Q2 2020 Mastercard Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Mastercard Q2, 2020 earnings Conference call.
At this time all participants are no listen only mode. After the speakers presentation, there will be a question and answer session.
Yes. Good question. During this session you when each press star one on your telephone if you acquire any further assistance. Please press star Zero I.
I would now like to hand, the conference over to your Speaker today, Warren Kneeshaw Executive Vice President of Investor Relations. Thank you. Please go ahead Sir.
Thank you can see and good morning, everyone. Thank you for joining us for a second corner 2020 earnings call. You Hope you are all safe and sound with me today are Archie Bunker, our Chief Executive Officer, Michael Me, Bob <unk>, Our President and Sachin Marathon, our Chief Financial Officer, All my comments from Hey, Mike on Sachin Operator, we'll announce your opportunity.
Got into the Q on Q. Many session is only then that makes you will open for questions.
You can access our earnings release supplemental performance data on the slide deck that accompany this call any investor relations section of our website Mastercard Dot com. Additionally, the release was furnished with the FCC earlier this morning.
Our comments today regarding our financial results will be on a non-GAAP currency neutral basis, unless otherwise noted.
Release, and the flight deck include reconciliations of non-GAAP measures to GAAP reported amounts.
Finally, as set forth in more detail in our earnings release I would like to remind everyone. Today's call will include forward looking statements regarding mastercard's future performance.
Well performance can differ materially from these forward looking statements information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent FCC filings a replay of this call will be posted on our website for 30 days.
I'll now turn the call over in a chief Executive Officer, Ajay Banga.
Thank you welcome and good morning, everybody.
So on a bar several months to Gordon 19 pandemic has in fact in every aspect of our society and we remain focused on supporting our employees on issuing merchant small businesses and government partners to help them navigate through what I think I'm completely unprecedented times you may recall that the intent is to fulfill you framed book.
For monitoring spending levels and I'll be would run a company.
Earnings call containment stabilization normalization and growth.
The second quarter. These sorry progressive improvement in volume trend over the course for quarter driven by the opening up a domestic economies and today, we believe that most markets that on the normalization fan domestically renzulli I've been social dispensing and mobility limitations on relaxed and spending begins to God.
David come up with some sectors recovering faster than others.
Well, we expect progressing toward the normalization fans.
There might be moving to the growth fans essentially bringing us back to be covered days and very much dependent upon donning the title infection, which you've seen in Europe in Asia, and the United States lumpy, but also in both the merchandise tied to the broader been ability oh vaccine and problem kind of beauty.
We expect on the progress for the savings will be non linear we've seen that in places like Japan and potentially in the southern United States, maybe a modern paying for the effects of the de introduction on social distancing the sections.
Meanwhile.
It is becoming more bench.
Services and strong demand and we expect that travel well begin to come back as buttons.
The fourth sorry, a bench, we are beginning to see in Europe.
The forward crisis has given us an acceleration in the use of electronic farms and payment with much greater adoption of digital and falling back lets solutions.
Symposium sustained beyond the pandemic.
We are very well position to capitalize on those.
The pandemic has also highlighting that if any and see if our differentiated business model, which is reflected in our financial performance on solid growth remained strong and outpacing the goal and drive meaningful differentiation and diversification.
On page nine month, diarrhea solutions are enabling us to address key opportunities by providing customer choice.
Capabilities required to capture a wide range of payment flows.
Again, we continue to win deals across all of our core products.
So we have focused on what we can control.
Focused on executing against our strategy, we are focused on managing the business for the long term and we have focused on investing in key strategic priorities in areas like open banking real time payments cyber intelligence solution and B to B payments.
Hi, everybody I love about from Michael and before I hand, it over time I'd like to shed a few comments on diversity and inclusion.
So the events me borscht on form in the United States announcement or the last several weeks.
Our society in facing the difficult truth that is a long way to go to ensure that the fundamental human rights of all people.
What do you expect.
Very painful racism aren't discrimination communities.
The company.
Arms for years.
Yes in Monster gone championed inclusion we have focused on issues that might turn to the black community relative to others, including delivering on our commitment to bring 500 million individuals into the financial system. We've extended that pledge as you know to 1 billion people by 2025.
Including.
William Mico, and small businesses and 25 million women on supplements.
We are long standing part of several civil rights organization, and we have both traditional bank gap over the years in 29 game Mastercard employees in the United States, while people color compared the same as Caucasian employees.
So we are proud of and.
Let me recognize how much more that has come to.
And do that again, we've launched a companywide long term initiative to drive change for our people for the market to be welcome and for society at large, including bolstering blocked recruitment and training driving financial inclusion and addressing developed an opportunity gap fans by black communities.
The must be well capitalize on this opportunity to effect change so now over to Mike.
Thanks, Jay as Andy mentioned, the Cobot 19 pandemic has triggered a series of significant behavioral changes across consumer merchants and businesses, having a profound impact on payment preferences, many of which are likely to assess the on co badge key trends include a preference for contact list a rapid adoption.
E Commerce and increase the version to cash I mentioned requirement to Omnichannel acceptance and the need to automate b to b payments. Each of these provide an opportunity for our business to accelerate the secular shift to digital forms of payment.
Let me give you. Some example.
Let's start with the consumer.
According to our latest cobot 19 consumer impact study over 70% of consume month plan to continue or increased our online purchasing and approximately 60% believed that in use less cash even often endemic subside.
And we are providing digital solutions that leverage our tokenization and other digital technologies to meet these changing needs.
In addition to the success we've had in the digital space as companies like Apple recently announced an expanded partnership with Samsung, which includes the digital first Samsung money by so fine product here in the U.S.
