Q3 2023 Mastercard Inc Earnings Call

Good morning, My name is Andre and I will be your conference operator today.

At this time I would like to welcome everyone to the Mastercard incorporated Q3, 'twenty twenty-three earnings conference call all.

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 star followed by the number one on your telephone keypad.

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

If you would like to withdraw your question Press Star one again.

Mr. Devin Carr head of Investor Relations you May begin your conference.

Thank you Roger Good morning, everyone and thank you for joining us for our third quarter 2023 earnings call with.

With me today are Michael Me back, 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 queue for the Q&A session.

It is only then that the queue will open for questions. You can access our earnings release supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website Mastercard 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.

With the release and a 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.

A replay of this call will be posted on our website for 30 days.

With that I will now turn the call over to our Chief Executive Officer, Michael You back. Thank you Devin Good morning from New York everyone.

Let me start by acknowledging the recent terror attacks in Israel, and the resulting ball with tomo and the growing humanitarian crisis in Gaza well deeply saddened by the suffering of the loss. Our focus is on the wellbeing of our people those who have been directly impacted and those in our teams around the world who are dealing with this terrible situation.

We will continue to give them support while contributing to relief efforts.

We will monitor the situation closely so we can take action as required.

Turning to our results.

One of the three results demonstrate the strong fundamentals of our business our diversified model.

And the continued resilience and consumer spending quarter three net revenues were up 11% and operating income was up 13% both versus a year ago on a non-GAAP currency neutral basis, excluding special items.

On the macroeconomic front there are a few factors we focus on first the labor market remains strong which is a key driver of consumer spending. However, we continue to monitor aspects such as credit availability and savings behaviors.

Second although inflation levels have moderated they remain elevated as central banks continue to actively manage monetary policy, we expect the impacts to vary across countries and sectors.

Also geopolitical uncertainty remains a concern further underscored by the recent events in the Middle East.

We're monitoring these moving pieces and stand ready to manage the business Accordingly, looking at our switch trends this quarter.

Domestic volume growth remains healthy with some moderation in spend in select international markets Cross border travel remains strong at 155% of 2019 levels in the third quarter.

And cross border card present ex travel.

To hold up well at 209% of 2019 levels in the third quarter.

This cross border card not present ex travel so overall consumer spending remains resilient and we remain focused on executing against our strategic priorities, we see substantial runway for growth through the long term potential in person to merchant payments the sizeable opportunity to address new payment flows.

Our diverse suite of fast growing service capabilities and our investments in areas of future growth like open banking and digital identity.

Let's explore these in more detail.

Starting with person to merchant payments, where do you see a sizable long term growth opportunity, we're winning deals with a diverse set of partners and investing in technology to further drive the shift to electronic forms of payment and capture new ways to pay.

The third quarter, our deal momentum across the globe continued.

In the U S. We're happy to announce that Webster Bank, a leading commercial bank. The northeast has chosen master card as their exclusive.

They selected us because of our marketing assets safety and security tools and commitment to small business. This builds upon our recent wins in the U S. Like the citizens debit portfolio flip with the transition on track for 2024.

These two wins are clear examples of the value we deliver through our partnerships and the reasons banks are willing to move their debit business to Mastercard.

Further we have partnered with cities wealth business to launch their ultra high net worth credit proposition targeting their private bank clients in Singapore and Hong Kong.

And in East Africa, we signed a long term deal with equity Bank group that significantly increases our share across the six markets, where they have presence.

On the co brand front, we John Barclays Two launched Xbox first credit card in the United States.

Building off our longstanding relationship with Microsoft This product is an example of how we're tapping into the fast growing gaming space.

And of course, we continue to strengthen our travel focused programs renewing a frontier Airlines program issued by Barclays as well as the Turkish Airlines program with Garanti BBVA off.

Winning deals positions us well to capture P. C E and secular growth is a sizeable opportunity across volumes and transactions and we benefit from both.

We're bringing together innovation technology, the experience and trust that consumers want and expect in their daily lives and that starts with our best in class digital solutions, such as contactless and to optimization.

Contactless now represent 63% of our in person switch purchase transactions in the convenience and security of our capabilities are helping us to further penetrate vertical like transit.

Converting transit to open loop, we gain access to more low ticket high frequency transactions, both at the station and the surrounding merchants.

In the last quarter alone, we launched open loop programs with two of the largest transit systems in North America, Toronto and Philadelphia.

We now live with over 25 agencies in the U S and Canada.

This year in the Netherlands, we supported the launch of a nationwide contactless transit payment system and in Pakistan, We're helping to digitize daily commutes in Karachi with issuance of a 1 million prepaid open loop cards.

On <unk>. It has been 10 years since we first introduced the token standard duty industry today.

Today, It is foundational to the network and it's performing exceptionally well the number of token ice transaction has more than doubled over the past two years, we just processed over a 3 billion took a nice transactions in one month.

And this functionality is extending to new places to pay for example, you might see dispense customers in Germany can now pay for fuel directly from the vehicle using only their fingerprint.

And Yanai Motor American is enabling in vehicle payments for parking with additional teachers and easy use cases to be enabled in the future.

Digital solutions are also key to migrating my Astro to debit Mastercard. This conversion drives a better cardholder experience, including in many cases, the ability to shop online and across borders which leads to incremental card spend and proud to full transition we offer a virtual companion car to the current my Ostracods for immediate.

Online use.

In Europe, we're in the process of sunsetting, new issuance of Maestro and we will continue to work with our issuers on the migration of well over 100 million cards overtime.

A lot happening in pizza M for sure.

I'll answer the second vector for growth new payment flows they are substantial untapped flows across commercial payments and the disbursements and remittance space.

In commercial we continue to see strong growth, we're expanding our market leading virtual card capabilities into new use cases in the U S and Canada.

<unk> payment solution is now life with BMO and Fintech partner extend bringing our virtual card capabilities to contactless business payments.

We also continue to expand our reach to corporates by partnering with Oracle to embed Mastercard virtual card capabilities into their fusion cloud ERP to enable supplier invoice payments and corporate purchases.

And we are integrating our commercial payment and open banking capabilities into SAP fire near platforms to deliver an embedded payment and lending experience.

Yes.

There remains a significant opportunity to convert cash and check to commercial cob products, we're signing deals across the globe to do just that we're excited to announce that we have agreed a long term deal with Citibank to forge a global commercial card partnership covering more than 60 markets. The deal extends our leadership position with Citibank and reinforces our efforts to me.

Modernize and grow B to B payment flows.

We also signed our first ever commercial contract with Axis Bank in India, and a commercial deal with the biggest investment bank in Latin America BTG Pactual.

Now, let's focus on disbursements and remittances.

With access to more than 95% of the world's banked population outreach spans more than 180 countries and more than 150 currencies and we are seeing strong growth in the third quarter transactions were up more than 30% on a year over year basis.

To continue growing in this space, we're expanding into new use cases and geographies. A great example is our partnership is from at least one of them.

The fastest growing digital remittance platforms with over 5 million active users remotely will leverage our disbursement and remittance solutions to help make international payments pasta easier and more secure.

We're also expanding our collaboration with pace and in the U K to enhance cross border payments for Smes.

Now our value add services and solutions are another important driver for our growth collectively this suite of capabilities is fast growing and provides a diversified revenue stream we.

We have invested thoughtfully to develop services focused on supporting our customers in areas of growing need cyber security threats arising a trend that will unfortunately persist and as an increasing demand for actionable insights and more personalized experiences our services all set by our data driven intelligence can help customers reduce fraud.

Their portfolios and better engage with their end customers.

Take our cyber solutions, which protect consumers and the payments ecosystem more broadly. One example, a safety net which is in which in the past 12 months has prevented more than $20 billion. In fraud. This is just one of our many fraud solutions that we're deploying to deliver more value and support continued growth.

AI also continues to play a critical role powering our products and fuelling our network intelligence with scaling our AI powered transaction fraud monitoring solution, which delivers real time predictive scores based on a unique blend of customer network level insights. This powerful solution gives our customers the ability to take preventive action before.

The transaction is authorized this quarter alone we signed agreements in Argentina, Saudi Arabia in Nigeria, with financial institutions, and Fintech, who will benefit from early fraud detection and with merchants, who will experience less friction and higher approval rates and he and this all makes for a better consumer experience.

We're also using our services, combining our data and expertise to help clients optimize and do more with their portfolios. This drives both direct services revenue and incremental payments revenue, a consulting marketing services and targeting analytics to help clients design and execute portfolio migrations drive incremental.

The acquisition and stimulate spend for example in Spain, we are working with Financiera El Corte inglese to boost the migration of close loop clients to our new open loop co badge proposition.

And we're working with Saudi National Bank to enable growth in their credit portfolio by increasing penetration from their debit base.

So the headline for me is the power of our strategy to drive payment network and service revenue for Mastercard.

It was improved the performance of our clients' portfolio, leading to incremental payment flows which lead to more opportunities to use our services and so on and so on it's a virtuous circle.

We also had success in expanding our customer base and services through best in class personalization, and our leading test and learn analytics capabilities don't just take our Woodford garden I recognize the superior value proposition of dynamic yields personalization activities in selected that as the leader in its 2023 Gartner Magic quadrant for.

The third year in a row.

That's why luxury brands like Saks fifth Avenue work with us to create hyper personalized experiences for the e-commerce customer.

