Q4 2021 Mastercard Inc Earnings Call
Yeah.
Good day, and thank you for standing by and welcome to the match fourth quarter 2021 and full year.
Mastercard 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 to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand.
The conference over to your Speaker today, Mr. Warren Nisha head of Investor Relations. Please go ahead.
Thank you Joe Good morning, everyone and thank you for joining us for our fourth quarter 2021 earnings call with me today are Michael <unk>, Our Chief Executive Officer, and Sachin Mehra, Our Chief Financial Officer, following comments from Michael and Sachin the operator will announce your opportunity to get into the queue for the Q&A session. It is only been.
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 Dot com. Additionally, the release was furnished with the SEC earlier. This morning, our comments today regarding our financial results will be on a non-GAAP currency neutral basis unless other.
Noted.
The release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts finally as set forth in more detail in our earnings release I'd 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.
Replay of this call will be posted on our website for 30 days with that ill now turn the call over to our Chief Executive Officer Michael.
Thank you Lauren good morning, everyone from New York, and starting off with the key highlights for the quarter.
<unk> strong revenue and earnings growth as we saw further improvement in our underlying operating metrics.
Net revenues were up 28% and EPS up 46% versus a year ago on a non-GAAP currency neutral basis on the same basis quarter four net revenues on 19% above pre COVID-19 levels in 2019.
So with that let's take a look at the macroeconomics trumps the outlook remains positive. Despite the recent supply chain constraints due to political uncertainties and inflationary pressures.
Although there has been a recent surge in Covid cases, theyre signs that these may be peaking by each of these areas merit monitoring underlying spending trends remained strong as consumers businesses and governments have become more adaptable to a changing environment.
In the U S economic growth remained solid with low unemployment and healthy consumer confidence.
According to a quantify Spendingpulse report, which as always is based on all payment types, including cash and check that's retail sales ex auto ex gas were up six 4% versus a year ago and up 10, 9% versus 2019.
And Europe GDP growth has been strong although recently impacted by mobility restrictions as the impact of the omicron variant reduces we expect economic growth to pick up in the coming quarters in large part thanks to considerable pent up demand from the past year.
Many parts shows that overall European retail sales in quarter, four up three 3% versus a year ago, and one 3% versus 2019.
In Asia Pacific vaccination rates continue to improve and we expect economic recovery to pick up pace as both governments and businesses ramp up investment.
The travel recovery in Asia Pacific has lagged that of the rest of the world and has significant growth potential.
The growth in Latin America is expected to moderate a bit falling to rebound in 2021.
As it relates to Covid, specifically the early signs that the AMA concern will be relatively short list. The reality is that the tools, we have to deal with the pandemic are more advanced than ever.
60% of the world's population is not at least partially vaccinated effector therapeutics are becoming available and governments are using more targeted measures to limit the spread more bonus of open and have stayed open. Despite the recent variant.
Although we've always set the path forward will not be linear there are signs we are moving towards endemic phase of the disease.
Looking at Master card spending trends switched volume girls continued to improve quarter over quarter, both consumer credit and debit continued to grow well.
Turning to cross border.
The recovery has continued with overall quota for cross border levels now higher than those in 2019, our support of travel continued to show improvement relative to quarter three levels aided by border openings in the U S U K and Canada.
On Omnicom has had some recent impact on cross border travel we continue to believe that cross border travel will return to 2019 levels by the end of this year.
Cross border card not present spending ex travel continued to hold up well in the quarter.
So overall the spending trends are moving the right direction with some near term travel related headwinds as a result of this area.
Now turning to our business highlights.
And outlined at our investment community meeting in November we remained focused on our grow diversify build strategy in our three strategic priorities, which are expanding and payments extending our services and embracing new networks.
Here's an update on how we're progressing against each of those priorities.
First we're expanding and payments are growing person to merchant payments scaling across other payment flows and leaning into innovation and new payment technologies.
In aggregate these targeted slows represent.
115 trillion in opportunity.
First of all we're driving growth in person to merchant payments through new wins across the globe and the U S. I'm excited to announce that we're partnering with chase and instant caught the leading online grocery platform in North America on a new instant can't Master card co brand program.
This partnership marks an additional co brand win with Chase quickie. Following the recent launch of the Chase Aeroplan World Elite Mastercard.
In addition, with first Interstate's banks planned acquisition of Great Western Bank, we will slip great western consumer debit credit and commercial portfolios to Mastercard.
And I'm happy to note that the consumer credit portfolio of Merrick Spank over 3 million customers will transition to Mastercard beginning in the second quarter Bank Bank plans to leverage several Mastercard solutions, including our fraud prevention consulting open banking and loyalty services.
Oh in the Netherlands, we've renewed our partnership with Rabobank, which includes the migration of 8 million My Astro cards to debit Mastercard and.
We signed an exclusive deal with Westpac in Australia for the new banking as a service platform. This platform will allow new players to leverage Westpac's banking capabilities. After pay the first partner on the platform will connect debit mastercards so their money by after pay App.
And in the U K the net west debit migration is progressing to plan is in the early stages of consumer rollout.
We're also expanding in payments by capturing new payment flows, including commercial need to be to be accounts payable bill pay and cross border Remittances for example in the commercial space. We've expanded our relationship with bank of America that will be the lead brand a new commercial card issuance.
We've also renewed and expanded our relationship with works, including the chosen chosen as their strategic partner and adding open loop functionality to the millions of close loop feed costs.
