Q3 2022 Mastercard Inc Earnings Call

Good morning, My name is Adrienne and I will be your conference operator today at this time I'd like to welcome everyone to the Mastercard incorporated Q3, 2022 earnings Conference call Today's conference is being recorded.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.

Chris.

Please only press star one wants to queue up for question. This pressing star one multiple times may affect your position in the queue.

At this time I'd like to turn the conference over to Warren Nisha head of Investor Relations. Please go ahead.

Thank you Andre and good morning, everyone and thank you for joining us for our third quarter 2022 earnings call.

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 then that the queue will open for questions.

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 otherwise noted.

Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts.

Finally, as set forth in more detail in our earnings release I would like to remind everyone that today's call will include forward looking statements regarding mastercard's future performance actual performance could differ materially from these forward looking statements information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings a replay of this.

Call will be posted on our website for 30 days with that ill now turn the call over to Michael.

Thank you Lauren good morning, everyone, let's get right into it. So the headline is that consumer spending remains resilient and cross border travel continues to recover with this backdrop, we delivered strong revenue and earnings growth through the focused execution of our strategy.

Third quarter net revenues were up 23% and adjusted operating income up 27% both versus a year ago on a non-GAAP currency neutral basis.

Excluding special items now.

The macroeconomic and geopolitical environment remains uncertain and inflationary pressures have remained elevated and central banks are continuing to take aggressive steps to bring inflation in line.

Tensions remain high with the war in Ukraine and to supply of natural gas to Europe is a concern. Despite all of this unemployment rates remain low wages are rising consumer savings levels remain elevated and credit is readily accessible into setting overall consumer spending has remained resilient. Although we are seeing some shifts in.

What consumers are buying.

Looking at our switched volume trends domestic volumes remained steady showing growth relative to 2019 levels relatively consistent to the second quarter of 2022 the trend towards spending on experiences continues we saw.

Saw notable strength in airlines lodging and restaurant spend with a shift away from categories like home furnishings and appliances. The current mix between retail T. N E and other categories of spend is now broadly similar to pre pandemic levels.

Cross border Cross border continues to recover as border restrictions are progressively relaxed cross border travel in the third quarter has reached 124% of 2019 levels.

Relative to 2019 levels, most regions are up sequentially, including a notable improvement in Asia.

Cross border cotton not present ex travel continued to hold up well.

Notwithstanding the continued strength in consumer spending we will continue to watch.

Closely including fiscal monetary and other policy actions, taking in response to events.

This will inform our actions as it always has should the market outlook weaken we are prepared to act quickly to modulate our expenses as we demonstrated during the pandemic, we have the flexibility to respond quickly across a number of levers and we'll do so while maintaining focus on our three key strategic priorities.

On these areas that will create new opportunities for growth that starts by solidifying our positions in payments complemented by our differentiated services lines and our expansion into adjacent activities like open banking and digital identity.

Moving onto some examples of how we are progressing against each of these first we are expanding in payments by enabling digital transformation with our customers I think volume growth expanding acceptance and capturing new payment flows.

There are now over 3 billion master cards in circulation supported in part by programs such as our digital first initiatives of.

Digital her solution starts with the ability for a consumer to acquire them and then use a new card digitally in near real time.

Hoping customers create a best in class digital experience, leading to increased increased approval rates on average by two percentage points reduced fraud on average by four basis points and increased spend per active account on average by 10% to date, we have launched over 200 digital first customers around the globe.

Santander in Mexico Chase in the U K Citi, Banamex, hygiene, Spain, and new bank in Brazil, amongst the latest customers to partner with Mastercard to deliver an end to end digital first customer journey.

Also we're driving growth in volume with new and renewed wins across a broad set of partners.

The U S. We recently extended our exclusive deal with Keybanc for debit credit commercial and small business as well has deepened our relationship on services.

This quarter in partnership with Chase, we belonged in New co brand program with door Dash. This deal further expands our presence into digital food delivery space.

Also went live for Uber pro caught and enhanced loyalty and payments experience that will help drivers in Korea save on gas fees and other expenses in.

In Europe , we have seen momentum in Italy, the city Ogden called securing an expanded deal that includes a credit and prepaid flip as well as securing the current mastercard portfolio.

And in Latin America, we have renewed our exclusivity agreement this mcadow libre and secured incremental credit Chevrons Bank with Scotia Bank Copa Trail overall.

Overall, another great quarter with notable wins.

That's just one area that is sometimes underappreciated that is how we are enabling growth in payments by giving people and businesses more places to use their mastercard.

We have added more acceptance locations in the last five years than the previous 50, and we have now accepted at more than 19 million merchant locations.

The preference for contactless payments that grew over the last two years continues.

More than half of the inputs and switch purchase transactions are now tapped up from approximately one third pre pandemic and this trend will be bolstered by the adoption of new technologies, such as tap on phone.

Our technology and global reach enable growth and acceptance, while helping our partners drive their digital strategy. For example, we have signed with mcdonalds to use our gateway capabilities, enabling them to easily offer more solutions to new markets, beginning in middle East and Africa.

Finally, we're driving growth in payments by leaning into innovation to capture a prioritized set of new payment flows.

We continue to make progress in going after flows into disbursements and remittances space by expanding into new use cases and geographies. For example in the U S gig economy, you signed a new global agreement with Airbnb to facilitate host payouts using mastercard send in select markets.