And the Samsung pay card this cause in the UK.
Southeast Asian, some Pratt Rab has launched a digital first month pickup prepaid caught in the Philippines and by partnering with emerging Fintechs like seats on diesel in Germany telephone Mastercard debit solution and tied in the UK to provide a new commercial prepaid product.
In addition, click to pay the streamline industrywide guest check out capability continues to gain momentum as consumers shift to digital experiences more than 10000 mentions have been enabled into us and preparations for global expansion on the way.
We are there differentiating our linked to pay offering through an additional national security enabled by new data.
And machine learning technology and through push provisioning of consumer enrollments through banks like city, which will help to speed up and ease consumer adoption.
I know the implication of the shift to E. Commerce is the need to support merchants with digital enablement solutions small and medium sized enterprises, which represent about 90% of businesses worldwide have an acute need in this area stay recover from the impact of endemic.
As part of our 250 million dollar commitment to support small business globally. We have recently launched our digital doors initiatives, which provide gateway cyber security and other resources for merchants to quickly established and online presence and stopped accepting electronic payments.
We're also providing a comprehensive suite of installment capabilities through based solutions partnerships and acquisitions, all of which provide greater choice in vending solutions for merchants and consumers online and for which is particularly important in a credit challenged postponement environment.
Our Mastercard installments solution has been available not combined for several years, our acquisition of buying allowed us to advance our presence with marquee merchants in the us.
Internationally, we forged partnerships pine less often pain Djibouti ends of idle to provide tailored regional solutions.
In addition, the recently announced a new partnership with Splitted to provide interest free installments for E commerce purchases.
How are the pandemic has accelerated consumer adoption of digital payment solutions to crisis has also driven increased demand call services offerings, including five a security and data analytics capabilities.
These services allow us to offer differentiated solutions at a value bile minor ideals customer segments and provide us the level of revenue diversification. This has become particularly evident in the covenant Diamond services lines grew much faster than the core in the second quarter.
Digital commerce continuously reclines moment bonds Ceiba solutions in anticipation of that we have been scaling our capabilities, both organically and Inorganically our risk Recon acquisition for instance, health ecosystem participants assess and approved cyber security and is being utilized by several government healthcare.
Provide does indeed in Texas.
Our ethical solutions are scaling quickly we continue to have strong partners like bank of America, and our ethic, a digital receipts product has been enabled at more than 18, new merchants over the last few months.
New data, which provides behavioral metrics capabilities has secured new partnerships with Jack Henry and associates as well as others.
In addition to ceiba, our customers are leveraging our data and analytics capabilities to assess plan and react to the pandemic.
Our test and learn platform powered by our acquisition of MPT is helping pompous like city to supplement their planning processes.
In addition, we have engagements governments on over 100 data analytics cyber security and disbursement programs in over 30 markets around the world since the crisis again.
And finally, our services capabilities provided key elements of differentiation to help us win several deals this quarter.
The renewed key consumer partnerships with had third bank into us Dobie commercial banking UAE Sunday in Mexico, and the credit renewal the bank of China.
On the commercial side, we signed a deal with PNC into us and established a partnership with Virgin money into UK.
In addition to all efforts in digital and services I'd like to touch on a few of our initiatives to address a broader set of payment flows and opportunities.
To begin this open banking.
As the shift to digital economy accelerates Amanda opened banking services will increase.
In Europe are open banking connect protect and resolve solutions, which we launched last year continued to gain traction.
These added new Fintech players like modular deep pocketed Eni on in addition to the recently announced Tesco win.
And we are excited about the planned acquisition of in the city, which enhances our open banking strategy here in North America, and which we will leverage globally.
This will enable a new round of innovation inclusion in financial services and new products for consumers.
That's the difference best in class connectivity thousands of us banks, along with a robust set of applications, including credit Decisioning and account on the verification capabilities.
And we're also attracted to finish that these approach to open banking, including a strong commitment to data privacy and transparency there balanced ecosystem model in their focus on.
Based on activity all of which are consistent with our principles and open banking space.
Thanks to deal to close by the end of the year and believe that the combination of finished for the in our internally developed solutions provide us with a differentiated set of capabilities.
Shifting gears to BBB.
Recent research conducted by Carney indicates that Colin has made the digitization of accounts payable and receivable processes a priority from many corporations. The ethanol commercially launched master contract business payment service. The U.S. launch included 13 distribution partners across the B to b ecosystem, including mobile payments I think.
Change payment solutions fine.
And others, Hezbollah payments and international expansion of plant Twentytwenty one.
Talking about cross border earlier this week, we announced a partnership with the bank of Shanghai to allow customers of Mastercuts Cross border services, which is inclusive of our acquisition of Transtar and Mastercuts tend to send international BB payments into China, less friction and Melissa this.
This is the latest example of how across all the services, enabling financial institutions, and putting us to reach a variety of payment endpoints and more than 100 markets by the over cod or account to account infrastructure why a single connection.
With that let me now I'll turn the call over to such.
Thanks, Michael So turning to page three which shows our financial performance for the quarter on a currency neutral basis, and excluding both special items and the impact of gains and losses on the company's equity investments.
Net revenue was down 17%, reflecting the impact of the pandemic and includes a one ppt benefit from acquisitions.
Operating expenses went down.
5% year over year are down 9%, if you exclude the full bpd impact of acquisitions.
Operating income was down 25% net income was down 27% both of which include a one ppt decrease from acquisitions.
EPS was down 26% year over year to $1.36 cents, which includes three cents of dilution related to our recent acquisitions offset by three cents contribution from share repurchases.