The accounts payable we continued scale Mastercard track as works BMO be OK financial malleable and deluxe will connect to the platform.
We also launched the launch we also announced the launch of Mastercard track instant pay which uses machine learning to analyze and initiate automatic virtual card payments streamlining processes for buyers and improving cash flow for suppliers.
And we're driving new B to B acceptance through our global partnership with boost payment solutions with an initial focus on expanding the use of commercial card and seven key markets.
We addressing new payment flows and consumer bill payments as well.
We recently announced the acquisition of our coast to help deliver bill pay solutions in other real time payment applications in Latin America ARCUS enabled digital payments for the majority of household bills in Mexico, and its connections with banks Fintech and digital wallet providers across the region.
And finally, we continued to capture new flows in cross border remittances. This quarter, we established a partnership with Travelex in Brazil will use master cards Cross border services sent P to P transferred to the U S and Europe .
For domestic disbursements in the U S. We partnered with Fintech processor top pay to make master Hudson easily available and texts and merchants across multiple use cases.
Now shifting gear, but also expanding in payments by leaning into payment innovation in areas like installments contactless acceptance and crypto currencies here are a few examples.
Our open loop Mastercard installments program that we announced last quarter has been very well received the U S launches on schedule for quarter one.
And we're actively bringing new partners into the program as we announced in Middle East Africa earlier. This week watch this space.
Now, we're making great progress in expanding contactless acceptance by training the world's billions of active smartphones into potential acceptance devices, enabling people to buy and sell whenever wherever they want we now have 100 deployments of tackling foam in over 50 markets with leading partners globally.
Contactless penetration increased two one and two of our in person switch transactions globally. This quarter. This is up from approximately one in three prior to the pandemic and with that the potential for accelerated acceptance growths financial inclusion and consumer convenience is substantial.
We're also bringing capabilities experience and reach to help enable the crypto ecosystem.
Our new collaboration with Coinbase will allow consumers to use the master Costa purchase and if Ts try that myself I'll walk with consensus will make it easier for software developers to increase the scale efficiency and speed of transactions on the Syrian and permission blockchain.
And our CVC Sandbox test platform, which we launched in 2020 continues to gain traction with central banks financial institutions, and Fintech simulating issuance and distribution of the C. V. D C. Along with the integration of CVD DS with our card network, our real time payment modules and native blockchain walnuts.
Now shifting to services, our services support and differentiate our core products and have played a critical role in evening. Many of notes I just mentioned.
We grew services revenue at 25% in 2021 on a currency neutral basis.
We will continue to extend our services capabilities to enhance the value of payments made in further accelerating our growth by expanding into new areas and new use cases, particularly through our data and services and save cyber intelligence propositions again, a few examples for you.
In December we announced an agreement to acquire dynamic yield from Mcdonalds.
Dynamic yield uses enhanced AI to deliver customized product recommendations offers and content to consumers their customer set includes over 400 global brands ranging from financial services companies like synchrony, so retailers like lens and when combined with session Ms loyalty platform in our test and learn X.
Fermentation software, we will be able to offer a unified consumer engagement and loyalty hub to our customers.
It also is a great example of a company who is using all three of these platforms today with plans to further scale and integrate dynamic yields capabilities globally.
In addition, our ethicon platform continues to experience strong traction in preventing unnecessary charge backs a real pain point, we added new consumer customers in every region in 2021 for ethical recently relaunched ethic of consumer clarity, which gives consumers detailed information about purchases under our mobile banking App solution is live.
With issuers across the U S U K and several European markets, including Otp Bank Central Corporative Bank and Paybox Bank.
Now beyond expanding in payments and extending and services, our third strategic priority areas embracing Netflix specifically, we are leveraging our expertise in payments to build out new networks with a current focus on open banking and digital identity.
On the open banking front, we have closed the acquisition of IR in November which brings strong API connectivity to over 2007 hundred banks across Europe .
Combined with Tonicity, North America connection, which cover more than 95% of deposit accounts in the U S market Master card has an unparalleled footprint into keep open banking regions upon which we are building solutions to solve for a wide range of use cases. One example is in the mortgage verification space Refinish city of signed deals with several.
New partners, including loan depot.
And as the digital identity space, we're helping our customers with fast frictionless identity verification services and contest performed strongly over the last quarter spanning through strategic partnerships with companies such as ZIP and equifax as well as growing its global footprint with heating trough providers tongue done in Airclic in Asia Pacific.
Combined open banking and digital identity extend our value before and after the payment transaction is a large attractive and growing opportunities and we are uniquely positioned to be a leader in both.
So in summary, we delivered strong revenue and earnings growth this quarter. The macroeconomic outlook remains positive with a few areas that we're monitoring and we're executing against our three strategic priorities spanning at payments, sending out services and embracing new networks and all that with substantial progress on the product and deal front this quarter.
Uh huh.
Now switching over to you and the numbers. Thanks, Michael So turning to page three which 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.
Net revenue was up 28%, reflecting the continued execution of our strategy and the ongoing recovery in spending acquisitions contributed three ppt to this growth.
Operating expenses increased 19%, including a seven seven ppt increase from acquisitions operating income was up 37%, which includes a one ppt decrease related to acquisitions that.
Net income was up 44%, which includes no impact from acquisitions as the impact of acquisitions on operating income was offset by a one time acquisition related tax benefit.
P. S was up 46% year over year to $2 35, which includes a four cent contribution from share repurchases.
During the quarter, we repurchased $1 3 billion worth of stock and an additional $528 million through January 'twenty four 2022 .