It also expanded with gaming payoffs launching our gaming fast payout program.

Our dress account to account cross border and domestic payments, we have signed the deal with <unk>, a leading global <unk> network and solutions provider that provides accounts payable automation to some of the world's largest corporate brands.

We're also growing commercial point of sale transactions by targeting small business corporate G&A purchasing and fleet flows in the U S. We announced our exclusive co brand partnership with first National Bank of Omaha to issue. The Hello, Ella as small business caught this product offers small business owners industry, leading access to tools benefits in <unk>.

Services with a focus on equitable access to credit. They are important. We also continue to target b to b accounts payable flows by expanding access and reach leveraging our virtual top capabilities.

And to deal with my catch up to enable our next generation virtual card solution instant pay the solution intelligently and automatically sends instant payments to suppliers.

We have also signed an agreement with SAP <unk> Talia to integrate our virtual card solutions into Italia, and SAP solutions, enabling that customized to facilitate virtual card payments.

We're also well positioned to capitalize on the return of travel with our Master card wholesale travel program in Bahrain, We signed a deal with Infineon for their online travel agency in travel management company volumes and in Europe , We signed a deal with the Fintech smile, well going after BW travel flows in Europe , and Latin America.

You can see we continue to make steady progress in addressing a prioritized set of new payment flows.

Now turning to services, where we delivered another quarter of strong revenue growth services deliver a diversified revenue stream for Mastercard beyond payments, we accomplished this by adding new service capabilities as well as extending existing service offerings into new and existing customers.

There continues to be a tremendous growth opportunity in this space.

Chairman examples of a can they have more than 1400 stores in Europe , we have deployed our content personalization capabilities to additional markets. In addition, we are expanding our capabilities to financial institutions.

Now beyond adding new services is an opportunity to grow by extending existing offerings into new and existing customers in the third quarter. We signed an agreement with Sky Italia Sky go one of Europe's leading media and entertainment companies to enrich and commercialize a new service to support small businesses.

And burst technology provided to insurance companies is implementing our card linked services for their micro savings programs with Generali insurance in Switzerland and in Spain.

We have grown our relationship with Chi Chi Bank with one of our largest European ethicon deals the deal enables them to provide a more efficient charge backflow all that card portfolios.

Beyond expanding in payments and extending services, our third key priority area is embracing new networks. As a reminder, our current focus is on two areas open banking and digital identity.

This quarter I'll touch on open banking.

Open banking is early in the game. It is a tremendous opportunity we are engaged with a broad set of financial institutions and Fintech, who are increasingly interested in a wide range of use cases.

And what's unique and interesting here is that we are the partner that brings what is needed to scale and instill confidence in this space things like responsible data practices consumer protections and deep compliance.

All on top of a robust technical capabilities broad connected BD and extensive applications.

So just to give you a flavor in the U S. Quicken, a leading provider of financial management solutions has selected Mastercard as a provider of consumer permission data for its popular simplify budgeting platform.

Also working with fidelity split their innovation and student loan repayment for organizations that want to help their employees improve their financial wellness.

And then the Jack Henry which will enable to community community and regional financial institutions to be at the center of their account holders financial lives. They will do this provides the ability to securely C. All of their financial accounts with and within and outside the Permian financial institution and a single view this wasn't help enable consumer.

And businesses to make more informed financial decisions. This is just the beginning much more to come in open banking before wrapping up I'd like to share. An example of how we are incorporating our capabilities across all three strategic pillars our.

Our strategy to engage into crypto economy, leverages assets across payments services and networks, a combination that yields a truly differentiated value proposition.

We are deploying our payment capabilities to enable consumers to spend that crypto holdings on card and cash out that crypto wallets via master costs and this quarter, we partner with Avonex, who will become our first partner in Australia to issue crypto funding costs.

We're enabling <unk> solutions with Mastercard send and recently added five new players in North America, and Europe , including finance supported by Checkout Dot Com and UV in all instances, we do not handle crypto I'd, rather take delivery a fiat currency.

Services and new networks capabilities are providing identity cyber and consulting services for market participants Cryptos and cure is an innovative solution designed to bring additional security and trust to this digital ecosystem by helping card issuers address regulatory risks he always.

So recognize the interest people continue to have buying and holding for built through trusted.

Like the banks, so last week, we announced crypto source, which is designed to give our financial institutions partners access to a comprehensive suite of buy hold and sell services for select crypto assets. This will be augmented with our prudent identity cyber security and advisory services to support these upcoming.

Pilot programs Master card is extending its partnership with access Trust company, so leverage that crypto asset trading and custody services.

As you can see how crypto strategies, bringing together best in class capabilities at scale, all built on our core principles of providing strong consumer protections safety and security.

In summary, we delivered another strong quarter of revenue and earnings growth aided by a resilient consumer and a continued recovery in cross border travel we continued executing against our three strategic priorities, we have strong momentum with our customers offering a diverse set of innovative solutions you will continue to manage our expenses carefully.

Within this macroeconomic environment.

Our well diversified and flexible business model positions us well for the future Sachin over to you.

Michael 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 23% supported by resilient consumer spending and the continued recovery of cross border travel relative to 2019 levels acquisitions contributed one ppt to this growth operating expenses increased 17%, including a three ppt increase from acquisitions.

