Q4 2020 Mastercard Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Mastercard coupons and full year 'twenty and 'twenty earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation that will be a question and answer session to ask a question. During this session you will need to prestige.
<unk> one on your telephone as a reminder, this call is being recorded.
If you require any further assistance. Please press star zero and would now like to hand, the conference over to your Speaker today Ward Nisha head of Investor Relations. Thank you. Please go ahead sir thank.
Thank you Tania and good morning, everyone and thank you for joining us for our fourth quarter 2020 earnings call. We hope you're all safe and sound with me today are Michael and me Buck, Our Chief Executive Officer, and Sachin Mehra, Our Chief Financial Officer, following comments from Michael and Sachin the operator will announce your opportunity to get into the queue for the Q&A session. It is only.
And that the queue will open for questions.
You can access our earnings release supplemental performance data and the slide deck that accompany this call and the Investor Relations section of our website, Mastercard and dot com and <unk>.
Recently and the release was furnished with the SEC earlier this morning.
Our comments today regarding our financial results will be on a non-GAAP currency neutral basis, unless otherwise noted.
And the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts.
And 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's future performance actual performance could differ materially from these forward looking statements and information about and the factors that could affect future performance are summarized at the end of our earnings release, and and our recent SEC filings and a replay of.
This call will be posted on our website for 30 days.
I'll turn the call over to our Chief Executive Officer Michael.
Thank you Warren and good.
Morning from New York, and certainly feels like a privilege to be addressing you today and it is first time at Mastercard CEO and I believe the foundation established under RJ leadership positions us extremely well for the future and I'm looking forward to leading Mastercard from here on and off course counting on your continued support.
Now 2020 presented at the World and the economy with unprecedented challenges still the resilience of our business model and our focused execution of our strategy by our dedicated employees and allowed us to close out the year and a positive trajectory fourth quarter revenue and EPS growth rates versus a year ago are continuing to show sequential.
Improvement.
And we look to the future you will continue to execute and our strategy.
And our ability to enable and secure the payments ecosystem through deep partnerships, our differentiated services and our role as a true multi rail provider and.
And well positioned to capture additional flows and the significant opportunities ahead.
These opportunities include certainly day accelerated secular shift to digital payments and the advancement of real time payments and open banking.
Now, let's take a look at our business from the macro level retail spending during the holiday season, and fourth quarter overall was relatively steady and very strong E. Commerce sales. According to our Spendingpulse estimates for Q4 U S. Retail sales were up 4% ex auto ex gas, while overall Europe retail sales slow.
The decline of one 9% for the quarter and part due to the recent Lockdowns and.
And Asia, we see some bright spots and markets like Australia, and and similarly in Latin America by retail sales and Brazil rebounded this quarter.
And we're also heartened to see the availability of effective Covid vaccines.
Distributing them at scale will dictate when social distancing measures can be relaxed and borders opened and that will ultimately drive further recovery.
Fiscal stimulus such as the most recent package and the United States is an important interim measure and the near term and we're working closely with governments to get funds into people's hands quickly and safely.
Okay, I'm, turning to our business, specifically and the Foreface framework, we established monitoring the COVID-19 environment.
The market has gone through the containment and stabilization and basis and.
We continue to believe most markets and now and a normalization and Hayes domestically.
And we're spending that will gradually improve with some markets actually approaching growth.
Looking at the trends volume continued to modestly improve quarter over quarter, and our switched volume growth rates, excluding travel and entertainment was similar to what we saw and Q4 2019 pre pandemic speak.
Speaking of travel and domestic travel, including spending and categories, such as lodging and restaurants declined slightly in the quarter reversing some of the improvement we saw in the summer months.
Cross border travel remains limited and October November we saw some improvement and cross border within the EU, Although recent restrictions are causing some slowing over there.
Mentioned earlier improvement and the cross border travel outside the EU remains limited.
And we continue to believe travel will improve starting with personal travel and this border restrictions ease and and vaccination efforts and stopped.
We believe corporate travel with Paul.
As we said in the past progress may not be linear and we believe there is significant pent up demand and travel and we continue to expect to see improvements and the second half the year.
And meantime, we remain focused on building on <unk>.
<unk> strong position in travel and positioning us well to capitalize on this opportunity when it occurs.
So a lot of the pandemic is affecting business drivers and the short term we have diversified our revenue streams and remain focus on managing our business for the long term. This means focusing on our strategic priorities one growing our share of core payments, ensuring the digital experience for our customers partners and consumers safe and team day.
And we helped drive the accelerated secular shift to deploying meaningful services and help our partners and adapt to the changing environment and last but not least providing choice with our multi rail capabilities.
Illustrating all of that we have quite a number of significant strategic wins this quarter, which I will now share with you.
Starting in the UK and Ireland and building off the success, we've had and debit with Santander and first direct they are really pleased to expand the long term relationship we have with net west group on credit and the bank will move its entire debit portfolio to monster comps across all consumer and business product lines and across multiple brands, including net west.
And Royal Bank of Scotland. This migration of approximately 16 million debit cards and start later this year and when complete will contribute to the growing overall debit chat and the U K from low single digits approximately a third of the market and all recent wins that migrated to Mastercard, we look.
Paul It's innovating together to build enhanced digital experience for net customers across multiple payment rails.
Now turning to Germany.
Expanded our relationship with Deutsche Bank and will become the exclusive international scheme partner, including both Deutsche and cost about brands, expanding our market share and debit and credit.