So, let's turn to page four where you can see the operational metrics for the fourth quarter worldwide gross dollar volume or <unk> increased by 23% year over year on a local currency visas.
We are seeing continued strength in debit and credit U S. G. D V increased by 23% with debit growth up 15% in credit growth of 34%.
Outside of the U S volume increased 23% with debit growth up 25% and credit growth of 20%.
To put this in perspective as a percentage of 2019 levels G. D. D is at 125% up four points quarter over quarter with credit at 116% five points sequentially and debate at 134% up three points sequentially.
Cross border volume was up 53% globally for the quarter with intra Europe cross border volumes up 45% and other cross border volumes up 63%, reflecting continued improvement in travel related cross border at several borders opened during the fourth quarter.
Integrals Guaco cross border volume was up one 9% of 2019 levels with intra Europe at 122% and other cross border volume at 98% of 2019 levels.
Turning to page five switched transactions grew 27% year over year in Q4, and we're at 132% of 2019 levels cockpit.
Cochran group continued to improve what Gardner president growth rates remained strong.
Card present growth was aided in part by increases in contactless penetration in several regions. In addition card growth was 9% globally. There are 3 billion Mastercard and maestro branded cards issued.
Now, let's turn to page six for highlights on a few of the revenue line items again described on a currency neutral basis, unless otherwise noted the.
The increase in net revenue of 28% 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 three ppt to net revenue growth.
Looking quickly at the individual revenue line items domestic assessments were up 24% while worldwide GDP grew 23% cross.
Cross border volume fees increased 61% when cross border volumes increased 53%. The eight ppt difference is primarily due to favorable mix as higher yielding ex intra Europe cross border volumes grew faster than intra Europe cross border volumes this quarter.
Transaction processing fees were up 28% generally in line with switched transaction growth of 27% other.
Other revenues were up 30%, including a 90 ppt contribution from acquisitions. The remaining growth was mostly delivered by our cyber and intelligence and data and services solutions.
Finally, rebates and incentives were up 38% in line with our expectations, reflecting the strong growth in volumes and transactions and new internal deal activity.
Moving onto page seven you can see that on a currency neutral basis total operating expenses increased 19%, including seven ppt impact from acquisitions.
Excluding acquisitions operating expenses grew 12%, primarily due to increased spending on advertising and marketing higher personnel costs to support the continued investment in our strategic initiatives and increased data processing costs.
Turning now to page eight let's discuss the specific metrics for the first three weeks of January .
First as a point of process, we continue to provide volume and transaction metrics, both on a year over year and as a percentage of 2019 basis. However, it is important to note that as we turned the calendar and move into 'twenty 'twenty. Two the index verses 2019 metric now looks back three years and therefore.
It includes a compounding improvement relative to the 2021 index metric.
This is a bony impact must be taken into consideration when considering the sequential trend from Q4 to January .
So at the highest level omicron has had a minimal impact on overall switched volumes and transactions, but as far as some moderation on cross border travel.
Going through the metrics and tone, starting with switched volumes through the first three weeks of January we are now at 149% of 2019 levels up 13 points versus Q4.
This increase is primarily driven by the compounding effect I just referred to.
After adjusting for this compounding effect switch volumes are tracking similarly to what we saw in Q4.
The underlying trends in switched transactions adjusted for the compounding effect are generally tracking the trends we are seeing in switched volumes.
In terms of cross border volume growth as I mentioned earlier spending levels as a percentage of 2019 in Q4 and now about pre pandemic levels, the omicron Berry, which hit partway through December impacted the strong cross border travel momentum we saw in November that impact that carried over into January .
This has been partially offset by an increase in cross border Gardner President ex travel.
Overall cross border volume through the first three weeks of January is now at 116% of 2019 levels up seven points versus Q4.
In this case the compounding effect is partially offset by the impact of the omicron virus on cross border travel in January .
Turning to page nine I wanted to share our thoughts on the upcoming year. While there is some uncertainty related to dawn withdrawn and potential future variance our overall expectations for 2022 are positive.
The macroeconomic outlook is for continued growth and domestic spending levels have held up well. Despite the recent surge in cases.
The recovery in cross border travel was progressing well prior to omicron and we expect the recovery in cross border travel to resume episodes passes as Michael just noted the tools available to deal with the pandemic have improved with time and although the path forward may not be linear that our science, we are moving towards the endemic phase of this disease.
Many countries are relaxed the border restrictions and we continue to expect cross border travel to recover to 2019 levels by the end of 2022.
A recent deal wins travel oriented portfolios and diversified set of services position us extremely well to capitalize on these trends.
Turning to our expectations for the full year 2022 our base case scenario is for net revenues to grow at the high end of a high teens rate on a currency neutral basis, excluding acquisitions.
Acquisitions are forecasted to add about one ppt to this growth while foreign exchange is expected to be a headwind of one to two ppt for the year, primarily due to the strengthening of the U S dollar relative to the euro.
In terms of operating expenses, we continue to carefully manage our spending as we invest in our payment services and new network priorities to drive short and long term growth.
For the year, we expect operating expenses to grow at the low end of a low double digit rate on a currency neutral basis, excluding acquisitions and special items.
Acquisitions are forecast to add about four to five ppt to this growth while foreign exchange is expected to be a tailwind of approximately one ppt for the year.
Turning now to the first quarter.
