Q3 2021 Mastercard Inc Earnings Call
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Good day and thank you for standing by welcome to the Mastercard third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need a press star one and your telephone. Please be advised so today's conference is being recorded if you require.
Any further assistance. Please press star Zero I would now like to him the conference over to speak of today, Mr. Warren Nisha head of Investor Relations. Please go ahead.
Good morning, everyone and thank you for joining us.
Corner of 2021 earnings call.
Me today are Michael Viehbacher, Chief Executive Officer, such a mirror, our Chief Financial Officer.
Fallen comments from Microinstruction upper interval announcer opportunity to get into the queue for Q&A session.
Only then did you.
Questions.
You can access our earnings release supplemental performance data and a slide deck that accompany this call and the Investor Relations section of our website Mastercard Dot com traditionally the release was furnished with you said earlier this morning.
Sense today regarding our financial results won't be on a non-GAAP currency neutral basis, unless otherwise noted with relief Amazon include reconciliations of non-GAAP measures.
Sorted amount.
Finally, a set forth in more detail on our earnings release I would like to remind everyone of today's call will include forward looking statements regarding Mastercard 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 website for 30 days.
That I will now turn the call over to our Chief Executive officer can be but thank.
Thank you Lauren good morning, everyone. So let me start by giving you the highlights of the quarter strong revenue and earnings growth continued with net revenue up 29% and EPS up 48% versus a year ago is always on a non-GAAP currency neutral basis on the same basis quarter. Three net revenues are no 11% above.
Pre COVID-19 levels in 2019.
The scene continued strength in domestic spending and overall cross border volumes are now back in 2019 levels. So they're still remained significant roles for growth equals board of travel.
Continuing to execute against our strategic priorities with good progress on the product and deal fronts. This quarter and we're excited about our acquisition of Cypher trace into Crypto service area and all planned acquisition.
An open banking.
So those are the hi, nice looking at the broader economy domestic spending levels continue to improve even though economies outpacing supply chain constrains rising energy prices and some other inflationary pressures.
According to a corner three spending pulse report, which is based on wall payment types, including cash and checks U S. Retail sales X X gas were up 5% versus a year ago, and 12% versus 2019, reflecting the return to in person shopping Andy ongoing e-commerce strength spend.
Spending house also indicated an overall European retail sales in quarter, three were up 5% and 6% risk versus 2019.
As it relates to Covid, specifically in the outlook continues to get better the case number of generally improving use their projects in the pipeline progress on vaccinations and business is becoming more agile in the face of remaining restrictions.
Also seeing a general trend what the opening of travel corridors, notably inbound into the U S and some easing of restrictions in Asia.
I'm trying to our business, while the pandemic is not fully behind us, but now the growth phase in most markets domestically.
And in many markets and cross border spending as well.
Apple turn the page and move beyond the fall feeds framework that guided us from the last 19 months and focus on managing the business for the growth opportunities ahead of us.
Looking at Must've cut spending trends Smith.
Mitch volumes improved quarter over quarter.
He saw a particular strength in consumer and commercial credit or debit spend remains elevated although it has moderated in recent weeks in part due to waning stimulus benefits.
In terms of how people are spending.
Present volumes continue to improve as people are getting out and shopping mall.
August still seeing sustained strength and card not presence meant.
So regardless of whether people want to shop online or in person all solution support that choice and position as well with the submit in both trends.
Now, let's take a look at a crosswalk overall cross border return to 2019 levels in August driven by improvements in consumer and commercial travel as well as the ongoing strength of cross border card not present spending X travel.
Across board of travel improved from 48% of 2019 levels in the second quarter, 272%. This quarto with substantial upside potential still remaining as and when blood is open.
Against this backdrop, we're investing in the growth of our business, including enhancing ends of Ah needing technology capabilities like expanding our network H.
Directly to the customer through the cloud, providing faster and easier access to products and services.
And of course, we remain focused on our strategic priorities.
A lot rolling out cold products, while driving to shift to digital to differentiating and diversifying without services and three leveraging our multi rail capabilities to offer choice across payment applications.
Oh, let's take them, one by one and torrential how it growing up poor products and driving the shift through digital.
It's a mastercard installments by waiting for deals and by continuing our momentum and the Fintech space.
First let me tell you about a recently announced Mastercard installments are scalable open loop buy now pay later solution.
Mastercard installments as differentiated indebted enables banks lenders syntax and wallets too seamlessly bring buy now pay later solutions to consumers and merchants at.
A scale and in a secure tokenized manner.
With little to no integration submissions are solution avoids the need for lenders to engage merchants one by one to roll this out enables them to deliver more payment options to more consumers Boston.
Our solution brings choice at scale delivered through the Mastercard network.
Consumers will be able to access by now pay later offers so that banks mullah banking up at the point of checkout.
And soon directories from click to pay.
Embedded power fitness city will help them. This was credit decisioning and enable consumers too easily choose different repayment options.
Mastercard installments with power core payments enable us to provide additional value through services.
Such data analytics loyalty and from tools.
We've seen strong interest from players on all sides of the ecosystem and look forward to growing partnerships in this area.
As always we remain focused on continuing to grow share and we've won deals across the globe this quarter.
In the UK the pump.
Being with chase as to prefer debit partner of the new digital retail banks.