Part of the upcoming migration, a total of 10 million consumer and commercial credit and debit cards will be reissued and Austin.
And it products plus your bankers already leveraging our services within our existing partnership will not extend those to the larger customer base and use our advisors consulting and analytics, just just with the conversion.
And we look forward to developing new opportunities together and <unk> and other came and flow.
And the U S. We.
We will be the network partner for the city flex accounts on Google pay which Leverages, our <unk> services to provide cineplex customers with a seamless and more secure payments experience.
The city flex the pound will include a digital debit Mastercard is automatically loaded and use and the Google pay and wallet with an option to request the physical contact list card, providing customers the choice to pay when where and how they want to pay by debit card smartphone.
Fine.
Building on our Fintech momentum, we have secured additional wins around the globe with new partners like <unk> and El dry and the U S.
And flow and to Li <unk>, and France, and cracks and Peru.
And fintech customers appreciate our tailored approach addressing them very specific needs leveraging our expertise our tech and of course Arnold and network.
And then also excited to announce a new strategic partnership with Walgreens and this multifaceted relationship includes a new credit product to be issued by synchrony bank and prepaid product and enabled contactless shopping experiences mobile first money management and awards by the Walgreens App.
This partnership will enable walgreens to leverage a number of kind of Mastercard services, including insights and analytics loyalty and point of sales financing, including installments.
You will also look into future opportunities together, including a digital first debit card and other tech driven solutions to innovate the future healthcare payments.
And now we remain very active and the U S co brand space, where we extended and expanded our Sam's club co brand with enhanced rewards and digital experiences as announced yesterday and extended our Walmart consumer credit and co brand and payroll card renewed our GM full brand now with Goldman Sachs's and use Sheila.
Expanded our relationship with bass pro shops, and Cabela's to include small business.
Let's come back to travel we continue with half of the broader return of travel with several new partnerships in this space first off building onto travel co brand momentum, we announced last quarter. We will now be exclusive network for Aeroplan co brand program and the U S with Jpmorgan Chase Bank and Air, Canada, which will launch later.
And this year.
And both the UK and Spain, we're innovating with IAG loyalty part of the International Airlines Group, a new co brand and loyalty partnerships that will provide customers more choices to earn <unk> points and <unk>.
And we're done with exclusive benefits and.
And on a wholesale traveler program from one of the largest global online travel agencies booking dot com has chosen mastercard to be debt preferred partner for virtual card payments to their suppliers.
And.
Let's talk about the changing consumer.
Spending patterns change it is critical to offer online and in person and capabilities and we have solutions from both.
E Commerce accelerates with card not present transaction accounting for about 45% of our switch volume and 2020, which is up from 40% and 2019, we have several efforts underway to enable safer and more.
And that's online purchases, notably we continue to scale, our merchant <unk> services for card on file and critical use case with a six fold increase the number of unique merchants transacting and quarter four versus a year ago.
And our recent surveys tell us and seven and 10 E Commerce consumer have the payment card information safe and at least one merchant type.
Carlo trials organization is particularly helpful or prescription subscription services like Netflix marketplaces, like Etsy and ride hailing services like Didi with just signed on this quarter.
And we do believe that when restrictions ease and people will return to shopping and personnel and hence we're driving secular shift from store as well.
For example, we saw strong acceleration of contact us and 2020 as more than 80 markets grew contactless penetration as a percentage of and personal transactions by at least 10%, which is driven by consumer demand for increased speed and safety of calls and cleanliness at the point of checkout.
And this paves the way and new solutions that leverage contact clouds, such as our recently launched cloud tap on Fone, which will allow merchants of any size to quickly and easily accept contactless payments and a range of devices, including mobile phones and further expanding our acceptance reach this will be particularly important for all those hard to small businesses triangle.
Operating more digitally coming out of the pandemic.
Now with respect to services and surgeons continue to be and strong demand as we help our customers adapt and succeed in this evolving omni channel environment, We just talked about and aggregate. Our services line represented about a third of our revenues and 2020.
And grew at 18% during that period on a currency neutral basis, providing and critical source of growth and diversification.
We will continue to invest and these capabilities across all payment and flow to keep the ecosystem secure and to provide key insights to our customers, including publishing monthly trends leveraging assets such as spending pumps.
Our recent acquisitions and the services space and provide a key source of differentiation are continuing to gain scale.
Instance, bank of America recently expanded its use and I think this.
And dispute management tools, <unk> and the U S and abroad, including American E Commerce Company Rafi I using the behavioral biometric technology of new data and enhance the authentication process and signing new customers.
For risk recon to ensure cyber health across their system and brands like Chico's and leveraging our into and loyalty platform from session and.
So let's turn our focus on key initiatives that are designed to address a broader set of payment and close without multi rail capabilities.
And they offer the choice and flexibility that consumers businesses and governments need and increasingly expect.
We are pleased to report.
And we closed the acquisition of <unk> and November and extending our network to provide data transmission capabilities essentially to fully capitalize on the future of open banking Munis City continues its leadership and signing direct data access agreements with financial institutions and Fintech.
Turning off existing direct relationships major banks like Chase and Citi and Bank of America capital, One and Wells Fargo. We recently added chime breaths, BMO Harris, Charles Schwab, and TD Bank, and we're moving quickly to secure more direct access relationships.
Chronicity continues to build out and digital assets and credit Decisioning solutions, including those launched with four leading mortgage companies and has seen rapid adoption of its lending and payment solutions.
In parallel and continue to expand our open banking capabilities in Europe, and intend to leverage chronicity there as well.