Although we did not complete any share repurchases in the second quarter. We have recently re initiated our share repurchase program and quoted would be through July 27th we have repurchased approximately 3.3 million shares at a cost of $1 billion.
So, let's turn to page for where you can see the operational metrics for the second quarter worldwide gross dollar volume on GDV declined by 10% year over year on a local currency basis, reflecting the impact of academic.
GDV declined by 5% trended down, 23%, partially offset by debit growth of 12%.
Outside of the U.S. volume declined by 12%.
Cross border volume showed modest improvement progressively through the second quarter and was down 45% for the quarter recovering on low down 55% in mid April the decline in cross border was due to the impact of the endemic which has limited cross border traveled to a great extent.
Turning to page five switched transactions were also impacted by the pandemic. These stabilize around mid April at down approximately 24% and improved progressively through the quarter exiting the quarter close to flat versus year ago, resulting in switched transactions being down 10% for the quarter. In addition, cargos bust.
5% globally that our 2.6 billion Mastercard and maestro branded cards issued.
Now, let's turn to page six for highlights on a few of the revenue line items again described on a currency neutral basis, unless otherwise noted.
The decrease in net revenue of 17% was primarily driven by a decline in transactions and volumes due to the effects of border restrictions and social distancing measures, partially offset by continued growth in our services offerings, which continued to help diversify our revenue base and differentiated alcor as audio mention.
As previously mentioned acquisitions contributed one ppt to growth.
Looking quickly at the individual revenue line items domestic assessments were down 8% due to the decline of.
10% in worldwide GDV. The two ppt difference is primarily driven by favorable mix cross border volume fees decreased 52% on cross border volume decreased 45%. The seven DPV difference is mainly driven by an increase in the proportionate share of intra Europe cross border, which is relatively lower yielding.
Bed to other cross border activity.
Transaction processing fees were down 6%, once which transactions were down 10%. The boot BPP difference is primarily driven by favorable mix.
Other revenues were up 14%, including a full bpd contribution from acquisitions. The remaining growth was primarily driven by our cyber intelligence. Andy then services solutions, which continued to perform well finally rebates and incentives were down 7%, reflecting a decrease in volumes, partially offset by recent deal activity.
And were slightly lower than expectations.
Moving to moving on to bid seven you can see that on a currency neutral non-GAAP basis total operating expenses decreased 5%. This includes a four BBD increase related to acquisitions. The remaining decrease in operating expenses of nine CPT, primarily reflects lower advertising in may.
While cutting travel and professional fees related expenses.
This is lower than expected primarily due to the delay of certain sponsorship activity, which we now expect to occur in the third quarter operating 20.
Turning to page eight let's discuss what we've seen through the blood three weeks of July where we continue to see improvement in spending levels relative to June and the second quarter. One point to note while the week ending July 21, Joe slightly lower growth metrics relative to the prior we I would not make too much invensense grow them that we is being impacted by the timing a.
He called Eco motion promotional activity from a year ago in fact, when I look at the early numbers for the full began July we see a continuation of the growth we saw and the weekend in July 14th.
I think would switch volumes, we've continued to be in the normalization phase in most markets domestically. The US continues to show positive year over year growth and Europe has improved with several markets, such as Italy, Russia, and Poland, showing positive year over year growth and others, such as the UK, Germany in the Netherlands, showing significant improvement.
It appears Europe's economy is recovering faster than others at this stage, which could bode well for us given our strong position in Europe.
Each of the other regions have also shown improvement.
When you look at how people are spending we continue to see improvement in card present transactions as you would expect as markets open up notably this includes further recovery in restaurant and hotels spend as well as an increase in healthcare spending while retail continues to hold up well.
Gardner President spend remains healthy.
Trends, which transactions are similar to what we're seeing and switch volumes as they are impacted by the same factors for the most bottom one point of note in the second quarter contact list penetration represented 37% of in Burleson purchase transactions up from 28% a year ago.
In terms of cross border as expected intra Europe has shown the most improvement as border restrictions within Europe have been relaxed.
As you can see however in cross border outside of Europe remains in the stabilization fees with some reason signs of improvement in Asia Pacific and North America, which had been offset by declines in Latin America and Middle Eastern Africa.
Turning now to be nine for some additional color on the cross border volume trends.
You can see that the trends we laid out from the cost of the quarter continue into if you look at the Grey line Golden Cross border has improved modestly mainly due to continued improvement and inferiority travel.
If you look at the Orange line God frozen spend continues to improve since June 21st we have seen a 15 VPG improvement in card present travel and entertainment volumes in particular, primarily related to spend on lodging and restaurants.
We have also seen increased card present spend and other discretionary categories, such as clothing and home improvement.
Gardner President, which are the yellow line on the drug.
Has been more of them and has held up well.
Looking at the Green line, if you exclude online travel card not present sprint remains positive and reflects some shift to God present spend as travel restrictions begin to relax and as I just mentioned some difficult prior year comps related to E com merchant promotional activity in the third week of July.
We remain confident that cross border volumes will continue to improve as travel restrictions are relax and believe our return to the growth base is dependent on an improvement in consumer confidence that is into unrelated to the availability go effective therapeutics and ultimately vaccines.
Turning now to be extend and our outlook going forward.
As we established last quarter, given the ongoing uncertainty we will not be providing a forward view for net revenues for either of them third quarter. All the youre at this time, we do intend. However, do continue to provide periodic updates to our operating metrics to help you understand the trends we've seen.
I would like to make a few additional comments to help you with your modeling.