This quarter, we extended our partnership with the merchant already in both the U S and Australia to continue to leverage our test and learn platform to optimize category reviews store hours and marketing spend.

We're working with Dunkin' international to enhance their foundational data analytics capabilities to improve operational efficiencies.

Our best in class solutions address the unique needs of a diverse set of customers, that's giving us ample opportunity to continue to grow across our value add services and solutions.

We have a strong foundation for growth in PJM as discussed new flows and services and we are also embracing new opportunities for future growth.

As digital adoption continues to rise open banking remains a key opportunity.

We have a powerful set of assets with connectivity to over 95% of deposit accounts in the U S and 3000 banks across Europe, we're engaged with a broad set of partners who are increasingly interested in the scale and potential of the open banking solutions, we bring.

This includes the account to account bill payments use case of banking open banking solutions enhance existing ACTH flows by providing a simple and secure experience, allowing consumers to seamlessly share data with trusted parties.

Previously announced partnership with J P. Morgan payments pay by Bank is now live and Verizon plans to pilot this offering with a U S customers in the coming months. In addition to this we're now collaborating with world pay to enable consumers to pay bills directly from their bank account.

All of US here continues.

So in summary, our third quarter results reflect the strong fundamentals of our business and the continued resilience in consumer spending their substantial runway supported by opportunities to digitize person to merchant payments across both the dollar volume of flows and the number of transactions.

And opportunities to address new payment flows and extend our diverse suite of services all while we continue to invest in future areas for growth.

When you put it all together our diversified business is well positioned for strong growth for years to come.

Sachin over to you.

Thanks, Michael now turning to page, three which shows our financial performance for the quarter on a currency neutral basis, excluding where applicable special items and the impact of gains and losses on our equity investments.

Net revenue was up 11%, reflecting resilient domestic consumer spending and strong cross border volume growth as well as the continued growth in our value added services and solutions.

Operating expenses increased 9%, including a one ppt increase from acquisitions and operating income was up 13%, including a minimal impact from acquisitions.

Net income and EPS increased 21% and 24% respectively, both reflecting the strong operating income growth as well as a net tax benefit which was primarily discrete due to U S tax guidance released in the current period.

EPS was $3 39, which includes a nine cent contribution from share repurchases during the quarter, we repurchased 1.9 billion worth of stock and an additional $475 million through October 23rd 2023.

Audra: Good morning, my name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Inc. Q3 2023 earnings conference call.

Audra: All lines have been placed so 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 star followed by the number one on your telephone keypad. Please only press star one once to queue up for a question as pressing star one multiple times. May I send your position in the queue? If you would like to withdraw your question, press star one again.

So, let's turn to page four where you can see the operational metrics for the third quarter.

Worldwide gross dollar volume or G. D V increased by 11% year over year on a local currency basis in the U S. GDP increased by 5% with credit growth of 7% and debit growth of 4%.

Outside of the U S volume increased 13% with credit growth of 13% and debit growth of 14% sequentially. The debit growth rate was primarily impacted by the lapping of the Natwest portfolio migration and the U K.

Devin Corr: Mr. Devin Corr, head of investor relations, you may begin your conference. Thank you, Audra. Good morning, everyone, and thank you for joining us for our third quarter 2023 earnings call. With me today are Michael Miebach, 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.

Overall cross border volume increased 21% globally for the quarter on a local currency basis, reflecting continued strong growth in both the travel and non travel related cross border spending.

Devin Corr: You can access our earnings release, supplemental performance data, and a slide deck that accompany this call in the investor relations section of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAF currency neutral basis unless otherwise noted. Both the release and the slide deck include reconfiliations of non-GAF measures to GAF 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 a 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.

While this is sequentially lower versus Q2. This is due to tougher comps as we lapped the cross border travel recovery from last year. When you look at the trend versus 2019, as Michael said Cross border travel remained strong at 155% of 2019 levels in Q3 and cross border Gardner President ex travel.

To hold up well.

Turning now to page five switched transactions grew 15% year over year in Q3, both card present and garden at present growth rates remain strong.

We also continue to increase the percentage of transactions. We switch. This is strategically important for us as it presents a revenue growth opportunity in both payments and services.

An example of this is in Japan, where we began switching domestic transactions last September.

Unknown Executive: A replay of this call will be posted on our website for 30 days.

In Q3, 2023, we switched over 65% of our total transactions worldwide, whereas.

Michael Miebach: With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach. Thank you, Devin. Good morning from New York, everyone.

Article context. This figure was approximately 55% in 2018.

Michael Miebach: Let me start by acknowledging the recent terror attacks in Israel and the resulting war with Hamas and the growing humanitarian crisis in Gaza. We're deeply saddened by the suffering and the loss. Our focus is on the well-being of our people. Those who have been directly impacted and those in our teams around the world who are dealing with this terrible situation. We will continue to give them support while contributing to relieve efforts. We will monitor the situation closely so we can take action as required.

In addition card growth was 7% globally that a $3 3 billion Mastercard and maestro branded cards issued.

Turning to slide six for a look into our net revenues for the third quarter are discussed on a currency neutral basis payment network net revenue increased 10%, primarily driven by domestic and cross border transaction and volume growth and also includes growth in rebates and incentives.

Value added services and solutions net revenue increased 14% relative to a strong Q3, a year ago. So let me give you a little bit of color.

Michael Miebach: Turning to our results. A quarter of three results demonstrate the strong fundamentals of our business, our diversified model, and the continued resilience and consumer spending. A quarter of three net revenues were up 11% and operating income was up 13% both versus a year ago on an on-gap currency neutral basis excluding special items. On a macroeconomic front, there are a few factors we focus on. First, the labor market remains strong, which is a key driver of consumer spending.

Our cyber and intelligence solutions continue to grow at a healthy pace driven by our underlying key drivers and demand for our fraud and security solutions and we continue to see strong demand for our consulting and marketing services as well as our loyalty solutions.

Which was partially tempered by other solutions.

Now, let's turn to page seven to discuss key metrics related to the payment network again described on a currency neutral basis, unless otherwise noted.

Michael Miebach: However, we continue to monitor aspects such as credit availability and savings behaviors. Second, although inflation levels have moderated, they remain elevated. As central banks continue to actively manage monetary policy, we expect the impacts to vary across countries and sectors, also geopolitical uncertainty remained a concern further underscored by the recent events in the Middle East We are monitoring these moving pieces and stand ready to manage the business accordingly looking at our switch trends this quarter domestic volume growth remains healthy with some moderation in spend and select international markets.

Looking quickly at each metric domestic assessments were up 10% while worldwide G. D. V grew 11% the difference is primarily driven by mix.

Ross border assessments increased 26%, while cross border volumes increased 21%. The five ppt difference is primarily due to mix.

Transaction processing assessments were up 11% while switched transactions grew 15%. The four ppt difference is primarily due to lower revenues related to FX volatility versus the prior year.

Network assessments related to licensing implementation and other franchise fees were $229 million. This quarter. As a reminder, these other network assessments may fluctuate from period to period.

Michael Miebach: And cross-border card present X-travel continues to hold a well at 209 percent of 2019 levels in the third quarter and this is cross-border card not present X-travel. So the overall consumer spending remains resilient and we remain focused on executing against those strategic priorities we see substantial runway for growth through the long term potential in person to merchant payments the sizable opportunity to address new payment flows. Our diverse suite of fast growing service capabilities and our investments in areas of future growth like open banking and digital identity.

Moving on to page three you can see them on a non-GAAP currency neutral basis, excluding special items total adjusted operating expenses increased 9%, including a one ppt impact from acquisitions.

This increase was primarily due to increased spending on personnel to support the continued execution of our strategic initiatives.

Now turning to page nine let me comment on the operating metric trends in the third quarter and through the first three weeks of October.

Starting with switched volume growth year over year, we lapped the Natwest migration early in the quarter and the commencement of switching in Japan late in the quarter.

Michael Miebach: Let's explore these in more detail starting with person to merchant payments where we see a sizable long term growth opportunity where winning deals with a diverse set of partners and investing in technology to further drive the shift to electronic forms of payment and capture new ways to pay. The third quarter our deal momentum across the globe continued in the U.S, we're happy to announce that Webster Bank leading commercial banks in the Northeast has chosen master card as their exclusive.

These factors are the primary drivers of the sequential declines in both Q3 and into October one point on the U S. The sequential drop in October primarily relates to the timing of certain social security payments this year versus last.

Switch transactions followed similar patterns.

Looking at the cross border Cross border travel growth is being impacted by tougher comps as we continue to lap the recovery of travel.

Michael Miebach: It selected us because of our marketing assets safety and security tools and commitment to small business. This builds up on recent wins in the U.S, like the citizens debit portfolio flip with the transition on track for 2024. These two wins are clear examples of the value we deliver through our partnerships and the reasons banks are willing to move their debit business to master card. Further we have partnered with cities wealth business to launch their ultra high net worth credit proposition targeting their private bank lines and Singapore and Hong Kong.

When compared to the 2019 index Cross border travel metrics remained strong cross border card not present ex traveled continues to show strength.

Just for your information we have included all the data points from the schedule excluding activity from Russian issued cards from current and prior periods in the appendix.

Turning to page 10, I wanted to share our thoughts on Q4, So let me start by saying consumer spending remains resilient and that our diversified business model continues to position us well for the many opportunities ahead that being said we are closely monitoring the elevated macro and geopolitical concerns and stand ready to adjust expenses.