In the real time and space, we're excited that payments, Canada has selected Mastercard to build and Ron its new real time payment systems clearing and settlement infrastructure and.
Technology and expertise will power a best in class real time payments infrastructure that provides a platform for innovation.
And kind of the us economy with this way and we're now providing real time payments infrastructure for 12 of the top 50, GDP countries and extending our global footprint.
And relating to these new infrastructure wins, we continue to build out applications that leverage real time payment rails and like with Mastercard track business payment service, which is now alive with real time payments and batch ath in the U S alongside all card functionalities.
<unk> also extended tracks card payment capabilities worldwide and now continuing to build out our network with a number of bank and non bank partners that considerably extend our reach on both the buyer and supplier side.
This year, we plan to continue expanding the platform into new geographies and add our cross border payment capabilities.
We're also delivering on our multi rail comments with Mastercard, and which continues to grow across the globe. For example, we expanded our reseller network by deepening our long standing relationship with Citi and to enable them to offer a business to consumer disbursements and the U S. And this is one of several new partnerships leveraging mastercard send to enable and <unk>.
And person to person money transfers domestically and internationally.
We also part of the transfer ago, enabling customers across 20 European countries to make international money transfers from any card or bank account directly to a mastercard debit and credit cards.
Now, let's take a look into the future and you've surely there is a lot going on and the digital currency space with many governments around the world evaluating central Bank digital currencies with our country chooses to issue its own CBD Sea lice.
Pilot, <unk> and countries like Sweden or China.
<unk> provides a regulatory framework from private and stable clients or otherwise purchase both public and private options in parallel we are engaged with central banks from a policy and the solution perspective.
We've continued to invest in this space to be ready to co innovate with governments banks and Fintech partners. For example, the virtual test platform that we launched a short time ago is being received well and our crypto card programs, including why rates and the U K and uphold and the U S enable consumers to spend that critical balances within our acceptance net.
And one of them.
This year and plan on adding digital currency support directly on our network, enabling our partners to take advantage of our acceptance reach and settlement capabilities and you will get the choice and flexibility consumers and merchants for what currency and day, one to use or receipts and our level of support will vary based on the <unk>.
And <unk> and it gives the market and it will continue to be guidance published principles on security and compliance and consumer protections and the value to our stakeholders and determining our involvement and our specific initiatives.
So there's certainly a lot going on and significant opportunity ahead with that let me turn the call over to Sachin. Thanks.
Thanks, Michael.
Turning to page three which shows our financial performance for the quarter on a currency neutral basis, and excluding special items related to certain litigation and tax matters and the impact of gains and losses on the company's equity investments.
Net revenue was down 7%, reflecting the impact from the pandemic and includes a one ppt benefit from acquisitions operating expenses were flat year over year are down 3%. If you exclude the <unk> impact of acquisitions.
Operating income was down 12% and net income was down 17% both of which include a two ppt increase related to acquisitions.
<unk> was down 16% year over year to $1 64.
Which includes four cents of dilution related to our recent acquisitions, partially offset by a <unk> <unk> contribution from share repurchases during the quarter, we repurchased about $1 billion worth of stock and an additional $356 million through January 26 2021.
And so let's turn to page four where you can see the operational metrics for the fourth quarter worldwide gross dollar volume or <unk> increased by 1% year over year on a local currency basis, reflecting the effects of the pandemic USG Adv increased by 4% with debit growth of 15%, partially offset by a credit decline.
7%.
Outside of the U S volumes were flat.
Cross border volume was down 29% globally for the quarter similar to last quarter and Craig your volumes were less impacted than other cross border volumes, specifically intra Europe volume was down 15% for the quarter, whereas other cross border volume was down 41%.
Turning to page five switched transactions grew 4% and the fourth quarter globally, we saw positive growth and switch transactions across most regions aided in part by the continued adoption of contactless and.
In addition card growth was 6% globally, there are $2 8 billion Mastercard and maestro branded cards issued.
Now, let's turn to page six were highlights and a few of the revenue line items again described on a currency neutral basis, unless otherwise noted.
The decrease in net revenue of 7% was primarily driven by a declining and cross border volumes due to the effects of border restrictions and social distancing measures, partially offset by growth and GDP switched transactions and continued growth and our services as previously mentioned acquisitions contributed approximately one ppt to net revenue growth.
Looking quickly at the individual revenue line items domestic assessments were up 1% while worldwide GDP grew 1%.
Cross border volume fees decreased 41%, one cross border volumes decreased 29% to 12.
Ppt difference is primarily due to an adverse gross order mix, mainly driven by lower yielding intra Europe cross border volumes being less impacted than high yielding other and cross border volumes.
Transaction processing fees were up 4%, while switched transactions were up 4% with the unfavorable cross border mix I, just mentioned being offset by strong services growth.
Other revenues were up 17%, including a one ppt contribution from acquisitions and the remaining growth was primarily driven by our data and analytics consulting and cyber and intelligence solutions, and finally rebates and incentives were up 1%.
Moving onto page seven you can see that on a currency neutral basis, and excluding special charges related to litigation.
Total operating expenses remained flat. This includes a three ppt increase related to acquisitions, excluding acquisitions, we delivered and expense a decrease of three ppt.
Turning to page eight let's discuss the specific metrics for the first three weeks of January.
Starting with switched volumes, we continue to believe that most markets on and the normalization fees domestically with some approach and growth.
Overall switch volume growth remains generally consistent with the trends we saw in December.
