Q2 2021 Mastercard Inc Earnings Call
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Okay.
Ladies and gentlemen, thank you for standing by and welcome to the Mastercard second quarter 2021 earnings Conference.
Carl.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please.
Our zero I would now like to hand, the conference over to your Speaker today Warren Nisha head of Investor Relations. Thank you you may begin thank you, Chris and good morning, everyone and thank you for joining us for our second quarter 'twenty 1 earnings call we.
We hope you are all safe and sound with me today are Michael <unk>, Our Chief Executive Officer and.
And Sachin Mehra, our Chief Financial Officer.
Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue from the Q&A section.
It is only then that the queue will open for questions.
You can access our earnings release supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website.
Mastercard and dot com. Additionally, the release was furnished with the FCC's 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.
Press 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 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 web.
Website with that I'll now turn the call over to our Chief Executive Officer, Michael <unk>.
Thank you Lorne and good morning, everyone. So here are the highlights of the quarter. The strong momentum we started the year with accelerated this quarter with net revenue up 31% and EPS up 37% versus a year ago all.
Of that on a non-GAAP currency neutral basis on that same basis quarter..2 net revenues are now 10% over 2019 levels, even though international travel is in the early stages of recovery, which is showing the strength of our diversified revenue streams.
Domestic states switched volumes are well above pre pandemic levels with all regions.
<unk> growing at a healthy rate.
And we're seeing improvements in both domestic and cross border travel with significant upside potential within.
Within this context, we're making progress against our strategic objectives and have expanded our relationships with key partners like city JP Morgan Chase Barclays stripe and Verizon.
Let's dive it looking first at the broader economy domestic spending levels continued to show improved in store sales and strength in E. Commerce. According to our quarter 2 spending pulse report, which is based on all payment types, including cash and checks U S. Retail sales ex auto ex gas were up 14% versus a year ago.
10% versus 2019, reflecting improved consumer mobility, and some residual effects of fiscal stimulus spending pulse also indicated that overall European retail sales in quarter, 2 were up 13% versus a year ago and 6% versus 2019.
The vaccine rollout.
The scale in the U S UK and Germany, and several other countries with over 35 countries now reporting that over 50% of their populations are at least partially vaccinated.
Broadening this effort is critical but we will of course take time.
Turning to our business, specifically and the 4 phage framework, we established from managing through the Covid environment.
<unk> we.
We believe that most markets on the growth phase domestically like cross border spend is now starting to normalize but border restrictions are being relaxed.
So looking at Mastercard spending trends switched volumes continued to improve quarter over quarter with strength across all products debit spend remains elevated and we are seeing further.
The recovery in credit driven in part by the return of travel and increased discretionary spending.
This recovery is led by consumer credit, but it's important to note that commercial credit is also improving and has now reached pre pandemic levels as well in terms of how people are spending their definitely getting out more as we are seeing improvement in car.
<unk> been spending, particularly in the travel retail and restaurant categories. While E Commerce continues to be strong.
Now turning to cross border Cross border card not present spending excluding online travel spend continues to be very strong.
On a traveler front itself. It is clear people want to travel and they do so.
<unk> been able to.
You've seen us domestically and across borders where there are limited transact restrictions.
For example, we're seeing strength between the U S and Latin America, as well as an increase in travel within Europe.
Our industry reports there has been a recent increase in bookings for travel between the U S and Europe and the quarantine recall.
<unk> wins for entry into Canada are starting to be relaxed. So that's a further opportunity.
Overall, we expect more borders to open in the second half of the year dependent of course on infection rates, including the recent variants and progress on the vaccination front.
Against this improving backdrop, we are focusing on our strategic priorities.
1 growing our core products supported by our services second driving digital enablement, both in store and online third ensuring the ecosystem is safe and secure.
And fourth providing choice through our multi rail capabilities as always we will do this with an eye towards driving top and bottom line.
<unk> growth over the long term by continuing to manage our expenses carefully.
Let's look at them 1 by 1 first off we're driving growth in our core products and leveraging our comprehensive services to do so working with new and existing customers to solve their pain points, both in payments and beyond.
We are well positioned.
Positioned to capitalize on the return of travel and remained focused on building on our strength in this area by expanding relationships with El travel partners. For example, we have renewed our exclusive co brand with Jetblue Airlines in the U S.
We also entered into a long term global partnership with Cathay Pacific and Asia miles, who will migrate their existing co brand portfolio to.
A mastercard.
The Middle East extended average average co brands and in Latin America, and now the preferred brand for Latam Airlines.
It is important to note that our services play a critical role in enabling all these deals, including our data analytics test and learn loyalty consulting and cyber security solutions.
Of course, we also continued to drive growth in the core outside of travel here are a few examples we're excited about our partnership with Citi to launched a new city custom cash Mastercard offering card members cash back in a top eligible spend category.
J P. Morgan Chase, we have extended and deepened our agreement in the commercial space and we have renewed.
Our master brand relationship with Chase in the U S.
We also continued upon the closely with community banks throughout the U S, including a flip of first southern National Bank debit portfolio to become their exclusive network brands.
On the digital from we are well positioned to drive the acceleration of the secular shift.
<unk> with our digital capabilities no matter, how consumers want to shop in store online or both.
As consumers return to in person shopping adoption of contact list continues to grow in the second quarter contactless penetration represented 45% of in person purchase transactions globally, According to us which transaction thats up from.
7% a year ago.