Michael Miebach: And in East Africa we signed a long term deal with equity bank group that significantly increases our share across the six markets where they have presence. On the co-brand front we joined Barclays to launch Xbox first credit card in the United States building off our longstanding relationship with Microsoft. This product is an example of how we're tapping into the fast growing gaming space. And of course we continue to strengthen our travel focus programs renewing our frontier airlines program issued by Barclays as well as the Turkish Airlines program with guarantee baby they are.

Should circumstances warrant.

Consumer spending patterns continue to normalize post pandemic, while pockets of opportunity remains for further recovery of cross border travel, notably into and out of China.

This will take some time as these Florida continue to face a variety of constraints.

Having said this our base case scenario continues to assume consumer spending remains resilient buoyed by strong labor markets and reflects recent spending dynamics with.

Michael Miebach: Winning deals positions as well to capture PCE and secular growth is a sizable opportunity across volumes and transactions and we benefit from both. We're bringing together innovation technology the experience and trust that consumers want and expect in their daily lives. And that's not with our best in class digital solutions such as contactless and organization. Contactless now represents 63% of our in-person switch purchase transactions and the convenience and security of our capabilities helping us to further penetrate verticals like transit.

With respect to the fourth quarter, we expect year over year net revenue to grow at the low end of a low double digit rate on a currency neutral basis, excluding acquisitions acquisitions I would expect it to have a minimal impact to this growth due.

Due to the recent strengthening of the U S. Dollar in Q4 Foreign exchange is now expected to be a tailwind of approximately zero to one ppt for the quarter as compared to the three to four ppt benefit we had previously expected.

This follows the impact we saw in the third quarter with a stronger dollar led to a foreign exchange benefit of two ppt to revenue down from our initial expectations of a three ppt benefit.

Michael Miebach: By converting transit to open loop, we gain access to more low-ticket high-frequency transactions, both at the station and the surrounding merchants The last quarter alone, we launched open loop programs with two of the largest transit systems in North America, Toronto and Philadelphia We're now live with over 25 agencies in the US and Canada This year in the Netherlands, we supported the launch of a nationwide contactless transit payment system And in Pakistan, we're helping to digitize daily commutes in Karachi with issuance of a 1 million pre-paid open loop cost On tokenization, it has been 10 years since we first introduced the token standard to the industry Today it is foundational to the network and its performing exceptionally well The number of tokenized transaction has more than doubled over the past two years We just processed over a 3 billion tokenized transactions in one month In this functionality is extending to new places to pay For example, I'd say the spends customers in Germany can now pay for fuel directly from their vehicle using only their fingerprint And Hyundai Motor America is enabling in-vehicle payments for parking with additional features and EV use cases to be enabled in the future Digital solutions are also key to migrating my astro to debit mastercard This conversion drives a better cardholder experience including in many cases the ability to shop online and across borders, which leads to incremental card spend And prior to a full transition, we offer a virtual companion card to the current myastro cards for immediate online use In Europe, we're in the process of sunsetting new issuance of myastro and we will continue to work with our issuance on the migration of well over 100 million cards over time A lot of happening can be to have a for sure On to the second vector for growth, new payment flows, they are substantial untapped flows across commercial payments and the disbursements and remittance space In commercial, we continue to see strong growth, we're expanding our market leading virtual card capabilities into new use cases In the US and Canada, our mobile payment solution is now live with BMO and tech partner extend bringing our virtual card capabilities to contactless business payments We also continue to expand our reach to corporates by partnering with Oracle to embed mastercard virtual card capabilities into their fusion cloud ERP to enable supplier and voice payments and corporate purchases And we are integrating our commercial payment and open banking capabilities into SAP fire near platforms to deliver an embedded payment and lending experience There remains a significant opportunity to convert cash and check to commercial card products We're finding deals across the globe to do just that We're excited to announce that we have agreed a long-term deal with Citibank to forge a global commercial card partnership covering more than 60 markets The deal extends our leadership position with Citibank and reinforces our efforts to modernize and grow B2B payment flows We also find our first ever commercial contract with Axis Bank in India And a commercial deal with the biggest investment bank in Latin America, BTJ, Paktual Now, let's focus on disbursements and remittances With access to more than 95% of the world's bank population are reached spans more than 180 countries and more than 150 current and we are seeing strong growth, the third quarter transactions were up more than 30% on a year over year basis. To continue growing in the space we're expanding into new use cases and geographies. A great example is our partnership is cooperation with PaySan in the UK to enhance cross-border payments for SMEs.

Okay.

From an operating expense standpoint, we expect Q4 operating expenses to grow at a high single digit rate versus a year ago on a currency neutral basis, excluding acquisitions and special items acquisitions are forecast to add about one ppt to this growth and foreign exchange is expected to be a headwind of between zero to one PBT for the quarter.

Other items to keep in mind on the other income and expense line, we forecast an expense of approximately $85 million for Q4, this excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect a tax rate of approximately 18% to 19% in Q4 based on the current Geo.

Graphic mix of our business and with that I will turn the call back over to Devin as you saw some thank you Michael or John you can now open the call for questions.

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 question is pressing star one multiple times may affect your position in the queue.

We'll take our first question from Sanjay Suck Ronny at K B W.

Yes.

Thanks, Good morning, Sachin you know when we look at that fourth quarter revenue deceleration I think what the outlook implies how much of it is like macro versus timing of incentives or something like that I'm just curious.

You know.

What factors are sort of driving that and how we should think about you.

No that that outlook, if theres still moderating trends going forward. Thanks.

Sure Sanjay So a couple of thoughts one in the fourth quarter, you'll remember last year, we continue to experience elevated levels of FX volatility in the fourth quarter of last year and those FX quality levels are certainly moderated by a meaningful extent you saw some of that come through in Q3, there's more that we would expect that garner.

Volatility levels in Q4, so that's certainly.

Baked into our thinking and then to your point around rebates and incentives.

We continue to compete in this market and we have a strong pipeline of deals we continue to win as you've seen in the nature of the various announcements we put out and I would say are our planning for planning purposes, we're continuing to execute on the strong pipeline you would expect that contra sequentially would be up as.

On a percentage of our you know assessment revenue in the fourth quarter not too different than what you would see in.

In any other year, we typically have higher contra levels in the fourth quarter. When you look at them as a percentage of our assessment revenue. So really that's what's there and to your specific point around macro it's like I said, our base case assumes a resilient consumer and that's pretty much what we're assuming going forward as well you know there are always puts and takes depending on markets in question, but brought.

Speaking, we continue to see a strong consumer.

Thank you.

Sure.

Okay.

We'll go next to Tien Tsin Huang at J P. Morgan.

Hi, Thanks, good morning to everyone just on the Europe front I noted that so a little bit the four points I think sequentially.

Year on year is that just the Nat West Comped out is there anything else to call out I'm curious if you saw any change in or interesting performance country by country in Europe.

Yeah sure Tien Tsin. So couple of thoughts first it's primarily the lapping effect of Natwest. So let's start there you know there are always going to be puts and takes by country I would say that Michael talked a little bit about in select international markets, where you're seeing some level of moderation I would say in Europe are you seeing that in the U K.

But largely if you'll see the the diesel which we're talking about that's largely driven by the lapping of our Natwest win last year.

Thanks for clarifying.

Michael Miebach: Now our value-add services and solutions are another important driver for our growth. Collectively this suite of capabilities is fast growing and provide a diversified revenue stream. We have invested thoughtfully to develop services focused on supporting our customers in areas of growing need. Cyber security threats are rising, a trend that will unfortunately persist and is an increasing demand for actionable insights in more personalized experiences. Our services, also by our data-driven intelligence can help customers reduce fraud, grow their portfolios and better engage with their end customers.

Okay.

We'll go next to her sheet a robot at Bernstein.

Hi, Good morning, I wanted to ask about thank you Alicia.

There's been some unrelated activity recently with deferred proposing new debit interchange caps.

Implementation.

And then the credit card competition Bill.

So Michael taking a step back how are you thinking about the regulatory environment in the U S.

Thank you.

Thank you Hershey, Utah.

Thank you for directing that straight to me.

After a few questions on trends, but there is certainly a lot going on so that that's for sure a true.

Michael Miebach: Take our cyber solutions which protect consumers and the payments ecosystem more broadly. One example is safety net, which in the past 12 months has prevented more than 20 billion dollars in fraud. This is just one of our many fraud solutions that we're deploying to deliver more value and support continued growth. AI also continues to play a critical role powering our products and fueling our network intelligence with scaling our AI power transaction fraud monitoring solution which delivers real-time predictive scores based on a unique blend of customer and network level insights.

There's a lot of activity and they have been overlapping Reg I see a deferred on debit.

So all this is a.

Related in a way, but it's also not related in a way and I think this is important for us to take them one by one and without any particular order.

Let me start with CCC, a which has been a topic on this on this call for a little while.

This topic is garnering a lot of momentum across the our industry and industry participants.

Michael Miebach: This powerful solution gives our customers the ability to take preventive action before the transaction is authorized. This quarter alone we find agreements in Argentina, Saudi Arabia and Nigeria with financial institutions and syntax who will benefit from early fraud detection and with merchants who will experience less friction and higher approval rates. In the end this all makes for a better consumer experience. We're also using our services combining our data and expertise to help clients optimize and do more with their portfolios.