While we are seeing stronger growth and the U S. This is being more than offset by slower growth and markets outside the U S primarily Europe switch.
Switch volume in the United States have been strong in recent weeks supported in part due to the recent fiscal stimulus outside of the U S switch volumes and Europe has slowed considerably due to the increased lockdowns in countries like the UK, Germany and Italy.
When you look and how people are spending we have recently seen a decrease and card present growth rates due primarily to the effects of the increased lockdowns that began to be put in place and December while our garden, our present growth rates remained healthy.
Trends and switched transactions remained steady and our tracking the trends we are seeing net switched volumes and.
In terms of cross border, we have seen a reversal and intra Europe cross border and recent weeks relative to the improvement we saw in November and December.
And we're yielding other cross border remains more adversely impacted and intra Europe cross border.
Turning now to page nine I would like to provide some additional color on the cross border trends across card present and card and our presence.
You can see the trends that we shared through the growth of the quarter will continue.
And fluctuations in November and December reflect holiday timing differences year over year.
And total if you look at the Green line Golden Cross border, which showed some improvement in November and December is now continuing in a relatively similar band to what we saw in October due to the re implementations and border restrictions.
And you look at the Orange line card present and spend reflects continued limited travel and part due to the border restrictions I just mentioned.
Non present growth, which is the yellow line and the chart continues to be resilient and has held up well.
The Green line represents Gardner president spend excluding online travel and related spend and remains positive and we continue to see strong growth across discretionary and non discretionary retail categories.
Turning now to page 10, and I wanted to share our thoughts for the upcoming year first.
First and foremost we feel like we are very well positioned to grow with the strategic deals we have laid out over the last several quarters, including those with bank of America Natwest Deutsche Bank and Santander to name a few.
Further we have positioned ourselves for the return of travel with travel oriented portfolios.
We have built a strong set of services capabilities, which continue to grow.
At a faster rate and the board and we will deepen penetration of these services across our customer base, while expanding this portfolio and are lumpier and strategy positions us well to address new flows and adapt to the changing payments landscape.
In terms of the macro environment, we are enthusiastic about the availability of effective vaccines. However, the rate of which at which vaccinations will take this is still uncertain.
And as a result, we will not be providing a forward view on net revenues for 2021 at this time as we believe visibility is dependent upon border opening the flow the relaxation of social distancing measures and improvement and consumer confidence as we have said, we expect to see progress in these areas and the second half of 'twenty and 'twenty one.
Turning to the first quarter, we anticipate that some of the more restrictive measures that have recently been put in place because of rising infections from persist in the near term.
Would it be the fees, we would not expect spending levels to improve from what we've seen so far in January by the way, we do plan on providing periodic updates to the operating metrics during the quarter.
In addition, I would offer a few additional points to help you with your modeling.
First we will continue to experience lower cross border related yields unbilled broader scale intra regional travel recovers.
From a growth rate perspective, we expect to start lapping the effects of the pandemic primarily in March and also as a reminder, last year was a leap year, and so Q1, and 2020 and an extra day of volumes and revenues and finally, we expect rebates and incentives as a percentage of gross revenues to be flat or up.
Up slightly sequentially due to new and new deal activity and fueling some of the recent wins Michael has just discussed.
Now, let's turn to operating expenses.
Gaffney manage our priorities in order to preserve our ability to invest and our key long term growth drivers, namely digital cyber security data analytics, <unk> and material solutions from.
And for Q1, we expect operating expense growth to be up mid single digits versus a year ago on a currency neutral basis, excluding acquisitions and of note. This increase reflects the lapping and spending actions taken a year ago as a result of the pandemic as well as a three ppt increase due to the lapping of a.
Favorable hedging gains from a year ago.
With respect to acquisitions made in 2020 or later peninsula closed near the end of last November and we continue to expect the transaction with net to close in Q1.
Based on this timing, we expect acquisitions to contribute about a half a PBT to revenue in Q1, and one to two ppt for the year.
Similarly acquisitions will contribute approximately four to five bpd through operating expenses growth.
And the first quarter and 7% to eight bpd for Europe. As a reminder, we discretely disclosed impact the impact of acquisitions for the year and which they close and the subsequent year after which we do not split them up.
Other items to keep in mind.
Foreign exchange and is expected to be about a two ppt tailwind to net revenues and a two ppt headwind to operating expenses in Q1.
On the other income and expense line, we are at and expense run rate of approximately $110 million per quarter, given the prevailing interest rates. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics and finally, we expect a tax rate of approximately 18% to 19% for the Europe based on our current.
Geographic mix of the business.
And with that I will turn the call back over to ward.
Thanks, Sachin Tanya we're ready to take questions.
Thank you Michael.
Okay.
And as soon as please.
Depending on the mobile and Thats helpful.
And also perhaps.
So ladies and gentlemen.
Chris.
Please go ahead mark.
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Hey, Craig.
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Richard.
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And what's the trend and you asked specific question on what the impact of.
No.
And.
Brexit impact was on a couple of things and that any change and our definition story for Europe and I think the answer is no that makes a great rail from Europe volume remains the same there is no change and our pricing to either.
And specifically on your question on interchange and Whats the transaction, Peter and David on the steady growth of December of last year.
Effectively became subject to the same indication GAAP has any other non EU countries and.
And with the organic commissions and recognizing the prevailing pandemic.
And what we did as we assess the timing of this change to commence in October of 2021.
Are you aware of the challenges, which are being faced by retailers businesses and people as a result of this pandemic and we will continue to review and the timing of the implementation of those decisions as we go forward from.
