Q3 2020 Mastercard Inc Earnings Call
Welcome to the Q3 2020, Mastercard Inc. earnings Conference call.
This time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you would need to press star one on your telephone.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Warren Kneeshaw head of Investor Relations. Thank you. Please go ahead sir thank.
Thank you Kate good morning, everyone and thank you for joining us for third quarter 2020 earnings call.
I Hope you are all safe and sound.
With me today are Raj me beyond our Chief Executive Officer, Michael <unk>, our President and <unk>, our Chief Financial Officer.
Comments from Andre Michel inside the.
The operator will announce your opportunity to get into the queue.
The only back into the queue.
You can access our earnings release supplemental performance data on the slide deck that accompany this call in the Investor Relations section of our website Mastercard Dot com. Additionally, the release was furnished with <unk> earlier this morning.
Our comments today regarding our financial results will be on a non-GAAP currency neutral basis, unless otherwise noted.
But the release and the slide 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 that today's call will include forward looking statements regarding Mastercard.
Actual performance could 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 SEC filings a replay of this call will be posted on our website.
I'll now turn the call American Chief Executive Officer.
Thank you and good morning, everybody.
Well no core doesn't have the pandemic and while individual them.
Finally at large continues to face many challenges. We are also seeing some positive trends both in terms of.
The trajectory of spending.
Acceleration or digital payment that's helping enable.
For example.
But for quarter pre show you, what retail sales up 1.8% versus a year ago.
Thank God, we don't see sponsored them both in countries like the United Kingdom.
Looking at the trends volumes improved throughout the third quarter.
Right if you're.
Travel and entertainment, which have been pretty pretty hard hit.
Switched volume growth rates in September but.
More people before the pandemic in Q4 of 2019.
Using all four phases phase, but we see markets go through the containment and stabilization phases and now we believe that most markets autumn the normalization phase domestically.
Approaching girls.
[laughter], we've seen our revenue you're going into right direction this quarter.
I don't know where you got it seems your true growth was three percentage points better than last quarter and the domestic spending trends. So far in October continued to remain steady.
I mean, some improvement to domestic problems in the quarter, including spending in categories, such as lodging and restaurant.
Corporate travel demand constraint and Bob you have seen some improvement in town, but then you during the quarter.
Border travel I'm, sorry, you are showing the leverage in the recovery.
We believe job in improving consumer confidence regardless of the result of improved testing and safety protocols big burden based medical above the coding and the border sanctions are lifted and that it increased international coordination of drama called Cardinal.
Well go forward probably doesn't improve.
Very well positioned to capitalize on that recovery.
So overall, we'd be fine.
Well take all those are the ones that we are seeing in places like Europe.
Actions being put back in place.
The ball.
I'll go through the phases may not be linear it's going to take some time and it was positively impacted by the broad availability of successful therapeutics and vaccines.
During this time.
[music].
We can't control.
We need to execute against our strategy invest in our business for the longer term.
And manage our expenses in a disciplined way.
Our dangerous technologies help us drive the secular shift to electronic forms of payment.
It's a board a broad range of customers Bank Fintex, Neil banks and merchants.
Regarding our core capabilities in credit and debit be bad I'm commercial revenue.
No I'm good new deals.
So this is rich I, hoping our customers I'm consumers adapt to the changing environment.
To grow well and they provide meaningful differentiation and revenue diversification and.
And I'm, sorry, <unk> capabilities are providing choice for customers and consumers by addressing a wide range of payment flows so with that let me turn the call over to Mike.
Thanks, Jane picking up where you left off.
We're positioning ourselves for the future by driving this accelerated shift towards electronic payments.
According to our research almost seven and 10 people globally say the shift will likely be permanent.
We believe that as economies reopened people shop in stores again E. Commerce will remain elevated from pre pandemic level behaviors have changed and payment preferences have shifted.
Our research also shows that about 60% of consumers and plan to use less cash even opposite endemic side.
As a result motions are becoming more digital and consumers and businesses are adopting honey interact at the point of sale both in person and online.
Regardless of how these trends play out our solutions are available to support consumer issue as Ed mentioned and their preferences and needs evolve either in store or online.
And we are partnering with digital enable us to bring our digital solutions to market speed and scale.
To give you some examples first consumers.
Consumers one choice.
Whether they want to pay using contactless card on file QR or by installment we are enabling a choice.
I think let's girl continues to be fueled by increasing consumer adoption that's.
The third quarter contract must penetration represented 41% of in person purchase transactions globally up from 37% in the second quarter and 30% a year ago.
Same time, when evening, a safe and simplified experience for consumers across digital channels with our Tokenization capability.
Additional technology is growing rapidly, but the number of tokenized transactions doubling year over year in the third quarter now accounting for 8% our spin off transaction.
We are also enabling more consumers to participate in digital Commerce. For example, something that Chile has rolled out digital debit Mastercard to all of their Mastercard holders. This quarter alone. We won deals that will lead to about 10 million milestone costs being migrated to debit mastercard in the near future.
Second lets talk about issue.
We have a set of digitally enabled products and solutions that drive this accelerated secular shift, including digital first solutions till two in Texas, and Neil bags, and issuing Clos, which we haven't established leadership position.
Partnering with large global players like Paypal, she make the paper business debit Mastercard available other businesses and find new markets in Europe. In addition to its current availability in the U.S. UK and Germany.