At the same time E. Commerce continues its strong growth and we are providing consumers choice on high volume how they want to pay online for example, click to pay which improves the guest checkout experience is now rolled out in over 10 markets and we continue to launch with significant new merchants such as the Canadian tire.
From 30.
On onto the buy now pay later space in Australia, we're partnering with Citi and Commonwealth Bank of Australia to offer installments to consumers wherever Mastercard is accepted.
And whether in store or online, we are securing and streamlining the consumer experience through our token Ization services <unk>.
Transactions across install online and in App surpassed 1 billion per month throughout the second quarter.
We continue to partner with major digital players to expand the reach of our digital capabilities. For example, we just entered a strategic partnership with stripe to get business, a small control of how they spend their money by enabling.
Tire use us to create manage and distribute virtual and physical cards for small business commercial and consumer across credit debit and prepaid.
It also entered a partnership with Verizon to bring <unk> innovation to the global payments industry, leveraging our serve our services and insights and pairing Mastercard.
<unk> strength solution with Verizon's <unk> connectivity.
Allow us to create better experiences from the checkout line to being builds even to how businesses are run.
Increased capacity and reduced latency of <unk> will enable us to take another step toward making every device of commerce device.
Now.
Now onto securing the ecosystem as more merchants and consumers shift to digital the importance of keeping the ecosystem safe and secure is paramount and is creating a strong demand for our cyber solutions. In addition to organic growth in number of our acquisitions in this space continue to perform well for example Africa had strong deal momentum.
Including a fraud and dispute management agreement with <unk>, a payment solution provider operating across 15 countries in Latin America.
Chris Recon, which monitors the necessity customers third party cyber security risk is now scanning millions of companies globally up from thousands when we acquired them at the end of 2019.
Big data is providing biometric fraud prevention tools to major league baseball and a new nickel.
We're very happy to advance our digital identity capabilities with the acquisition of a quarter that has now closed on and off to a strong start on the deal front.
Last but certainly not least let's turn to our initiatives focused on addressing a broader.
And new payment flows with our multi rail capabilities. The key here is to provide choice essentially the right tool for the job.
So there are multi rail approach, including our expertise and capabilities in cards real time payments and support for digital currencies, we're able to deploy the right combination of assets to meet our customers' needs.
And more than just having this range of capabilities, we're making good solutions work together seamlessly and give you a few examples.
And <unk>, we're making progress with Mastercard track building out our global open loop network, but working with by our agents and supplier agents such as bank software companies and ERP vendors on the bank side.
They're set are excited to have signed barclaycard payments will use track to connect their global business customers on both the buyer and the supplier sides of the ecosystem across multiple rails.
We also signed fresh folks premier accounting software platform with customers in over 100 countries.
Good day space we.
Very scaled and Mastercard, Bill pay exchange, which leverages, our real time payment capabilities to provide a transformative mobile first experience to build payments with Citi Treasury and trade solutions now connecting into the platform.
With Mastercard send we continued to penetrate a variety of new payment flows beyond traditional card payments.
We've enabled dozens of use cases and hundreds of programs across every region of the world.
For example of partnering with innovative digital messaging platforms to offer <unk> services to consumers today uses of Whatsapp in Brazil, and France from money directly in App leveraging Mastercard send.
We're also partnering with Moneygram and checkout.
To enable near real time cross border <unk> transfers across Europe and.
And on the BDC front, we continue to support the fast growing and gig economy, and then partnering with pay fair to enable instant earnings payout some of the largest gig platforms in the U S.
Through open banking master cards are empowering people and businesses.
Across the globe to easily and securely gain access to their financial data to create new opportunities for themselves.
In the U S.
Our efforts with finished city are running ahead of expectations as we continue to enhance direct API connectivity for banks since index for.
For example, we're partnering with Jack Henry to enable consumers.
Back at more than 400 community financial institutions to.
To use its digital platform to access use and benefit from their own financial data and Navy Federal credit Union recently signed direct data access agreements with finished city.
The density is also leveraging its best in class data connections to launch new products.
<unk> and new verticals, such as its mortgage verification service.
And finally in terms of crypto currency, we're making it easier for crypto currency wallets to connect seamlessly to our network through a pilot with Paxos circle, and evolve Bank and trust, which simplifies the conversion of <unk> into <unk>.
I think we're partnering with consensus you cerium software engineering firm to accelerate the development of crypto applications and services to our customers.
Summing all this up we delivered strong revenue and earnings growth this quarter benefiting from our revenue diversification efforts, we believe that most markets on our growth.
<unk> and there is upside potential in cross border travel, we're winning significant new deals and we continue to focus on our strategic priorities to drive growth over the long term.
Sachin over to you.
Thanks, Michael.
Turning to page, 3 which shows our financial performance for the quarter on a currency neutral basis excluding.
Phased items and the impact of gains and losses from the company's equity investments.
Net revenue was up 31%, reflecting the continued execution of our strategy amidst the strong recovery in spending acquisitions contributed 3 ppt to this growth.
Operating expenses increased 28% Inc.
Specialty <unk> increase from acquisitions.
Operating income was up 34% and net income was up 36% both of which include a 2 ppt decrease related to acquisitions.
EBITDA was up 37% year over year to $1.95, which.
Which includes.
<unk> sensitive dilution related to our recent acquisitions offset by a <unk> <unk> contribution from share repurchases.
During the quarter, we repurchased $1.7 billion worth of stock and an additional $398 million through July 26.2021.
So now let's turn to page 4.