In Kenna is extended are exclusive Cobranded, Costco, Canada and in Brazil, you signed the deal with also passed the issue more than 10 million costs to mass transit use us into Sao Paulo area, and along with that open contact us acceptance Acosta subways chains and city buses.
I'm also building are a leading position with syntax and mobile money provide us.
There are a few recent examples.
Paypal has extended its paypal business debit card into a false market in Europe. Paypal will also direct deleverage Mastercard sent the domestic wallet cash outs and Peter P transactions in the U S.
Talking with Vodafone in Egypt across all of their mobile money use cases, including cash outs PDP and bill payment.
Expanded our strategic partnerships with Yandex, and Russia and will be their preferred international partners all of their fintech initiatives.
And Cinque Terre and innovative markets, either that connect us banks and syntax to get constant financial products into the market will leverage our digital first.
City, Mostek, Hudson and cyber security essence.
Now shifting to services.
Our services support and differentiate alcohol products and I've played a critical role in enabling many of the wins I just mentioned.
Yeah of course also diversify our business.
We've had many wins in this area in this quarter, starting with the cyber security space Epica is helping multiple players, including AT&T and mcardle Libra reduced chargebacks through collaboration, thereby creating purchase transparency.
I'm going to Bogota is using artificial intelligence capabilities to improve consumer experiences increase profitability and identify new opportunities.
And in Europe midterm is leveraging new data behavioral biometrics to help thousands of new banks authenticate online transactions.
Data analytics, the tourism agencies in Greece, Hungary, and elsewhere are using services like tourism insights and managed services to gather greater visibility of trends and drive deeper insights to support that tourism campaigns.
And the way.
Hsbc's <unk>, leveraging our testing lung capabilities to innovate experiment and rollout new products for better customer engagement.
I've been having success and the loyalty space with our innovative digital solutions driving winds with pay as like the global fitness chain Aires first in Saudi National Bank.
Now, let's turn to the progress we've made an offering choice to consumers across payment applications with a multi real capabilities intruding open banking.
And crypto.
And open banking, we're happy about our planned exposition of Iowa.
As a leading European open banking player platform expertise strong API connectivity and payment capabilities complement our existing open banking assets we.
We will combine I as European footprint with indices connectivity the U S N R expansion into other markets like Australia.
This will allow us to extend each organizations best in class capabilities, such as credit Decisioning credit, scoring count information services and payment applications across markets.
Talking about the markets, we continue to make progress with our open banking products in Europe plans like into account one of scandinavia's, leading credit card companies and in the U S and the city is working with Ugo twin cable account opening verifications.
Along with future plans to expand into payments.
And <unk>, we continued to eggs on the track business payment service network with key partners like J P. Morgan Chase as well as mentioned acquirers, such as <unk> as the largest acquire a heating processor of <unk> transactions in Canada.
And Friday commercial payments, leading payments technology company and commercial payment solutions in the U S.
We're also adding new functionality to track the T. As in a partner with steamy car to launch a supply chain finance capability Dysfunctionality in palace payment agents to provide their business customers with access to affordable working capital directly through the master contract EPS platform.
And in the UK HSBC will be the first to issue a mastercard track car to account transfer product and innovative <unk> payment solution that allows businesses to use the commercial card program to make payments with any supplier, even if that supply does not accept comp payments again, a true multi rail off.
Right.
And find it in the crypto space, we're making it easier for crypto plans to connect to a network is signed up a number of new crypto wallet providers and exchanges this quota, including but to me noble Pago UK Congo by Zen Dot com coin motion and coin jar.
I will have to program, which is based on principles of engagement.
Consumers to easily by crypto assets with the Mastercard spend their crypto balances webmaster costs excepted cash out their proceeds with master card sent an honourable it's in the form of crypto or even nfc's.
We're also seeing a growing services opportunity in this space earlier this month.
Cypher trace.
Ah security and fraud monitoring companies expertise technology and insights into more than 900 crypto currencies.
Ah recently announced the agreement. This fact also add Tori disbanding crypto services portfolio.
So let me sum this up one more time, we delivered strong revenue earnings growth. This quarter. We're seeing continued strength in domestic spending in most markets and one overall cross board of armies are back in 2019 level. There remained significant room for growth and cross border travel.
We're executing against our strategic priorities with the progress of the product and deal fronts. As you heard of the doing all of that carefully managing our expenses and said for me such an over to you.
Thanks, Michael and good morning, everyone. So turning to page three wood shows our financial performance for the quarter on a currency neutral basis, excluding special items and the impact of gains and losses on our equity investments.
Revenue was up 29%, reflecting the continued execution of our strategy and the ongoing recovery and spending.
Acquisitions contributed three bpd to this group.
Operating expenses increased 23%, including an <unk> increase from acquisitions.
Operating income was up 34% of net income was up 45% most of which include a one BBT decrease related to acquisitions.
Leather net income growth would also have positively impacted by six BBT due to the recognition of higher one time discreet use tax benefits versus a year ago.
EPS was up 48% year over year to $2.37, which includes do sense of dilution related to a recent acquisitions offset by a <unk> contribution from share repurchases.
During the quarter, we repo just $1.6 billion worth of stock and an additional $361 million through October 25th 2021.
So now let's don't debate for where you can see the operational metrics for the third quarter.
Why go solo volume or G. D V increased by 20% year over your on a local currency basis, we're seeing continued strength in both debit and credit.