We are.

Seeing a more United.

Voice across banks and across merchants to address this point.

Senator Durbin and Marshall have been very active.

Over the last since the last quarter since we lost a walk to attach this particular.

Legislation proposal two other proposals and get a vote they were not successful.

Michael Miebach: This drives both direct services revenue and incremental payments revenue. Our consulting, marketing services and targeting analytics help clients design and execute portfolio migrations, drive incremental card acquisition and stimulate spend. For example in Spain we are working with Finantera at Porta Inglés to boost the migration of close loop clients to our new open loop co-batch proposition. And we're working with Saudi National Bank to enable growth in their credit portfolio by increasing penetration from their debit base.

And I think we actively use the time and productively used the time to bring across that this is not good for consumers. It is not good for small business and is not good for merchants, particularly those who are driving.

Launch reward programs. So for all those reasons. We think this is going to is a misguided proposal and misguided legislation and we'll see where it goes going forward, but I have not been more optimistic on the industry pulling together to making those arguments understood then at this point.

Michael Miebach: So the headline for me is the power of our strategy to drive payment network and service revenue for MasterCard. Services improve the performance of our clients portfolio leading to incremental payment flows which lead to more opportunities to use our services and so on and so on. It's a virtuous circle.

So this is C C C a.

Closely engaged on that.

Now on Reg II.

So we.

We were in compliance with that have we seen.

Any particular outcome I think it was a question on last call do you see this as a opportunity or the risk.

Michael Miebach: We also had success in expanding our customer base and services through best in class personalization and our leading test and learn analytics capabilities. Don't just take our word for it. Garden, I recognize the superior value proposition of dynamic yields, personalization activities and selected the leader in its 2023 garden, a magic quadrant for the third year in a role. That's my luxury brands like Sex Fifth Avenue work with us to create hyper personalized experiences for their e-commerce customers.

At this point, neither what I can tell you is we will compete we have invested billions over the years and the security of our network proposition and we think security is at the center of this whole debate.

Can the merchant takeaway decisions from a consumer here and route this to the lease cost and possibly the less least secure network. While that is what we want to point out that that shouldn't be the case, we're leaning in on that we haven't seen it yet at this point.

So for us to just monitor.

And see what happens will shortly talk about it again next quarter.

The fed debit pricing.

Piece that was put out yesterday, it's going into a consulting period here again as St. The same kind of momentum across the industry across the American Bankers Association knee electronic payments Council put out a letter to the fed on Friday night.

Michael Miebach: We're working with Duncan International to enhance their foundational data and analytics capability to improve operational efficiencies. Our best and class solutions address the unique needs of a diverse set of customers giving us ample opportunity to continue to grow across our value as a whole. And we're working with Duncan International to enhance their foundational data and analytics capabilities to improve operational efficiencies.

Along with seven other trades, if I recall correctly, arguing that this is.

The price caps are generally driving market distortions. This is not a good thing it's not a good thing for the consumer yet again not a good thing for merchants.

Michael Miebach: We have strong foundation for growth in P2M as discussed new flows and services and we are also embracing new opportunities for future growth. A digital adoption continues to rise, open banking remains a key opportunity. We have a powerful set of assets with connectivity to over 95% of deposit accounts in the US and 3000 banks across Europe. We're engaged with a broad set of partners who are increasingly interested in the scale and potential of the open banking solutions we bring in.

Our merchants, who run our reward programs and so forth. So we'll have to see where it goes it is important though to point out that.

Interchange as a balancing mechanism for the industry. It does not directly affect our P&L. So those are important things to keep in mind for all of those we see ourselves as an industry custodian to make sure that the arguments around safety and security and consumer choice are fully understood by all stakeholders.

Michael Miebach: This includes the account to account bill payments use case of banking open banking solutions and Hans existing ACH flows by providing a simple and secure experience allowing consumers to seamlessly share data with trusted parties. Previously announced partnership with JPMorgan payments pay by bank is now live and Verizon plans to pilot this offering with the US customers in the coming months. In addition to this, we're now collaborating with worth pay to enable consumers to pay bills directly from their bank account. A progress here continues.

Great. Thank you very much.

Okay.

We'll go next to Craig Maurer F T partners.

Hi, Thanks for taking the question.

Actually two one.

<unk>, what we're seeing in the U S with deterioration in certain.

Should I say credit quality buckets, and so on and so forth I'm curious if you could discuss.

How well.

All your spend in the U S is broken down between sort of the top 1% and the rest.

Michael Miebach: So in summary, our third quarter results reflect the strong fundamentals of our business and the continued resilience in consumers' ending. Their substantial runway is supported by opportunities to digitize person to merchant payments across both the dollar volume of flows and the number of transactions. And opportunities to address new payment flows and extend our diverse speed of services all while we continue to invest in future areas for growth.

Versus historical levels.

Mike.

Help us understand how insulated spend is to them.

Specific credit issues, we might be seeing over the next six months and secondly.

We've seen some pretty strong rhetoric out of Asia regarding moving away from the global networks due to actions taken around Russia and other places I was wondering if you could comment on how discussions with those markets might have changed in recent times. Thanks.

Michael Miebach: When you put it all together, our diversified business is well positioned for strong growth for years to come.

Sachin Mehra: Such an open to you. Thanks, Michael.

Sachin Mehra: Now turning to page three, which shows our financial performance for the quarter on a currency neutral basis, excluding very applicable special items and the impact of gains and losses on our equity investments. Net revenue was up 11% reflecting resilient domestic consumer spending and strong cross-border volume growth as well as the continued growth in our value added services and solutions. Operating expenses increased 9% including a 1 pbt increase from acquisitions and operating income was up 13% including a minimal impact from acquisitions.

Hey, Craig It's Scott I'll take your first question on the.

The spending trends in the U S and particularly in light of what you are talking about on the.

Nation of credit quality.

The headline for you is the following our portfolio in the U S is actually a pretty well diversified portfolio across all spectrums of the consumer base. If you look at our company 10 years ago I would argue it was a company, which was more kind of weighted towards you know our credit portfolio. We have got a better mix right now of credit and debit.

Across the spectrum of consumers and diversification has always been off rent.

Sachin Mehra: Net income and EPS increased 21% and 24% respectively, both reflecting the strong operating income growth as well as a net tax benefit, which was primarily discrete due to US tax guidance released in the current period. EPS was $3.39, which includes a 9-cent contribution from sharey purchases.

Whether it's around products, whether it's around geographical markets, that's kind of the way we've kind of tried to drive the strategy of the business.

I would tell you I mean, if you if you look at the composition of the issuers and in the U S. Right. So we have a decent amount of co brand portfolios, which cater to the affluent and hopefully from a credit quality standpoint, they stand.

Sachin Mehra: During the quarter, we repurchased 1.9 billion worth of stock and an additional 475 million through October 23, 2023.

Actually hold up pretty well even in down markets.

The other piece I would tell you is that we like the fact that we have been recently investing in winning debit portfolios. We've talked about how we won citizens we talked about Michael just talked about how we won Webster. These are important portfolios because as you know an up and down cycles right what.

Sachin Mehra: So let's turn to page four where you can see the operational metrics for the third quarter. Worldwide Growstall of Volume or GDV increased by 11% year over year on a local currency basis. In the US, GDV increased by 5% with credit growth of 7% and debit growth of 4%. Outside of the US, volume increased 13% with credit growth of 13% and debit growth of 14%. Sequentially, the debit growth rate was primarily impacted by the lapping of the net-west portfolio migration in the UK.

What happens with a diversified portfolio is in down cycles debit tends to be in favor because of the spend going towards these non discretionary categories of spend. So you know the headline I'd tell you is pretty well diversified across products and across the spectrum of consumers in the U S.

And as we were saying earlier, we're monitoring credit availability credit availability is not an issue as far as we can see ended point, it's beyond historic level as below historic levels. So that's something that is part of our continuing efforts to understand where the dynamics are going now on Asia you Andy.

Sachin Mehra: Overall, cross-border volume increased 21% globally for the quarter on a local currency basis, reflecting continued strong growth in both travel and non-travel-related cross-border spending. While this is sequentially lower versus Q2, this is due to tougher comps as we lapped the cross-border travel recovery from last year. When you look at the trend versus 2019, as Michael said, cross-border travel remained strong at 155% of 2019 levels in Q3 and cross-border card not present X travel continues to hold up well.

The question on their strong Rytary from Asia, probably word this differently and say, we're not seeing that we're seeing this is a argument in a broader conversation around where value is coming from the value of globalization and global connectivity on the other hand.

Things like sanctions play into this it's a very complex mix and across the world not just in Asia.

Sachin Mehra: Turning now to page 5, switch transactions grew 15% year over year in Q3, both card present and card not present growth rates remained strong. We also continue to increase the percentage of transactions we switch. This is strategically important for us as it presents a revenue growth opportunity in both payments and services. An example of this is in Japan where we began switching domestic transactions last September. In Q3 2023, we switched over 65% of our total transactions worldwide. For historical context, this figure was approximately 55% in 2018. In addition, card growth was 7%.

There isn't a conversation around weighing all of that off so it's important for you to understand that we have been.

Partnering with countries around the world for years, just take Europe to start with early on we talked about maestro to debit Mastercard, we're partnering with a whole range of local payment systems for years.

And there are no particular concerns around that are the same is in many other parts of the world.

