentioned earlier about in my in my prepared remarks, something about lapping a wins the cabelas portfolio has begun to lap right as part of our Q4 metrics as I mentioned earlier. So also kroger's, but then for all of them.
Market share wins, which we've had over the course of the last 12 months, that's starting to roll launch we are starting to see some of that come on in the nature of Apple card, a short and so forth.
Also I will mention that we talked about the deals we signed with Citi and capital. One we would expect that will also start to roll and so there's going to be puts and takes there will be previously one portfolio Central lab, and then that we knew portfolios and new market share wins, which will come in so all in all good performance from a credit standpoint in the U.S. as you mentioned.
And just one for RJ I'm curious to get your thoughts on synergies potentially between nets and Vocalink I know, there's some differences there and geographic exposure.
But are there some broader enhancements to your alternative network capabilities from the net steel are these just kind of separate offerings for different segments of the real time payments market.
Yes, and yes, actually say, that's a really good [laughter].
Yes, that's really good question, what you're buying with Matt corporate services in the Nordics is not just the similar thing to work Vocalink is on the Vocalink. Both operates the infrastructure provides for the software real time payments as well as past processing and ATM pop.
But also provides applications and services on top of that infrastructure in the United Kingdom.
Got it more similar to the fee 27 deals we signed the Nordics where bid for banks in the Nordics, we're going to implement fast in real time payments capabilities using vocalink.
Sort of structure and then operated for them in the Nordics, we're doing that in a number of other countries around the world we're doing it into different favor some of them our software. They sold every operate everything.
For Saudi payroll, the Philippines pencil right. So there's that element that net corporate services piece of the part in our in the we're trying to close on the second quarter of an audit actually provides for using all of those underline services for payments and build and.
They connect all the beat to be payment system. They connect all kinds of player in the Nordics and outside of the products with Nordic there. So that's a whole different capability.
Quite hopeful that we can be applied for these solutions are different segments as well as enhance each other capabilities in different markets around the world. So called stored ARPU runs all the for US and came out of Vocalink used to be the chief operating officer Vocalink. When we first bottom all kind of the guy was running.
Good for us and stitching together over the next period of time, so great question.
Thanks.
Your next question comes on line of Joseph foresee from Cantor Fitzgerald. Your line is open.
Hi, I was wondering if you could talk about the margin profile of the business short and long term I know you're doing comments in the back past that you don't.
Run the business to the margin but.
Given the differences between you and your competitor I was wondering if you give a little bit more color on here.
The progression or cadence there.
Well my views boom, but I mean people, it's a mathematical calculation and business in some ways. So long as your keep.
Revenue on the margin appropriately and you manage our expectations writers business has a higher fixed cost and a lower variable cost per transaction. If you add more capacity pump more volume toward you will find yourself growing at the margin even on your operating margin that's just Matt.
What's changing along the way is that we're trying to take that math and applied that surplus we get to building and diversifying the revenues with this company and those when you acquired those businesses. They mean artful follow.
Well over time, they get the as a number about services businesses used to be less circling back to an earlier question now they have got a much higher profile of recurring.
Revenue a number of our services businesses their margins have grown over time as the volume being put through them tanks to that access to our network our distribution partners increases so our attitude towards our margin is healthy growth.
Not kind of pushing that morphine managed to remain.
Gross and net revenue and we managed to expenses and we manage that's kind of space for our future. We don't actually manage to margin that's why.
Said, we keep a healthy margin of 50, plus because I want you to run Robin for money away.
Kind of by reference to even the acquisitions and the discipline around the acquisitions, but the idea is that we will eventually.
With through Matt.
The growing sensibly you could see it over the last two years.
Got it and then just as a follow up.
Oh I'm sorry, just original.
Okay, Great I appreciate it will this will all come they get a softball, then so you'll be can and.
[laughter].
Yeah, well I'll do my best now focuses on it right, so, but you've done a great job of expanding your addressable market into new areas, we talked about b to b and contact plus on I know China's on the horizon, maybe over the long term.
Which of these areas are you most excited about in the short term over the over the next year, where should we be spending our time because wishes to seems to be an expanding amount of areas in the or expanding addressable market. Thanks, I think over the short term. It should continue to remain very focused on our cyber intelligence services.
Business and you should.
Look forward to more growth in Contactors everything else just by the nature of the ecosystem therapy working has a longer time to result than these these once we're able to port.
Vision system foam that enables us to a little more control over the outcome than they wouldn't be others been going to look everybody towards.
Okay. Thank you all right. Thanks, any final comments are saying, yes.
It up a very quickly. Thank you Paul your question. We've had another strong year, we've had broad based growth across each of our region is driving solid deal momentum. We're trying to capture new flows. So the competition. We were just starting with our multi <unk> real capabilities.
A recent acquisitions are performing well within that.
We've talked to again today, we look forward to working with our new colleagues from risk Recon. We've got another one the nets corporate services on the horizon when that comes and they're going to work hard with them and we are progressing well against the peer performance objectives that we laid out for you for 20 920 and 21 with that thank you all fully being a part of this journey.
And thanks again for joining us.
Thank you.
This concludes today's conference call you may now disconnect.