<unk> income was up 27%, which includes a one ppt decrease related to acquisitions.

<unk> was up 22% year over year to $2 68.

Which includes a <unk> <unk> contribution from share repurchases during the quarter, we repurchased $1 $6 billion worth of stock and an additional $505 million through October 24 2022.

So, let's turn to page four where you can see the operational metrics for the third quarter worldwide gross dollar volume or <unk> increased by 11% year over year on a local currency basis.

On the same basis, if you exclude Russia from the prior period <unk> increased by 18%.

In the U S. G D increased by 10% with credit growth of 20%, reflecting in part the recovery of spending on travel.

<unk> increased 2%, excluding the impact of the roll off of previously discussed customer agreement debit increased approximately 5%.

Inside of the U S volume increased 12% with credit growth of 15% and debit growth of 9%.

Ross Bordeaux volume was up 44% globally for the quarter, reflecting continued improvement in travel related cross border spending.

Turning to page five switched transactions grew 9% year over year in Q3.

Excluding Russia from the prior year switch transactions grew 19% year over year in Q3.

Card present and card not present growth rates remained strong card present growth was aided in part by increases in contactless penetration in all regions when excluding Russia.

Contactless now represents 54% of all in Boston switch purchase transactions. In addition card growth was 5% or 10% to be exclude cards issued by Russian banks from the prior your cargo.

Globally, there are 3 billion Mastercard and maestro branded cards issued.

Now, let's turn to page six for highlights on the revenue line items again described on a currency neutral basis, unless otherwise noted.

The increase in net revenue of 23% was primarily driven by domestic and cross border transaction and volume growth as well as growth in services, partially offset by growth in rebates and incentives acquisitions contributed one ppt to this growth.

Looking quickly at the individual revenue line items domestic assessments were up 9% while worldwide GDP grew 11%.

The difference is primarily driven by mix.

Cross border volume fees increased 57%, while cross border volumes increased 44%. The 13th 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 22%, while switched transactions grew 9%. The 13th Ppt difference is primarily due to favorable mix FX related revenues and pricing.

Other revenues were up 22%, including a two ppt contribution from acquisitions. The remaining growth was driven primarily by our cyber and intelligence and data and services solutions finally, rebates and incentives were up 26%, reflecting the strong growth in volumes and transactions and new and renewed deal activity.

Moving on to page seven you can see that on a non-GAAP currency neutral basis total adjusted operating expenses increased 17%, including a three ppt impact from acquisitions.

Excluding acquisitions the remaining increase was primarily due to higher personnel costs to support the continued execution of our strategic initiatives.

Turning now to page eight let's discuss the operating metrics for the first three weeks of October for your reference to help you understand the trends in the business ex Russia, where we suspended operations in March 2022, we have included an appendix leader in the stack, which will all the data points from the schedule. If you excluded activity from Russian issued cards for Brian .

Periods.

As a general comment our metrics are holding up well in October as expected the year over year growth metrics faced tougher comps as we began lapping periods in 2021, when COVID-19 related restrictions eased and spending levels started to rebound. However, it is important to note that all metrics continue to hold up well relative.

For 2019 levels.

Going through the metrics and dawn starting with switched volumes for the first three weeks of October we grew 17% year over your down one ppt versus Q3 switch transactions grew 9% year over year through the first three weeks of October consistent with Q3.

As a reminder, Russia has a relatively low average ticket size, which resulted in a larger relative impact to this metric.

Overall cross border volumes through the first three weeks of October grew 36% year over year down eight ppt versus Q3.

Cross border travel had another quarter of strong growth as water restrictions continue to be lifted in the first three weeks of October cross border travel was up 62% year over year down 11 pvt versus Q3 due to more difficult year ago comps as I just noted.

Travel is now at 125% of 2019 levels up one ppt from Q3 levels.

Cross border card not present, excluding travel was up 12% year over year and October which includes the impact of significant ecommerce promotional activities and is down one ppt from Q3. This metric continues to hold up well in relation to 2019 levels.

Turning to page nine I wanted to share our thoughts on Q4, let me begin by saying that the execution of our strategic priorities is translating into expanded and deeper customer relationships and the broader adoption of our material solutions and differentiated services.

Tumor spending remains resilient in the face of macroeconomic headwinds and cross border travel continues to recover as border restrictions ease and consumers shift their spending back to whats travel.

Just to update you on some metrics, we are tracking Israel, which represented approximately 14% of cross border inbound travel pre pandemic in 2019 is at approximately 76% of 2019 levels in Q3.

Up from about 60% in Q2.

We continue to believe there is more room to grow at several different travel corridors, particularly in Asia still remain restricted and airline industry capacity needs to build back up.

We remain well positioned to capitalize on this growth with our travel oriented portfolios and service offerings, including access to an extensive airport lounge network and concierge services and our global Mastercard travel rewards program, which allows issuers and merchants to connect to provide consumers with unique benefits through a simple digital experience.

As we have laid out there are a number of factors that could influence future economic growth. These include elevated inflation and rising interest rates and geopolitical tensions balanced against low unemployment rising wages and high savings levels in particular.

We are monitoring each of these as Michael just said we are prepared to act quickly to adjust our expenses to reflect any meaningful change to topline growth.