The bulk of this year.
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And our technical difficulties, we'd be happy to extend the call or to.
And to take your questions.
Next question please Tanya.
Sure.
We're ready for questions Tanya.
Okay.
Yes, Sir the next question is from Ramsey El <unk> with Barclays.
Hi.
Glad you're back in and thanks for taking my question here I wanted to ask about the impact of stimulus on your volumes.
And as the U S switch volume improvement in January versus December or is this do you attribute this largely to the impact of stimulus and then and then secondarily I was interested Michael and what you were saying about Mastercard participation with the Central Bank Central Bank digital coins, and how youre going to enable them to flow on your network.
How do you help governments with that would that would that product what can mastercard view there to be a utility.
And Andy It's Sachin I'll take the first question so to your question what.
We are seeing and the first three weeks of January is.
Better performance in the U S and where we are attributing that primarily to the impact of stimulus. Obviously there are several factors, which go into overall spending trends, but the stimulus definitely does play a part and we are seeing that come through in terms of spend levels and the U S and the first three weeks as well as from a mix standpoint.
We're seeing as being more weighted towards debit.
And in terms of what we're seeing and the U S.
Got it and on the Central Bank digital currency from Ramsey El <unk> multiple ways that Mastercard can be helpful. As I was saying earlier.
First of all we are engaging with governments all around the world maybe first on a basis to find out what is the path forward. When it comes from modernizing the payment stack of a given country. So is it the right tool for the job and the conclusion is it is the right tool for the job and mobile certainty and partner, but I would also say that.
You will find situations, where real time payment is a better answer because it just happens to exist already and.
And it lives and the existing financial infrastructure, but let's come back to <unk>.
We have a few principles that we put out into the market and which I'm happy to see is shared by most leading central banks around the world and that is that you start off with recognizing theres different roles between the central Bank and the private sector banks you don't you want your lender of last resort you want so to say the mining of the currency.
And then you want the private sector and to bring utility to the currency for consumers and for businesses and so forth. So a two tier approach and our partnership is with both sectors in this case private sector.
Say, what utility could be broad what's the functionality that makes a difference that same and you want to pay with a Fiat crypto currency and a store and here that is where we bring to bear our acceptance network. For example, so the IP that we have that links the crypto currency straightening and our network is a very tangible example of what we could do.
<unk>.
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You think about other aspects here is that it's generally and the last mile question. It is also consumer protection. It is transparency. It is business models around that and it is using fundamentally the nature of the distributed ledger technology that is.
But to put to use here and as you could imagine a world. There is a bunch of smart contracts riding on a government issued CBD C and that is very similar to what we do in terms of applications and the real time space, Although we do with debit and credit and the card space underlying set of rails, which we participate in and then we help bring utility across government.
<unk> and private sector and Thats the play.
Early stages, but we will support and we today only carry a fiat currency and our network and when this makes its way that will carry CBD season, our network.
Got it thanks, so much.
Next question please.
Yes. The next question is a follow up from King and with.
J P Morgan.
Yes.
Hey, Thanks. So if you guys can you hear me, Okay now I wanted to ask on <unk>.
Hey, guys I just wanted to ask on the a and that west win on the debit side Thats a nice one anything interesting to share on how this win came together and I'm also just curious.
Picture, if the pipeline for new deals if it's changed at all or if it's different in terms of size and quality now versus say this time last year pre COVID-19.
Yes, So let me take the first part of the question and and Sochi, and such and can talk a little bit more about the pipeline and so forth now this big win net west, but then looking at the other strategic relationship with Walgreens Deutsche Bank, If I look at some of the aspects and recently driven our wins these ones specifically.
The broader.
The broader portfolio.
And is.
And.
Our capabilities across one set of rails you heard me talk earlier about and begun and want to co innovate with net west on multiple payment rails. So certainly a differentiated capability of matters, particularly in Europe, where the rise of real time payment is absolutely real.
And you think about aspects and these markets there is.
Open banking is a little more pronounced and in other markets. So again thats and additional capability. That's a differentiator that we have and open banking connect in Europe.
And we'll look into digital first capabilities.
And again something that played out over the last two years in Europe, So I would summarize it since and as <unk>.
Innovation, certainly pricing and all that matters, but the fact that there is something else that we can bring to the party and our solution selling approach brings it altogether across services multi rail and what we do and our core business. So I think that's generally the story and how is that changing to let's say two years ago, while multi rail with the.
Canada when you just saw and we're growing our reach and it is something that is matters and so many more markets. Today. So we're just advancing the strategy and and we can bring it all to bear and a case like this.
Finjan and I'll, just add Michael touched upon the point around Neil.
And the power of the services capabilities that we bring you heard this over the last and know how many quarters. The wins, we're having are very much supported by the strength of our services capabilities. It makes a real difference when we can walk in and talk with customers about how we can help them grow their topline and manage their expense base as it relates to fraud and things.
That will become more of a partnership discussion and then a vendor relationship and Thats been a key enabler and is still helping us win and that carries on whether it is natwest Deutsche Bank.
And kind of spectrum of deals and what do I expect and ongoing forward basis. The pipeline remains robust and things are going to keep happening within our renewing existing customers, we're going to keep working on new customers, we're going to look to expand portfolios with existing customers. So that's very much upfront and center and the bucket and what April and controllable, so they'll stop which is happening and the macro environment.
<unk>, which we don't necessarily control, but there are things, we do which is engagement with our customers and we're driving hard on that.