You extended our deals new bank, one of the world's largest Neal banks, and we'll maintain a leadership position with them and Brazil is one of the new markets as they expand their operations in Mexico and Colombia.
My <unk> also helped fintechs build and scale their businesses signed several deals, but fast growing Neal banks around the world like nickel and France.
In Spain.
Third we're focused on helping merchants merchant that the shift to digital and develop omnichannel capabilities. For instance, we lost a Pos capability, India was world nine Axis bank, the transform smartphones and to point of sale terminals you ability to accept contact that you are a remote payments.
The Bane of buy now pay later space. In addition to a previous announcements, we recently announced a partnership with teeth to deliver installment capability to issue.
In addition, we're also piloting simplified shopping experiences using AI and computer vision, such as enhanced drive throughs at White Castle in Sonic and checkout few pilots Duncan I'm sorry, okay.
And finally, the partnering with digital enable us to bring our digital solutions Tomorrow, just announced an expanded mountain partnership as Mark has a digital processor to introduce new products launch additional card program and new geographies and talking about geography and Africa, It's part of a Samsung Intel Africa and.
Sound to enable access to digital financing to consume us entrepreneurs and merchant.
In parallel been driving hard to grow our core products.
Leveraging these differentiated digital capabilities to set ourselves up well for the future.
In the U.S., we are excited about our partnership with Chase launched new freedom FLEXMAP, the QAD offering comment bus cashback on everyday spend as well as our leading one of the benefits.
We also expanded our relationship with Barclays. Thank you Wes will now include new products and services. In addition to that consumer and small business credit portfolios.
In Europe, we continue to strengthen our position you signed a regional agreement with us on that group for their card business, securing a long term partnership.
We're also extending our relationship with GE as they grow internationally.
And the the Grito long term renewal swedbank, our largest customer in the Nordics and Paul Thanks.
Will become an exclusive Austin College huh.
The cobrand fronts in the U.S. the waste them off the Khan with Citi has launched and we will be the new exclusive network, a ARPI credit co brand program.
Canada, we have extended our co brand relationship with Walmart.
And we're happy that Taobao, just launched its Mastercard co brand issue by bank of China, and Hong Kong and Macau.
We're also focused on positioning ourselves for the return of travel.
Includes partnerships Emirates Skywatch on that first co brand credit card in the U.S. and a renewal of our exclusive co brand agreement with miles in more the largest traveler loyalty program in Europe on the German portfolio.
Both includes a focus on travel oriented portfolios like WEX that you've heard us talk about over the last several quarters.
So working hard to improve cross border approval rates and optimize portfolios, so cyber intelligence and data and analytics services.
Now speaking of services. It is important to note that our sevens have played a critical role in enabling the wins I just mentioned our.
For example, our renewal and extension with nine Ji will include our data analytics and data insights services.
Services I.E. material driver of our revenue growth and the source of diversification, while we help our customers adapt quickly and securely than they navigate through the pandemic into a rapidly digitizing loan.
One way, we are helping our customers is through a time of services and the use of artificial intelligence an area, we have been investing in both organically and in okay.
We have developed a broad set of scalable AI capabilities, which have been integrated into our network products and services.
And here are some examples.
Back assessing our AI platform to determine enhanced capabilities to mitigate credit losses anytime we want something that Mexico are using our AI and to provide added security for consumers on ensuring good transactions are approved.
And with that let's turn to the Council account space, maybe believe without significant incremental flow through address.
Well the last several years, we've developed a set of assets to comprehensively address these opportunities at the infrastructure applications and services Lance.
We believe this combination allows us to best address a broad range of customer needs.
And he infrastructure level, we continue to make good progress with our build out and have a strong position in all major geographic regions.
Putting key markets like the U.S., the UK Nordic and Saudi Arabia.
Building off our strong position in infrastructure, but also making the promise any application layer utilizing our multi rail capabilities.
Starting on the consumer to merchant front.
The payment nine cap in the UK, which extends our ability to compete for everyday spend along with on debit product is growing both in consumer accounts and merchant acceptance box is set to launch within 9 million mobile banking app customers before the end of the year to get on with the customers already on boarded by HSBC you will have around.
Third the UK mobile banking customers enable.
We have streamlined our merchant onboarding process and currently have more than 700 merchants signed up such as the W. H. This group.
And our distribution partners like we're paying and others, we are well positioned to expand acceptance even further.
And the Bill pay space, several new process will be supporting the Mastercard Bill pay change, including yes, let's come credit Union pay rail and more coffee on the consumer side, and Culebra PNC Bank and CSG on the builder side no.
Okay Exchange will now have access to approximately a third of bills paid annually in the us and be able to reach about a quarter of active U.S. bill pay consumers.
Maybe to be continued developed ecosystem around Mastercard track business payments seven Smith myself now lives on the platform.
We're also excited to announce an expansion of our longstanding strategic relationship with Paypal and now use Mastercard send power funds transfer to consumers and small businesses through all their brands, including Braintree, Loon IPO molded and Isaac.
And finally, we are continuing to make progress in the services layer, including consulting crop fraud prevention and a recent extension in the UK for traits anti money laundering services.
In summary.
Managing our business through this normalization taste with agility.
We're winning share and have good deal momentum, we're driving the accelerated shift towards digital payments and our clients see us differentiating ourselves without services.