With respect to the fourth quarter, we expect year over year net revenue to grow at the high end of a mid teens rate on a currency neutral basis, excluding acquisitions.

This is consistent with prior expectations and sequentially reflects one generally resilient consumer spending relative to 2019 levels to stable to slightly improved cross border travel growth relative to 2019 levels with some continued improvement into Asia and some moderation within Europe .

Three higher rebates and incentives as a percent of gross revenues due to elevated deal activity consistent with seasonal norms and finally, the lapping of a strong year ago quarter as border restrictions were lifted in the U S. U K, Canada during Q4 of 2021.

Acquisitions are forecasted to add about one ppt to this growth while foreign exchange is expected a headwind of approximately six to seven PBT for the quarter. As a reminder, the euro has depreciated significantly year over year and is the primary driver of this headwind from.

From a sensitivity standpoint based on the current mix of the business.

The annual impact of net to net revenue of a one cent change in the value of the euro relative to the U S. Dollar is approximately $55 million.

From an operating expense standpoint, we expect Q4 operating expenses to grow at a low double digit rate versus a year ago on a currency neutral basis, excluding acquisitions and special items acquisitions are forecast to add about three ppt to this growth.

Foreign exchange is expected to be a tailwind of approximately four to five PPG for the quarter.

Other items to keep in mind, while the other income and expense line. We are at an expense run rate of approximately $100 million per quarter, given the prevailing interest rates. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics and finally, we expect the tax rate of approximately 19% in Q4.

Based on the current geographic mix of our business and with that I'll turn the call back over to Warren.

Andre we're now ready for the Q&A session.

Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Please only press star one wants to queue up for a question is pressing star one multiple times may affect your position in the queue, we'll pause just a moment to compile the Q&A roster.

Yes.

We will take our first question from Sanjay Zaccone at K B W.

Thanks, Good morning.

I was just wondering if you could just parse out a little bit at the fourth quarter net revenue expectations. It was a little bit lower than we were thinking I'm. Just curious is it incentives kind of spiking up in the fourth quarter.

Or is it just the gross number any color there would be helpful. Thanks sure.

Firstly, I'm just going to kick it off by saying the fourth quarter thoughts that I've just shared with you are very consistent with what we had shared in our implied fourth quarter numbers. When we gave you our full year guidance.

At the last earnings call. So very consistent in terms of what we're sharing with you in terms of fourth quarter.

But just a few things I want again to emphasize as to what our key assumptions going into the fourth quarter are one as we continue to believe that.

That would be a resilient consumer and spending from the consumer relative to 2019 levels will be generally resilient number two we are expecting stable to slightly improved cross border travel growth relative to 2019 levels.

In terms of rebates and incentives to your question.

As a percentage of gross revenues, we expect them to be higher in the fourth quarter. This is very consistent with our seasonal loss. So nothing unusual as far as I'm concerned there and then also you know again, if you look at it on a sequential basis back to comparing fourth quarter to third quarter that is the lapping effect, which I kind of talked about so really I mean indeed.

The summary of what I guess I'm sharing with you as our current thoughts are very consistent to what we had actually shared with you previously.

Okay. Thank you.

We'll move next to Lisa Ellis at Moffett Nathan SBB.

Terrific. Good morning, guys. Thanks for taking my question I wanted to quit.

And about business resilience I guess looking forward in the face of a potential economic downturn I'm just thinking about the fact that over the last several years Mastercard increased.

The diversification of the business significantly with more debit more SaaS ECH more services et cetera, more b to b.

How do you think about it.

Where you are now in terms of resilience of the business. If we do at some point see a slowdown in the consumer side. Thank.

Thank you.

Good morning, Lisa. Thank you for your question. So let me kick off on that one.

Implied answer in your question actually it is the.

The nature of our continued diversification I mean, just to remind everybody on why are we diversifying it is to give us a diversified revenue stream, but it's also down to differentiate our payments and all of that plays hand in hand with better services, we're going to see more payment volumes come out with better services, it's easier to get into some of the new payment.

For example, our safety security solutions are well sought after in the <unk> space, where there is fraud issues all over the place. So all of that I think is a good starting point for us if I just look back over the last two years and.

<unk> certainly had a slowdown on the payment side in the <unk>.

Macro economic overall and services carried the day very significantly for us. So we just kind of continue to push hard on that and then new flows and I gave you a whole range of examples earlier on how we are building out a new flows and if you just put some light on to come.

Marshall.

So here is this is existing tools that we have we don't need to build a lot for it it's a space that we haven't penetrated significantly in the past and we're ready and we're going into this is a 14 trillion opportunity that we're going after which is payments diversification going on in addition to.

Our services diversification of end earlier on that the stats on acceptance just more places where people can spend and the and then people will spend even in a downturn it doesn't actually matter for us what they spend on that.

That they spend on a mastercard and we give them more opportunities to do so so diversification is the name of the game.

Thank you.

We'll move next to Darrin Peller at Wolfe Research.

Hey, guys. Thanks. Your model is clearly still showing benefits of inflation and if I could just kind of remind us again the sensitivity in the areas you see in the basis points, driven inflation impact, but also whether or not theres any pricing changes you guys are interested in employing on the on the non basis.

<unk> side, whether its transactions or it services, probably more importantly.

Just given what we've seen or if you've done so already.