U S E D V increased by 20% with debit growth of 9% credit growth of 36%.
Outside of the U S volume increased 20% with debit growth of 23% and credit growth of 16%.
To put this in perspective as a percentage of 2019 levels GDP is at 121% up two bpd sequentially with credit at 111% up for Pvp sequentially, and debit add 131% last quarter over quarter.
Cross border volume was up 52% globally for the quarter within grow Europe Cross border volumes up 47% and other cross border volumes up 60%, reflecting good new an improvement in the mapping of the pandemic last year.
In the third quarter cross border volume with 97% of 2019 levels with <unk> Europe at 112% and other cross border volume at 83% of 2019 levels, notably cross border volumes averaged at or above 100% of 2019 levels in the months of.
In September.
During the beige five two.
Which transactions grew 25% year over year in Q3, Edward at 131% of 2019 levels.
Hognut present growth rates remained strong and card present growth continued to improve.
Further growth with Edith and bought by increases in contact list penetration in several regions in.
Q3 contact list transactions represented 48% of inputs and butchers transactions globally up from 45% last quarter.
In addition, God growth was 8% globally. There are 2.9 billion Mastercard Maestro granted cards issued.
Let's do the basics for highlights on a few of the revenue line items again described on a currency neutral basis, unless otherwise noted.
The increase in net revenue of 29% was primarily driven by domestic and cross border a transaction and volume growth as well as strong growth in services, partially offset by higher rebates and incentives as previously mentioned acquisitions contributed approximately three bpd to net revenue growth.
Looking quickly at the individual revenue line items domestic assessments were up 21% while worldwide GDP grew 20%.
Border volume fees increased 59% White cross border volumes increased 52%.
The seven DVT difference is primarily due to favourable mix as higher yielding X inquiry of cross border volumes grew faster than into Europe Cross border volumes this quarter.
Transaction processing fees were up 26% generally in line with switched transaction group of 25%.
Other revenues were up 35%, including attempt DVD contribution from acquisitions. The remaining growth was mostly driven by our cyber on intelligence and data services solutions.
Finally, rebates and incentives were up 34%, reflecting the strong growth in volume the transactions and new and renewed deal activity.
Will be like 87, you can see that on a guarantee neutral basis bloated operating expenses increased 23%, including an APB impact from acquisitions.
Excluding acquisitions operating expenses grew 16%, primarily due to higher personal costs as we invest in a strategic initiatives, including sorry increased spending on advertising and marketing and increased data processing costs.
During debates.
Let's discuss the specific metrics for the first three weeks of October we are seeing good nutrients and growth rates across our operating metrics versus 2020 in part due to the lapping effects related the pandemic that began last year.
To provide you better visibility into current spending levels were once again, showing 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 of the percentage of 2019 for switch volumes through the first three weeks of October the recent trends of continue with overall switched volumes at 134% of 2019 levels up three BBT versus Q3.
The U S. As health study with some moderation in growth from earlier levels due to the Rudolph of stimulus and outside the US we're seeing continued improvement.
Presence, which transactions remained steady and are generally tracking the trends, we're seeing it switched volumes.
Terms of cross border as I noted earlier spending levels as a percentage of 2019, we're back to prevent NAMIC levels. Starting in August that improving credit has continued through the first three weeks of October as we are now at 105% of 2019 levels. This improvement is driven by increases in both the travel.
And non travel cross border volumes.
As it relates to travel we have seen a picking up in all regions, notably within and to Europe, and recently into Canada as well.
Turning to page nine I wanted to share a barn folks looking forward.
First off ideal momentum and service lines could do to position us well for growth and diversify our revenues and we could do to make strong progress against our strategic objectives.
Domestic spending levels remain healthy and we are encouraged by the recent resurgence and international travel we are optimistic about the announced relaxation or border restrictions in places like the us and the UK given that we have seen travel pick up when borders of open in the past.
Further the airlines recently reported increased travel bookings, including long haul travel.
This is context, assuming domestic and cross border spending trends relative to 2019 continue to improve.
We would expect Q for net revenues to grow at a low twenties rate your over your on a currency neutral basis, excluding acquisitions as a reminder, spending recovered progressively in 2020, so we will be facing a more difficult comp of approximately seven PPD in the fourth quarter relative to the third quarter.
It is also important to point out that this is just one potential scenario as a level of uncertainty remains related to the pandemic and therefore the base of recovery may not be linear.
In terms of operating expenses for the fourth quarter, we expect operating expenses to grow at the low end of low double digits versus a year ago on a currency neutral basis, excluding acquisitions.
This reflects a disciplined approach to expense management, while advancing our innovation agenda of across payments services, and promising new Adjacencies and continued investment and bread and product marketing.
With respect to acquisitions. We are pleased to now have closed on the site footrace transaction and we expect acquisitions will contribute about two to three bpd to revenue and <unk> two operating expense growth in queue for this.
This reflects the integration of several acquisitions in the open banking digital identity and royalty payment areas.
Other items to keep in mind foreign exchange is expected to be about a half a BBT headwinds to boot net revenues and operating expenses in queue for.
On the other income and expense line, we are at an expense run rate of approximately $120 million per quarter, given the prevailing interest rates. This excludes gains and losses on our equity investments, which are excluded from a non-GAAP metrics and finally, we expect the tax rate of approximately 18% to 19% for the fourth quarter.