Year over year net revenue growth is expected to be at the high end of a high teens rate again on a currency neutral basis. Excluding acquisitions. This reflects some sequential improvement in cross border travel spending trends within the quarter relevant for 2019 as the impact from omicron starts to recede as the quarter progresses.
Acquisitions are forecast to add about two ppt to this growth while foreign exchange is expected to be a headwind of two to three ppt for the quarter.
From an operating expense standpoint, we expect Q1 operating expense growth to be at the high end of high single digit rate versus a year ago on a currency neutral basis, excluding acquisitions and special items acquisitions are forecast to add about six ppt to this growth while foreign exchange is expected to be a tailwind of approximately one ppt for them.
Water.
As a reminder, we discretely disclosed the impact of acquisitions for the urine, which they close and the subsequent year after which time, we do not split them out for instance finish.
Chronicity, which closed in November of 2020 does now folded into the base. We are pleased to have closed.
The acquisitions of both ire in August and November and anticipate closing the pending acquisition of dynamic yield in the first half of 2022 .
Other items to keep in mind.
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 and debt levels.
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% for the year based on the current geographic mix of our business.
With that as a backdrop and turning now to slide 10, I would like to update you on our three year performance objectives for the 2022 'twenty 'twenty four period that we first introduced in November at our investment community meeting.
The bottom line is that there is no change, although our jumping off point for earnings is slightly higher due to our Q4 2021 over performance as a reminder, these objectives are on a currency neutral basis exclude special items gains and losses on equity investments and acquisitions closed after 2021 .
Using 2021 adobe's over the 2022 'twenty 'twenty 4 billion, we expect to deliver a net revenue compound annual growth rate in the high teens.
This assumes an annual carded market volume growth rate of 10% to 11% cross border travel and returning to 2019 levels by the end of 2020 tool and growing our services revenues at a 20% plus CAGR from.
From an operating margin perspective, we will continue to operate with the philosophy of delivering a minimum annual operating margin of 50% having said this I would like to emphasize that we continue to believe that it is important for us to invest with a bolt on growth.
Delivering positive operating leverage and we couldn't get to exit acute but this philosophy in mind and finally, we expect to deliver an EPS CAGR in the low twenties range on a currency neutral basis, excluding the impact of special items gains and losses on equity investments and future acquisitions and with that I will turn the call back over to ward.
Thank you Sachin Jamire, we're now ready for the question and answer session.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question will come from Reena Kumar with UBS.
Good morning, Thanks for taking my question.
So with cross funding now pre pandemic levels are you anticipating any pent up demand and travel spend in your financial guidance, particularly as we get to the travel months in the summer.
Hi, Ryan This is Michael let me kick this off.
So as I said in my remarks earlier, we do see pent up demand, we see in pent up demand in la in the last year and the year before and it continues.
We'll want to travel or get out whenever they can and it has been proven again and again. So there is an assumption there and we've been pretty vocal about that that we do continue to believe that cross border travel will return to pre pandemic levels by the end of the year.
Sasha.
Michael you've pretty much covered it so the only thing I'd just add as you know we just need to go back to 2021, where we saw that when people had the ability to travel they expressed their intent to travel and we do believe that the impact of on the ground is going to be short lived and as borders start to relax a little bit more and people get a little bit more comfortable around us.
We'll get out there and express their the demand for travel back to what Michael the chassis and in fact, I'm heading to Europe Tonight, So Diego.
Great. Thank you.
Thanks. Your next question will come from Hershey to Robert <unk> with Bernstein.
Good morning, Thank you for taking my question.
Michael I wanted to ask about.
Looks like it will be.
<unk>.
Domestic RTP system in many countries as he said payments other than consumer business, but then you think that.
Like the ones in India. The GCI, that's useful if he can't payments, how do you see that playing out with her.
How can you participate in.
So the service with any of those metrics.
Thank you.
Alright, thank you'll actually done so fed now we'll have to see when it actually comes live.
But broadly speaking if we go with our experience in other countries.
We believe there is in real time payments is a real alternative alternative payment solutions, there's demand by governments that demand by businesses and consumers.
The 200 to two standard allow us to carry more data out there is all sorts of reasons why this might make sense.
To your question on hop participation looks like what we just bought vocally in 2016, I promise I won't take you back five years now, but that was a conscious decision realizing exactly what I, just said and we want to play and we have to have those alternatives. If I look at from a use case perspective. There is some use cases, where cards. It's just simply an excellent answer.
Today, it's a ecosystem drives huge value and you know there is yes, there might be alternative, but we continue to invest in that and focus on that at the same time, there's a whole range of use cases, where it real time payments account to account makes a lot more sense.
Then basic ACTH or cash and that is there's a displacement opportunity that we certainly want to engage in cross border remittances are bill pay and the likes I think where our participation and our differentiation comes in is we have tools across the whole gamut of payment solutions, that's our multi rail strat.
<unk>.
We have advanced this quite significantly over the last couple of years to true multi rail solutions not like that we have won and the other in parallel. It's one single solution. If you look at Mastercard track that's exactly what it is you can pay any which way through it.
Any which way you liked through Mastercard track, but the payment optimization to security the pricing the predictability of the Mastercard. Good is all the same across all of these options. So I.
I see it as a fundamental opportunity to participate in new flows rather than anything else.
Thank you.
Your next question will come from Darrin Peller with Wolfe research.
Thanks, guys you know Michael when we when we think about the parts of your business that are outperforming partly because of the pandemic for part of that given where we are just in the acceleration on spending on electronic payments can you just walk through that in terms of what kind of sustainability you see to the parts of the business.