That's great detail. Thanks, a lot guys. Thank you.
Thank you next question please.
Yes, Sir your next question is from Dan.
Hello.
Hey, guys. Thank you for taking my question.
Quick question on debit and you mentioned debit is driving most of the growth and if I look at Q4 versus Q3 debit growth and the U S. It did decelerate and bye bye.
200 basis points I was just wanted to know what's behind it and I see the comps are a little easier. So it would be great to get it.
Net of an explanation of what drove that and the fourth quarter and how does it looking and the first quarter. Thank you sure.
You should think about the mix between debit and credit are based on a couple of things one what's going on globally and the nature of the release of stimulus payments, what's the timing of that is and what the timing of the associated spend from that stimulus payment and thats kind of bucket number one bucket number two is what are the categories of spend and we.
Each have a higher propensity for debit versus which have a higher propensity for credit and so when I think about Q3 versus Q4 and while debit grew at a very healthy base in Q4, it was a little bit.
Slower rate than what we saw in Q3 back to your point, it's largely being driven by the fact that the impact of the stimulus, which we felt in Q3 started to wane in Q4.
On the flip side credit performed really well and when I say really well it was still in negative territory, but market improvement and credit because there was a greater amount of spend taking place and discretionary categories, which are credit heavy.
And we follow this and we track this pretty closely and I think that would be the reasons why you should be able to explain what changes are taking place in terms of the mix between debit and credit and then just one point to and then.
And what we've seen in previous challenged.
<unk> in terms of economic outlook, there is in a downturn.
Debit is all.
Generally preferred and the main reason for that is people really want to spend the money that they have and avoid taking on extra burden in terms of additional debt. So this is a normal pattern that we have seen and it plays out and a weighted such as just talked about.
Next question and thank you and congrats on your first call.
Well thank you.
Next question.
And please.
And next question. Your next question is from Jason Kupferberg with Bank of America.
Thanks, guys. Good morning, I just wanted to ask a two part question on cross border. The first part is the highest yielding part of the cross border business. The non intra Europe piece recently it seems like the year over year declines are moderating a little bit I don't want to make too much out of a couple of weeks of data, but can you just touch on what is maybe.
Driven the incremental improvement and that metric and the sustainability of the improvement is the comps, presumably get progressively easier from here more or less on a weekly basis and then just the second part is more of a conceptual question I mean, and your base case macro recovery and travel recovery is it feasible that cross border revenues next.
Year, and 2022 could get back to 2019 levels, not obviously asking for guidance, but just conceptually based on how you think the macro could could theoretically unfold. Thank you.
Yes, and so on the first part of your question is what I would tell you I would tell you we're closely watching what these trends are and the first three weeks, we have absorbed exactly what you're saying, which is the non into Europe cross border and starting to see a little bit of a recovery come through there are lots of puts and takes which which take place there and let me try and give you a little bit of color as to what could be dry.
Some of that first.
At the end of the day when you think about this this component of noninterest cross border. There are still several borders which are open and there are people traveling and you could think about U S. Mexico able to think about borders within the middle East and Africa, and could think about certain travel, which is taking place and Asia Pacific So you might be seeing.
Youre seeing a little bit of that come through the other component, which is which is.
Which is driving this is at the end of the day when we think about other cross border, we think about it generically speaking and the context of people and getting on planes and traveling but other cross border is also influenced by expats people, who are sitting in foreign locations will have gods, which are from their home countries and the spend patterns on that.
Could be influenced and a little bit of what's been going on and what we're seeing here I wouldn't make too much of the trend we're seeing and the first three weeks, we have to watch it for a little bit of a longer period of time and that's.
And again the color I can share with you on that on your longer term question on cross border look I couldn't tell you Ron.
The company are very encouraged by what we're seeing from a overall availability on net vaccine standpoint, the rollout is something which is still uncertain and we will watch as the rollout goes we believe with the availability of vaccines and scale, we believe that the ability of more efficient testing therapeutics.
People's Consumer conference of consumers will come back borders will start to be relax and social distancing measures will start to relax and now we expect that to happen more and the latter half of this year.
So longer term I would tell you I am quite optimistic about the fact that we are seeing vaccines, which are proving to be as effective as what the desk results would suggest and we'll see where it all kind of shakes out and I'm really not in a position to give you guidance as it relates to what I think cross border will look like through the course of 2021, but I feel like if you just add back and into <unk>.
What about the near term and then there is lower from the near term we will continue to be linear until this vaccine and stuff is all rolled out at scale the longer term, we feel very encouraged about.
And aspect to add here and that is that.
Links between.
Personal travel and corporate travel we've seen it and the summit this.
And this past summer 2020.
Reaction once consumer confidence increases Turner right up into travel increasing because people want to get on with that line. If they want to see net friends and our families and whatever so the reaction of personal travel too driven by consumer confidence, which will in turn be driven by the vaccine Rollouts touch and just talked about I think it was going to be relatively near term corporate travel that will take.
Longer and video tools and rich and we should have actually used the video tool today and maybe.
Yes.
Just see that that is an additional way of getting together, yes people want to see that customers how that will play out we don't exactly know.
And.
Back to personal travel that is a significant majority of our travel portfolio and all the wins that we had recently and theyre going to kick. It at this time so medium term.
And we're encouraged.
Yes.
Great Alright, thank you.
Yes. Your next question is from Darrin Peller with Wolfe research.
Thanks, guys just a very quick follow up on cross border and then a structural question, but on cross border.