Thanks, and I hope you will be able to participate in our virtual investment community meeting on November 10th we look forward to discussing our future plans with you at that time and with that I'll turn the call back over to work.
Thanks action Jamario, we're now ready for questions.
As a reminder to ask a question you will need to pass star wedding. Your telephone to withdraw your question press the pound key please stand viable we compiled the candy roster.
Our first question will come from the line of least the Ellis from market. Nathan said. Please proceed but their question.
Hi, good morning, Thanks for taking my question.
Yeah. Since you launched Mastercard installments now a few weeks ago can you give some color on what kind of reaction you're seeing from Europe Syntech in bank partners and also are you expecting that some of the specialize b N. P. O providers name elements Mastercard installments, why or why not like what would be the.
That trade off that they would be making sure. Thank you.
Thank you Lisa let.
Let me take that question first so.
Buy now pay later exciting space. So we talked about it for years invested with our own the installment proposition tasting else to banks five six years ago, the partnerships and now as of late Mastercard installments of as <unk>.
You said.
You saw a strong lineup of initial partners Bank partners. Initially that the thought just to remind everybody again here is a proposition that we have built into our network. So this is really delivered with no hassle thought merchants offer lenders.
At the point of sale. So the reaction from banks are strong.
Here in the us that's where our lineup lineup of use partners lending partners was but.
But I spend time on the roads over the last three weeks in Europe and similar conversation.
Emerge there it was just a couple of days after the announcement over in Italy, and thanks for saying Wow that makes a lot of sense is really.
Avoiding significant headache for us and get into a space that we all believe is important from a consumer perspective on the Fintech side.
Tech lenders novel lenders, we mean in with syntax.
Some call them disrupt us we feel these are partnerships, we should enable anybody who wants to come on our network and we're certainly marketing this to ensure that we have the full breadth of what the market has in terms of lending offering that's going to be good for consumers and merchants. So.
Watch this space more to come but I think it's a very compelling proposition.
Thank you.
Alright next question will come from the lineup done Vendetti from Wells Fargo. Please proceed with your question.
Hi, Good morning, Michael was wondering if you could talk a little bit about disintermediation of it seems like investors are more focused started after the square after pay deal can you talk about that and your thoughts on more direct payments out of consumer accounts in the U S.
Right so.
<unk>.
Great question.
Choice and payments has been the same for Mastercard now for I think basically always but some specific day with our investments in the account account space over the last six years. So we see that demand for merchants and from consumers for the consumer I. It makes sense because when you go all your spend until you can see it all on one.
Okay that will be one aspect too why consumers might like that <unk> liked it liked it for choice and they'll hire baskets are more sales. So the interest is clearly that we've been on this journey for awhile and we don't necessarily see this as an disintermediation opportunity I mean, that's certainly something to watch, but we look at it as an opera.
Unity, let me say this could be additional volumes that we've not been involved with this could be what was historically the consumer finance business would be something that was just the direct debit business that we've seen in some European countries and so forth. So.
That's broadly how we look at it we build us a full stack around us that helps to get your money from ADB, but that's just half of the story mommy, probably not even half of the story because it's a whole experienced that really matters you got to have the security what happens if you do a push payment and you want your money back.
Some of those best practices that we've learned over the last decades and cards is what we're intending to build here. So it's interesting to see blogs out there on how account your account might look like we have.
Four years now and pay.
Pay my account in the UK, we've got those learnings.
Ahead of the market's hear very clearly knowing what works for the economic models should look like what the proposition and that where they make a difference for merchants for acquirers, who will be all playing in this space. So I.
I don't see a disintermediation risk I see an opportunity for us to extend our partnerships and gain new flows.
I'll just add onto what Michael just said as it relates to your question around specifically.
The threat of closed loops look we're big believers in the benefits of the open loop system, which we believe is very powerful I mean for the reasons. Michael just mentioned, we bring consumers upscale we've been globally acceptance I mean, we have north of 80 million merchant acceptance point that this is growing rapidly and the cost of acceptance is very competitive and when you dig that alone with what.
Microsoft about around the various technologies and the expertise we bring everything from digital solutions for our solutions looking support processing assets now most recently mascot installment that's a very compelling proposition to go but lupin RVO, which is why we believe that if people wish to scale. The best way to go is open.
Right.
Given best in the business very heavily drive down that path.
Thank you.
Alright next question comes from the lineup, Brian Keane from Deutsche Bank. Please proceed with your question.
Hi, Good morning, I wanted to ask about cross border travel.
V C yesterday, I was talking about cross border travel not getting to 100%.
Percent on the two year until summer of calendar year 23.
Just wanted to get your thoughts on.
When do you think we'll get to reach back to 100 per cent on cross border travel and then secondly, it looks like you guys are running a little bit faster or a little bit ahead of visa number four cross border travel and just wondering at what might be some of the factors that are driving a little stronger demand for you guys. So far.
Thanks.
Sure So Brian.
I'll go ahead and take that the first I know, you're asking specifically about cross border travel, but I just want to kind of put the headline out there with just four cross border azo, but what we have seen very strong growth in Q3 as you have seen and yes travel has been a big component of that specifically travel between Q2 and Q3 has gone from what was 48%.
Of 2019 levels to 72% in Q3 and now in the first three weeks of October is tracking more like at 77% and look what this signals to us very clearly is if people can travel that will travel and I think that's really really important to recognize and then when you overlay that with what's going on in the nature of announce.