3 the operational metrics from the second quarter worldwide gross dollar volume or <unk> increased by 33% year over year on a local currency basis.
We are seeing continued strength in debit and credit U S. GDP increased by 34% with debit growth of 23% and credit.
Growth of 50%.
Outside of the U S volume increased 72% with debit growth of 39% and credit growth of 25%.
Cross border volume was up 58% globally for the quarter with intra Europe volumes up 48% and other cross border.
Where you can is up 71%, reflecting continued improvement and the lapping of the depths of the pandemic last year.
In the second quarter Cross border volume was 87% of 2019 levels with intra Europe almost back to even at 97% and other cross border volume at 79.
Volume Inc.
2019 levels.
Turning to page 5 switched transactions grew 41% year over year in Q2, and we're at 127% of 2019 levels.
Not present growth rates remained strong and card present growth continued to improve.
Aided in part by increases in contactless penetration across every region.
In addition card growth was 8% globally, there are $2.9 billion Mastercard and maestro branded cards issued.
Now, let's turn to page 6 for highlights on a few of the revenue line items again described under.
Currency neutral basis, unless otherwise noted.
The increase in net revenue of 31% was primarily driven by domestic and cross border transaction and volume growth as well as strong growth in services, partially offset by higher rebates and incentives as previously mentioned acquisitions contributed approximately 3.
<unk> net revenue growth.
Looking quickly at the individual revenue line items domestic assessments were up 36% while worldwide GDP growth was up 33%. The 3 ppt difference is mainly driven by pricing and mix.
Cross border volume fees increased 60%.
<unk> cross border volumes increased 58%. The 2 ppt difference is primarily due to favorable mix as cross border volumes ex intra Europe grew faster than and grow your volumes this quarter, partially offset by the lapping of elevated levels of return activity a year ago.
Transaction processing fees were up 33%, while switched transactions were up 41% day.
PPD difference is primarily driven by the lapping of elevated return activity a year ago and adverse mix.
Other revenues were up 32%, including a 9 ppt contribution.
From acquisitions, the remaining growth was mostly driven by our cyber and intelligence and data and services solutions.
Finally, rebates and incentives were up 49%, reflecting the strong growth in volumes and transactions and new and renewed deal activity.
Moving onto page 7 you can see that on a currency.
Currency neutral basis total operating expenses increased 28%, including an 8 ppt impact from acquisitions.
The remaining growth in operating expenses was primarily due to higher personnel costs as we invest in our strategic initiatives increased spending on advertising and marketing and increased data processing.
Costs do.
Now to page 8 let's discuss the specific metrics for the first 3 weeks of July.
We are seeing significant improvements in the growth rates across our operating metrics versus 2020 in part due to the lapping effects related to the pandemic that began last year.
To provide you better visibility into current spending levels.
We thought it would be useful to once again present, the 2021 volumes and transactions as a percentage of the 2019 amounts when we were not experiencing the impact of the pandemic.
So if you look at spending levels as a percentage of 2019 from switch volumes the broad based recovery continued through.
Second quarter and into July specifically in the first 3 weeks of July <unk>.
Switched volume spend levels are at 130% of 2019 levels, which is in 9 ppt improvement over Q1.
We have seen a further recovery in card present spending with improvements in travel really.
<unk> categories, including lodging and restaurants of note in the U S. We have seen consumer airline spend improved significantly since the early part of Q2 with volumes now back to pre pandemic levels.
Trends in switched transactions remained steady and are generally tracking the trends we are seeing a switch volumes.
In terms of cross border spending levels as a percentage of 2019 show an improving travel trend.
Cross border travel, which includes both card present and travel related card not present volumes increased from 39% to 66% of 2019 levels from April to July Prime.
Driven by strength in Europe, and between the U S and Latin America Asia Pacific has been slower to recover.
Cross border card not present ex travel continues to grow at a healthy rate above pre pandemic levels.
This has moderated recently relative to 2019 levels in part.
Merrily reduced contribution from the purchase of crypto currencies and the lapping of significant E com promotional activity in 2019.
Turning now to page 9 I wanted to share our current thoughts looking forward first off we continue to make strong progress against our strategic objectives and are well positioned to.
To grow with the new under new deals we continue to sign.
Domestic spending levels are showing healthy growth and we are well positioned for the return of travel with travel oriented portfolios further our service lines continue to grow at a healthy rate.
Turning to the third quarter spending levels continue to improve along the current trajectory we would.
Due to our Q3 net revenues to grow at the high end of mid <unk> growth rate year over year on a currency neutral basis, excluding acquisitions.
As a reminder, Q2.2020, mark the low point of the pandemic from a spending standpoint with some recovery in the following quarter. So we will be.
Facing a more difficult comp of approximately 3 ppt in the third quarter.
It is also important to point out that this is just 1 potential scenario as a level of uncertainty remains related to new COVID-19 variance and the progress of vaccinations and therefore, the pace of recovery may not be linear.
In terms of operating expense.
Expenses, we will continue our disciplined approach to expense management, while advancing our strategic objectives and key areas such as digital cyber security data analytics you Tobey.
And our material solutions, including related brand and product marketing investments.
For Q3, we expect operating expenses to grow at the high.
Expense of mid teens rate versus a year ago on a currency neutral basis, excluding acquisitions. As a reminder, we are lapping the spending actions we took last year as the pandemic developed.
With respect to acquisitions, we are pleased to have chosen the transaction with the cargo earlier than expected and expect acquisitions will contribute about 2 to.