Remember in February and March it really started in Europe, and the slowdown and then in March and obviously the U S and so I'm just curious if that's where the comps do you expect to start seeing and ease up.
Michael more and more from a structural standpoint, we just wanted to understand I mean, what do you have and it's almost been a year.
And when we look at services and the opportunity there and we look at some of the other opportunities around contactless and E. Com can you just touch on what you expect to be more permanent or more sustainable in terms of the business improvements due to the electronic nature of what we've seen in the pandemic.
Thanks.
Yeah, So hey, Darren and such and so.
And on your question around the lapping effect across border Youre right. We saw some amount of cross border.
Decline start in the legal part of February is what I would tell you, but the vast majority of the lapping effect like I said in my prepared remarks, we expect to see across all of our drivers and the month of March and Thats. The way I kind of think about what we're seeing here alright.
Alright, and then.
On the questions on the trends what makes a trend and that's like that's the key question here certainly we saw this and.
And digitization trend and it's been around for years and accelerated dramatically.
And it's fair to say 10 years have been compressed and two months, so what part of that will stick.
And when I look at what we're going to see is structural changes and sticking trends I fundamentally believe that E. Commerce is not kind of revert back to what it was.
And so no back to quarter, four and 2019 I think the general attitude towards cash is going to remain more negative than before.
And surveys that we've done every single month since April of last year was telling us that consumers broadly speaking, 60% and consumers have a somewhat negative more negative attitude towards cash now and we don't think that will change.
70% of consumers are going to do more digital banking more online purchasing and more contactless. So I think that will that will just remain as I said earlier and my and my prepared remarks.
And once you can venture out there and social distancing measures are relaxed people will want to go and shop in their stores in their local community.
And support the local restaurant and whatever it is but the good experiences people are starting to appreciate and learn online that will not go away. So the good thing is we will have two legs to stand on with our business will benefit from both of them other structural trends that I see is more digital transactions more data more desire to understand the data.
Data and insights our services portfolio is on point for that the same is more digital transactions largest cyber footprint potentially more risks and a bunch of new businesses coming online that have been brick and mortar only that's opportunity for us from a cyber security perspective and.
And then Theres, a whole cross border fees and digitizing supply chain B to B, I would say and other structural change and people take away from the pandemic.
Yes.
That makes sense. Thank you.
Next question please.
Your next question is from Lisa Ellis with Moffett Nathanson.
Good morning, and Michael Congrats again, and the prepared remarks, you highlighted the addition of <unk> to Mastercard open banking portfolio.
Can you elaborate a bit on how youre thinking about open banking where.
And that payment or funds transfer could be made with debit mastercard send with EHR RTP can you just comment a bit on how mastercard roll differs value added differs economics differ across all of these different methods of payment and and are you agnostic or not why or why not.
Thank you yeah.
And that's pretty broad question Lisa.
And.
Let me let me take the.
First part of it and then starting and talk around the economics and the business model behind that broadly speaking the way. We look at open banking is yes, it's adding data transmission capabilities as well as an additional set of transaction rails, we can initiate payments through open banking permission and API connections.
We can do that but we often as I can just verify assets or health and credit Decisioning and so it's a wide range of use cases, and we're pretty agnostic and what they are we're quite happy to initiate payments directly through real time payment rails, but also the combination of a market where there is real time payment infrastructure and it is an open banking regulation as in Europe.
The fact that we have a strong position and both allows us to leverage the combination of that quite effectively.
That is one of the things that <unk> does with us the proposition that Tesco is offering and as you pay your credit card very simply.
Through and open banking connection leveraging the real time payment rails, thats check check check and Thats a good combination for us overall.
Whereas this is going to go I see it as a additional lag and our multi rail strategy.
So one link into Mastercard, and you want to pay through and.
Open banking train link.
Link you want to pay through real time payments due on a pay from cards whatever it is one thing and to Mastercard. That's the overall strategy finished city helps us.
Clearly in the United States, but and said before these use cases that they have on asset verification and on.
And credit Decisioning and they are so and demand at this point and time, taking them to Europe as quickly as possible and we will matter now such and can help to unravel some of these business models.
And just.
Just a couple of thoughts around that.
Quite familiar with the way we think about.
And constitutes our yield as a business right, it's across infrastructure applications and services and I would tell you whether it's our guardrails are and it's a real time AC drills are as open banking. The reality is there is an opportunity to realize revenue across all of these three years infrastructure apps and services and so as we get more.
And the flow of transactions and or data that has the opportunity to realize all of those levels. If your specific question is around what the what the interaction of economics will be if payments were to take place and we are open banking railroad from Guardrails was the reality is we're in the business of providing choice to consumers and we're going to do is provide.
Choice, we're going to price for the value we deliver across all of these three layers I think it's a little early to tell you exactly what the.
Actual economics of a transaction over.
For example, and bank of <unk> may be even some payment transaction what I can tell you, though is take something like Bofa account, which we've launched and the UK and.
And the economics for us on Bofa account and the consumer use case and the UK are quite similar to our debit economics out there.
But broadly speaking I think it's fair to say, we are agnostic, it's about choice and the market. When it goes one way then the market will go one way and we will partner and otherwise it goes to a different way and we will partner.
Wonderful thank you.
Thanks, we're going to go to Turner.
And after 10, if you can stick with US just to take a few more questions.
China next question please.
Yes, Sir your next question is from Timothy Toyota with Credit Suisse.