Cements around opening our borders we'll specifically the U S is reasonably talked about inbound traveling to the us in fact, I think just a couple of days ago. They laid out the actual details around how people can come into the U S.
You combine that with the fact that Europe has opened up the UK showing good signals of opening up even in Asia, We're starting to see borders between Singapore, and Australia, Singapore and India. These orders are all starting to open up. These are all encouraging signs for US we'll cross border Traveler's standpoint, we remain optimistic on that front, especially given that if those borders open up.
And they come with what would be light burdens from a <unk> standpoint, which is what we're seeing right now.
People have said that they will travel and they have demonstrated that through Q3. So net net yours, but I tell you I think travel is something which people would want to do they're showing that willingness to do it now. It's a question of which are the other countries, which will open up in addition to the borders I've just talked about and you're reflecting you're seeing this is gonna be reflected in the bookings, which.
The airlines are voting as well so we remain optimistic on this front I can't really tell you, specifically, which day, which month.
It's going to reach a to a 100% of 2019 levels, but generally the trend is moving in the right direction.
Right and you are all coming back to to being on the road for for quite a few weeks you start to see also the mix changing while initially this was leisure travel you start to see business travel really kicking in so that gives us another signal that really depends up demand is coming across.
All channels people want to see that customers. They wanted to see the family first of all I want to say that customers, it's happening and just one final point I'll make you remember over the last few quarters, we've talked about how in anticipation for the return of travel we have been investing in bolstering our capabilities from a traveler's standpoint, and we've been doing this actually for many years now but.
Even through the pandemic, we've been winning deals and travel as also our teams have been very focused on the ground in terms of making sure. We're optimizing I've traveled portfolios. The best we can so we're ready to actually jump on those as soon as we start to see this trend come back, which we are seeing now.
Great. Thanks for taking the question.
Sure.
Alright next question will come from the line of George Michalec from Cowan. Please proceed with your question.
Great. Thanks for taking my question guys, maybe dovetailing a little bit onto onto Brian's question I just wanted to focus a little bit on how we should be thinking maybe about rebates and incentives going forward such and should we be thinking this level of sort of similar <unk> four four Q a similar level to three Q and then.
Again, not asking for guidance for next year, obviously, but as you do have cross border revenues coming back strongly and actually eclipsing.
2019 in in aggregate should that sort of put a cap on.
Rebates and incentives as a percentage of revenue meeting should kind.
Kind of be flattish, if not maybe even a little bit down from from 21. Thank you.
Sure. So George W. Things I kind of just pointed out and rebates and incentives I think you know all of this but I'll just kind of stayed here.
Few days revisited centers is very dependent on the timing of deals and how volume. It mixed plays out and good luck to your point around what the mix is between domestic and cross border and how how you model that and bring that in there in queue for we expect rebates and incentives as a percentage of gross to be up sequentially due to increased deal activity. This is putting on.
Oh for us in queue for and that's what you should expect also going into Q4 of this year.
At the end of the day, a lot is going to depend upon like I said, what the mix is going to look like.
We have said in the past that cross border revenues are less indexed from a rebates and incentives standpoints again, depending on mixed between domestic and cross border.
That will inform our paint abuse around where rebates and said this will go on a going forward basis of course, new and renewed deals, which we remain very active in the market on ultra is going to be a contributing factor.
Great. Thank you.
Sure.
Our next question will come from the lineup Tenjin one from J P. Morgan. Please proceed with your question.
Hey, Thanks, so much good morning, guys just wanted to ask on the on the Europe front with the discontinuance of the the 400 million Maestro card that's been in the press here what what are the.
The <unk> implications there from Ah I'm trying to think from a piano perspective as you look to convert at a time when open banking is really hitting up here just trying to better understand that thanks.
Let me start on that and then.
Such and can come in on the P&L side of things. So we've been on this journey.
Strove to debit Mastercard conversion around the world to you heard us talk about this for a number of years.
In Europe.
Really made substantial progress on that front over the years and we felt it would be important to put a stake in the ground and gives assurance to consumers as well as other ecosystem participants banks, so forth banking associations of when we see the end of life for the Master product why are we doing that with doing it because here's the 450.
Consumers, who cannot use a mastercard mastercard online because it doesn't work online debit Mastercard is now in his latest form available in a digital first form you don't even need a physical part any longer that's all if you want to do all you wanted was contact list. It gives you the full breadth of choice. So that is that is why we're doing there.
The timing is right. The reaction was essentially okay. It had to do and sounds a leading European tabloids, we made it onto the front page with that news. It is big news in Europe as you rightly said.
But it is it's just the right thing to do and what we've seen from a performance perspective. It is a more engaging payment tool in your hands and have people use it across all channels and desperately wants a a very encouraged about that and and such and you can look at the piano outside of sure. So contingent both this will not take effect until 2023.
And Michael talked about approximately 400 million Microcards globally again. This is Europe's specific this has been a trend which is currently been underway for some time now and the reality is it's about not issuing new maestro gods existing managerial God's will continue to be an operation. We've been on this migration path. It makes them and then.
It just provides better utility for our products and increasingly digital world. So the reality is kind of view this as a step in the right direction and we've been on this journey will continue down this path.
Alright, and one last aspect here is.