Sustainable upside now in other words debit volumes now probably bigger than you would have otherwise thought it would be services is another piece, that's probably higher than it otherwise could have been.
Sustainable and then maybe remind us of the parts of the business. Besides just cross border that can catch up as we see the recovery again. Thanks.
Thanks, guys.
Alright, Thanks, Dan So I'll start that off and then maybe Ken can kick in so first of all.
The secular shift to getting a real push out of Covid, I mean, where we had to spend online and when they look at that I think that is a fundamental structural trend more online commerce more online banking more online and everything and you know what has really come out over the last two years that this is a lasting trend so.
Every bit of consumer research that we do market research that we do people will say I.
I learnt to like it so I'm going to continue to do that so I think that is an accelerated growth opportunity and you know that's a big assumption in off a three year long term guidance that we gave that we continue to believe that the race towards a more digital economy will be caused us driver for us so sustainable growth driver, you'll see it come through and how.
We build out acceptance, 19% acceptance growth. So we continue to find pockets and opportunities in flows in segments that are just not penetrated with those solutions yet and so.
So I see the underlying secular growth I see us show up in more places I mean I use the term I think at the Investor day leave no white space. So that is why.
Expanding in payments is a pillar pillar one of our strategy you pointed to services now services in a world that is more digital that throws off more data.
In a more digital world a lot more people need to be safe in that digital world. So ours.
C&I services, our security services solutions.
We basically we cant run fast enough that has been outperforming I gave you the growth rate for 2021 and services at 25% Yeah. That's for sure an elevated growth rate and we continue to see that.
Very very positive on data and analytics more data more people, what we wanted to do something with the data Merchantville understand now that they have more and more merchants are entering into the digital space. How did they find customers an easy way how to retain customers. That's very dynamic yield comes in a perfect tool to really make more of that.
And then all of that data in the end.
Will fuel the world of open banking, which is part of a whole new network strategy is essential and of course, the need for digital identity solution. So all of that is sustainable.
The catch up opportunity back to your question is for sure travel is travel and domestic travel has been leading leisure travel has been leading cross border travel and corporate travel over different cars over time, Theres significant catch up opportunity for us. So I think those are the headlines.
Thanks, guys.
Your next question will come from Lisa Ellis with Moffett Nathanson.
Hey, good morning, guys.
I was hoping to ask about net yields just looking back pre pandemic.
Mastercard net yields were steadily increasing about half a basis corner basically here, but then over the last two years have dropped.
First in 2020, then again somewhat over in 'twenty 'twenty. One can you just help parse for us a bit how much of the pressure on yields recently due to cross border travel weakness versus perhaps competitive pressure or something like that and kind of what gives you confidence one versus the other.
And I guess looking out into 2022 are you now expecting yields to move back the other direction. Thank you.
Sure Lisa I'll take that question. So look I think the short answer. Your question is the vast majority of what you've seen in terms of net yields has been driven by the changing mix of the business over the pandemic, primarily cross border volumes coming down and the impact of that as you know cross border volumes and revenues our lesson.
Next from a rebates and incentive standpoint, so you'll have the impact of that playing through I would say fundamentally we've always operated in a competitive environment. We've seen no real change in the level of competition relative to what we've seen over the past few years. So you know candidly I would tell you our assumption going into our planning.
Michael then going into 2022 as well as over our three year performance objectives has been one of the impact of having minimal net pricing, which is net of rebates and incentives and we still can be believe that could be the case that was very much. The case, a couple of years ago as well so.
The point really is a lot of what youre seeing on the net revenue yield is being driven by the changing mix primarily cross border services continues to do really well and has been accretive to our yield in the past and we expect that given the opportunity in services that will be the case going forward as well.
Terrific. Thank you.
Your next question will come from Sanjay Suck Ronny with K B W.
Thanks, Good morning.
Another follow up question on the cross border.
I guess, when we think about omicron I know, there's been a small impact but I'm just curious if there's any learnings from it do you feel like the resiliency of the consumer and obviously the tools that we have put us in a better position than where we were maybe when you guys provided your expectations understanding your expectations haven't changed.
And then I'm just curious as we've seen the U S inbound travel.
Improve were there any learnings from that thanks.
Alright, Sanjay I'll kick that off so clearly that there had been learnings and that had been learnings across the whole industry.
You probably you may have followed some of the airlines during the earnings season.
This whole thought about that the.
The time period between a surge of case surge and how bookings are coming back is narrowing. So the first the first learning is that consumers just become more adaptable I said that earlier, it's not just consumers actually businesses consumers and governments.
Now governments have also learned and governments have learned in terms of how broad based.
Social distancing measures and quarantine rules and the likes are and Ted Yeah. Those are much more targeted these days as I said more burda stayed open when the U S open in November .
Search searches were going on in Europe , and there are no.
Entry hurdles at this point.
Evelyn to Europe days already there's no hurdle at all it's just pretty easy to get back so.
I think.
The combination of vaccination rates going up learnings and governments and so far it makes it a much more benign mix to deal with whatever might be coming there.
So that is a significant assumption that we took as we looked at the rest of the year.
You also see that.
Yeah more more routes are being opened more people one I want to get out whenever they can.
So theres the desire and there's there's these their ability to go out I think together make make the kind of write package for us gets us pretty positive.
Yeah, It's Andy I'll, just add to what Michael just said you know I think you will remember at our November investment community meeting, we had shared with you that the U S UK and Canada inbound cross border travel corridors represented.