The 3 ppt to revenue in Q3 and Q4.
Similarly acquisitions will contribute approximately 9% to 10 ppt to operating expense growth in both Q3 and Q4 as we integrate several acquisitions in promising new growth areas, such as open banking digital identity and real time payments.
As a reminder, we discretely disclosed the impact of acquisitions for the year in which they close and the subsequent year after which time, we do not split them out.
Other items to keep in mind.
Foreign exchange is expected to be a zero to 1 ppt tailwind to net revenues and a 1 to 2 ppt headwind to operating expenses.
In Q3.
On the other income and expense line, we are at an expense run rate of approximately $115 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 17% to 18%.
<unk> for the year based on the current geographic mix of our business and improvement over previous expectation due to some discrete tax benefits realized in Q2.
1 last point I wanted to let you know that we are planning and investment community meeting for the fall in New York, We are planning a hybrid event on November 10.
And we look forward to discussing our future plans with you at that time and with that I will turn the call back over to ward. Thanks.
Thanks, Sachin Crystal, we're now ready for questions.
As a reminder to ask a question you will need to press star 1 on your telephone.
Jay a question press the pound key.
Your first question comes from the line of Tien Tsin Huang with Jpmorgan.
Yes.
Hey, good morning, everyone and thanks for all the.
All the details as usual just just wanted to get just going through such as from the numbers you gave and just wanted to get your updated thinking here on.
On the operating leverage.
In the second half of the year, including the digestion of deals it looks like there is some but I'm just curious how.
How aggressive some of the spending will be on the integrations given that there's a lot going on a lot of good things going on there with somebody.
Done and then the focus on services that.
Average.
Yes, so tien tsin.
Like I said in my comments I think.
What we have line of sight on is the acquisitions, which we have done which we have announced and that's what I've given you some level of guidance on as it relates to what contribution they're going to have from a revenue standpoint, and an expense standpoint, all of which I just went through.
In my prepared remarks.
The reality is we're running the business for the long term, we're trying to drive <unk> revenue growth and at the same time.
Bottom line growth.
And I will do this in a disciplined manner, we have demonstrated over the period of the pandemic that we have sufficient flexibility in our expense base.
I actually.
Make sure that we continue to execute on our strategic objectives at the same time keep an eye on how we're seeing the topline from around so I guess my point of view is the volume, which is we will continue to do what's right for the business to drive long term growth.
By investing in key strategic areas, both organic and inorganic.
<unk>.
That's kind of where we are in terms of the specifics on the numbers Thats what I just shared with you. We expect that acquisitions will contribute between 2 and 3 points to revenue in the third and the fourth quarter and between 9% and 10 points of expense growth in the third and the fourth quarter. Yeah, There's something to add tension here is if you look at the 3 big acquisitions that.
Have come in over the last year or so net the largest 1 we have done giving us a real advantage in.
Real time payments around the world.
<unk> open banking, that's a trend that's very hard we feel really good about that 1.
Then now digital identity a cadre.
Non to everything that we do online so very critical acquisitions too.
<unk> point, we have to do what is right.
But 1 thing is not changing and that is that.
Thats very clearly that our discipline on execution, we stick to our 24 months non dilutive measure on all of these so just wanted to put that out there with.
You as well.
All fair points and those are all important areas. Thank you.
Your next question comes from the line of harsh <unk> with Bernstein.
Hi, Good morning, Thank you for taking my question.
Michael last week, you announced the card offerings.
Thank you Tim.
If I back up the conversion to see yet.
In this business from the other announcements you've made crypto.
Thank you step back can you talk about the value proposition Mastercard is bringing to the table for fiscal company central banks facility fees stable client providers and the different ways you are engaging there right.
Alright, thanks, our sheets.
Great question very important topic, it's obviously, a vibrant space around digital currencies.
Let me go back to what we discussed in our previous call where he said that's broadly 3 different categories that are at play here, which is a central bank digital currency.
These lenders private sector stable coins endurance of floating crimp dose.
So we told you that we want to be playing a role across all of them. We also said in the first quarter call that as far as stable coins are concerns we are getting ready to technologically.
Enable our network.
To carry these stable coins a settlement currency provided they meet 1 of our all 3 of our criteria, which is regulatory compliance consumer protection and stability. So none of that has changed let me just give you a view on what has happened since we had that conversation.
So on the Central Bank digital currency front things are definite.
Currency continuing.
Continuing to move forward you see a lot of central banks engaged on the topic. The ECB has just recently.
Announced that they will actually move forward with a digital euro after a period of industry consultation.
Bank of England is in this period of industry engagement at this point right.
Now so there is there is clear progress what is our value proposition to the.
Central banks and governments in this space is first of all we bring a unique perspective to the market as do these players as a multi rail provider because all of these countries have to make the trade off what is my existing financial.
Financial system, delivering my existing financial infrastructure, and what else is the central bank digital currency solving for everybody has different motivations reigning from financial inclusion from cross border payments.
And hence we are sought after party because we have experience in all of that.
I think a particularly critical proposition here is our virtual.
<unk> test platform because all of these design choices that governments have to make and that we consult them on.
<unk> have to live in the wild so to say they have got to work with the existing financial infrastructure and that's what our virtual test platform does for them. So that's the proposition at this stage for for central banks under private sector stable points nothing much different.
Other than us engaging with private sector players as well as regulators on what does good policy look like around private sector stables Collins because this question about regulatory compliance is still unresolved regulators do need to weigh in and we're a part of that dialogue.