Both with respect to cross border inline with our previous outlook, we expect the recovery in intra Europe travel will outpace the recovery and other cross border travel as a reminder, entry on transactions are low yielding than other cross border transactions.
Secondly, we expect rebates and incentives as a percentage of gross revenues to increase sequentially, reflecting increased deal activity in Q3.
Turning to operating expenses I want to reinforce that we are carefully managing through this period to preserve our ability to invest and strategically important initiatives that will deliver on our long term growth opportunities digital cyber data analytics b to b and material solutions.
In the meantime, we will see whereas appropriate based on factors such as market readiness and customer demand and we will continue to monitor the situation closely and adapt quickly at circumstances change, we expect operating expenses to be down low single digits in Q3 versus year ago on a currency neutral basis, excluding acquisitions.
This reflects sequentially higher nm spend primarily due to increased sponsorship activity and digital campaigns.
Other items to keep in mind foreign exchange is expected to be about a one ppt headwind to net revenue, but each of the third and fourth quarters, and we'll have a minimal impact to operating expenses over the same time periods.
Acquisitions will contribute about one BBC to revenue for both Q3, and the Youre and six to seven BBD do operating expenses for both Q3 in the you're assuming the transaction with nets close in Q3, and the publicity transaction closes by the end of the Euro.
On the other income and expenses line, we arent in expense run rate of approximately 100 million per quarter, given the debt, we have issued and prevailing interest rates. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.
With respect to the tax rate for the Europe, we now expect to be closer to the bottom end of the 17% to 18% range. We last provided assuming the geographic mix of the business does not change significantly.
So to sum it up we are seeing signs of normalization domestically in most markets. Our service lines continue to perform very well and we are in a very strong position to take advantage of accelerating digital shift and address the significant opportunities that lie ahead and with that I was on the call back over to warrant begin to Q and a session. Thanks, Sachin Casey we're now ready for the Q.
Session.
Thank you.
Vendor to ask a question you need to press star one and your telephone to withdraw your question press the pound or Haskell. Please stand by what we compile the keaveny roster.
[music].
And your first question here comes from the line of Bryan Keane with Deutsche Bank. Please go ahead. Your line is open.
Hi, guys good morning.
Wanted to ask about the margins they were they were better than we expected.
Interested to know was there 'cause expense growth it looked like it.
Was controlled more than 10, you guys anticipated where there is some one time events there that got pushed out or is that just better cost control that that hopefully can continue and then kind of part to that I guess secondly, why were incentives is lower than expectations. I think that's the comment you made such and thanks.
Yes, good morning, Brian So on your question on margins you're right in our expenses did come in lower than what our expectations were and it was like I said it was driven primarily by just the timing of when our sponsorship activities and the associated expenses with that a good. So we expect that some of that do go in the second quarter as we can see a lot of the a bench.
Which amounts to God sponsors.
Didn't necessarily come to fruition because of the pandemic in the second quarter, we're now expecting for that to happen in the third quarter and so like I said, hey to think about that more in terms of the does the shift in operating expenses, but between the second in the third quarter.
On your question on rebates and incentives.
It's really a function of we going to Avago, we think about it or what our expectations on rebates and incentives based on what.
New and renewed deals we might be entering into and really I think.
The lower rebates and incentives relative to expectation the second quarter is a function of what actually ended up closing in the given quarter relative to what our expectations were so like I said it will we do expect that there will be an uptake in our rebates and incentives as a percentage of gross in the third quarter oil account of new and renewal deals, which will which we expect will go to the third quarter.
The only thing I'd add to that is Brian large is that underlying what's going on in the expense base for the company.
Is the low end footprint show that we are more portfolio boardwalk pre spend based on the readiness of our markets in our clients to accept the new things and doing so your do see an expense base reduction in totality, but thats. The then using that ability to put it back into the investment areas of the one two and take.
During some of that to the bottom line and I think that's what's going on inside on expenses.
And then park is moving from a quarter to the other but really what underlying on expenses as such and spoke about in his prepared remarks is back and Michael and the team are doing a terrific Jonas.
Got it thanks, so much basis.
Your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead. Your line is now open.
Thanks, guys.
We think about the structural tailwinds, you're seeing that are more pronounced and may be sustainable given the pandemic you talked about contact list, obviously digital being up but you guys don't mind, just holding it on the services pieces.
Obviously, the other revenues up there is definitely services flowing into the other transaction mines as well so card not present fraud.
Yes, how big can those be do you think that sustainable even beyond the pandemic as well and that can they offset potentially some of the cross border headwinds we see.
Thanks, guys.
It's Michael here, let me, let me take that site as you rightly said.
There is this accelerated shift to digital SMBC that right now what does that all of our does all of that mean for the business overall, our first of all that accelerates the the secular shift to digital payments. So thats all fantastic, but it has a downstream impact until services for sure so more digital transactions versus more cash.
And is more data more data means more desire and more need for data analytics capabilities, but also to protect that data.
So our cyber solutions are going to benefit from that in the long run we've clearly seen that as long as the underlying trend to digital continues which we believe it will add services portfolio, which.
Hits right onto these pints should be benefiting.
Next question please.
Your next question here comes from the line of Chris Marr with Autonomous Research. Please go ahead. Your line is now open.
Yes, good morning.
Craig more.
So.
Wanted to ask couple of questions first can you.
Tell us the how your value added services revenue our distributed among your different lines of revenue and what value added services are enabling you to win deals versus competition and secondly, with class action lawsuit against Plaid pending in California, I was hoping that you could.
Reiterate for us the differences between furnished to the implant that made you more comfortable with us in this city business.
Hey, Greg its option.