In Q3 of 2019 that represented roughly 20% of global Cross border travel volumes, which we had said and we said that they were tracking at roughly 50% of the of 2019 levels. These are this is the data we shared with you that the ICM.
Well just as an update.
As we progressed through the quarter in November we saw these borders open which Michael talked about U S. U K, Canada and that same metric, which is the U S U K and Canada in Q4. It is now at 70% of 2019 levels. So that's just an expression of our confidence about how when people can travel the world travel and.
And if I add one more point. So these are some I shared some of the macro learnings.
Sachin just talked about the upside potential now taking both of that what we have learned from our customers that are active in the travel space is that everybody is all the same opinion and hence leaning into the travel sector.
And winning more co brands engaging consumers so that they book with all our partners versus somebody else all of that is going on you see the whole range of wins. The Jetblue renewal was one of the more recent the aeroplan launch with a with chase.
G last year et cetera, et cetera, so there's a lot of learnings by the travel industry themselves and how to engage and really make these co brands worth co brand programs worthwhile, which would be like a lot.
That's perfect I have my fingers crossed.
Yeah.
Your next question will come from Tien Tsin, Huang with JP Morgan.
Thank you good morning, Michael and Sachin I wanted to.
Ask about just what it sounds like your macro view it hasnt changed too much from what you guys talked about at ICM aside from some of the near term travel.
Travel headwinds, but just wanted to check your <unk> outlook here for high teens revenue growth when it looks like your January trends are.
Bumped that nicely above that any any call outs, there or is that just conservatism.
So look I mean, tinder and here's what I would say thinking what I've shared with you in terms about Q1 towards.
You've got to factor in that is the the headwind which is coming in from the strengthening U S dollar, which I kind of talked about what our estimate around that so that would be one one kind of call. It one that all weird kind of expressing is where we're seeing.
All current metrics on how we're assuming the recovery of omicron to control over the course of the of the first quarter, which I kind of shared with you in my prepared remarks, so really nothing else going on there.
I will emphasize one more time, what youre seeing in terms of the first three weeks of January index back to 2019 has got a compounding effect and that you have to take into consideration. When you were drinking when youre looking at the sequential trends, which is why I was getting that additional color around what the impact of <unk> was adjusted for the compounding effect on switch volumes, which transat.
That cross border.
Understood.
<unk>.
Your next question will come from David <unk> with Evercore ISI.
Thank you good morning, what are your expectations. This year for the pace of account to account payments rollout in Europe under open banking and how do you see this affecting.
Credit and debit card growth.
In Europe , and as a follow up.
Would appreciate your perspective on Amazon's very public negotiation with visa over credit card acceptance at Amazon U K and whether this reflects.
More payment options for example account to account or is this a one off negotiation between two corporates.
Alright, let me start there.
With that so account to account in Europe .
<unk>.
When you look over the last years in Europe , it's been relatively slow placed in terms of consumer adoption and rollout.
We have invested we're heavily invested across that with with IR on the open banking side of account to account.
With nets with vocal length. So we're deep in the space, we like generally like what we see in terms of direction.
Take up I think it's I would call it taste.
So that's that's the first thing I would say.
Initiatives like.
Epi you look at that and say their initial focus is actually on the card side and they're thinking out a counter counted in the longer run that reflects the same that I just said.
Continued significant opportunity for cards in Europe , but we see the long term growth opportunity and counter account and you know.
We kind of covered our bases, there and with our open banking investments at.
Our our initial use cases, there, particularly in the U K.
I think we can be pretty optimistic about that our partnership with Tesco as Lloyd's looking at looking very positive.
Question around Amazon and.
Fundamentally a question for visa I would say and for Amazon.
Have seen.
Seen these kind of negotiations in the public domain now and then over the years relatively short list and were resolved.
These particular news did not involved at all we have a strong and long standing relationship with Amazon and we agree.
Consumer choice matters, that's why we have a multi rail strategy and we're going to continue to work with Amazon delivering a differentiated set of products, so nothing particularly to worry about from our perspective.
Thank you.
Your next question will come from Bryan Keane with Deutsche Bank.
Hi, guys. Good morning, just two quick ones for Saatchi and just looking at switch volume on the January month to date in the U S at 15% Thats down a little bit from where it was running before I don't know if thats just the anniversarying of some of the comps I know the.
Three year percentage still increased to $1 39, but just thinking about on a year over year basis at 15% anything to call out there and then secondly on rebates and incentives any guidance you can give us for fiscal year 'twenty two is a growth rate or as a percentage of revenue. Thanks.
Sure Brian on the on the first point Youre, referring to the 15% year over year growth in the first two weeks of January and you are looking at the sequential trends there well that is a tougher comp ratio and this goes back to the impact of the economic stimulus, which was enabling better spending back in the comparable period last year and Thats, what youre seeing happen there.
So that's kind of the the answer that first part of the question on your second point look I mean, the whole rebates and incentives.
I need to just emphasize one more time blip.
I know people are focused on the competitive environment Trust Trust us we too are because we operate in a competitive environment and we we want to make sure that we compete effectively with our products capabilities services whatever the case might be we have not seen a meaningful shift in the competitive environment relative to what we've been used to operating in the past. So that's kind of just a level.
Set where we are but specifically to your question on rebates and incentives it's dependent on the timing of deals and how the volume and mix plays out through the year in Q1, we expect rebates and incentives as a percentage of growth to be similar to Q4, that's kind of the extent and all of this is contemplated in what I've shared with you on our full year thoughts as well as on Q1.