You seem domestic volumes rebound and the positioning ourselves well for the medium to long term growth opportunity, including the return of travel through continued investment in our strategic priorities with that let me turn the call over to sanction for an update on our financial results and operational metrics. Thanks, Michael So turning to.
Page, three which shows our financial performance for the quarter on a currency neutral basis, and excluding the impact of gains and losses on the company's equity investments.
Net revenue was down 14%, reflecting the impacts of the endemic and includes a one ppt benefit from.
From acquisitions operating expenses were down 5% year over year or down 8%. If you exclude the threepd impact of acquisitions.
Operating income was down 20% and net income was down 26% both of which include a one ppt decreased from acquisitions.
EPS was down 25% year over year to $1.60 cents, which includes three cents of dilution related to our recent acquisitions offset by a three cents contribution from share repurchases.
During the quarter, we repurchased about $2.1 billion worth of stock and an additional 392 million through October 23 2020.
So, let's turn to page four where you can see the operational metrics for the third quarter.
Worldwide gross dollar volume or GDV increased by 1% and we are on a local currency basis, reflecting the effects of the pandemic.
US GDV increase by 4% with debit growth of 20%, partially offset by a credit decline of 12%.
Outside of the U.S. volume was flat.
Cross border volume was down 26% globally for the quarter.
As we have previously mentioned the BS of recovery and lower yielding increased your volumes is stronger than although cross border, which is higher yielding specifically inquiry on volume was down 23%, whereas other cross border volume was down 49% as modern restrictions were used in Europe.
And about some other locations.
Turning to page five switched transactions showed growth of 5% in the third quarter globally.
We saw positive growth and switched transactions across most regions aided in part by the continued adoption of contact list that Michael mentioned earlier.
In addition.
Growth was 5% globally, there are 2.7 billion Mastercard and maestro branded cards issued.
Now, let's turn to page six for highlights on a few other revenue line items again described on a currency neutral basis, unless otherwise noted.
The decrease in net revenue of 14% was primarily driven by a decline in cross border volumes due to the effects of water restrictions and social distancing measures.
Partially offset by growth in GTB switched transactions and continued growth and services.
I previously mentioned as previously mentioned acquisitions contributed approximately one ppt to net revenue growth.
As a reminder, the transaction with net did not close this quarter as previously expected.
Looking quickly at the individual revenue line items.
Domestic assessments were up 5%, while wonder why GDV grew 1%.
For PPD difference is primarily due to favorable mix.
Cross border volume fees decreased 48%, while cross border volume decreased 36%.
Well PPD difference is due to add most cross border mix, mainly driven by a slower recovery in non inquiry your cross border volumes at a higher yielding an increase from cross border volumes.
Production processing fees were up 1% when switched transactions were up 5% for PPD difference is primarily driven by the Atmos Cross border mix I just mentioned.
Other revenues were up 6%, including a two ppt contribution from acquisitions. The remaining growth was driven by our cyber intelligence and data and services solutions also just as a reminder growth and other revenue, which was impacted by a difficult year ago call.
Finally, rebates and incentives were up 2%.
Moving on to be seven you can see that on a currency neutral basis total operating expenses decreased 5%.
This includes the Threegpp increase related to acquisitions, which was lower than expected primarily due to a delay in the closing of the transaction with that.
Excluding acquisitions expenses decreased 8%, which was also better than expectations, primarily related to actions speak reviews advertising and marketing travel personnel costs and professional fees related expenses.
Turning to BG, let's discuss what we've seen through the first three weeks of October one point to note.
The week ending October 21st shows higher growth metrics relative to the prior week. This is being primarily driven by the timing of significant promotional activity by an E com margin and the competitors through the first three weeks of of Cooper each of the metrics are in line with recent trends adjusting for the E com promotional activity.
Commenting on the specific metrics, starting with fish volumes, we believe that most markets are in the normalization fees domestically with some approaching growth. When you look at how people are spending card present growth rates remained steady with strength in retail categories, such as groceries offset by some declines and any.
Card not present growth rates remain healthy.
Enzymes, which transactions remained steady benefiting from increased contact ms. penetration.
In terms of cross border into your new store beef, although cross border volumes as previously mentioned into your yields are lower than those other cross border volumes.
So now turning to page nine I'd like to provide you additional color on the cross border trends across card present and card not present.
You can see the trends that we laid out through the course of the quarter continue.
The E com promotional activity I referenced also impacted cross border growth for the weekend, Google 20 posts.
Andrew If you look at the Grey line do cross border similar.
Similar bad if you look at the Orange line card present spend has declined slightly following an uptick in travel over the summer holiday season cotton.
Card not present.
Which of the yellow line on the chart continues to be resilient and has held up well.
The Green line represents card not present, excluding online travel related spend and remains positive we continue to see strong growth across retail categories, particularly in discretionary areas like clothing and home improvement as well as in Nondiscretionary categories, such as groceries.
This line was particularly impacted by the E com promotional activity.
One final point regarding on metrics given the recent increase in gold 19 cases, we are closely monitoring the impact on spending of additional mitigation measures that have been put in place, particularly in Europe.
Turning to page 10, I wanted to share our thoughts on the upcoming quarter as we previously established given the ongoing uncertainty we will not be providing a forward view for net revenues at this time, we do intend however to continue to provide periodic updates to our operating metrics to help you understand the trends we are seeing.