Where this is going and going forward, we'll have yet to see but it is understood that as part of a globally connected.

The economy in a world, where some derisking plays into that trusted Cross board of data flows matter people still want to travel.

And all of that makes US an important player also keep in mind that our capabilities across network level trusted solutions cybersecurity solutions gets us a seat at the table, we're seen as a technology company and a global technology company not necessarily as a U S payment brand when we have those conversations because we help across.

Sachin Mehra: Globally, there are 3.3 billion MasterCard and myestro branded calls issue.

Sachin Mehra: Turning to slide 6, for a look into our net revenues for the third quarter discussed on a currency neutral basis, payment network net revenue increased 10%, primarily driven by domestic and cross-border transaction and volume growth and also includes growth and rebate and incentives. Value added services and solutions net revenue increased 14%, relative to a strong Q3 a year ago. Let me give you a little bit of color. Our cyber intelligence solutions continue to grow at a healthy pace driven by our underlying key drivers and demand for our fraud and security solutions. We continue to see strong demand for our consulting and marketing services as well as our loyalty solutions which is partially tempered by other solutions.

Ross, we enable local payment solutions through those services, so I'm <unk>.

Not overly worried about this but it's an active dialogue, where we are seeing some really good things coming out of the out of that think about some of the advancements in financial inclusion when local governments set up systems that reach consumers that haven't been reached before that lift everybody's bolt and.

And that is good for the overall payments industry. So it is a broad topic, we've been engaging through the U S government through other governments multilateral organizations and I personally spend quite a bit of time on that topic to ensure that we don't lose the benefit of a globally connected economy.

Sachin Mehra: Now let's note to page 7 to discuss key metrics related to payment network again described on a currency neutral basis unless otherwise noted. Looking quickly at each metric, domestic assessments were up 10% while worldwide GDV grew 11%, the difference is primarily driven by mix. Cross-border assessments increased 26% while cross-border volumes increased 21%, the 5 PPT difference is primarily due to mix. Transaction processing assessments were up 11% while switch transactions grew 15%.

Thank you.

Well move next to will Nance at Goldman Sachs.

Hey, guys I. Appreciate you taking the question I wanted to ask about some of the trends and value added services. It sounds like the commentary this quarter was similar to last quarter kind of a tale of two assets relatively strong growth in services and maybe a little bit of drag from solutions. I was just wondering if you could talk on the drag and solutions.

Sachin Mehra: The full PPT difference is primarily due to lower revenues related to FX volatility versus the prior year. Our network assessments related to licensing, implementation and other franchise fees were $229 million this quarter. As a reminder, these other network assessments may fluctuate from period to period.

Little bit of color on what's driving that and maybe for the outlook how.

How long should you should we kind of expect that drag to continue and then what's sort of the outlook for the two buckets.

Sure.

So a couple of thoughts first like we mentioned in my prepared remarks value added services and solutions net revenue increased 14% this quarter.

Sachin Mehra: Moving on to P.J., you can see that on a non-gap or unchain neutral basis, excluding special items, total adjusted operating expenses increased 9%, including a one P.P.T, impact from acquisitions. This increase was primarily due to increased spending on personnel to support the continued execution of our strategic initiatives.

I will kind of emphasize that our cyber and intelligence solutions continue to grow at a healthy pace. This obviously is driven by underlying drivers as well as demand for our various solutions, we offer and we're seeing similar trends in terms of strong demand for our consulting marketing and marketing services and loyalty solutions to your point about the tempering effect of other solution.

Sachin Mehra: Turning to page 9, let me comment on the operating metric trends in the third quarter and through the first three weeks of October. Starting with switched volume growth year over year, we lapped the network's migration early in the quarter and the commencement of switching in Japan late in the quarter. These factors are the primary drivers of the sequential declines in both Q3 and into October. One point on the US, the sequential drop in October primarily relates to the timing of certain social security payments this year versus last.

So that certainly is having a temporary effect and when we have what we have in other solutions is the relative.

Growth rates from real time payments from what's going on from a bill payment standpoint, it's things of that nature, which are actually growing at a slower pace, which is candidly I mean something which.

We should expect that the reality is we've always talked about services in the past, we havent talked about value added services and solutions now we're talking about value added services and solutions, which is why youre seeing that tempering effect come through I think if it's helpful. One of the things which.

Sachin Mehra: Switch transactions follow similar patterns. Looking at cross-border, cross-border travel growth is being impacted by tougher calms as we continue to lapped the recovery of travel. When compared to the 2019 index, cross-border travel metrics remain strong. Cross-border card not present X traveled continues to show strength.

I won't actually also share with you is that this overall growth rate.

Can be impacted quarter to quarter by transaction growth by comps and by timing.

And just as a reference point when including what's already when excluding other solutions, where which have the dampening effect our value added services.

Sachin Mehra: Just for your information, we have included all the data points from this schedule, excluding activity from Russian issued cards from current and prior periods in the appendix.

Have grown at 19% year over year on a year to date basis, excluding Russia. So I think what I'm kind of trying to share with you is that as this tempering effect on other solutions you should expect that tempering effect to continue all of that being said there.

Sachin Mehra: Turning to page 10, I wanted to share our thoughts on Q4. So let me start by saying consumer spending remains resilient and that a diversified business model continues to position us well for the many opportunities ahead. That being said, we are closely monitoring the elevated macro and geopolitical concerns and stand ready to adjust expenses should circumstances warrant. Consumer spending patterns continue to normalize both pandemics while pockets of opportunity remain for further recovery of cross-border travel notably into and out of China.

There is.

The overall strength, we see in our CNI and DNS side, which we're actually very positive we've seen good demand in that space.

Got it thank you.

Sure.

We will take our next question from David <unk> at Evercore ISI.

Thank you very much given some of the temporary growth that you've highlighted especially in vas. How are you thinking about flexing expenses over the next six to 12 months, where do you have a fair amount of discretion in what are some of the areas, particularly like R&D, which would be sacrosanct.

Sachin Mehra: This will take some time as these corridors continue to face a variety of constraints. Having said this, our base case scenario continues to assume consumer spending remains resilient, void by strong labor markets and reflects recent spending dynamics. With respect to the fourth quarter, we expect your over your net revenue to grow at the low end of a low double digit trade on a currency neutral basis, excluding acquisitions. Acquisitions are expected to have a minimal impact to this growth.

Right so.

As such and said he was really talking about tempering and in Vas. He was talking about tempering and the other solutions just wanted kind of get that straight out there I.

I think there is potentially a little bit of confusion here with our revenue disaggregation of definitions here, we've talked about services in a particular way for years and now we have a slightly different definition as you know, which we shared with you.

Sachin Mehra: Due to the recent strengthening of the US dollar in Q4, foreign exchange is now expected to be a tailwind of approximately 0 to 1 ppt for the quarter as compared to the 3 to 4 ppt benefit we had previously expected. This follows the impact we saw on the third quarter where the stronger dollar led to a foreign exchange benefit of 2 ppt to revenue down from our initial expectations of a 3 ppt benefit.

To put that out there first to your question so.

We continue to expect strong growth in value added services and solution DNS and see as I as we said.

As far as expenses go.

I said it at the beginning you know looking at macro looking at everything that's going on around us and we have demonstrated this through COVID-19, we have demonstrated through Russia, and we will continue to demonstrate as we have a whole range of leavers in are not particularly capital heavy busy business to adjust our expenses you've seen us manage for positive.

Sachin Mehra: From an operating expense standpoint, we expect Q4 operating expenses to grow at a high single digit rate versus a year ago on a currency neutral basis, excluding acquisitions and special items. Acquisitions are forecast to add about 1 ppt to this growth and foreign exchange is expected to be a headwind of between 0 to 1 ppt for the quarter.

Bottom line and topline growth.

Over on a year over year basis, and we're not men and Xing this quarter by quarter, but that is always something that we keep in mind. So our financial discipline will continue here we have no.

Sachin Mehra: All the items to keep in mind are the other income and expense line. We forecast an expense of approximately $85 million for Q4. This excludes gains and losses on our equity investments which are excluded from our non-gap metrics. Finally, we expect the tax rate of approximately 18-19% in Q4 based on the current geographic mix of our business.

Reason to change that it's working well and that is the.

The disciplined way to do this thank you and David I will just add right just as Michael said I think our philosophy from an operation standpoint is to continue to deliver positive operating leverage over the long term, we will do that in a disciplined manner to continue to drive short medium and long term growth and we will invest prudently and we'll obviously keep an eye on what's going on from that on the top line.

Devin Corr: And with that, I will turn the call back over to Devin. Thank you so much, and thank you, Michael.

Audra: Arja, you can open the call. 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 once to queue up for a question as pressing star one multiple times may affect your position in the queue.

And kind of moderate on expenses as appropriate as we have done historically, so I just wanted to reiterate exactly what Michael said there.

Thank you.

Hum.

Thanks, David.

Next to Bryan Keane at Deutsche Bank.

Hi, Good morning, just wanted to ask about more chunkier portfolios and the timing of it obviously natwest anniversaried that might have surprised some people on the comps, but it is just an anniversary of that so just thinking about citizens are webster others, the timing on when they come on in.

Sanjay Sakharani: We'll take our first question from Sanjay Sakharani at KBW. Thanks, good morning.