On floating cryptos.
Here.
The point of currency stability is not solved so we won't be able ing, enabling got a settlement currency on our network, but clearly people want to invest in that I don't want to sell their investments and we're going to make this as easy as possible. So we have all these partnerships out there now here's the thing with our announcement last week.
And that is that.
No.
Coin digital currency wallets.
Oftentimes prefer to stay in crypto as these transactions are might selling and buying of investment and here's where our partnerships. For example, with <unk> come in it is our partners our partner that allows the digital wallets or stay in crypto.
So as they settled with paxil and impact of packs a sentence with us in Seattle, that's an interim step for us as and when we reached a point that we might be enabling stable coins on our network itself. So that's kind of where we are playing a role across the board. This is relevant technology as a multi rail player we got to be in the space because.
People are looking for answers.
Perfect. Thank you very much.
Your next question comes from the line of Lisa Ellis with Moffett Nathanson.
Good morning, Matt Good stuff. Thanks for taking my question I had a question on BTB payments Michael in your prepared remarks.
Called out.
Gross on Mastercard track and Bill pay exchange.
Taking a step back can you just give us a sense.
Right now of where you are in terms of scale and trajectory holistically in the digitization of B to B, especially as it is it seems.
Mark do you come up with that Digitization that's.
<unk> gotten a bit of a jumpstart to the pandemic.
You can dimensionalize around volume growth rates et cetera. Thank you alright.
Alright, Thanks, Lisa <unk>.
<unk> huge huge space obviously.
Tam of 125 trillion. So how are we going about it 1 bite at a time.
I would say so the first thing I should say is our commercial business.
Is is there it's coming back.
Commercial travelers coming back as I noted earlier in my comments. So here to focuses on small business virtual card.
And in the <unk> space, specifically virtual card solutions for example.
Example, in online travel agencies. So all of that is continuing but it's worth noting we gave you a number sometime back then to 2020. This was 11% of our GDP.
That is what we're happy about that now when it comes to <unk>.
Very specifically the multifaceted approach I would talk to you through earlier.
Earlier across Bill pay track and the whole list that I talked about.
Here I see that.
If I take bill pay to today, if you look at the fact that we have a quarter of all.
Of all beings bills being paid addressable in a third of the biller so that.
It gives it gives us real scale. So I think we have come to a point of scalability here with the right kind of players last quarter, we added the Verizon as a biller too.
Due to the mix. So that is encouraging we haven't given specific numbers and we haven't done it this quarter, yet, but <unk> thats going in the right direction with net coming in we have.
If I can footprint in Europe, they run a scaled bill pay business over there. So when the time is right we will share some numbers around that now at <unk> specifically track.
The excitement around a large bank like Barclays joining.
The track ecosystem is great we fine tune.
Tuned our go to market with ERP and software providers. So the rollout here.
Is progressing well with the right.
Both sides by the supplier and buyer and supplier agents again, we havent given numbers, yet, but it would be.
What you would expect when you build at a 2 sided network.
A significant you have players on both sides, we could start to connect the corridors. So the value proposition of track data switch a payment optimization engine and the choice in multi rail payments is really starting to get hold.
We said to you a couple of times this is Ben.
This is going to be a multi rail journey.
Stan Covid, while there is a realization that <unk> supply chains have been affected by Covid and there is a desire to digitize it wasn't exactly a top of mind through Covid. So we're starting to see this interest coming back. So that's kind of where we are Sachin you have anything to add yes sure at least I will just make 1 more point, which is we think.
<unk>, we also think about it from a segment approach right. What is the micro kind of business environment small business environment, Midmarket and large corporates and when you actually dissect it along those lines you will see that there is a significant amount of spend which takes place across the micro and small business space and if you further break that down you will see that.
A significant amount of that spend which takes place in cash. So the only point I'm kind of trying to make is that the value prop of the card rails and BBB still stands in pretty strong to displace cash much like it has in the consumer space and there's a tremendous opportunity for digitalization to continue down that path there as well so I know.
We talk a lot about <unk> be able to flow and I think thats super important.
We certainly internally and not losing sight of the fact that the significant amount of cash spend which still takes place with a value broker <unk> sounds good.
Terrific, yeah lots of checks to awesome terrific color.
Yes.
Your next question comes from the line of Craig Maurer with Autonomous research.
Yeah, Hi, thanks for thanks for taking the questions.
2 questions for you 1 any thoughts on.
The.
The reopening of the Durbin Amendment discussion.
Second are you planning to update your 3 year guide at the Investor Day later this year and I know you just announced it but figured I'd ask anyway. Thanks.
Okay. So let me take the last 1 was kind of like a bit of a cheeky response I think you will not have the Q&A.
Craig to find out if they're going to give 3 year guidance or our longer term guidance at that time.
On interchange so complex topic for sure.
And.
The New administration is looking at various.
In regulatory and lawmaking initiatives as we all know and we've just seen.
Used yesterday from.
From the outset.
Leaned in with the New administration, we built a really positive relationship. So that is very good and we're continuing obviously the same kind of.
Interaction.
Instrument on a topic is important as interchange to our industry with lawmakers on the Hill House.
Both sides of the aisle.
We're monitoring this very closely there is there is chatter here and there on interchange as a topic that's always in focus by different parties.
What I, what I would say is we've had the benefit of now having many years of playing scene.
<unk> seen the.
Interchange regulation on debit play out is enough data.