I'd like to make a few comments on how I see our business shaping up in light of the pandemic.
The story, a non DMV domestic volumes is quite encouraging specifically allowed you mentioned, we are seeing volume growth rate X T. Any in September similar to what we were seeing recorded in Q4 2019.
The impact of the pandemic on travel and in particular on non inferiority cross border travel remains significant.
While we believe that cross border will ultimately recover it will take time for people to build that confidence in the safety of travel and we believe that is tied to the broad availability of vaccines and therapeutics likely towards the latter part of next year.
As a reminder, we will see improved growth rates due to lapping the effects of the pandemic the pull that starting in late March next year.
All of this being said, we have always been well positioned in the cross border travel space and we continue to build on this position of strength through various initiatives with existing and new partners as Michael commented on this will enable us to capitalize on the recovery and cross border when it does occur.
With that as background I'd like to make a couple of comments to help you with your modeling of revenues for the quarter.
First as you have seen non intra Europe cross border travel has seen minimal recovery since the onset of the pandemic.
When that these volumes are significantly higher yielding than into your cross border. This has resulted in a slower recovery in our cross border revenue.
As a reminder, this negative mix impacts both our cross border volume fees and transaction processing fees as you have seen in Q3.
This will continue to be a factor so long as this mix versus sales.
Secondly, we expect rebates and incentives as a percentage of gross revenues to increase by two to three ppt sequentially, reflecting normal seasonal trends and increased deal activity as Michael mentioned.
Now, let's turn to operating expenses consistent with our full freeze framework for managing through the pandemic and given that we are in the normalization fees. We continue to carefully manage our priorities in order to preserve our ability to invest in our key long term growth drivers digital cyber data analytics b to B and monitoring solutions.
For Q4, we expect operating expenses to be down low single digits versus a year ago on a currency neutral basis. Excluding acquisitions. This reflects our continued focus on expense management as well as sequentially higher advertising and marketing spend related to promotional campaigns with.
With respect to M&A, we are pleased with the progress we have made towards securing regulatory approval for the transaction with nets and now expect the transaction to close in the first quarter of 2021.
Based on the timing and the planned closing of the financing acquisition. This quarter, we expect acquisitions to contribute a half a PPP to revenue and approximately four to five ppt to operating expenses and the fourth quarter.
Other items to keep in mind for Q4 foreign exchange is expected to be a one ppt headwind to revenue and as Utica, one ppt headwind to operating expenses.
On the other income and expense line, we are in an expense run rate of approximately $100 million per quarter, given that given the prevailing interest rates. This excludes gains and losses on our equity investments, which are excluded from non-GAAP metrics.
And finally, we expect the tax rate of approximately 20% for the quarter based on the current geographic mix of our business and with that I will turn the call back over to Mark.
Thank you Sachin Casey, we're now ready for the Q and a session.
Great. Thank you as a reminder, ladies and gentlemen to ask the question you need to press Star one on your telephone to withdraw your question press the pound or hash key please standby when we compiled mckenney roster.
And your first question comes from the line of Craig Maurer with Autonomous Research. Please go ahead. Your line is now open.
Yes, good morning, thanks for taking the questions.
So hi, synthesizing everything you're saying.
And.
Piecing together, what you said on.
Ross border it sounds like effectively we should be modeling an extended period here of depressed yields perhaps.
Through the start of 2022.
Is that how you're thinking about things.
Hey, Greg discussion so let me take that one I think the thing to actually focus.
Focus on is the falling when you think about cross border you should think about in Europe Cross border and daunted by Europe Cross border, but the other day mentioned you should think about as well.
First of all travel relative to business travel and I think what you should our expectation in terms of how we think things will evolve is going to be tied to the availability of vaccines and therapeutics. Our view is both slow travel comes back quicker than business travel does personal travel for Mastercard represents a substantial portion of.
Our board and cross border. So the way I would think about that is to think about in the context of.
As traveled starts to come back, we'll see bustle travel, which is a substantial portion of our Golden Cross border come back sooner than business travel and that should be tied to how we see the evolution of the Goldman vaccine and the therapeutics taken place that's the way I would think about it okay.
Okay, considering the other commentary you had.
Refresh our memory in terms of the yield dynamic and on a card not present slash E com versus card present, considering it seems that obviously the direction is favoring E com at this point.
Look I mean that is where I tell you in terms of the opportunity for yields on Vod present versus Gardner president that we should think about it generally at the baseline the yields are pretty consistent all clearly when you have gotten on present transactions you have the opportunity to leverage the strong capabilities, we at mass about half from a services standpoint, such as our fraud and out.
Our next capabilities, which when layered on at a more relevant in the backdrop as environment cause for the yields to be higher in God's not present overgaard resin.
Okay. Thank you.
Your next question comes from the line of Ramsey El Assal from Barclays. Please go ahead. Your line is now open.
Ramsey you may be on mute.
Once again Ramsey El Assal from Barclays. Please go ahead your line is open.
Hey, let's go on to the next one please Casey.
Certainly your next question comes from the line of Lisa Ellis with Moffettnathanson. Please go ahead. Your line is now open.
Hi, good morning, Thanks for taking my question.
You mentioned on the call that Tokenization I think this is the first time you disclose some of these metrics are digging into them Tokenization Doug.
Doubled so can I transactions, I guess doubled year on year and now 8% of the total.