Got it thanks, so much.
Sure.
Our next question will come from Ramsey El <unk> with Barclays.
Hi, Thanks for taking my question. This morning, I wanted to ask about supply chain pressure and whether youre seeing any changes and what that pressure abating and how much of that might be contemplated in your full year guidance and separately I. Just was wondering if you could help us contextualize your exposure to Russia, and what we should expect there.
Sanctions in fact tightened due to political unrest in Ukraine.
Potential alright.
Yeah, Ramsey, let me start with the supply chain and touch on Russia quickly.
Supply chain pressures are clearly there.
At chip shortages are also.
All sorts of things affecting the supply chain and continue we continue to believe that these are rather short lift as the supply chain actually bounces out. So that's the first thing I would say so theres not a huge assumption in our outlook around that.
We've also seen is particularly through the holidays season pretty Hardy pretty significant holiday spending positive season and people spend what they can spend on so if you cant buy something to buy something else. So we've seen shifts in categories. So from that perspective again, the pent up demand is an important aspect here on.
Russia.
Very very early to tell how this is going to play out as the certainty. It was one of the points that I referred to earlier geopolitical uncertainties that we have to keep it focus.
We have seen sanctions applied.
In previous years.
And we basically manage through that we'll have to see what it is Russia is a substantial and important and strategically important market for us we'll have to see how that plays out.
Alright, thanks, so much.
Your next question will come from Dan <unk> with Mizuho.
Hey, good morning, Thanks for taking my question. There was a question before on overall yields I wanted to ask about domestic assessments, specifically if I look at Q4, I think you're running at about.
13.1 basis point.
Historically, the number was higher.
Closer to 2014 is there anything to call out on that front. Thank you very much.
Yeah look I mean on domestic assessments.
<unk> seasonally I mean, what we've seen is that typically in Q4, we see that the yield up domestic assessments to D V actually drop off a little bit. That's just what we have historically seen there's a bunch of moving parts, which are going on in that and really nothing unusual to call out there you know that the trajectory of what we've seen historically still hold.
So on a going forward basis.
Got it thank you so much.
Okay.
Your next question will come from Mushy Orenbuch with credit.
Credit Suisse.
Great. Thanks.
You did discuss the account to account side of things a little bit and I'm just I'm just wondering given how off.
And this comes up in discussions with investors, we've seen some issues that some of the domestic players have had from a regulatory standpoint.
Any thoughts about how that could affect kind of the ebb.
Shouldn't.
That product.
Images, perhaps that being part.
Mastercard might be for for tank.
Okay.
Other kind of thoughts about.
Just.
In fact, both in Europe , and the U S. Thanks, Alright, marshy excellent question.
We see there's clearly an interest of regulators in new forms of payment regulators are always keen on security and data protection on consumer protection that is always in focus we have most recently seen this with an interest in buy now pay later.
K U K regulators doing a consultation.
Various regulators have shown interest to regulate the space and account to account you should expect something similar.
We do know that from a vocal link and pay by account in the U K that is very much in focus and I think it differentiates us and established players like us to basically can comment we have very clear data principles.
We have we don't sell we.
We don't sell data to anybody.
We believe in the consumer and a strong consumer consent, the likes and dislikes and all of that is codified in the master card franchise. So a company that goes beyond just being a fintech and providing a connection and getting money from a to b, but doing it in an organized fashion with very clear rules that people sign up that partner with US I think is going to be a differentiator.
I'll just add to what Michael said, I think you're going to remember that when we talked about what we were doing the open banking space. We were very deliberate about how we went about our activities that particularly as it relates to how we got data from the banks and that was all through API as has been our philosophy and the idea being you got to do it in the right way.
Now moving to create big you should be doing it through API is not only because it's the right thing to do from a safety and security standpoint, but also the data elements you can actually get by virtue of doing it in that manner.
Create a much more sustainable long term product, which you can offered so very much part and parcel of what the philosophy has been from the get go in this space for us.
Thank you Michael.
Your next question will come from Dave Koning with Baird.
Yeah, Hey, guys. Thank you.
Notice U S average ticket size in Q4, I think it was only up 2% the prior three quarters up 6% to 7%. So you would think with inflation it would be accelerating not decelerating is that just consumers returning to card present, maybe lower.
Transaction sizes are just splitting transactions and what's the impact that seems positive to you right.
All right.
Yes, David again, I want to make sure I got the question, but what we've observed if you look at our trends for how switch volume in switched transactions are trading you'll see effectively that the.
The improvement quarter over quarter and switch volumes from 131% of 2019, 236% of 2019 is up five point improvement compared to switch transactions, which have improved from 131 to ones that he do that should signal to you that there is a higher ticket size, which is happening, which you would expect because as people get out and travel.
More they do so that's higher ticket in general they do it on credit products, which are higher ticket size and also there's an E. Commerce happens that happens to be an advocate so you've seen that come through in the delta on a sequential basis.
And I was referring more towards it looked like it's decelerating in the U S, which seems positive it seems good depth splitting transactions, possibly happening as what it just seems like or different types somehow.
Yeah, no I wouldn't see anything materially different in our U S trends than what I've just shared globally in terms of what we're seeing from a from a takeaway standpoint.
Great. Thank you.
Okay.
Your next question will come from Andrew Jeffrey with curious securities.
Hi, good morning, everybody.