This this what we've learned here over the last couple of years as we're moving the shift from Master debit Master card is how do we use this as an opportunity to not only retain our business that we have on the debit front, but also to expand our business on the debit front. So we don't have any concerns on that front.
Understood. Thanks for the thoughts.
Our next question comes in the lineup Darren Peller with Wolf Research. Please proceed with your question.
Thanks, guys are nice job listen when we look at a couple of quick ones is on and first on inflation and what the impact your business model would be thinking about it from a perspective of how much is obviously basis points volume driven but also where do you see pricing power in your model to change and then second question would be when you think of the structural impacts on up from the pandemic.
Where you are now and thinking ahead of the Investor Day admitted I mean is the long term or medium term growth potential.
Similar different better worse than it was last time, we had an investor to out of curiosity.
Hi, guys.
Sure so down and I'll take your question on inflation. So look I mean, there's been obviously a lot of.
Talk recently about high inflation levels, whether it's permanent whether it's logged on with it. It's just transitionary. The reality is the structure of our business model is quite conducive because of the way we price right. I mean, we've got basis points made but since per transaction as it relates to how we kind of price. So we kind of.
You the following which is to the extent that inflation is Margaret right. We think that all of that to be a positive.
Tailwind kinda go through our business again gradual and moderate inflation is going to be helpful. And the reason I bring that up is any sort of a shock to the economy ie any sort of hyper inflationary event oftentimes comes with drastic measures from an interest rate standpoint, and comes with cost pressures, which come along with that so.
The extended monitored it's moderately kind of positive for our business.
Other thing I would say is it's important to actually see in the basket of goods and services, what all the products and services, which are subject to inflation and what is the amount of electronic application of the floors, which have taken place and relevant to our business. So to the extent that inflation general inflation taking place in.
And categories, which are unrelated to card payments I mean, that's kinda as.
None of it for us to the extent, it's on things, which relate to consumer spending which have been electronified and goes back to my point around in a moderate inflation being amount of positive here.
Alright now down on your second question structural changes are they hit your lines what makes a trend fascinating question I don't Wanna upfront the Investor day, but since you. Since you asked a question I'll give you a couple of highlights on how we're thinking about that.
The first thing is.
It helps to understand psyche of the changing consumer of the small business. So everybody was kind of in the payment space as an end user and we now have 19 months of studies looking at this and the numbers have really not changed.
Somewhere around 70% of people and business are saying more digital banking will be what they will be doing going forward more online shopping is what they will be doing going forward and more contact lists.
The secular trend I was playing in our favor for years has clearly accelerated and if you just look at this quarter's numbers, we talked about sustained e-commerce strength, what in personal shopping is coming back. So behavior is true. These sticking so that is I think that's the most fundamental point that we're seeing.
Coming through the rights to the digital economy, it's on.
And will that also means there's a lot of players want to come in so there's structural changes in the sense of that the competitive playing field is opening up more partners are coming in which forbidden b. Two C player like US is a great opportunity to facilitate the entry of all of these problems. So that's what we're doing and you start to look around and say well.
All who else is looking at this <unk>.
These kind of trends in these kind of development, most notably governments.
Governments are looking at this and they have found that over the last 19 months that payment is indeed national critical infrastructure.
So that comes with government engagement, which is not always necessarily positive, but what we're seeing is is it real drive to modernise payment infrastructure and that is where we are invited to the table. Because we are a true multi rail network and they're saying, Hey, youre locally invested your locally relevant part of let's talk about how do we make this better an hour.
Country. So that is certainly a structural change as in tense and asked early about new payment flows coming in open banking et cetera in Europe. So we're playing on all of those.
Trend going forward. So I think that is what is happening you could you could I could go on for a for a while longer <unk> digitizing supply chains as a drive that.
As in focus we're seeing that.
Data analytics and cyber security, that's the last point I want to make on this.
With Ah right towards a more digital economy is going to be more data that is available more business will seek to use that data and run their business in a better way to find more customers are tests and learn capabilities are data analytics capabilities help on that so again, that's a structural trend is helpful and the same applies for cyber and security mortgage.
Will transactions need to be made safe more people need to be authenticated as they use these tools again that plays into our offerings. So structural changes really driven by COVID-19 accelerating the rates to digital.
Our next question will come from the lineup David Toga from Evercore ISI. Please proceed with your question.
Thank you good morning, what are your expectations over the next year for the pace of European adoption of account to account payments under open banking, especially given the shift online that you've really underscored.
During COVID-19 and in particular I'm wondering if you see straw.
Strong customer authentication, which is really a key to account to account payments in Europe being rolled out broadly enough to really affect let's say broader adoption of account to account payments throughout Europe.
David Let me start on that and maybe such and wants to what's the chime in so.
The journey towards.
Account to account.
Europe I think it's still early days. So if you look at how.
<unk> has rolled out in Europe, starting in September 2019, including the strong customer authentication has been a long journey.
Dates have been moved on multiple occasions to give time to the industry to get this right and get right means that the transfer.
Transaction isn't so secure that nobody can use it any longer so it's a tradeoff between consumer experience and securities actually calm in a balanced way and what we're seeing in an hour engagements in Europe is that balance is starting to be struck.
So we will reach a point where.
Such strong customer authentication in cause as weather than other forms of payments will be actually a reality in Europe. So that's the first thing I want to say when it comes to open banking specifically.
So.
Been over the last two years really a focus on driving connectivity in Europe in terms of getting the open banking ecosystems stood up.