Can you elaborate a little bit on what's going on with Tokenization, specifically, how is the implementation of Sta in Europe impacting the rollout of Tokenization and then.
What kind of tools are you using to drive this rollout. So for example at some point you implement a liability shift or something like that similar to what you did with MB or you know kind of how is it expected to roll out over the next couple of years, especially in light of the dramatic shift. Thanks.
Thank you.
Thanks, RJ homologous kick it off and I want to add Michael is the European export.
Thank you [laughter].
First.
We're going to position Dupont is building the foundation.
Fifth secure and frictionless online contact us kind of comps, but think of broken ambition of being extendable also to card present transactions. Eventually so that Grande Amber card data exchanges and in any form the actual data that exchanges and is not.
The data that can be used without unlocking programs. That's the objective.
Also before provides us for the terrific revenue to see more transactional than they used to in the past, which by the way is one of the reasons why our transaction percentage that we see it growing up from over the last decade from 40 something percent to 55% today and that enables our data and services business for power.
To sum on a higher level of growth that's the logic of broken position not the investment and the fact that it's now 8%, which has had a doubling over last year in terms of a number of transactions you should view that as a continuing trend that we're going to push as hard as we can with every ounce of energy.
Selling system.
The first part of yields.
Does it connect to Europe, yet not yet any differently from other because secure customer authentication. This year, it's still not fully implemented as you know in Europe, because there was an extension granted on how and when they go through wouldn't that be very much hope for tokenization, yes, but not yet in those numbers, so what you're seeing.
Israeli efforts across the board across markets across geographies for us to bring the foundation for this fairly simple smart call us well for future.
Despite the fact that LG is in European I think he told the Europeans already only thing I would add is as we get the foundational work over the last two three years around tokenization, particularly the merchant Tokenization, our MRM product. We've made the implementation so much easier we're talking about a very light lift for merchants, which is driving some of this.
Celleration here and by the way. These this is you have some for merchants as Michael said, it's useful for Frank. Thanks, It's useful for banks, it's beautiful so important to be or governments, because it adds to security in the system. This is a good thing and its standardize across the industry, which makes it get to scale.
Thank you.
Your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead. Your line is now open.
Hey, Thanks, guys. When we look at the other revenue line. It just was it seems a little more than we had expected. If you could just give a little more detail on what went into that and really the investments you're making in that category, which I know is sort of a catch all for a lot of the newer services you have.
What should we expect from that over the next year or two in terms of opportunities for further investment in growth in that area. Thanks sure. So Darren.
You know the revenue as you know as we've kind of previously discussed its Scott ill a large part of our services revenue since there. There are several other revenue items related to acquisitions, which we've done in the services area, which can again said in that so that there's a bunch of stuff, which goes into the other revenue line item I think the way you should think about it is the following.
Our services capabilities of the revenue we generate from our services capabilities continued to be in great demand in the marketplace and they are growing well bottom line point number one really important for us to get out there because there is a lot of demand coming from our customers on that.
What you are seeing in terms of other revenue growth in Q3 is and the reason is it's we grew at 6% ex acquisitions that grew at about 4%. We had a tough year over year saw last year that other revenue line item was growing at 30%.
Ex acquisitions, and so I look at the end of the day last year. The growth. We had was driven by some really strong demand in the third quarter up or a consulting capabilities, which came through there and really what I would say is lower down the way you should think about services in general and other revenue as well as they continue to grow faster than the.
For that and good demand in the marketplace, including those which weve developed organically as well as the acquisitions. We've we've we've done including things like ethicon risk recon or which candidly in the current prevailing environment with increased digitalization are even more demand.
So thats the way I think about it.
Back to that Roger has that.
Who focuses.
Other revenue is a number of different businesses, it's not one.
So big data analytics, the loyalty that is cyber security so from a lump that that's what creates some lumpiness across quarters, but those would be started or any of the gold there were 4% 5% of our revenue.
Currently running such a board level. So this is north of 25% spending most of them somewhere between 25 and 30% of our revenue depending on the quarter. So you can imagine that focus that Mike Durland PMO importing into it you should expect to see more activity in that space in data analytics and insight.
In cyber security you should expect margins to be continually driving new differentiation.
All right that's helpful. Thanks, guys.
Your next question comes from the line of Bob Napoleon from William Blair. Please go ahead. Your line is now open.
Hi, Thank you and good morning, just a question on the M&A side. It seems like there is a lot more regulatory overview of acquisitions.
By large tech companies like God, including visa and Mastercard you sound very.
Optimistic about closing finished city and nets. Obviously these are getting a lot of overview on flat are you seeing a lot more.
Lot heavier regular regulatory review all the acquisitions and does that change your M&A strategy at all.
Hey, Bob Michael here so.
We.
Actively engaging on the two that you mentioned.
That's net indebtedness city as such in pointed out earlier, we are comps.
Confident that net spoke close into the first quarter were very happy that they get the in principle approval from the commission now.
We're working through the remedy.
So thats a process thats well understood and on track for us So the high level of confidence there when it comes to finish city, we continue to be quite optimistic.
As we work that through that it will close in the fourth quarter now on the.
Level of oversight and engagement around antitrust topics, we're obviously aware of that and we're following a news as everybody else does now when we look at Finisar anywhere the confidence that I just talked about there really relates to why we like fitness and he likes in this city because they have really strong data management practices, we like them because they.