One of the <unk>.
More discuss topics in the market generally today's inflation I Wonder if you could just touch on if we.
We do see persistent embedded global inflation, whether or not that's a positive for your business from a volume and yield standpoint.
Right, Andrew so definitely.
<unk> discussed topic, all sorts of views on it and say here's Arctic.
First of all depending on where we where it happens here, we generally distinct distinguished to look at it first at the macro level of what is happening across our particular market plus the policymakers response sale, we heard the U S. Policymaker talk about this yesterday.
Then there is broader impacts that go beyond our immediate business wage growth how does all of this indiana affect the consumers' ability to spend so that there's a lot of macro things to consider on the micro side you know.
Yeah.
It basically it's not homogenous so inflation is affecting our business in different way than it would be the overall CPI. So if you have inflation expecting rent what is generally not running through our rails to a large extent so.
That could again be a very different picture, taking all of that into account.
Fundamentally notwithstanding the impact of inflation has and it could be negative on consumers and businesses and so forth.
There is an impact on GTA V. If it's moderate inflation that would be showing in our numbers.
Okay I assume that's been taken into account in your guidance.
Right.
I appreciate it thanks.
Thank you. Your next question will come from Jamie Friedman with Susquehanna.
Okay.
Hi.
Thank you for taking my question I just wanted to ask about the.
The difference between other revenue and services revenue I know services did great.
28%, 25% for the year of 28% for the quarter, but other actually grew a little bit faster.
So sachin maybe if you could remind us what the nuance differences I know one's a subset of the other.
Yeah, so in other revenue.
We have a bunch of our services revenue would sit there, but there's other stuff going on in that as well so you've got.
For example.
Some of our local ink revenue sits in there. The next acquisition would sit in there some of the.
And so if youre looking at the other revenue growth rate of 30% remember nine points of that growth came from acquisitions, which is just basically a lapping effect of the fact that you didn't have those acquisitions last year at this time and we do at this point in time. So on services services continues to grow very nicely a large part of that sits in other revenue some of it sits in transaction processing.
The growth Youre seeing in other revenue is being it is a combination of strong services growth plus some of the acquisitions, which which youre seeing come through in that growth rate there.
Got it thank you for the clarification.
Sure.
Your next question will come from George Melas with Cowen.
Great. Thanks for taking my questions guys.
Very quickly Sachin I'm curious as you look through the weekly trends.
Year to date here through January you're seeing a lot of variability, meaning are you seeing sort of a bigger pick up as we go through the month and then somewhat related to that if you could talk a little bit about what you're seeing on the rest of the world.
Sorry, what we're seeing in the rest of the World did you say.
Rest of the world versus versus U S. I mean, it looks like if I look at your volumes for for credit at least the worldwide volume is now starting to want to accelerate.
A rate a little bit and in pick up so I'm just wondering if you're starting to see that really come into the numbers.
Over the last couple of weeks.
Okay. So I got your question. So look I mean in terms of weekly trends they bounce around right. I mean, there's just so much which goes on the nature of weekly trends.
It varies depending on the month and question I'm not seeing anything which is highly unusual in terms of what we're sharing with you on our first three weeks of January in terms of weekly trends.
But there is volatility week over week, and you would expect that to be the case.
And sometimes it's a comp issue as well so you've got to remember that you've got to kind of go back to what you are comparing the comp do and to see if there's differences in growth rates, which is emanating from that when we look at spend levels. That's kind of generally the case as it relates to the rest of the world versus the U S.
The U S on a growth rate basis has a tougher comp this year in the first three weeks of January just by virtue of the fact that we had a whole bunch come in from the economic stimulus last year.
Conversely in the rest of the world, particularly in Europe right.
When you really think about what's going on there.
There was a lockdown in Europe , which took place last year in January so you have an easier comp on on Europe .
From from a growth rate standpoint, so you have to factor those in when Youre looking at the growth rates there.
I think we have time for just one final question.
And we will take our final question from Jason Kupferberg with Bank of America.
Thanks, guys just wanted to ask a question about how we should think about quarterly cadence here of net revenue growth. Obviously, you told us about Q1, it sounds like all micron and FX and rebates are somewhat of a headwind there your year over year comp obviously is much harder in the second quarter than the first quarter, but arguably.
Don't really have homochromous headwind at that point, so just wanted to try and get things calibrated from a modeling standpoint at least through the first half of the year.
Directionally as we work towards the full year target.
Yeah, Yeah, Jason So you guys obviously.
Obviously, we've given you some thoughts around Q1 and for the full year at this point to get you started we'll talk a little bit more about other quarters as the year progressive, but just stepping back a bit as we said in our remarks, we expect that cross border travel recovery will resume at the Soc passes and that we'll reach the cross border travel back to the.
2019 levels by the end of 2022.
Look we continue to be very active on the deal front.
So that needs to be taken into account, but overall use what I would say that the base of cross border travel recovery will be a key determinant as to how that cadence plays out and more to come as we go through the year I'll share a little bit more about what we think about ensuing quarters, but but right now.
That's the extent of what I'm going to share with you.
Great. Thanks, Sachin and Michael any final comments, Yeah, I was hoping last question would be for me.
Anyway. So thank you for all your questions.
As you see we're we're optimistic with the outlook.
We reaffirmed our three year guidance that we gave you in November .
I don't think I need to repeat anything we said I'd just like to thank you for your support and as usual I'll call out for people that make all this happen. Thank you and speak to you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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