For us out there to say that really.
What it was intended to do we can't really see it cost for our consumers have gone.
And again benefits have been reduced we keep providing that data to lawmakers and other interested parties in figures.
What the facts are.
Painting.
Now when it comes to interchange regulation applied to credit.
I would expect the same in terms of cost impact in terms of benefits impact, but there is.
Another aspect here that is the access to credit you should assume that the access to credit for Middle class Americans is going to be.
Impacted and not in a positive way if this interchange regulation comes in so it is all something that needs to be thought through very carefully what are the puts and takes why does this make sense and that's the dialogue that we're leaning.
Meaning in the good thing is we've seen this play out in many other markets around the world and have some experience with that and cannot bring to the table as well. So that's kind of where we are closely monitoring.
Okay. Thank you.
Your next question comes from the line of Sanjay <unk> with K B W.
Thanks, Good morning.
Obviously, a lot of eyes on cross border travel spending and there were some constructive data points. This quarter, maybe 2 interrelated questions understanding the data variant sort of I'll say Delta variant adds complexity to our view, but do you think that we continue to see progress.
Progress on travel spending going forward and I think such and you mentioned in your third quarter view you expect continued spending trends is there a view on cross border as well thanks.
Yeah, Hey, Sanjay share when I go ahead and take that question. So really I will preface by saying the following which is again, it's the uncertainty.
Volume in prevails, given all these variants, which are kind of showing up but the reality is the following which is it has been clearly demonstrated that people want to travel.
And they do so when they are able to travel and that's been shown in the domestic environment and Thats been now shown in the cross border environment. So 1 of the things, which is something which we very closely.
I mean, the Mag is how is it that booking levels are taking place what's kind of that trajectory of spend looking like our trajectory of kind of data looking like and then which of the corridors, which are opening up based on.
For example earlier this week there was some dialogue around how the UK is going to open up the vaccinated.
People coming from the U S.
And from other countries. So the reality is the following which is the data is we've seen it as what we've shared with you through the first 3 weeks of July.
We are we are positive in terms of our sentiment as we progressed through the second half of the year that as people get more vaccinated more corridors will open up and as more.
Corridors open up people will exercise that ability to travel because they have the intent to travel and this is really important because as I look at what's going on across the globe. You can see that the U S. Latin America, which has the ability to travel with the borders being open people are exercising that and they're showing that come through similarly, now we're hearing about Canada.
Coming up which will be again, something which is encouraging from our perspective in terms of how people play that out Asia on the other hand is still I would say.
<unk> kind of subdued levels, just because of the reality of the situation in Asia being what it is with the various now actually getting to higher levels in certain countries in Asia. So look.
Antidote predict but <unk>.
Longer term I guess, when I kind of look through all of this what we feel encouraged about is that the vibrancy of <unk>.
Travel is something which we'll come back and most importantly, we are very well positioned to capitalize on that.
As and when it does come back in.
I just wanted to add 1 point as I listened to.
Hard to find.
Fine.
Very noteworthy here is back to the comment about like 35 countries have now over 50% of vaccinations levels. So this is Pat.
Kind of sequence of your vaccinated.
And you are willing to travel, which we have both seen as proof points and then governments.
Starting ways now to enable these partners as you have seen us Canada and the U K. There is a whole stock of people are vaccinated and want to travel and until you come to the point of wells is not vaccinated theres a long runway for us.
To play out, but as Sachin said very difficult to predict at this point, but those are facts that.
Net or on the table at this day looking at and we've seen that over the last 3 weeks.
Thank you.
Your next question comes from the line of Darrin Peller with Wolfe Research.
Hey, Thanks, guys.
We're now a year.
Quarter basically into the pandemic.
Like when we think Michael when we think about the structural and sustainable elements of what we're seeing in volume and even some of the other aspects of your revenue like some of the serve value added services, you've really been growing well probably better than I think we would've expected pre pandemic.
Can you give us a sense now if you revisit it that what you see is now sustainably elevated.
Structurally better that could persist.
Over the next few years beyond just stimulus and pent up demand.
Yeah. So.
And R&D.
The pent up demand.
At some point in time, that's going to level out I think youre right.
Once you've caught up time.
It everybody again.
Come to is the back of that but there's still some more pent up demand to go particularly on commercial travel. So we'll see how that how that will play out.
It's interesting when you look over the last 2 quarters, we see continued elevated levels of digital e-commerce spend but.
What we see in store coming back. So there is not a net zero game going on I think this is actually.
Really generally secular trend against cash that is going to continue to run for a very long time. So it's good to have these 2 legs to stand on from our business model.
I think that that will.
We'll remain youll see some of the e-commerce.
<unk> will reduce over time, but I don't think we will go back to the levels that we had before the pandemic because people wanted to have Laurent better experiences and day, we'll like to continue with that I think every bit of consumer research that we do tells us that and by the way. This is not just for online shopping for digital for digital banking is for contactless.
Going for everything across the board generally between $60.70 per cent of the people that would be awesome awesome every months say exactly that.
Witness push towards a more digital world more data.
More data that needs to be kept safe so I can.
I see that the path for our cyber secure.
<unk> solutions is a very clear 1 in a very good 1 and we will not see a reversion to something there before because you have the elevated driver of more digital just out there driving that business and frankly, that's the same for data and analytics and.
Data analytics again, more data and people want to understand it but back to.
It's Sachin was talking about on small business, here's a bunch of players that have traditionally maybe not use tools like that understanding and managing their business through data and analytics.