That's exactly why we put out and I'll connectivity product in June 2019 that was the first lead into into the region and we've been quite busy with that use cases emerging on the basis of that really started in 2020. The UK being ahead of continental Europe on that one is still one Europe.
And.
UK is still pushing ahead, you heard us talk about Lloyds on card repayments about our partnership with Tesco. So the payment capability part of of open banking is really leading in the UK and hear our proposition is very well positioned so we started to see that and I see the way is coming over to come.
And Continental Europe as.
Connectivity is now there are acquisition of I-i is perfectly timed here, we expect the closest by the end of the year to not bring an additional one you bring in additional connectivity, but also additional payment capabilities because I do see is is not just a data capability. It's a big data kind of a data play account obligation personal finance management and so forth.
But it's also a payment opportunity.
Thank you very much.
Our next question comes from the lineup Hershey to Robert from Bernstein. Please proceed but their questions.
Hi, Good night and thanks for taking my question My son, I wanted to follow up on your comments in Clifton, Let's see I have made several announcements and including the day.
<unk> <unk> <unk>.
<unk> can you talk about how you see the overall ecosystem resolving what ladies Mastercard can factor <unk>.
Let's go ahead and potentially C B B C.
Okay.
Yes Hershey.
Always an exciting topic and you we could not have.
And earnings call without talking about crypto some happy you brought it up.
Looking at this from a number of perspectives other than that it's there's a lot going on in the space and we are pretty clear on how we want to play in this so the first days, we see significant volumes in terms of people actually investing in crypto and selling crypt also as an asset class there is a lot going on.
And I think we have a role to play to facilitate consumer's wanting to do that if that's.
If that's what they choose to do so these partnership programs on exchanges crypto exchanges and wallet partners and so forth.
Have been quite important for us and that is good from a volume perspective is real activity when it comes to.
Crypto as a payment tools, then we take it somewhat differentiated view on that versus that would just step into that were saying at this point in time, the the most likely chance of.
This kind of technology to work for payments is issued through a government in the form of a central bank digital currency. We've set out on a couple of calls before and we said we will make our network ready to do that as and when our government is ready.
To put out a central bank digital currency and then it will exist alongside the dollar or the euro a settlement currency in our network. So we've done that but that's easily said.
How will the government test that how will our country figure out between the private sector banks and the government's how to do this.
That's why our sandbox comes in so we can provide a safe space for government and private sector bags to figure out how that would actually work questions like the last mile. How do you bring utility into the hand of your citizens. If you put out a central bank digital currency acceptance questions and so forth so facilitating.
Investments as an asset class, we do that and we get renting for CVC should there be a private sector stable coin. We might also do that but we have very strict principles on when to do this and when not now let me talk about seifer transfer moment, because this space is already interesting space in so many ways questions on data privacy question.
And an authentication, we just touched on that in the context of Europe and strong customer authentication you'd have to expect that Europeans will say well strong customer authentication will of course play a role in crypto transactions as well, which is where we always need the security and trust I mean that is really is synonymous with the name of Mastercard when it comes to.
<unk> said, we have to do the same at all so smashed the services opportunity Cypher Chase 900 crypto currency.
Yes.
What affected actually do they drive compliance and AML checks into.
It'll transactions.
Can't run fast enough right now to get into the space because a lot of other people are deep into crypto and these questions are not resolved so.
Asset class Cvc's and our services opportunity those are the three ways that we feel we want to play and we need to play and where have the differentiated assets to do so.
Thanks Man.
Our next question comes from the lineup Dandala from Monsieur Hope. Please proceed but their question.
Hey, Thanks for taking my question.
Hello So.
So.
How do you know the new offering Buddy plan with the choir.
Any of that.
Disruption there in fact, Mastercard and the networks in general what is the kind of general strategy around it.
We're getting a lot of code on this topic. Thank you.
Dan So I think I touched a little bit on on an earlier question that we had.
On this topic so.
Yeah.
So here's a log posted describes account to the account we have accounted account technology really since the acquisition of Vocalink.
And we we've learned how that works we like it because it's an additional choice that is provided to consumers into merchants, but we also have all the learnings and the learning still around like how do you create acceptance into that how do you make it easy for a merchant how do you actually convinced the consumer that actually likes the card proposition.
And so all of that.
It is about standing up an ecosystem so.
Well, we believe is there should be something that is built into our network into a multi rail capabilities and that's actually how the approaching it.
So.
We're leaning into this I don't see it as a disruption that that's been our stated strategy and we have five years of learning and I think that puts US ahead of the curve to make this a reality I think this is a interesting alternatives when it comes to consumer payments in store.
And we have it we build it.
It is for us to really figure out whether the economic settle what other capabilities that currently built into a card franchise can we extend into the.
The world of account to account payments for example.
Charge backs.
Those kind of data protection and so forth. So that's the direction that we're taking.
Not really a disintermediation question, an interesting blog and good things we've done it in reality and out down just add to that just we've got to remember right. There is a sizeable time out there and a fair amount of that time is likely not going to be able to be reached by card products. This is where our multi rail.
Philosophy and strategy as well as our ability to provide choice of prosperity, Israel's one of which would be an open balcony rail used for payment services. That's very helpful. Because it helps open up the Tam, which is available to us from what used to be primarily car focus too much more of the current focus and we do see that opportunity come through your normal banking as well so.