I haven't in the light of day set of relationships with banks and with Fintechs on both sides. So very transparent business model, we like and particularly because of the approach that they took to create a world of open banking that Randy favors the consumer to used our data with their consent and only when their consent and created the.
Financial data exchange around it which is now the emerging standard globally on how to do open banking in a proper way. So we feel really quite good about that other acquisitions as they come we will continue to work that within the respective regulatory environment. So not any change to on M&A strategy.
Thank you appreciate it.
Your next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead. Your line is now open.
Hey, guys just wanted to ask a two things first just the delta between switch transaction growth and transaction processing revenue growth I think there was about a four point spread there and then just a number of issuers have talked about improved us credit volumes in September and October wondering if you guys saw.
That as well as you deconstruct the domestic volume numbers. Thanks, Hi.
Hi, Jason its option.
Oh on transaction processing fees, and the delta between transaction processing fees and the growth and switched.
Switched transactions is primarily being driven by the adverse cross border mix as you know, there's a component of our cross border revenues, which come in transaction processing fees.
And when does.
The proportionate share of intra Europe versus non intra Europe is building towards.
In favor of intra Europe transactions.
It has the most impact which is what you are seeing comes from Dan in Q3, that's exactly what's what's kind of driving that Delta on your second question on performance of credit we do have actually seen an improvement in credit performance quarter over quarter or much in line with what you're hearing from.
The issuer site in fact I.
I would say across all regions. There has been a good improvement in our credit volume metrics.
And the reality is as we are starting to see spend come through revenue for the second quarter in terms of domestic volumes and transactions. That's manifesting itself in the debit improvements we've seen as well as on the credit side. So it's very consistent with what you're hearing from the issues.
Okay. Thanks.
Your next question comes from the line of Ken Jen Wong with Jpmorgan. Please go ahead. Your line is now open.
Okay. Thank you so much and a lot of questions on on yields and I understand that geography matters on cross border I think Craig asked about card present versus card not present, but just in general any.
Any comments or anything any call outs on.
Product mix and how that impacts your yields as well as maybe even client mix if more spending is going to bigger merchants and marketplaces any call outs there.
Hi to engine.
The Golar, which are in addition to the foundry, which we've just shared around yields in general as well as the mix shift which is taking place between intra Europe cross border and not in favor of cross border as you know travel by and large happens to be more credit oriented and recovery all travel ties closely to how the metric.
Up on card as well and so the only point I'd make is that.
As we start to see travel come back, which we very well expect to come back like I said personal travel problem before business travel.
I think from a product standpoint would you can expect to see is that the credit.
Walliams start to come back.
In a more meaningful managers because that's the more prominent product use there. The other piece is certainly prepaid as well in the travel business. As you know we've got a bunch of prepaid products, which are very focused on travel.
Travel oriented business and that do we'll start to see that come for once traveled.
Gotcha.
Thank you.
Your next question comes from the line of James Faucette with.
Morgan Stanley. Please go ahead. Your line is now open.
Great. Thanks, just a quick question for me on on taxes came in a little bit higher than we had modeled is that attributable once again to geographic mix and we should expect to see that normalizes overall trends in volumes normalize then and I guess just quick question, there and then looking a little bit long.
Under an at new products.
Can you talk a little bit about how we should think about the buy now pay later road map and NIM CCI platform I note that earlier this quarter, you announced an agreement with global payments pieces, how should we think about the economics of that platform developing and impacting mastercard's business overall.
James.
On taxes.
The tax rate question, what you had is being driven by a.
Shifting the mix of of our earnings the geographical mix of our earnings and really what I've shared with you in terms of our outlook for taxes for Q4 reflects the current mix as we see it.
Longer term, what I would tell you is as.
Things revert back to the mean and I think you will expect that over time things will revert back to the mean, one would expect to see.
It will that come through in the nature of our tax rate as well as as the mix starts to read just back to what what are you seeing the peak open days.
Yeah on the fine now pay later space. Obviously this is.
It's a hot space.
We're very active in this in this area the whole range of partnerships you recall over the last couple of quarters, just a deed divide all our pine labs invest and our volumes that physician and now he says.
Different regionally oriented ways to go to market after paying off to forget those guys.
Different regional models to go to market in terms of economics questions that you asked related to that does play out and.
In markets differently, but broadly speaking.
The way, we get involved and they buy now and pay later is not to get involved in the credit side of it but get out and get involved in the side of connecting merchants as.
As well as lend us. So here that you should think about that as fee driven we don't see the credit impact on on RPM now, but it's a nice transaction business that the legs are linked directly to the payment the death of puts us in an ideal position to benefit from that.
Your next question comes from the line of Bryan Keane with Deutsche Bank. Please go ahead. Your line is now open.
Hi, Good morning, I was going to kind of ask a follow up on that and I understand credits being impacted by travel.
Just trying to think think post pandemic is it possible that we see credit continued to lag versus norms because of these new models new lines of credit like the NPL and baby the growth in debit.
The outsized growth continues just trying to think about some of the changes.
Post pandemic and how you guys think about that thanks.
Well, let me start on that first of all I think.
Picking up on the buttons earlier comment.
Credit and travel there's a high degree of correlation as travel comes back you'll see that reflected in credit I think generally the point about us providing choice and payments to consumers is the key points that will see credit will see debit.