A cap. So there is a whole new segment, that's opening up that will we will would like to serve through our partners in terms of real inside.
Insides and how do you run a business online from whatever you might have been doing in the brick and mortar space before so I think those are structural changes that are here to last.
Cross border I don't think theres going to be something dramatically structural.
<unk>, it's really the cross border E Commerce, I think that is that again.
Some.
Once they figure it out and it does actually work they couldn't go anywhere they were using cross border e-commerce platforms and tools and I think that will continue.
1 more thing that comes to mind structurally is the heightened and elevated interest of governments and electronic payments and.
Digital payments.
That has started last year again that was driven by the prices initially how do I get my stimulus payments out to now a conversation of Wow. This is an interesting space and I found in my infrastructure stated I need to partner with people. So that is something that I see fundamentally as an opportunity but.
But it's important to engage with governments as a fair partner.
See that local footprints.
Things like that do matter that is well positioned with our multi rail infrastructure to do exactly that.
A few a few things that come to mind back to leaves US earlier question on <unk> I think Thats continued.
Chris and digitizing <unk> supply chain, and therefore, BTB payments that will also play out.
<unk> grow over time over the next 2.3 years.
Alright, Thats really helpful. Thanks, Michael.
Thanks Darren.
Your next question comes from the line of Dan <unk> with Mizuho.
Oh, Hey, guys. Thank you so much.
He was very interested in the stripe partnership and some of the other partnerships can you maybe shed some more light on what youre doing with stripes. It sounds very differentiated thank you.
Yes, Dan Hollywood Geography Hagen.
Yeah.
<unk> interest.
Partnership.
As you can.
Heard me say.
This is really across the board a true strategic partnership. So this is enabling their customer set with basically every payment tool that is available and providing choice that's in the.
And what this is about.
Verizon an entirely different strategic partnership, but here's the here's another network, but <unk> network, we said what could we do that we talked about SME on this call in a couple of occasions now think about an SME that today has a card terminal and how theyre going to compete with the marketplace.
This is a.
If you imagine for a moment you have a full internet connectivity was not much infrastructure that you need to bring in and then you can provide a true omni channel experience, even the smallest business can do that that is what <unk> can deliver at any endpoint anywhere at any situation and that his division.
Vision that that Verizon Hans and his team and our folks.
That we have developed this is very specific we've been on it for a while and.
Expecting to make a real difference there so 2 different types of strategic partnerships I think they both matter come back to the point that it's for US, it's about providing choice and payments too.
Anyone out there that is transacting in payments.
Yes, Doug Cooper.
[laughter].
Your next question comes from the line of Bryan Keane with Deutsche Bank.
Hi, guys. Good morning, I know, we talked about cross.
Travel just thinking about cross border card not present ex travel I know that dropped touch in June and then month to date July just wondering what the outlook might be should we see further modernization.
The lower growth numbers, there as we head into.
Further.
Further through the year as we think about maybe more in store activity tougher comps less E comp promotional activity just trying to get a pulse on that number as we go forward. Thanks.
Hey, Brian.
Couple of things kind of point out on that line item really at the end of the day.
There are things which are.
Border.
I would call episodic, which took place in the months of April and June as you know there's volatility in the price of crypto, there's more and more bushes, which took place there and then as the prices came down and then you had the inverse effect of that taking place.
<unk>.
The reality is that.
That to US Cana is 1 of those things, which will remain volatile and I say that only because I don't know where the price is going to go and how people are going to exercise their choice to purchase script doing on a going forward basis. What I will tell you is we've seen a decent level of.
<unk> take place and how people are utilizing mastercard.
<unk> brought us to purchase these digital currencies like crypto over the last 3 weeks as reflected in the numbers. So that's kind of 1 of the factors, which influence that the second being just a tougher comp where the timing of that E. Com promotional activity, which took place in 2019 happened to be in the first 3 weeks of July are the composite.
Mastercard for comp here, so that I don't view as something which is on a going forward basis is going to be impacting.
What.
So Paul Index growth rate is for this line item 2021 versus 2019 suffice it to say the following which is the trend towards digital continues its true in domestic it's true in cross border.
And the fact that that is a positive tailwind back to what Michael just talked about in terms of structural changes is something we are well positioned to actually keep participating in as you know as economies evolve and things start to open up in different parts of the Globe zone.
Yes.
What I would like to share with you on that 1.
Got it thanks for the coal share.
Your next question comes from the line of Jason Kupferberg with Bank of America.
Thanks, guys. Good morning, I just wanted to ask a follow up on cross border in the second quarter Cross border volume growth Accenture Europe was a really good proxy for your overall.
Revenue growth. So I mean, just hypothetically if July month to day trends hold for these volume through the rest of Q3, it would seem like cross border revenue growth could approach, 60%. This quarter. So I just wanted to see if that's a fair characterization or if there's any other moving parts. We should be we should be aware of and then if you can just give us some quick comments on Q3.
Chris before rebates that would be great. Thank you.
Sure So on cross border, Jason He has been.
I had mentioned to you that.
Youre aware about the fact that intra Europe cross border is lower yielding than all other cross border and I think thats, 1 thing to keep in mind because growth rates.
Cross those.
<unk> those populations will spend will determine what revenue growth rate ultimately looks like.
The reality is in the second quarter, we had a day.
<unk> from a elevated level of returns that we had seen.
In last year, which which had the impact of subduing are.