So as relates to where our services revenue side say.
For the most bought reside between other revenues and our transaction processing fees.
Depending on the nature of the service.
Hey, either comes into other revenues.
There's some amount of which comes in transaction processing fees to the extent the related to the number of transactions which are switch.
Ill you can ask the question as to what services are helping us differentiate and win at the core and I would argue that it's if you start from what Michael said earlier, which is ability to gain access to data utilizing data to analyze and provide advice to our clients as to how they can optimize their portfolios how they can end up.
Growing their top line, while still managing that expense base is a key enabler on one side and then separate from that pain point, which exists which has been on fraud is another area, which were RCM cyber intelligence capabilities are key differentiating factor.
David budget control 1.2, and then pass it over to might look for the financing.
Just think about over to convert a portfolio during a flip.
When you convert a portfolio during a flip.
That aren't bode card in that portfolio and the ability for the client come out.
And spent less dormancy more active more engaged customers that is determined a lot by our ability to use data analytics.
In a sense of away. That's one example, like that there are many examples that enabled us to put our best foot forward during such an opportunity. So my personal city, yes, I just had one point to add to that as we turn out of the co and pandemic.
I was talking earlier about understanding the crisis react to it reacting to it and planning for the future our test and learn stuff looks almost like a hawk Dick prices got us engaged on test and learn at a much greater scale than before and that leads into conversations and more in the BA you real some of our business around payments with our customer so we talked about.
Planning processes on branch opening and.
What retailers are doing to stock stocking the shelves and so forth, but that leads into payment opportunities, which is again, a way for us to differentiate and when and payments now affinity.
So I have to say from the is the first interactions that we have the DEFINITY team with the leadership team is Steven Nicola now the found US we found a very strong control.
Affinity here so.
Here is a company that has been the leading voice and.
Setting up the Sdx the financial data exchange approach.
Transparent business model a model that works for everybody in open banking open and that is for Fintech sets for banks that for consumers. They have been a voice in that for years and thats pretty much exactly when they're going when you take a little more into the detail you'd see a company ahead to has very strong relationships with us banks I talked about the connectivity.
Earlier I'd have a series of.
Agreements our data sharing agreements in place with several of the lots us banks Chase wells and capital one for example.
There is.
A really good reaction that we got out once we announced the deal in terms of our banking honest and saying this is a good partner for you.
When it comes to data quality, while important things that matters for fintechs as banks the likes as well as consumers is that the data quality.
What is being shared here is at the highest pointed cleanse and works at all times and finished city is a clearly a leader.
These applications that they bring.
Specifically.
Around credit Decisioning.
Make sense of the leader this is something at US believes it's a very useful use case, it's one that will be needed certainly has become out of the crisis. If you think about their boost product here's a company of us thinking around financial inclusion for a while as we have with a boost product that basically in helps people improve the credit score. So they can get access to credit.
So all around I see clear differentiation affinity versus other players and make them as far as I can see our best possible partner.
Thank you.
Your next question comes from the line of Lisa Ellis with Moffettnathanson. Please go ahead. Your line is now open.
Hi, good morning, and thanks for taking my question on question about fraud and E com.
To the pandemic, the higher significantly higher rates of fraud and E commerce kind of become a lot more evident can you just speak maybe more holistically, Tim to Mastercard initiative to help the broader ecosystem expressed and rapidly produced online fraud.
Typically things like accelerating deployment tokens their towards you can use like creating different interchange categories or changing liability rules et cetera to kind of accelerate and help the whole ecosystem move in the direction of up rapidly addressing the fraud issue. Thank you.
Hi, Lisa It's Michael Yes, let me take this question.
Now as you rightly said, we talked about it earlier RBC fraud rates, increasing more transaction happening digitally. So then there's no surprise there are brought strategy is.
Along a number of pillars, we want to prevent process start with.
As and when transactions.
Occur we want to ensure that authentication as best as possible, we want to help our customers assess their cyber security status to start with so those are the key dimensions of our strategy.
But as you pointed to an important aspect here the underlying.
Components off the digital economy like Tokenization that we have invested so much effort in over the last couple of years come to play here and tokens can do many things, but full once they what they do is because it's a onetime token. This a compromise transaction cannot be used by anybody for anything else. So what it does is it makes it safe of it.
Also drives a great user experience.
The approval rates are going to be higher so that asset is paying off significantly.
So we keep expanding our capabilities here with rich recon and talk about cyber security readiness that has become run fast enough right. Now there is everybody seeking all those merchants that are coming online. These days trying to establish an online business.
We see great demand for that and then of course is once transactions will happen and there might be faulty transactions of some sort the whole charge back process comes into signed and here as an ecosystem leader as still again opposite payments ecosystem, we're putting on our solutions that help making.
Chargebacks solutions go away, even before a charge because actually filed thats, what ethical does for us so around about I think quite well position here a tokens as you said make a real big difference.
Hi, Lisa you can see the effort for both organic and inorganic been since we've been trying to doing that space. The organic brand group with pro comes on the investment that went into developing the IDN building these capabilities and the inorganic burned includes ethical risk recon and other such efforts.
And then the organic expenses on goes to help them expand their reach so kind of a combination of that that come into our system not for disapproving. Following our acquisition and for a couple of years the retailer with them to from X acquisition, and then after that and seen obvious because that is Howard has to be.
Thank you.
Your next question comes from the line of Bob Napoli with William Blair. Please go ahead. Your line is now open.
Thank you and good morning.
The acquisition in open banking that area, obviously, it's been getting a lot of attention I Wonder if you gave a little more color.