QR push payments, that's why we have a multi rail strategy benefit from all of that regardless of what the mix is I do expect credit to come back while we saw significant growth in debit on the shorter term. So that'd be my outlook on the short term future I'm thinking about this large and think about whether you said credit on a.
Credit product our credit on a buy now pay the product and still credit.
It's bank later.
Same now Ben glaze, hoping antibody that is the third we had a big thing in advance of prepaid thing now is devin or maybe by account, which is again, how much time sales approach or credit for just credit cards are wide. Open later, we are not going to show on consumers and to one basis.
Our job is to offer choice to our partners merchants Fintech banks, and then let them play the right approach with that consumer base. So I kind of approach to this is that the need for some degree opioid pain later product remains whether it's sort of one gram or the other happens to be.
Just two options the Rudolph of both.
Thank you.
Your next question comes from the line of Kristina.
Chris Danley. Please go ahead. Your line is now open.
Good morning, I wanted to ask one follow up question on the.
The spending trends and your commentary about October and having one large E commerce merchants.
Do you have any thoughts on if that might be affecting.
Like pulling forward some of the traditional holiday spending or is that not really factor and then also if you could comment on how much travel might typically contribute to it to a fourth quarter increase relative to the third quarter and spending activity.
All right, Chris Michael Hassle.
We start with that so when we look ahead from from.
From this October week into the rest of the year and the holiday spending.
Season, I think we can already tell this is going to be as a holiday spending season, that's a little bit different in terms of when and how and where consumers spend in fact, it is our view that it has actually started so it's started earlier than what we've seen in previous years.
Really with that particular E com merchants promotions. So as we look ahead, our spending policies actually forecasting if you take out automotive and gas growth in us retail sales of 2.4%.
Throughout this.
Holiday spending season, MP categories, we've talked about earlier, where we see.
Let's spend will go predominantly.
Revenue trend of home furnishing anything that happens around the kind of diameter of your home athleisure closing and I Tronics, that's what we expect to outperform.
And you know what will help all of this is.
Some of the shift to Omnichannel on the merchant side. So we'll see the continued rise of digital but at the same time wherever possible in light of social distancing measures. We also look out for a shopping local trends in your community in your city. So both of that will play out, but thats our view on next months to come.
Thank you.
Your next question comes from Sanjay Sakhrani with KBW. Please go ahead. Your line is now open.
Thanks, Good morning, Michael I know you mentioned that the results of surveys conducted on the usage of electronic payments, but I'm curious if you have a view as to whether or not consumers are likely to travel more in 2021 versus 2020, all else equal I know that theres the lapping effect.
But do you think that you could see.
Better magnitude of improvement in cross border all else equal as people are getting vaccinated and then second question is just on the non travel cross border spending volume growth do you think you could still grow 20 plus percent.
2021 and beyond thanks.
All right Hey, Sanjay So first on your I wish I had a crystal ball and what what's going to happen.
But it is currently our view that.
The next sort of personal travel first of all domestic but generally personal travel is come is coming back first they want to see that family that has like pent up demand you've been locked up for a month. So we do look for that.
To come back faster and I, just the holiday interestingly enough so and other people do the same so that it's somewhat uninformed view, but.
When you look at our mix at such an early is that predominantly our exposure on the travel side is towards domestic to start with and then business travel. So we see that increasing and it's not going to be kind of a light switch moment sometime next year is going to start to build out as coordination on travel corridors gets better as testing protocol.
The airlines and airports gets better is will be these various steps that would get us back to travel return of travel.
First on traveled to start with.
On the second part of your question I'll hand, it over to Scott, Yes. So I'll just one common sundry on what Michael just said as well as it relates to personal travel I think it's instructive goals, we'll see what's going on in domestic travel right. Now. So you are starting to see domestic travel and start to return and its if you see the mix of how domestic travelers building you are seeing.
So travel Camaro quicker.
To say that business travel is not coming out we're starting to see a little bit of business travel coming out and on the domestic side. So if I would extend that over to start to think about what the battles look like on cross border.
And particularly the long haul cross border.
We expect with the pent up demand that Michael talked about that postal traveled come back sooner than business, but business will come back as well and cross border. It looked very closely to the vaccines and therapeutics very important for us to kind of keep line of sight on that because at the end of the day consumer.
Consumer confidence is going to be a very key determinant of how people feel about getting on planes for 12, 13 14 hours. So I think thats important as to how we think about this from a framework standpoint. The second part of your question on non travel cross border look I mean, the secular trends are underweight youre seeing that we were seeing the amount of.
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Digitization, which is taking place. So it'll payment flows you are seeing the capabilities that we are building in that space to enable that secular trend and the acceleration of the secular trend and we don't see the cross border space as being too different in terms of how we see them does that E commerce in cross border playing out over the long.
Don't more and more merchants are going omni channel and Thats really important in the past that were smaller merchants, who felt like it was okay just to be in all having acceptance of the physical point of sales. They are moving more than omnichannel environment. We're doing a bunch to enable then we're doing a bunch on doing things from a garden filed standpoint, Tokenization and Jim mentioned so.
I think those are all the things we've got to kind of keep pushing on to capitalize on these trends from a secular standpoint, and we expect that the non travel broadened Australian component will continue to grow nicely going forward.
Thank you.