And then maybe just on a side note on that on the other side would be the expense management and the willingness.

Just how willing you are on for example, marketing to flex there if necessary. Thanks guys.

Hey, Darren I'll take that question I guess to your point around inflation, you know look I mean.

Persistently for long periods of time, which causes for a shift from share of wallet and away from garden categories into both product categories would be the one area I would actually flagged as a potential headwind as it relates to our business model, but putting that issue. Aside the reality is youre very correct about the fact that we charge on our basis points.

Cents per transaction or basis points or a nominal value of spend and that reflects the impact of inflation in there.

So the reality is you know as we've said in the past.

Modest inflation and inflation in card in categories, where generally.

We kind of our business model goes for that because depending on if it's got it but it doesn't matter like Michael said, whether it's how it's happening in travel or what's happening in food and clothing.

Got it got it categories and you kind of get the benefit of that come through.

Look I mean is it.

Related to your question on expenses, we've always remained disciplined on expenses the thing, which we always keep in mind is a few things one we wanted to make sure that we're investing in the long term growth of our business below the three strategic priorities, which Michael talked about we will continue to do that that being said as we demonstrated during the COVID-19 environment, we do have the opportunity.

Flex our expenses, whether it's around marketing with them is around professional fees, whether it's around <unk> and all is a function of making sure. We are keeping an eye on the top line keeping an eye on the bottom line well, we're actually delivering what we need to do.

From a from an expense standpoint, and we'll continue to do that going forward.

The reality is we keep a close eye on do what are the things which are in demand from our customers what is it that the consumer wants.

And we are bolstering our expenses in that regard. An example would be as you as you remember in Covid when travel was out of favor we started to pull back on A&M related crop. It just didn't make sense for us to be doing at that point in time. So we will remain flexible on that and then there are initiatives, which we bought which are longer term initiatives, which would be up over many many years in the.

Future, where we have the opportunity to actually both the pace at which we are incurring expenses on those two the even in the event, we start to see a little bit of a slowdown in terms of topline you asked a question on pricing our philosophy around pricing is very consistent as it's always been.

We price for the value, we deliver and our assumption from a pricing standpoint, whether it's pricing and basis points. So cents per transaction is very tightly correlated to the value, we're delivering to our customers and to the end consumers into our merchant partners. So all of that is very consistent at the end of the day, we assume minimal net pricing net of rebates in it just from a pricing standpoint, yes.

Darren.

One point here and that is looking back at the last two over two and half years now back.

To the second quarter of 2020, when revenue was severely impacted by a truly unprecedented event out there so.

Two the power of the levers that we have at a range of levers that we have to modulate our expenses hiring and professional fees PND market appetite and all of that it just showed that we did not have to make any compromises when it comes to driving our strategic priorities we pulled through.

And your clothes, we pulled through on X services expansions and so forth. The model is wide and flexible and that helps us a lot and as I look forward. There is optimism and how are we going to navigate that.

Thanks, guys.

Okay.

We will take our next question from <unk> at Bernstein.

Good morning, Michael session can you talk about online debit routing in the U S. The fed they recently.

Cash and equivalents, if I recall correctly.

Thank you ended up gaining market share.

So how does it impact Mastercard debit.

Thank you.

Alright. Thanks.

Thanks for the question, there's always something in debit routing going on so here, we have the clarification of the rules by the fed.

And.

Takes all the by all the way back to a decade ago. When there was this <unk> have to networks in every.

I'll never debit card.

Basically what the fed to get clarified is that this is applying to whether it's a debit transaction thats made online or install so pretty pretty simple pretty straight forward.

Implementation by mid of 2023, so we have some time, but we will be ready and we'll be implementing I think really what that does is we will just continue to come.

Compete with all the assets that we have in debit I'm not really sure. What this will do to the market, but we will certainly be there leveraging our technology to win more debit in the United States.

I'll just add one additional comment to what Michael just said, which is as you know we've been investing pretty heavily in our services capabilities.

Some of which related to cyber intelligence and.

In an environment, where our partners whether it's the merchants are the issuers need more of our services to better manage their broad capabilities.

In the online environment, we stand ready to do that as well.

Thanks, Brian .

We'll take our next question from Tien Tsin Huang of Jpmorgan.

Hey, Thank you good morning, just.

You mentioned nothing unusual on rebates and incentives, but I just wanted to ask because I, sometimes always do it with deal activity versus 90 days ago. Any change there is your appetite to drive program growth versus maybe more disciplined growth on their side or the <unk>.

And timing of appeals and implementation things of that nature. Thanks, sure Tien Tsin I can take that.

You know that we've been active in the marketplace, we've been winning share globally and that's just part of the strategy of what we want to do it which is on a disciplined profitable basis, we want to win share and deliver more in the nature of services on that share to optimize and grow our overall net.

With that is it depends on the headline but on your specific question on Q4 on rebates and incentives nothing unusual it's a rich pipeline, we continue to be active in the marketplace. We're not seeing any changed kind of behavioral patterns as it relates to how our issuers issuing partners or are in the marketplace.

And we just remain active.

That's really the essence of what we're seeing there.

Great. Thanks for the update.

Okay.

Next we'll move to Ashwin <unk> at.

At Citi.

Thank you Michael Hi, Sachin.

If I can ask about cross border now that you've seen some normalization in travel.