Sachin Mehra: Sachin, you know, when we look at that fourth quarter revenue deceleration, I think what about look implies how much of it is like macro versus timing of incentives or something like that. I'm just curious, you know, you know, what what factors are sort of driving that and how we should think about, you know, that I'll look if there's still moderating trends going forward. Thanks. Sure, Sanjay. So a couple of thoughts. One in the fourth quarter, you'll remember last year we continued experience elevated levels of effects volatility in the fourth quarter of last year, and those effects, volatility levels have certainly moderated by meaningful extent.

And any others out there.

Sure Brian.

On citizens.

The portfolio transition is on track for 2024, you should expect that that will take place over a period of time as opposed to a flip the switch kind of environment.

Sachin Mehra: You saw some of that come through in Q3. There's more that we would expect that current volatility levels in Q4. So that's certainly, you know, baked into our thinking. And then to your point around rebates and incentives, look. We can compete in this market and we have a strong pipeline of deals. We continue to win as you've seen in the nature of the various announcements we put out and I would say our planning for planning purposes.

Webster, we just announced which we're super excited about right in the portfolio transition will also begin in 2024 and will take place over a period of time.

Theres Dawn Natwest I've already spoke about the.

The other one actually which I'd kind of point out is Deutsche Bank right and.

There, we had talked about conversion of 10.

10 million cards.

That conversion is has started.

It's a combination of our debit and credit will happen over an extended period of time again, it's not a flip to switch kind of scenario and the last one I had mentioned is around only credit which is something which will happen over multiple years. So this is not.

Sachin Mehra: We're going to, you know, execute on the strong pipeline. You would expect that contra sequentially would be up as a percentage of our, you know, assessment revenue in the fourth quarter. But not too different than what you would see in any other year. We typically have higher control levels in the fourth quarter when you look at them as a percentage of our assessment revenue. So really, that's what's there. And to your specific point around macro, it's like I said, our base case assumes, you know, a resilient consumer. And that's very much what we're assuming going forward as well. You know, there always puts in takes depending on markets and question, but broadly speaking, we couldn't even see a strong consumer. Thank you. Yeah.

And when I say multiple years I literally mean youll start in 2024, and this would work its way through over a few years. So.

That's what I can share with you in terms of at least the chunky ones, obviously that a bunch of other portfolios, which we win.

All the time, but these are the big ones.

Thank you.

Sure.

Our next question comes from Tim T O two at UBS.

Great. Thank you for taking my question I just wanted to take this as an opportunity to read to revisit some of the mechanics around rebates and incentives. If you could just provide a recap on the portions of rebates and incentives that are volume and performance based some of the portions that are maybe more fixed and then the portions that are more cumulative over the core.

Tianjin Wang: We'll go next to Tianjin Wang at JP Morgan.

<unk> of a contract I think that would be appreciated by all.

Sure. So first the reason, we do rebates and incentives to drive volume I just wanted to be clear that's kind of what drives.

Sachin Mehra: I think good morning to everyone. Just on the Europe front, I noted that it's slow a little bit at the four points. I think sequentially, you're on your, is that just a net west compound? Is there anything else to call out? I'm curious if you saw any change in, or interesting performance country back country in Europe. Thanks. Yeah. Sure. So couple of thoughts. First, it's primarily the lapping effect of net west.

What we're trying to do which is to win preference, which allows us to generate revenue from the payment stream as well as to deliver services to drive our net revenue yield. So that's kind of the headlight. Your specific question around rebates and incentives right. It's a combination typically of fixed and variable it depends on a deal by deal basis, if it's a fixed incentive the fixed incentive is typically amortized.

Sachin Mehra: So let's start there. You know, they're always going to be puts in takes by country. I would say that, you know, Michael talked a little bit about intellect international markets. We're seeing some level of moderation. I would say in Europe, you're seeing that in the UK. But largely, if you see the diesel which you're talking about, that's largely driven by the lapping of our net west win last. Thanks for clarifying.

Unknown Executive: Thank you.

Over the life of the deal are variable incentives are variable in nature. They vary with the the volume which are coming through and they are timed with our the volume rules on so that's kind of at the highest level. The other piece of it going to share with you is rebates and incentives are typically more indexed towards domestic volumes less indexed towards cross border. So those are the.

The <unk> piece as I've mentioned to you on rebates and incentives.

Greatly appreciate it thank you.

Harshita Rawat: We'll go next to Harshita Rawat at Bernstein. Hi, good morning, I want to ask about regulation. There's been some unrelated activity recently with Fed proposing new debit into change gaps like AI, implementation for China Crescent, and the credit card competition bill.

Sure.

We'll go next to Dan <unk> at Mizuho.

Hey, Thanks, Michael I, just wanted to give you a compliment first because it is close to my heart and I. Appreciate you mentioning the terror attack on Israel I think your competitor made it more like <unk>.

Politically correct comment on their call. So I really appreciate it.

Michael Miebach: So Michael, taking a step back, how are you thinking about the regulatory environment in the US and abroad? Thank you. Thank you, Harshita. Thank you for directing that straight to me, after a few questions on trends. But there is certainly a lot going on, so that's for sure true. There's a lot of activity and they have been overlapping, reggaugai, CCCA, the Fed on debit. So all this is related in a way, but it's also not related in a way.

And then to my question.

A key European a merchant acquirer called out like a big negative trend in Germany, and as you know the whole market trended down can you make some specific comments how much of that was you know.

But youre seeing because it seems like trends are actually pretty solid and pretty resilient. So theres quite a bit of confusion in the market. We would appreciate some comments on the European macro trend. Thank you.

Thanks, Dan as you can appreciate I keep a close eye on the German market very specifically and we're not seeing that.

Michael Miebach: I think this is important for us to take them one by one. And without any particular order, let me start with CCCA, which has been a topic on this call for a little while. This topic is garnering a lot of momentum across our industry and industry participants. We are seeing a more united voice across banks and across merchants to address this point. Senator Durbin and Marshall have been active over the last quarter since we last walked to attach this particular legislation proposal to other proposals and get a vote.

Consumer spending remains pretty pretty steady.

In Germany in generally in Europe.

<unk> talked a little bit about one U K might have a couple of.

Little bit of moderation here and there, but overall, we're not seeing that so what we see on the other hand as you know is strong growth for us in Europe.

On all of the migrations on our debit maestro migrations and so forth. So Europe's been a bright star continues to be for us.

So we don't quite relate to what others are reporting.

Thank you I appreciate it.

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

Michael Miebach: They were not successful. And I think we actively use the time and productively use the time to bring across that this is not good for consumers. It is not good for small business and is not good for merchants, particularly those who are driving large reward programs. So for all those reasons, we think this is going to be a misguided proposal, a misguided legislation, and we'll see where it goes going forward. But I've not been more optimistic on the industry pulling together to making those arguments understood than at this point. So this is CCCA. We're closely engaged on that.

Okay.

Thanks, guys I, just wanted to follow up a little bit more on the incentives and rebates, but first just Michael the number of portfolios that you guys are winning on the different different at different parts of the world really but just talk a little bit about the competitive landscape, whether it's unicredit or now citizens or others that you keep talking about if anything has changed and then.

It kind of dovetails into incentives and rebates because the growth.

There were about five to 600 basis points faster than gross revenues, you're seeing and it maybe that parts more for Sachin.

It offset some of the exciting opportunities we are seeing on gross revenue growth kind of in a few quarters in a row now and so I just wanted to get a better sense of what you're seeing in terms of.

Michael Miebach: Now on REGIII, so we're in compliance with that. Have we seen any particular outcome? I think it was a question on last call. Do you see this as an opportunity or as a risk? At this point, neither what I can tell you is, we will compete. We have invested billions over the years in the security of our network proposition and we think security is at the center of this whole debate. Can the merchant take away decisions from a consumer here and route this to the least cost and possibly the less least secure network? Well, that is what we want to point out that that shouldn't be the case. We're leaning in on that. We haven't seen it yet at this point.

Anything structural in rebates incentives, maybe a bit different.

And tied to winning business or is it just more business as usual and just maybe some comments on that thanks guys.

Thank you let me start off here, so I want to reiterate what <unk> said before we.

Trying to win.

Portfolios that are important for market relevance perspective for us to gain access to transactions to drive our services model and follow through on at virtual circle that I talked about earlier in my remarks. So that's the whole idea, we keep net revenue yield in mind as we do all of this that is the integrated payments and services model that we pursue.

Michael Miebach: So for us to just monitor and see what happens, we'll surely talk about it again next quarter. The Fed debit pricing piece that was put out yesterday is going into a consulting period. Here again, the same kind of momentum across the industry, across the American Bank of Association, electronic payments council, put out a letter to the Fed on Friday night along with seven other trades, if I recall correctly, arguing that price caps are generally driving market distortions.

Now when you look at the competitive landscape payments is competitive there's a lot of players out on the landscape, we like competition and we feel we have a truly unique proposition between our payments and digital solutions on one hand, and our services on the other hand, so when you when you think about owning credit.

So why did they come to us Ah well they were looking at our proven track record in our engagement with owning created for the expanded relationships.

Courting their customers they like our sustainability agenda.

On citizens is a similar kind of mixed sent on web started yet again. It was a similar kind of mix theres always something across the portfolio of services that sticks out citizens I recall a conversation on open banking for example that is clearly one that mattered and sustainability agenda, yet again, so it's a mixed there is nothing particularly new here.