Your next question comes from the line of Rainbow sales from Barclays. Please go ahead. Your line is now open.
Okay Thats I wanted to ask you about central bank back digital currencies and it seems like thats, becoming a much more real.
Option, that's being explored by Central Bank can you give us your thoughts about the sort of the opportunities or challenges.
For Mastercard when it comes to central banks kind of getting directly involved.
Okay, and then just a quick that bolt on there any update on the pay in.
And apologies if you already addressed it but just any update there in terms of how it's progressing in the context of the environment.
Our sales and thanks all.
Alright, Ramsey Michael here, let me take the second part of your question first Tom get that out of the way.
So quick to pay and making good progress in consumer rollout as well as adding merchants. We're looking at 10000 merchants here in the us as far as consumer wrong goes we talk to you in previous quarters about push provisioning to some large banks, particularly city here. So this is growing at double digit rates in terms of adding consumers.
Very very encouraging.
And my thought is a very interesting data point as you start to look at.
Tumors that have used the click to pay experience. It is a very slick experience, we start to see that about a third of.
Off transactions is happening from returning users. So you start to see Havent building here, which is really quite encouraging were planning right now with some of the other emco.
Hotness too.
Look at international expansion plans.
The plans are getting ready.
Just to mention three countries that are slated for next year, a b C. Austria.
Australia.
You see Canada here, you see Brazil.
So some assets countries on the docket for next year. So Thats moving ahead central Bank digital currencies big topic.
Particularly in the light of coal that you see a lot of governments that have even increased interest in modernizing their payments stacks and looking at various tools and how to do that before the crisis. There was a whole range of governments looking at Central Bank digital currencies, and I think when that crisis more even considering that as a tool.
We are engaged.
Ill.
All very significant number of governments around the world all regions major regions around the world in terms of a dialogue on what is the best onset to want to government is trying to do if you look at some of the more prominent examples that are out there. If you look at Sweden, the right thing and there.
There isn't a thought behind the central bank digital currency approach to deal with a world where there is no cash left in.
In the Bahamas said looking at the cost of cash in South Africa, they're looking at financial inclusion so there's a whole range of different.
Motivations and we're trying to work with those governments to understand what those motivations might be in central Bank digital currency the best on some possibly.
And some other instances might be real time payments are might be at something else and we haven't even thought about so.
The first part of the dialogue, we have come to the conclusion that the construction of a central bank digital currency is an important aspect.
This season yen currency, so the central bank as in mining the currency is ensuring the resilience of the infrastructure is critical lot of private sector has a really important role to play in terms of.
Yes, as a really important role to play in terms of innovation on top of that infrastructure. You think smart contract you think all sorts of solutions that make the life of consumers and businesses easier.
Now, while we are relevant partner and all of this how does this affect all of that's first of all we have invested for years and cryptocurrency assets. We are the leading payment player. When it comes to patients around crypto. So that is that puts us in a good position.
We have a long track records and consulting with governments and you look at some of the more prominent examples.
We are we are having a seat at the table to see where this goes I give you one particularly important aspect of.
Intellectual property that matters and once you have a central bank digital currency, it's got to make a difference and consumers. So how do you actually spend so the link into an acceptance network is critical so we hope and payments in that space that link these transactions right back into our network, but it can be used and how we can bring value and it brings value.
To us.
So Ramsey a big topic, we're supportive wherever it makes sense and we're engaging governments around the world.
Thanks, Michael I see we are getting close to the top of the hour.
Just to wrap up do you have any comments.
I do have comments because it is it's that one call that is a very special call here. So.
And I'll tell you why first of all thanks for your questions and before I hand, it back to Ajay I do want to acknowledge that Ajay will be taking on his new role as executive chairman at the start of the next year. So it will actually be his last earnings call as CEO I want to thank Jay for his tremendous leadership all throughout making Jeff.
Yes, right now you should see him I know he has build close relationships with many of you and I look forward to doing exact same and continue to provide you straightforward information about Mastercard about our business and what we do on a personal note to you our Jay I'd like to thank you for all your help during the transition period I look forward to continuing work in our neutral.
Okay over to you and your Michael My extra accounting back during this call and this is my 44th earnings call and I Hope you might have a similar run I do want to thank all of you have been so supportive of our company during my time or that off decades and for taking the long term view on for trusting us to make the right investment.
Choices to drive growth for this company over that long term you've seen the results Weve grown our suite of co products. We've developed world class digital capabilities. We have resulted in significant share growth over time banks with Fintechs with merchants, we have developed a rich set of services that both support both core payment products. They also.
After diversify our revenue and we ought to be true Muntari old favorites provider, we have positioned us for growth in new payment flows by B to b as well as the native beyond payments for the open banking and digital identity from one nine to 2019 revenues have grown over three times from 5.1 billion.
To 16.9 billion adjusted net income has grown over five times from 1.5 billion to 7.9 billion and the share price has reflected with performance. This morning performance notwithstanding.
Michael as an awesome company for the wide array of assets and capabilities in an industry with secular tailwinds.
Yes, we have to continue to execute while investing for the next decade.
No doubt challenges lie ahead like the pandemic, that's still a bit of economic and finally, John just as brothers nationalistic tendencies myself I have no doubt whatsoever, and Michael skills as a leader and in the quality of the wonderful people in this company as we look ahead. Thank you have a good day.
And ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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