Could kind of talk about how much more travel improvement is yet.

Yet to come in yet in your view and the mix of cross border and I'll bet that some of the normalization.

<unk> has happened is as we look.

Look two traveled versus non travel.

Sure Ashwin I can take that question. So firstly I've kind of mentioned that you saw.

In the last earnings call, we saw opportunity in terms of further recovery in travel we saw some of that come through in our Q3 numbers. We still believe this potential below from a cross border travel, but we've standpoint in particular in Asia Pacific I shared a metric about how Asia Pacific inbound cross border travel bans.

Approximately 76% in Q3.

2019 levels.

Just goes to show that some more room to go there I mean, there are several markets in Asia Pacific, which still remain to be open.

So airlines are bringing more capacity backhaul and as you know from our explicitly experiences.

Getting seats on planes is hard and it is expensive and so the reality is all of that should be helpful. In terms of the potential.

Cross border crowd recovery, the other point, which I think you alluded to where it is as it relates to the mix and the mix is also important because the mix of cross border has logged reverted back to historical mixes. So said differently. If you remember as we're going through Covid. We first saw recovery take place in intra Europe and intra Europe .

As generally lower yielding.

We've recently been seeing a stronger growth pattern in <unk>.

<unk> intra Europe cross border.

And so the reality is that makes us not back to the pigment damage levels at this point in time.

And just just one thing to add if isn't exactly your question, but that whole space has been in focus for us pre pandemic during a pandemic and.

And now.

Airlines were struggling.

Really no flights taking off we were a strong partner and it showed in howdy engagement with airlines and travel oriented portfolios work now so we're still well positioned to benefit from the trend that such and just talked about on the services side as well as on the payments and the co brand side. So exciting space I think our bets are paying off.

Thank you.

Yeah.

We'll go next to Arena Kumar at UBS.

Good morning, Thanks for taking my questions you continue to see very strong growth in Latin America, 29% GDP growth in the quarter can't discuss some of the key drivers of backward and how sustainable you think it could be going into <unk> and into 2023. Thank you.

Finally, let me start off on that Latin America fascinating region.

For us a highly diverse from a super well developed Brazil two markets at the other end of the spectrum high travel markets with the Caribbean. So Mexico. So you have all of that in the mix. It's really interesting when you Peel the onion a bit and you look at some of these markets any comparator in two of the largest mark.

For example, Brazil and Mexico, when you look at the digital penetration in Mexico compared to <unk>.

Brazil, there is so much more potential to go so there is upside in digitization.

There's other issues that.

Require some of our solutions.

Region has experienced some fraud issues.

Generally in payments so our.

Safety and security solutions are in great demand and a great driver for growth for us in the region. While the underlying digitalization continues so you put those trends together, it's all fairly attractive.

And then.

You know I I talked to you about our engagement in the crypto economy, if theres one place in the world in the crypto is really in focus it isn't that it's in that part of the world Historic pain through high inflation and so forth as people were thinking crypto might be an answer.

A lot of innovation in this space, so across all payments services and new payment flows and innovation.

This is a region that has.

It's showing full momentum for us.

All right I'll, just bring to life what are the <unk>.

<unk>, which Michael talked about in terms of increased trends towards digitalization.

As it relates to our performance in Latin America in Q3 and going forward.

The reality has been we've been very focused on the conversion of maestro to debit Mastercard and this has been part of what we as a company have been doing for a very long time, you were seeing the fruits of that come through.

As you know as you go down the path of converting maestro.

To debit Mastercard, whether it's a companion digital debit mastercard or it's an actual conversion of the guard. It now would make up the neighborhood for online transactions back it'll trend, which which Michael has spoken about so it's all about how spread to enable those <unk> that we've been seeing good migration state this with maestro to debit Mastercard.

We will go next to Jason Kupferberg with Bank of America.

Thanks, guys. Good morning, I was wondering if you can unpack a little bit what youre seeing in terms of consumer spending across different parts of Europe .

And then Sachin I wanted to see if you can make just a quick comment around what you guys are envisioning the potential FX headwind to revenue in 2023, just based on current rates.

Yes.

Sure So Jason I I'll give you.

Just on Europe , first and then I'll get into the FX question, which you are talking about it. So in terms of Europe , we continue to see.

See Mastercard performance in Europe remember in in terms of what Youre seeing in our metrics youre seeing not only what the underlying economies are doing but also the impact of our share growth, which has been taking place in Europe . So it's kind of the amalgamation of all of that which is coming through in terms of.

Usually battles.

I'd tell you that we are not necessarily.

Any meaningful change in terms of trends across the continent in terms of how the spending patterns are taking place.

We're generally backdoor government earlier on consumer being resilient and adjuvant in consumer that's certainly the case now and as you think about you know dip.

Different markets you know in markets like the U K, we're seeing stronger growth, but a large part of that is being driven by the fact that we've had recent share wins in the U K and then there are headwinds we spoken about in the past in Continental Europe , which are still to come to effect right. So for example, we had talked about a win with Deutsche Bank in Germany, that's still to come to effect so anyway.

The mix of all of that which is going to take place at this point in time.

On your question around FX.

I shared with you in my prepared remarks, what the annual impact to net revenue of a one cent change in the value of the euro would be relative to the U S dollar, which is about $55 million.

On an annual basis, we wanted to put that out there. So you will have a sense on you know.