Michael Miebach: This is not a good thing. It's not a good thing for the consumer yet again, not a good thing for merchants who run a reward program and so forth. So we'll have to see where it goes. It is important, though, to point out that Interchange is a balancing mechanism for the industry. It does not directly affect our PNL. So those are important things to keep in mind. For all of those, we see ourselves as an industry custodian to make sure that the arguments around safety and security and consumer choice are fully understood by all stakeholders.

Unknown Executive: Great, thank you very much.

We always weigh off the volume growth that we can see with the incentives that we give to make this whole equation will work for us in a very disciplined manner and there's now a range of deals and portfolio that we really do not want to win so we're very disciplined about that and I don't see anything out of the ordinary here, but I want to hand over to Sachin to give us a little more color on that sure.

Craig Maurer: We'll go next to Craig Maurer, F.T, partners. Hi, thanks for taking a question. Actually to one, you know, considering what we're seeing in the US with deterioration in certain, I should I say, credit quality buckets and so on and so forth. I'm curious if you could discuss, you know, how, how you're spending the US has broken down between sort of the top 1% and the rest, the oversist historical levels, just might get it, help us a little more.

So darrin I think.

Craig Maurer: Understand how insulated spend is to the specific credit issues we might be seeing over the next six months. And secondly, we've seen some pretty strong rhetoric out of Asia regarding moving away from the global networks due to actions taken around Russia and other places. I was wondering if you could comment on how discussions with those markets might have changed in recent times. Thanks.

I think Michael covered going to the competitive landscape I think to your specific question around you know the divergence not diversions, but the fact that gross revenue is growing at a faster clip in rebates and incentives are actually impacting the rules on the net revenue side there.

Reality is in our group business right, you're investing in portfolios upfront right looking back to the earlier question, which was asked right when youre doing a combination of fixed and variable incentives.

Fixed incentives start to amortize the moment of deal goes live that doesn't mean the volumes come on at full speed when the deal goes life right because like the golf, we talk about conversions happening over multiple years, we talk about you know if a conversion happens right away you get the volume right away and you start to see the associated.

Impact from a revenue standpoint, so there is this lag which existed on the fixed on the fixed incentives line between when we're recognizing the impact of those incentives and when we would expect that full ramp the volumes will come on as we win deals.

That's more of a technicality as and you know how the math around that works I think the bottom line still remains which is we would much rather be in the payment flow on a disciplined basis to be able to drive higher net revenue yield for our company.

Sachin Mehra: I'll take your first question on, you know, the spending trends in the US and particularly in light of what you're talking about on the deterioration of credit quality. The headline for you is the following are portfolio in the US is actually a pretty well diversified portfolio across all spectrums of, you know, the consumer base. If you look at our company 10 years ago, I would argue, you know, it was a company which was more kind of weighted towards, you know, credit portfolio.

And then not being the floor because we were not in the flow youre not getting the benefit of PC you are not getting the benefit of the shift of the secular trends, which are moving from castle electronic forms of payment and you're certainly not getting the ability to deliver certain levels of services, which we've got up there. So that's kind of the broad philosophy from a competitive standpoint.

Children to date here.

Sachin Mehra: We have got a better mix right now of credit and a bit across the spectrum of consumers and diversifications always been off rent, whether it's around products, whether it's around geographical markets, that kind of the way we've kind of tried to drive the strategy of the business. I would tell you, I mean, if you look at the composition of the issues in the US, right, so we have a decent amount of, you know, go brand portfolios, which cater to the affluent and hopefully from a credit quality standpoint, they stand to actually hold up pretty well even in, you know, in down markets.

Alright, thanks, guys.

Sure.

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

Okay.

Okay.

Hey, thanks.

I wanted to talk about pay by bank.

Alive.

J P Morgan.

Present is piloting can you speak to the momentum you're seeing in the product and given that it uses traditional ACTH banking rails could you maybe more broadly speak to the economic model for this and similar products that maybe tend to not use mastercard.

Sachin Mehra: The other piece I tell you is that we like the fact that we have been recently investing in winning debit portfolios, we've talked about how we want citizens, we talked about Michael just talked about how we want Webster. These are important portfolios because as you know, in up and down cycles, right, what happens with the diversified portfolios in down cycles debit tends to be in favor because of the spend going towards these non discretionary categories of spend.

Alright.

So.

This is a combination of bill pay of open banking this is <unk>.

For us sitting in a new flow space very specifically, what we are addressing is trying to bring value to AC H flows.

These are somebody paying a doctor or things like that and how do we add value to this is by plugging onto a floor that would take place and might not happen because of insufficient funds on an account.

Sachin Mehra: So, you know, the headline I tell you was pretty well diversified across products and across the spectrum of consumers in the US. And as we were saying earlier, we're monitoring credit availability, credit availability is not an issue as far as we can see in that point, it's beyond historic level as below historic level.

Putting in our open banking connection to make it clear is there a balance is there a balance on the account it's called the payments success indicator that is the product and it is a per click fee related to the API call. So that is the model.

Michael Miebach: So that's something that is part of our continuing efforts to understand where the dynamics are going now on Asia. You answered the question on their strong rhetoric from Asia, I would probably word this differently and say we're not seeing that. We're seeing this is a argument in a broader conversation around where value is coming from, the value of globalization and global connectivity. On the other hand, you know, things like sanctions play into this, it's a very complex mix and across the world, not just in Asia.

That is bringing value to a part of the payments industry, where there wasn't a particular problem to be solved and not anybody willing to pay for it I think we finding starting to find these corners. When it is real value that we can bring so for US. This is Tam expansion. This is new flows and <unk> power are unique.

Combination of services together, we are in real time payments and we are in digital identity and we're in open banking all of this is needed here to make the solution work and this is why a player like JP Morgan comes to us to do this for us and Verizon to the point about momentum will now be piloting. It. So it would be a little early to talk about momentum, but we will come back on that as that solution.

Michael Miebach: There is a conversation around weighing all of that off. So it's important for you to understand that we have been partnering with countries around the world for years to take Europe to stop with. Earlier on, we talked about, you know, Maestro and David Mazdakad, we're partnering with a whole range of local payment systems for years. And there are no particular concerns around that. The same is in many other parts of the world.

Is that rolled out into the market, but it is now live.

And that was an important point for us because it had to be built and put together and we have done that.

Maybe some things.

We'll go next to Jeff Cantwell at Seaport Research.

Michael Miebach: Where this is going, going forward, will have yet to see, but it is understood that as part of a globally connected economy and a world where some de-risking plays into that trusted cross-border data flows matter, people still want to travel. And all of that makes us an important player. Also, keep in mind that our capabilities across network level trusted solutions, cybersecurity solutions gets us a seat at the table. We're seen as a technology company, a global technology company, not necessarily as a US payment brand when we have those conversations, because we help across.

Okay.

Hey, Thanks, I wanted to ask you about your business update in October specifically, we can see in the U S switched.

Switched volume growth of 5%. So that's 200 bps, sorry versus the prescribing you did this quarter, but.

Can you talk a little more about how you see the holiday season and developing this year because we've seen some estimates that consumers spend could increase by 5% versus last year, which sounds pretty good all things considered.

You highlighted so he can see consumer spend this quarter. So just wanted to take your temperature on how the entire quarter Mike Bob.

Michael Miebach: We enable local payment solutions through those services. So I'm not overly worried about this, but it's an active dialogue where we're seeing some really good things coming out of that. Think about some of the advancements in financial inclusion when local governments set up systems that reach consumers that haven't been reached before. That lifts everybody's boat. And that is good for the overall payments industry. So it is a broad topic. We've been engaging through the US government, through other governments, multilateral organizations. And I personally spend quite a bit of time on that topic to ensure that we don't lose the benefit of a globally connected economy. Thank you.

Thanks.

Hey, Jeff.

So on the U S. Specifically, what youre seeing in the 'twenty. One numbers is like I said on my prepared remarks, right, it's primarily related the timing of social security payments.

Between this year and last year so.

Thats really what youre seeing in the nature of that.

7% growth in.

Q3, which now shows at 5% in the first three weeks of October so.

There's really from an underlying standpoint, all of them that theres not much we're seeing in the nature of a.

A trend shift in the U S.

In the first three weeks of October on your question around how we see Q4 shaping up it's actually very much in line with what I shared which is our base case scenario continues to be one of where the consumer remains resilient I mean, you know the reality is.

Will Nance: We'll move next to Will Nance at Goldman Sachs. Hey guys, I appreciate you taking the question. I wanted to ask about some of the trends and value added services. It sounds like the commentary this quarter was similar to last quarter, kind of a tale of two S's, relatively strong growth in services, and maybe a little bit of drag from solutions. I was just wondering if you could talk on the drag and solutions, you know, a little bit of color on what's driving that and maybe, you know, for the outlook, you know, how long should we kind of expect that drag to continue and what sort of the outlook for, you know, the two buckets.

Unemployment levels are at all time record lows when people have jobs. They are hopefully you're getting their paychecks switch there hopefully using towards meeting their spending needs. You also saw GDP came out this morning, and it came out pretty strong. So I kind of generally think about this as saying our base case scenario around consumer strength and resilience.

Is what we're assuming going into into Q4.

Okay.

Okay. Thanks very much.