On what Mastercard strategy is in open banking and how you see.
That evolving and then Mike will you'll be taking over as CEO near future just wondered any color on how you feel like deal stylistically be different then then Jay will you be as powerful was that Jay.
And then what are you most excited about.
Turning to go from here and get to terminate.
Yes.
Revenue on the Bovie on this call.
Hi, good morning.
All right, let's go from banking first.
I can think about discretion and back on my mind, Alright opened banking.
So open banking is in yen, all about putting control into the hand of a consumer to use their data in this case, the data and our bank accounts to get access to better financial services, just generally benefit from that so thats the whole principle.
Our strategy is when you look at that ecosystem that is opening up here as you got a lot of intense fintech south to ask third party providers that are coming in and wanting to find such financial services and there's often banks that whole that data. So we believe there is a role for us to be interested party in the middle between the syntax and the bank.
Thanks, and all that based on consumer content to provide seamless transactions and make sure that everybody is a good player.
And enables us to consumer to benefit from today, So thats probably the strategy.
We have built.
No solutions in Europe, we brought them to market last year connect protect resolve I talked about it earlier good progress there 11 countries 2000 banks on that that works really well in Europe and in here in North America. That's a market that grew up in a different way not driven by regulatory push as in Europe, but basically incumbents are that.
Having slightly different models on providing such services to consumers. We look that finished sitting here as I laid out earlier good fit for us that will be our starting point in North America as soon that trusted droll between syntax and banks in yen what I see is asked participating in data transactions oren payment trends.
Actions, both will happen in the world of open banking as we participate in car transaction builder the buildup portfolio of value added services on top of that'd make those transactions better and differentiated from optic out we seek to do the same and banking. So in terms of opened banking applications.
If you an example out of our world of loyalty services, our pay with rewards item would be something that we seek to deploy to the fintechs.
That are participating in the open banking ecosystem that might the Neo bank Thats as you know I want to have a pay rent the rewards capability in here is a premium.
Mastercard and of course around all of this is everybody's trying to figure out there opened banking strategy, it's a great opportunity for our consulting business for advisors. So infrastructure application services. It's the way that we think about to go to market and.
And I think with our organic stuff and fitness and if you have the tools that we need.
Now that gave me just two minutes to think about the colorful question.
So.
Well I believe we have been since this whole pandemic started basically locked up together for the last.
Foreign four and a half months here in purchase extended family I would say and I found out all the things I don't want to be like and.
Yes.
And there is a few weeks ago remotely for 20 overnight.
I don't driven.
Ability to be a bright spot.
No.
In all seriousness, which when you look at our strategy, what we're doing in terms of.
Accelerated drive to digital economy, we got to just beyond that and maximize that as much as we can but at the same time I just do want to make the point that we do see how even in these four months consumer behavior is changing yes people are using more digital services, but also window, but also when there is an opportunity go back on the street and by that local shopper.
Around the corner then they do that so the good thing as we have a business that benefits from the the the trend from cash to contact listen cards, and we'll continue to drive that as hot as digital card and that gives us to two legs to stand on and our services I think there's a huge opportunity Lisa's question, we just talked about.
Good in terms of.
What else we can do the longer term trends are linked to underlying digital data flowing through and places like open bank and we havent touched on that new payment flows b to B real time payments all that I don't see a dramatic change to our strategy because even those are just early steps on revenue.
Determine thing that would basically mean I need to get up like an hour earlier to find those so I don't want I don't want.
[laughter].
Thank you appreciate it.
Your next question comes from the line of Jen Wong with JP Morgan. Please go ahead. Your line is now open.
Hey, sorry, thanks, hoping to hear me good morning, I wanted to ask I asked visa. This I'll ask you guys as well just this the spread between us credit and debit growth it looks like it was even wider for you.
And then visa love to hear your thoughts on why how much of it is secular versus stimulus.
[music].
And also any impact on yield.
With this credit and debit shift here. Thanks.
In June and such and so you're seeing the spread take place in the second quarter between what you would expect in terms of a greater decline in credit and actually pretty good growth in debit I would tell you that some of the second quarter numbers are impacted by the stimulus programs rights as more and more money gets deposit peoples.
Thank God, it's a utilizing the debit BARDA to goal and access that that that amount on the same moves students in banks, who come to correct and so I do think you're seeing a little bit of that impact come through but by and large if you just step back and we think about where we are from an economic standpoint, given the uncertainty in the economy people tend to rely more on a debit product ended on.
Right and came to the reality is we're well positioned to capitalize on.
Both those both those trends I see the fact that people are.
Accessing that stimuli funds through debit products, but also the fact that our strengthen debit.
I mean, we go on a global basis than you think about our presence in debit globally.
We stand well positioned to take advantage of that situation as people spend more on the debit products. So look I can't tell you what it's going to go what I can tell you is we're seeing a little bit bump up in terms of our debit growth rates in the second quarter driven by the stimulus programs.
Alright, Thank you yeah.
Your next question comes from the line of Sanjay Sakhrani with KBW. Please go ahead your line now open.
Thanks, Good morning I.
I don't touch and you said you wouldn't worry too much about the slowdown in the last week, but I'm. Just curious if you guys are seeing a meaningful divergence in trends in states that are seeing a spike in the viruses versus not and then just on cross border should we just assume you can see material improvement and unless there's some kind of them at this at all.
Cure bridge for the virus or how should we think about the progression of cross border on a go forward basis. Thank you sure hate Andre so on.
The comment around the week of July 21st it's just exactly like I said look I mean, let's not put too much until the week of July 24 hours, because what I'm seeing in dealing numbers for the week of July 28 does actually seeing.