What the potential headwind or tailwind could be depending on what happens with FX rates. The hard part is predicting FX rates and so given the current mix of our business.

That's the sensitivity of John shared with you as it relates to how you should think about what the impact could be for 2023.

Okay.

And we will go next to Tim T O two at credit Suisse.

Great. Thank you for taking the question I wanted to dig in a little bit on Mastercard send relative to visa direct I was wondering if you could call out for us and investors any of the different maybe strategic focus areas. If there are any pricing differences. If there are any mechanical differences or maybe use cases, where you seem to be getting.

Action relative to visa direct that would be extremely helpful.

Alright, let me, let me take that.

And so all the visa related stock you should ask them obviously.

So I'm not going to do a direct comparison here, but I can tell you how we are thinking about it.

First of all yes.

Just earlier on I talked a lot about the crypto space and just give you. One. One example here is a interesting new technology and a growing ecosystem and what's the way to get out of your crypto wallet balances as you turn it into Fiat any use Mastercard send we were right on us from the first day.

We have all these partnerships that you exactly that.

When you go around and to basically there is new flows theres geographies. There's use cases. So those are the dimensions on how we are looking at this we're very systematic about it.

This has to have ubiquity, we're looking at all regions from a coverage perspective, we're looking at the key use cases, we're very selective on use cases, because here you could get lost in 1000 flowers Bloom. The examples I gave to you on partnering with large global firms like Airbnb that is the approach where you're going to say use.

Partner with somebody that is in all the regions and covers a use case that just matters to people out there.

That's essentially the approach on Mastercard send.

It has a domestic angle to it and it has a cross border angle to it it grows at significant rates, we're very happy with it.

Across all of these aspects that I just said so now one thing to add earlier, we were talking about the numbers ex Russia, So Russia was.

Huge success on sand from day, one that's in fact of where a lot of our learnings came from and we exited Russia as you know in March this year.

So that is skewing the numbers a little bit, but the learnings are not going away, we're putting them into a whole set of other markets and to the earlier question around Europe , particularly in Europe , we see some of those learnings translate in other parts of eastern Europe countries and so forth.

And just to add to what Michael said, particularly on the remittances side, where you're seeing very good traction take place in terms of cross border remittances and the capabilities. We've got the capabilities. We're building there are global reach of their is holding us in really good stead as it relates to how we are able to tap our partners to generate more and more volume does that thought so.

That's it.

It's a bright spot in terms of the broader maintenance this piece as well.

Excellent. Thank you for all that context on Mastercard send.

We'll go next to Andrew Jeffrey at Truth Securities.

Hi, Good morning, Thank you for taking the question.

Michael I Wonder if you could give us an update on your processing efforts.

Globally, maybe with an emphasis in Europe , whether you're whether you're taking share and winning business in processing and how you think that can effect over time.

Both the net revenue yield and maybe the profitability of the business too.

Alright, so Andrew Thanks for that question.

So starting with Europe , but then.

We can extend this conversation looking at the middle east or in Asia.

So we have processing assets.

In those parts of the world and just to illustrate how does how this matter. So there is obviously a whole new set of players that are entering the payment space, who are who as prime theres long desk isn't really the process. They want to have a great financial app. So theyre looking downstream for a whole set of solutions that complete what they do.

It relatively easy out of one hand, and Thats, what we provide and you know this is really the explanation for some of our progress on the Fintech side on the Neo Bank side, those guys, where we have those partnerships, 70% win rate I like to add here.

Is really to a large extent coming down to our processing capabilities, which are state of the art modern fintech oriented processing capabilities. So it's been a joy for us to watch and some part in some parts of the world We do partnerships.

And some parts of the world we are doing partnerships.

For example, with.

Network International parts of Africa, and so forth. So it's a combination of our own assets.

We feel there is scale and differentiation and sometimes is through partners. So overall there is a good play here in processing and it's one of the services that we have in our portfolio.

I'll just add some color as it relates to beyond the processing fees on our efforts around switching and the proportion of our total Mastercard branded.

<unk> transactions, which as you know we've been pushing hard to actually get more switching share.

And the reality is that is working very nicely. We are seeing growth in our proportion of switched transactions, which now stands at greater than 60% of total transactions worldwide.

And that's super important, particularly particularly where we are seeing improvements in <unk>.

Progress is in Latin America.

And in Asia Pacific, both of which had been generally low index markets from our switched transaction share standpoint in the past so lots of good effort going on there we're seeing good progress going forward.

Thank you very much sure.

Our next question comes from Bryan Keane of Deutsche Bank.

Hi, Good morning, Sasha just wanted to go through the yield improvements again it it sounds like it's a lot of mix and some pricing in there how do we think about the yields going forward into the fourth quarter and into next year does is there some some comps get a little tougher as we get into next year for these yields.

Sure.

Brian what youre seeing in nature of yield improvement quarter over quarter. This is net revenue yield divided by G D.

You can attribute a large part of that to just mix as you know our inter.

<unk> Cross border has come back pretty nicely and as that has come back nicely that is higher yielding and that gives us the benefit and the tailwind you're seeing on a sequential basis.

I will point out that as it relates to Q4, you should expect that the yield will decline some which was very consistent with what you see every year that is just the nature of how the business works just because Q3 happens to be a large cross border quarter in Houston tend to see the benefit of that come through in Q4, you start to see some of that slowdown.