Our next question comes from the line of Bob Napoli from William Blair. Please proceed with your question.
Thank you and good morning, a follow up on on the cross border business, obviously very important business for.
For Mastercard, it's as you look at that business and as we get to full recovery do you think that the the economics of that business will be similar to what they were prior to the pandemic ultimate is the AD. The continued development of blockchain and other technologies.
Or count to account does that bowing to pressure the economics of that that business.
Sure why not take that so look I mean, the value brought we used to deliver to cross border payments on a crowded products Prepandemic will spend that makes it exactly the same so we don't expect that the economic redone, but which they will generate should be any different given that the value. We delivered previously if anything has only.
Gotten better over over a period of time with more electronification of of low is taking place GTO point around.
Other.
The counter count capabilities, which are there in the cross borders based reality is we're participating them today, but it happened to be going after flows which are not guarded clothes, they're not going to sealed flows there happened to be more in the nature of our business to business payments, we do that with our you'll remember we had quite a company called Transfast. In addition to the fact that we have are capable.
<unk> from homes and the combined capability of that is across borders and capabilities, which is Ah Calgon cross border payments and.
Just wait on those clothes, but those are separate and distinct from what goes on at the point of sale with a bar products. Today. So net net I kind of view the whole cross border space as a positive.
For us as I'm Gonna travel comes back from a card standpoint, and in the meantime, we couldn't new actually planned flags in different parts of the world with the reach we've established on our VW flows from across borders standpoint.
Great. Thank you appreciate it.
Sure.
Our next question comes in the line of tastes and Pepperberg from Bank of America. Please proceed with your question.
Yeah. Good morning, guys Uhm, a follow up on cross border I guess in the third quarter the volume growth Accenture Europe.
With 60% it was again, a very very good proxy for the overall cross border revenue growth in the quarters for now if we just look at October month to date trends.
If those hold hypothetically through the rest of Q4, it would seem like cross border revenue growth could again be around 60% this quarter.
And arguably that would be even before much most of the potential benefits of B U S. Reopening <unk>. So it's all about a fair characterization of the other moving parts would you be should we be aware of that can you just comment I'm, which cross border carders are the highest yielding in your system.
Yeah, So I think.
The answer to the first part of your question I think upended touched upon in the second part of your question, which talked about how revenues are realized on cross borders very much a function even in that extra an inquiry Europe kind of you know.
The.
Category.
Been on every corridor every quarters bug.
<unk>.
You will then depending on which ones come back blows, which was coming back after the numbers from across border revenue standpoint will kind of move around as it relates to work. We are seeing it look I mean, I'll tell Ya prepandemic important orders for Mastercard Intuited, obviously, the U S to Canada the us the UK.
The UK to various parts in Continental Europe. These are all very important corridors, we've seen info Europe come back pretty nicely. The U S. In boned is still to happen I mean, there's a little bit of happening, but there's more to come as borders open Canada is starting to open up as you know get it opened up in the third quarter we've seen.
Signs of recovery take place in terms of inbound into Canada as well and these are important borders for for our business.
One area, which I will say is still a little bit to kind of.
Yet to be seen as Asia Pacific right in Asia Pacific recovery, and cross borders still been kinda somewhat muted, we'll see how borders open up there and what that kind of shapes up to be but net gear as we're actually going to yield standpoint enjoy your low yielding X endre or a high yielding and the X enjoy your bucket deals.
Very bye bye corridors.
Jamario I think we have time for one last question.
Alright next question will come from Sanjay sack, Ronnie from K B W. Please proceed but their question.
Space Good morning.
Michael mentioned, the waning impact of the us stimulus and we've seen the U S volume sort of stabilized here in terms of the growth.
I'm just curious how you guys feel about it.
Other side, which is credited rebounding and just thinking through the economic impact as lending comes back lending related volumes come back. Thanks.
Yeah, Let me just start on the rebound of credit back to changing and how people spend status the more in person and well armed personnel certainly includes T. Any discretionary those are all use cases that are very much oriented towards credit. So that is what is driving that.
The impact of stimulus on the debit side, we still see an elevated use of sustained use of debit going forward. So it's it's not a zero sum game, yet again, it's balancing out in a way. It had one is coming back and the other remains elevated but it comes down to the size of the available a wallet that consumers have uhm.
You have any other thoughts on that.
It's interesting if you take us back to a couple of quarters ago, maybe three or four quarters ago.
We talked about the same question as to what our views around credit and debit mix is going to look like and we are going to maintain that we think that there will be a delusion to the mean as economies come back and as discretionary spending picks up and that's exactly what you're seeing right now right. I mean, there's people are spending more discretionary categories lodging travel restaurants.
Credit is definitely coming right back to topic wallet and and we expect that as the economy continues to recover in different parts of the globe that devotion Denin will continue.
And that's kind of you as it relates to how how credit plays out.
Over over the near to medium term.
Alrighty good thanks, everybody. Thank you for your questions.
We're going to close the call now I hope to see you at the Investor community meeting.
Generally on these calls is not only the analyst community listening the Investor community is also our staff. So I want to thank our staff for everything they have done through this quarter again, it feels like a bit of like a marathon as we turn out of Covid.
See you at the ICM. Please do to tune in thank you very much everybody bye bye.
This concludes today's carpets cool. Thank you for participating you may now disconnect.
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