Back to the trends, we're seeing on the week of July the 14th in other words the growth levels, we were seeing.
Thanks.
In the week of July 14, what you did have the impact in the third week of July related to the double year over year comps on account of some promotional activities done by ecommerce merchants, but I wouldn't put too much for into that the trajectory is a good solid growth trajectory, which we've been seeing here.
On your question about impact of the back and forth in terms of pauses in Reopenings, taking place in different parts of the world in different parts of.
The country I would just say we've been due to run the business based on the full face to face framework, which we've got the old containment stabilization normalization in growth and the reality is it all its going to be nonlinear we are going to see it all puts and takes which will take place, but when I look at it our holistic basis, if I look at the most recent numbers for.
The fourth week of July we've seen the growth trajectory you saw in the second week of July.
Well, let you wanted to enforce yet on the cross border sign. So interesting question just picking up from one such in just said so.
The full phase framework, what we put in there as we believe we will see normalization on a path to growth one social distancing measures and border restrictions on our needs. So the point about.
There's a vaccine will be a good thing to have an medicine will be a good thing to have funded.
We'll see flat travel on that until that point, we already starting to see this border restriction being ease in some parts of the World. Europe. For example, there is some early green shoots that people do get into that caused that drive across borders.
We see domestic travel around the world happening so.
Once border restrictions are lifted.
We will see some increased staff. So that is the first and then you go into therapeutics in vaccines for this to come back in a big way I think you're right.
But it's not going to be kind of like an l., where it all happens at one point it will be a gradual improvement and so ill just add to what Michael said I mean, we should think about border restrictions even in the context of us in Canada in us with Mexico right. I mean, we typically think border restriction to meeting in for Europe, but to the extent motor restrictions are lifted being the Ghana us for use in Mexico important.
Board or by the way from across border traveled standpoint. Those are those are good things for us to half secondly, the travel bubbles, which are being created across various corridors. As you think about in Asia Pacific between Australia, New Zealand between China and.
Singapore as those start to come into effect, you're going to see probably some of the impact of that comes I don't know when.
I think those are things to keep your eye on as well.
Thank you.
Your next question comes from the line of Andrew Jeffrey with Suntrust. Please go ahead. Your line is now open.
Hi, Good morning, I appreciate you taking the question.
Michael I think you mentioned.
Services as being an important.
Attributed to two recent wins I Wonder if you and RJ just generally can comment on on sales cycles and in the current environment and weather, perhaps Dave Dave shifted elongated whether you think there's pent up demand and we could see.
Perhaps more portfolio flips or more activity generally as the economy recovers just trying to get a sensor cadence for new for new wins.
Yes, let me start on that and NRG can chime in so on the services side. When you when you look at.
The different elements that we have an hour portfolio. So here is.
You know starting off with side, there's an immediate needs so from a customer demand perspective.
There is a pole so in terms of does help as needed right now there isn't any debate and that makes it telly easy from a cycle perspective, most of our solutions other than breast recon and generally network delivered so that is.
Relatively straightforward for us to switch on such capability and make a difference.
The other end of the spectrum would be.
Strategy and consulting projects, which involves potentially some travel and here we've had some impact those sales cycles take longer than demand. This lesser.
Because people are worried more about that today versus the the day after tomorrow.
Thats, what I would say well beyond that.
We see it the scaling for the network deliberate stuff is good the people deliberate stuff, we'll we'll continue to engage and we do believe as I said earlier before.
Being a partner the best possible partner that we can beat in the crisis, Let's say was our data analytics test and learn platform, our signup platforms make us a good partner for the longer term things as we go out of this.
Governments for example that they're looking at longer term strategy products open banking as an opportunity like that.
At any given point in time, there's a whole set of services.
Engagements around real time payments.
And we now.
I expect us to rating pickup over time.
Turning to your point of our sales cycles on other things like core products I think only plan for find a faster sales cycle in bed merchant sport co brands and were impacted by severe need for liquidity or circumstances of navigating through this they're very up to many deals because that's kind of work youre doing their shoes.
I think I haven't seen a big changes of selling cycle with issuer per se and I don't expect said to be some dramatic change.
I do see this thing with some of the merchant spreads few of them or directly impacted.
That business is challenged right now you can understand that circumstance.
Thank you very much.
Yes question comes from the line of the Togo Evercore ISI. Please go ahead your line is helping.
Thank you good morning.
Could you comment on the composition of the 5%.
Growth in the quarter was that was that mostly debit.
Versus credit is people wanted to purchase online and then my follow us really relates to.
Europe, which historically has been debit centric and historically continental Europe has been a real strengths of mastercard's could you comment more deeply on the trends you're seeing in Europe by country and to the extent, we see debit lead us out of this what are the longer term applications for revenue yields.
It's sort of.
Take the part about Europe for a second.
Yes, we have had.
In beverage in Europe in Continental Europe in particular, we were weaker on beverage in the UK that has begun to change over the course of the last couple of years with dividends, we've been telling you about.
After all get into the market for those costs.
I see that is good for US absolutely Europe continues to be a very attractive growth market for our company over the years our growth in Europe grew both through our share growth and defer some wins that we've been having Intel in eurobond, but also due to the natural change sort of just by the way from large global competitor.
But even from domestic schemes by European country brand that ability to keep pace with innovation underpinnings of issuers wondered how comes from them and therefore, we have begun to see more and more transactions across domestic European markets and I continue to be very constructively optimistic about about Europe over the.