<unk>.

Now you asked the question about 2023 I would tell you.

We as a business, we remain very focused on driving and maximizing our net revenue yield and there's multiple factors, which are going to influence some of which is the mix of cross border domestic certainly but also things around just like we just talked about how we are increasing our proportion of switched transactions. The mortgage switching we do the greater the yield gets and that's what we're focused on.

We talked about the shift from maestro to debit Mastercard again lots of focus around that and that's what we're very focused on driving that all of which when you overlay all of the services, we've been bringing to the market you get the benefit of that coming through as well.

Generally speaking as I look forward I kind of feel like ours.

Our focus as a business from a driving yield standpoint, good news and I don't see anything necessarily which is going to change dramatically going into 2023.

The yield trajectory standpoint and.

In such an issues.

Kind of explain the strategy again and Thats what were trying were trying to be in the payment transaction.

Annual at profitable levels, but then use our services to continue to improve the overall revenue yield and that is that combination that makes.

Makes sense to look at.

The future very optimistically, so I don't really see anything changing here. These are the tools that we have and we're using them effectively.

Great. Thank you both.

Next I'll move to Ramsey Alice all at Barclays.

Hi, Thank you for taking my question.

I had one on rebates and incentives and more specifically.

How the mix of those rebates and incentives have changed over the past several years I guess the underlying question is are you having to incentivize and expanding number of value chain players fin techs merchants to kind of support consistent growth how has that mix evolved over time and how do you expect it to evolve in the future.

Yes, so in terms of rebates and incentives the mix in terms of hardware actually incentivizing too.

To generate incremental revenue has not changed meaningfully.

We've historically been.

More focused and we have actually delivered higher levels of rebates and incentives to our issuing partners that continues to be the case as to where we actually.

Spending most of our rebates and incentives.

And that really hasnt changed and as it relates to the mix between rebates and incentives for domestic volumes versus cross border I can say that makes holdsworth hasnt really changed as you know cross border has generally been.

Index lower from a rebates and incentive standpoint, and that continues very much to be the pattern right now as well with Ramsey.

Okay, so pretty stable environment, but it sounds like the I'm sorry, I appreciate it thank you.

We'll move next to David <unk> at Evercore ISI.

Yes.

Okay.

David are you there.

And so you may have your line on mute, we're not hearing you.

Yes.

Okay.

Andre maybe we go to the next please and then we'll.

Okay.

Yes, we will move next to Bob Napoli William Blair.

Hi, Thank you and good morning.

Just would like an update on your.

<unk> your thoughts around the BTB payments markets and the opportunities there I know you called out a commercial Pos 14 trillion and what inning are we in.

Any thoughts on the changes that that market the growth of that market.

Thank you.

Right, Yeah, so I'm really not in a baseball analogies. So that's why earlier I was talking about the early at the first half of the game, but to your question very specifically to be huge opportunity from a volume perspective, we called it out and we.

Cut it down into very distinct.

Types of flows at our Investor day at the end of last year.

So focus on <unk> accounts payable on one hand, but theres other BW flows which were very active in for example through all the above.

Illustrations I gave you earlier on.

Virtual card use cases, so virtual card is the current and most immediate answer to go after BW flows there.

Theres, the commercial OSP somewhere which is kind of an in between space between <unk> and small business, but that's a huge space with a lot of cash and checks. So you build it up over those into the accounts payable piece and you know the long range vision that we have on accounts payable is really the.

Mastercard track business payment services piece, where we say over time, we're building a two sided network here that continues to grow but that takes time, but we have the large we have large players around the table HSBC JP and so forth. So that's a good initiative for us but for now we are very active.

Actual cards to solve the issues of buyers and suppliers in this space. So we have not moved away from this by any stretch of the imagination. This is a huge opportunity and we're going to go after it okay. Thank you.

Andre I think we have time for one last question.

We will take that question from Jamie Friedman of Susquehanna Financial group.

Hi.

Such and transaction processing fees increased 15%, but switched transactions increased 9% I know you called out in your prepared remarks mix changes I was just wondering if you could elaborate on that thank you.

Sure. So there are a few things going on right, there, where our transaction processing fees are growing faster than the underlying driver one of which is the big mix change and really remember when we make cross border revenues, we make cross border revenues on a basis point basis as well as on a cents per transaction and the <unk>.

A component, which is odd basis points sits in cross border volume fees and there is some component of cross border.

Related cents per transaction, but in terms of the number of transactions, which we process a transaction processing fees.

Which is where the mix effect comes through because as you've seen inter cross border grew at a rapid pace, that's contributing to that delta between what we're seeing in the revenue line and what we're seeing in the driver because cross borders high yielding then Dennis domestic.

Couple of other factors, which calls for that differential as well I talked about FX related revenues.

Some level of pricing those are the two other contributors which go into that JV.

Thank you.

Sure.

Alright, let me.

Bring the call to a close first of all thanks for your question.

And to all of our investors. Thank you for your support.

This morning, I sent a note to all colleagues here at Mastercard.

Thinking them for a strong quarter because they are the ones who make all of this happen.

So a shout out to them as always and with that we will talk to you in the next quarter. Thank you very much. Thank you.

This concludes today's conference call you may now disconnect.

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