Thanks, a lot for taking the question. So one area of focus for investors has been and what the makeup of cross border volumes will start to look like over the next three to five years. So clearly in 2020 retail and E. Commerce became a much larger piece of the net travel became a smaller piece of the mix, but longer term once we assume and travel Rick.
But there will also be the mix and Mastercard and trends Trans fat Mastercard track expanding and to be.
More account to account remittances et cetera across the board mixing into the cross border volumes, maybe you could talk about that evolution over the next few years and what that mix might look like sure.
Sure.
Hey, Tim and such and so.
Couple of thoughts one we do expect within our donor travel and the mix will start to come back to levels similar to what we saw pre COVID-19 it might take a little bit of time as it relates to the business travel component, but I wanted to remind you that the.
And the vast majority of our travel on across both from a cross border perspective happens to be boastful drive and which we expect to come back and come back based on the comment which Michael made around the pent up demand. So we'll see that come through but you're exactly right about other elements of cross border, whether it's leveraging our real time rails and the applications and our.
Cross border manner rule opportunity, we feel there as well because today, what we are tapping into is the consumer flows what we called the person to merchant flows leveraging our guardrails and across border environment. The opportunity from a <unk> standpoint still remains largely untapped and this is where our suite of assets from our multi real standpoint really will play and.
Board and board, whether it's our send capabilities or the acquisition of <unk>, which we did all of those are key contributing factors and we're rolling those out pretty nicely. We're building scale, we're building capabilities as we go down that path.
So all in all I would tell you and cross border remains a fairly decent size opportunity and going forward basis and.
Tim back to my earlier comments around the structural changes and <unk> and supply chain and big part of the supply chain inside that people have just gained over the last nine months is that there is dependency on parts of the supply chain cross border that they want to digitize and as this so they can be more flexible.
And to change suppliers.
And future scenarios now here, we come in with <unk>, we come in with our announced acquisition of homes and the combination of all of that and then you take this multi rail capabilities picture. This in the context of track where there is a data switch and all the data that you want alongside.
And with <unk> <unk>.
Transaction is coming along and he chooses whichever way you want to send it.
Use cases like remittances by our supplier payments, which make up over 110 trillion global flows are significant opportunities for us we got the assets and plan.
Thanks for taking the question.
Our next question is from Don.
And with Wells Fargo.
Hi, good morning.
And Michael Congratulations as well I wanted to get your updated thoughts on like.
Big Tech.
Nearly fintech proliferation, and the big positive for the networks and our viewpoint.
How is how are the discussions with the big Tech players going today versus a year or two ago and do you think your interest are still aligned commercially and also and Washington regulatory pushback.
Yes and Thats.
That's a good questions around this call off I think and very very wide ranging question you have a lot of elements that you put in there and so let me go out and Thats from a couple perspectives. The first is our our office.
Almost one a moat around it was these are partners. These are customers and we have strong relationships with all of them Amazon and Facebook.
Apple you name it and just think about the Apple card as an example, there.
And you then look forward.
You look at where is the world going in terms of different rails in terms of emerging technologies in terms of <unk>. So there's a lot of change from a technology side in our ecosystem and here's the big Tech players, but what I'm finding and at our specialists.
We'll hear and I'll focus specifically on payment technology makes us a very relevant partner.
Most of these companies are oriented and focused on delivering a particularly good consumer experience digital user experience and their customer base trying to keep customers in their ecosystem and whatever they might be doing it there and social network or something like that and we stand and the role of being the payments partner.
<unk>.
Is a model of interaction that I think will continue to evolve. Some of these players do have payment aspirations and Don and that's where your question is going but then you look at our services portfolio and look at our capabilities like card on file token inflation and so forth, we help them with our services portfolio, while they create.
Good day.
Nice consumer front and experience X pays and is a good example for that and.
As long as there's choice and underlying payment tools, but quite happy to partner and that drives the overall digital.
And the acceleration of the digital trend and in terms of El <unk>.
Change and change and political regime, and the incoming administration and the view on on Big Tech.
That is for them to comment on you.
Basically we're guided.
Guided by our partnership we're going to lean in and continue to drive our business.
Overall, otherwise it's early days, we have a great dialogue with the incoming administration, they're interested and payments, which we generally like hey, this is by the way and a trend around the world governments interested and payments as critical national infrastructure, and we engage and that dialogue topics of cyber security and data principles.
And where we all are leading voice and that's how we engage.
Thank you.
Thanks, Michael.
It's time to wrap up I just wanted to thank you for bearing with US as we went through this process and.
I'm sure Michael will always remembers first call.
And then.
And then.
But.
And if it's Michael any final thoughts, yes, my breath and blood pressure is slowly coming down again.
Hum earlier now thank you for the questions.
Really appreciate the interest and the dialogue.
And don't want to repeat anything.
I have to go back one more time to 2020 and that was a challenging year for the industry.
It was certainly something that made us needed us to be as agile as we can possibly be and I just want to comment again, and our employees really stepped up and allowed us to close out the year on this positive trajectory.
Now, we said a number of occasions throughout this call here, we're optimistic about COVID-19 recovery really and the light off.
And the vaccine being deployed.
And we're optimistic about cross border coming back driven by the exact same point, so and the near term there is optimism and the very very long term there is optimism and I want to make one more point all of this is great from an economic perspective, and a performance perspective, what is equally important and that we do the right thing for communities.
And for our planet and this week I am really proud and so many people at Mastercard and.
We put out our net zero commitment and that is just the last thought I want to leave you with with that.
Looking forward to speaking to you with less technical issues and a quarter from now thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.