The next few years, so that's kind of the first part about your yes, just a few things to add on that when you look Europe, maybe western Europe comes to mind, but we see a huge opportunity for cash displacement in eastern Europe has been driving our growth. There. So that will continue and under its countries in the middle like Germany.
Which was cash how the but co. It has clearly accelerating trend there so mostly contributed to the end indefinitely as each with Mike Cross Cross border ecommerce.
No, but the point to point here the contact lenses rising so here's a market that is a significant opportunity that's again riding the wave.
Two largest point where partner meets all the local.
All the local schemes and bringing our best practices to bear So Europe I continue to see on cash displacement on differentiation services and opportunity across the board.
Yes, Dave to your question around card growth, we've seen growth across both credit and debit does.
Little bit stronger growth across debit and you should expect that and the reason you should expect that is just general propensity to spend on debit, but also all the work that we are doing as a company on the migration from maestro to debit Mastercard.
Thats kind of.
Quarter over quarter, you guys you'd see that come through in our schedules way you see the declining.
Barack off maestro caused relative to what then the debit mastercuts site.
Thank you stay safe and healthy new too you too.
Your next question comes from the line of Ashwin Shirvaikar with Citi. Please go ahead. Your line is now open.
Hi, Thank you Hi, Michael Heseltine.
Good to hear your wireless.
I heard a broad.
Thank you late to the question just wanted to get your views on a range of things.
Durbin EBI.
Yes, any long term parks and the wildcard tag our might be March from that.
And a company specific update on our next we've seen some of the new security CPD, obviously, but.
How do you think in that.
I'm going to pick starting.
Tim is dying to answer your question swings very caring is actually undertaking.
You mean for me earlier and I took that you made as you would drop through August. Thank you.
So.
Vigorously in general.
Hi continue to believe that this industry of payments as it becomes more and more important an interesting to governments around the world as they all take on cash and that try move that economies to digital I think you should expect attention from governments are bigger leader regulators legislators.
The world to be industry, that's on a bad thing that part of what's driving the secular change in our favor it raises the bar for our industry produced so investors that seem of value added to their local country and then local businesses and that's going to what we've been trying to do through our financial intrusion efforts drove centre for him.
The growth through our partnership with governments.
Got a new things we've been working on the decade or of effort to take some leadership positions in the space that doesn't make it less of an English will be careful about just starting your hardware conscious and dealing with it. So thanks guys are yet to fully agree and let me just in light of that frame, let me just sort of hit the.
The the specific things you mentioned in order. So so in terms of net you mentioned that we continue to work through the regulatory approval process for that transaction.
Fueling feeling good about it we're making progress I don't have a lot more to say there, but that continues to be to be underway and and we're moving forward in terms of.
Staying in Europe in terms of the CPI initiative, which for others is.
As a potential effort in Europe to create a an alternative sort of European.
Payment architecture in an ecosystem, we'll see whether that gets traction or not decent been there have been multiple efforts. So over the years is actively being considered and our view is we welcomed and we look forward to the opportunity to participate in it I think we've demonstrated both in our core card business and our Asia.
Page business, the opportunity or the possibility to will drive value for all parties and to earn some revenue for ourselves by participating in these sorts of local or regional initiatives and so we don't fear a PR EBI, we embrace it we will see whether it gets traction, but we intend to participate particularly with our our approach to multi rate.
Remember, we are not just guardrails dependent I'm, sorry, I didn't hear towards multi rail is our strength.
Yes, and then just coming back to the us on Durbin. So two two things there the.
You will have seen in our disclosures that the the FCC is now.
Opened up a formal investigation into Durbin compliance, we feel very good about how we manage this company and delivered.
Fully compliant Durbin compliant approaches we compete hard in debit debit is a very competitive space.
Durbin contemplates that it has rules around that compensation, which we are rigorous in adhering to so I look forward to the chance to explain our our approach to the FTC and we will do that as as we need to there. There's there's there's that's an early stage investigation and we're participating were purchased.
Getting fully and then we might end on wildcard and I'll make a comment and then assumption has more to say I think as you know wildcard.
In terms of engagement with Mastercard is principally two entities that engage in our network one a German based bank and then the wildcard business in the UK. We're working very closely through this process. They have a number of roles in the payments payment ecosystem.
Including processing acquiring and so on we're very comfortable in our close connections both with wildcard in the regulators in Europe that consumer deposits have been appropriately ring fenced and so we're staying very close to the situation.
And making sure that we're working with them and with other parties.
To to minimize any impacts on the wider ecosystem caution in the only other thing I'll just add as I think you're all very well aware about the risk management practices, which other massive thought we have very robust risk management practices and those have actually held up some pretty good said in this instance, as well so we monitor we've got real time engagement.
Taking place in terms of seeing what kind of traffic is going through our network.
Well as putting the requisite.
Lateral measures as and when necessary to ensure that where appropriate.
Great. Thank you actually do you have any final comments, yes. So.
Alright. Thank you for your question I'm going to wrap up with a few closing thoughts.
Im going to begin their restart at the beginning you've got difficult time for all of us yet for our business.
The pandemic is actually hoping to accelerate the secular shift to electric for electronic forms of payment. The foundational work we've been doing in areas like Tokenization contact list digital acceptance cyber security B to B this position us very well to capitalize on this accelerating trend.
And our service capabilities allow us to offer differentiated solutions to our very vide range of customers and very importantly to help diversify our revenue base and build multiple legs to our revenues too.
We continue to drive our core business forward I think our money by rail opened banking and cross border solutions are enabling us to address a broader set of payment fraud and you should expect to see us continue to be very focused on these opportunities. Thank you for your support for the company. Thank you for joining us today.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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Yes.