Cross border volume fee growth rate some in this second quarter.
It's not like those returns and elevated ovens overdone. It only took place in the second quarter of last year.
As the pandemic hit people starting to make cancellations in terms of their airline bookings their hotel bookings and thats kind of while it tapered.
But it's still a good going into the third quarter as well so just something to keep in mind as to what the puts and takes so when you're thinking about growth rates.
On rebates and incentives.
Here's what I would tell you I think you're very well aware about the focus of the company on making sure we are setting ourselves up to continue to.
Our picture and winning market share comes through creating fantastic value propositions, and then delivering them at great value to our customers, which is where the rebates and incentives coming into place. So we continue to do that and we will continue to do a new and renewed deals which will have an impact on rebates and incentives.
<unk>.
The 1.81.
When modeling some information I will share with you is that as it relates to Q3, we expect rebates and incentives as a percentage of growth to be generally generally in line with what we saw in Q2.
That's the extent of what I'm going to share with you in terms of where I kind of see rebates and incentives playing out obviously the mix of volumes affect that line item as well.
Thank you very helpful sure.
Your next question comes from the line of Andrew Jeffrey with Truest Securities.
Hi, Good morning appreciate taking the question.
Michael.
Lots of progress on.
Risk fraud I'd.
Et cetera, it sounds like value added services generally are.
A pretty important growth driver I wonder if you could compare and contrast, what.
Mastercard is doing.
Versus some of the sort of purpose built.
Risk and fraud products in the market different channels different capabilities kind of how.
Coexist and compete.
With.
With some of those independent providers and picking up like a risk of 5 for example.
Brian Thanks.
Thanks, Andrew Greg Great question so.
If you look at our services portfolio to start with.
We.
Try to us.
Seek an entry point into the sweet spot leveraging our footprint and payments in our data.
And then have the technological capabilities.
And the talent and all of that coming together into a differentiated proposition. So you'll really see us compete with other services player on a pure players.
So it has nothing to do with our position in payments.
So that's that's the starting point of our strategy and we're looking for Adjacencies that leverage our core competencies.
Now when it comes to.
The cyber solutions.
I.
Think about a product like decision intelligence, which basically.
<unk> helps.
Our customers to make decide what's a good decision and what is not a good decision.
Exactly at the sweet spot of everything that I said, it's the transaction data. It's the available having this in real time in our system available and then using state of the art AI to make the decisions for our customers.
Customers.
So here I think we have.
From a competitive landscape perspective, a real leg up versus pure plays similar in loyalty 1 of the largest loyalty players in the world. They are pure plays but the fact that we see all the transaction flow and we can look at El <unk>.
<unk>.
Again, it anonymize data of look alikes and what they are interested in and how they're their preferences go in terms of rewards offers mileage programs and so forth again puts us in a differentiated proposition.
You go you see us building out our proposition in cyber and coming back to that looking at the whole value.
Traditional decision intelligence about the transaction before the transaction and what we're now doing with a car type thing as the foundational element. So here. We go in a concept in itself has a setup.
Data that allows us in real time to help a customer 1 of our customers decide.
Chad if this account opening request is a good 1 or a bad 1 is a very high confidence store that customers. Obviously, then interested in working with us on the downstream through the whole value chain of the transaction and other cyber and security solution. All the way to fulfillment again say is that address actually a real address so as somebody that is just.
Sizing and somebody else's name. So that's how we're thinking about it holistically.
And leveraging our footprint in payments.
Crystal I think we have Shawn per 1 final question.
Your next question comes from the line of Bob Napoli with William Blair.
Thank you and good.
Yes, Andrew stole my lead question there, but.
Question on <unk>.
Open banking I think it has been suggested that its performing this initially is performing better than expected. So I was hoping to maybe get a little bit more color on what's working better than expected.
The.
Morning term open banking strategy for Mastercard.
Right.
Great points of open banking.
Horton trend, what we really like is this whole concept of putting power into the hands of the individuals using their own data to get a better choice and services financial services and other services. Eventually so we like that.
Longer.
We've been active in Europe for 3 years now 2 years now we went live in the summer of 2019 over there good momentum you've heard us talk about Tesco and Lloyds in the UK who use.
Set of use cases that are not alive. So.
Happy about that good from print over there and in here at Sunesis.
That was the.
It was a real kick for us closing that transaction in November last year and definitively team first of all they are deep.
Deep in permission API there day did the adventures of the SPX standard so they live and breathe the open banking and that was really critical for us.
As the.
<unk> in the U S. Great incumbent in the market now what is going better than than expectations I see a lot of momentum and engaging with banks. They have best in class data data connections and day.
Had the best footprint in banks, but we are.
Now that as everybody else is looking at that and said that.
Net connect.
Players initiative, but we also see progress on the Fintech side, because this is an ecosystem that works on both sides. So we.
We're excited about that they had an interesting set of solutions today.
That.
Account count verification credit Decisioning assistance and now with the mortgage verification.
We're starting to build out at the same time driving.
On the deal front, we're also expanding the product set by bringing our data together with their data and our tech talent with AD Tech talent. So on every dimension.
Really on around fitness and you were quite happy with what we have.
Great.
<unk>. Thank you I appreciate it.
Alright, good I think that brings us to the end of our time.
I'll give you a summary of the quarter just earlier answer im not just going to repeat that again.
Just wanted to thank you for all your support all throughout.
And.
Looking forward to speaking to you in a quarter from now thank you very much.
Goodbye. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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