Sachin Mehra: Sure. Well, so a couple of thoughts first, like we mentioned in my prepared remarks, value added service and solutions, net revenue increased 14% the quarter. I will kind of emphasize that our cyber intelligence solutions continue to grow a healthy pace. This obviously is driven by underlying drivers as well as demand for our various solutions we offer. And we're seeing similar trends in terms of strong demand for our consulting marketing and marketing services and loyalty solutions.

Sure.

We'll go next to Ramsey El <unk> at Barclays.

Hi, Thanks for taking my question I wanted to follow up on Dan <unk> question earlier, and basically just ask about the sort of dislocation between your valuation in the marketplace and the valuation of your distribution channels, the acquirers and banks that sort of flow transactions to you can you give us your updated thoughts on the overall health.

Sachin Mehra: To your point about, you know, the tempering effect of other solutions that certainly is having a tempering effect. And when we have what we have in other solutions is the relative growth rates from real time payments from what's going on from a built payments standpoint. It's things of that nature, which are actually growing at a slower pace, which is candidly, I mean something which, you know, we should expect the reality is we've always talked about services in the past.

And Tam penetration of this core kind of value chain.

When you look at the.

Heritage distribution channels on both sides are you seeing people or are you seeing stability in other words, if the market kind of getting the industry wrong. At this point or are you seeing changes out there that are worth calling out.

Hey, Ramsey.

Let me start off on that.

So if you look at how our distribution has evolved over the years.

Sachin Mehra: We haven't talked about value added service and solutions. Now we're talking about value added service and solutions, which is where you're seeing that tempering effect come through. I think if it's helpful, one of the things which I want to actually also share with you is that this overall growth rate can be impacted quarter to quarter by transaction growth by comps and by timing. And just as a reference point when including, sorry, when excluding other solutions, where which have the tempering effect are value added services have grown at 19% year over year on a year to date basis, excluding Russia.

The whole theme of diversification across products and segments also applies here. So we're doing a whole number of things I talked about.

Our work on acceptance that is part of our distribution, where contactless tap on phone and things like that a whole range of new merchant groups scaling these kind of technologies with partners like stripe, there's all going into areas that we haven't been in.

Then you have.

Other parts of our go to market, we talked about <unk>, we talk about the Oracle and SAP go over into the world of acquire us Theres, a whole range of acquirers more traditional acquirers, which I'll partner so across the board is highly diversified regionally highly diversified so these blips here and there.

Sachin Mehra: So I think what I'm kind of trying to share with you is there is this tempering effect on other solutions. You should expect that tempering effect to continue all of that being said. There is the overall strength we see in our CNI and DNS side, which which were actually very positive. We seem good to man in that in that space.

I can't really talk about other People's business, but you know earlier on the question around what we're seeing in Europe, We're just not seeing it in our numbers because we have a highly diversified models or whatever specific sector focused somebody has that as a partner of ours doesn't necessarily flow through for us. So I don't know if the market got it wrong or not we're not the oracle, but we make sure we partner with.

David Togut: Thank you.

Michael Miebach: We'll take our next question from David Togut at Evercore ISI. Thank you very much. Given some of the tempering growth that you've highlighted especially in VAS, how are you thinking about flexing expenses over the next six to 12 months? Where do you have a fair amount of discretion and what are some of the areas, particularly like R&D, which would be a sacrosanct? Right. So what Sachin said, he wasn't really talking about tempering in VAS.

Everybody to drive the overall digital ecosystem.

Got it thank you.

Next we'll go to Bob Napoli of William Blair.

Thank you good morning, I wanted to follow up on commentary around open banking.

Banking as a service and Mastercard also.

Michael Miebach: He was talking about tempering in the other solutions. So I just want to kind of get that straight out. You know, I think there is potentially a little bit of confusion here with our revenue disaggregation and the definitions here. We've talked about services in a particular way for years and now we have slightly different definition as you know, which we shared with you. So just want to put that out there first to your question.

A great job of partnering with a lot of Fintech we were.

At just at money 2020, and I would say this year there were a lot more regulators than I remember in the past and talking about open banking and.

How active they are in reviewing all of the partners in those relationships. So just any thoughts on your outlook for your open banking investments and then how you think about the regulation to growing regulation around open banking or banking as a service.

Michael Miebach: So we continue to expect strong growth in value added services. And solution DNS and CSI, as we said, as far as expenses go, I said it at the beginning, you know, looking at macro, looking at everything that's going on around us and we have demonstrated this through COVID, we have demonstrated through Russia, and we will continue to demonstrate as we have a whole range of levers in a not particularly capital heavy business to adjust our expenses.

Right. So we continue to believe in the.

The whole notion of open banking and open data at large where people and businesses use their own data.

Towards better surfaces and propositions for them. So the idea stance and I think the idea gets hold and hold if you look at.

Michael Miebach: You've seen us manage for a positive bottom line and top line growth over on a year over year. We're not managing this quarter by quarter, but that is always something that we keep in mind. So our financial discipline will continue here. We have no reason to change that. It's working well and that is the disciplined way to do this. Thank you. And David, I'll just add, right. Just as Michael said, I think our philosophy from an operation standpoint is to continue to deliver positive operating leverage over the long term.

Europe with.

More regulation coming in and looking at PST three and so forth you are looking at the CFPB here in the United States putting out.

Some thoughts on how regulation could look like.

For us I put this in context of the ideas understood. How do you make it safer yeah, what does that need it needs trusted parties in the middle if you can imagine a world full of a bunch of bilateral relationships where people exchange data in a not so safe way that would be a bad world. That's what regulators wanted.

Michael Miebach: So we will do that in a discipline manner to continue to drive short medium and long term growth, and we will invest brilliantly. And we'll obviously keep an eye on what's going on for that on the top line and kind of moderate on expenses as appropriate as we've done historically. So I just want to reiterate exactly what Michael said there. Thanks David.

Want to prohibit were coming in and saying we could be one of those parties that really bring the idea to life for consumers I can use my data data for better financial services. So when I look at what the CFPB has put out we largely support the idea it aligns very well with our data responsibility principles that.

Brian Keen: Next to Brian Keen and Deutsche Bank.

Michael Miebach: Hi, good morning. So I just wanted to ask about more chunkier portfolios and the timing of it. Obviously, net West anniversary, that might have surprised some people on the comps, but it's just an anniversary of that. So just thinking about citizens or Webster or others, the timing on when they come on and any others out there. Sure, Brian. So on citizens, the portfolio transition is on track for 2024. You should expect that that will take place over a period of time as opposed to a flip the switch kind of environment.

We put out if your data as a consumer you benefit from it you control. It it is our role as a company to keep it safe and we're very good at that so our interlocking circles Stanford Trust for open banking to work you need Trust and I think that is where we're going so we're engaging in fact, where oftentimes into room. When these things are being thought about in Europe.

Very much part of the dialogue on how.

Data privacy in this context could look like.

Last question. Thank you.

And we will take that last question from Jason Kupferberg at Bank of America.

Michael Miebach: Webster, we just announced which we're super excited about, right. And the portfolio transition will also begin in 2024 and will take place over a period of time. You know, sometimes there's done that West I already spoke about the other one actually, which I kind of point out is Deutsche Bank, right. And there we are talked about conversion of 10 million gods. You know, that conversion has has started. There's a combination of definite credit will happen over an extended period of time.

Hey, Thanks, guys just wanted to flash back to the analyst day, two years ago. I know you had shared a three year guide at the time for a revenue CAGR of high teens through 2024, and it looks like you'll basically be right. There through the first two years of that forecast period. So I just wanted to take your temperature on that three year guide it looks like we're exiting 'twenty three more in the low double digit range and really just trying to.

Get a sense of how youre thinking about normalized top line growth going forward with the Covid noise essentially in the rearview mirror.

Michael Miebach: Again, it's not a flip to switch kind of scenario. And the last one I'd mention is around Unicredit, which is something which will happen over multiple years. So this is not, you know, I mean, actually multiple years, I literally mean you'll start in 2024 and this will work its way through over a few years. So that's what I can share with you in terms of at least the chunky ones, obviously there are a bunch of other portfolios which we've been, you know, all the time, but these are the bigger ones.

Yes, Jason so.

Unknown Executive: Thank you.

Look we're not updating anything on the three year outlook at this point in time.

Unknown Executive: Ciao.

It's like you said the <unk>.

Sure actually tend to be very nice here again in the second year, we've delivered quite strongly year to date and then we've shared with you what we think will happen.

Our expectation standpoint in Q4.

One thing I, just wanted to kind of.

Orient everybody too is.

When we had the Investor day. It was in November of 2021, and the World has actually changed quite meaningfully since then.

Unknown Executive: Our next question comes from Tim Chiodo at UBS. Great, thank you for taking the question. I just wanted to take this as an opportunity to revisit some of the mechanics around rebates and incentives. If you could just provide a recap on the portions of rebates and incentives that are volume and performance based, some of the portions that are maybe more fixed, then the portions that are more cumulative over the course of a contract. I think that would be appreciated by all. Thank you.

Which is that what I'm alluding to here is you know the invasion of Ukraine by Russia, and our suspension of activities in Russia. So that's something to keep in mind, we certainly keep in mind as part of.

The fact that what we were assuming at that point in diamond jewelry in Russia right. Now obviously, we don't have revenues related to Russia, which are coming through but beyond that I have nothing really to share in terms of updated thoughts around our three year outlook.

Sachin Mehra: Sure, so first, the reason we do rebates and incentives is to drive volume. I just want to be clear, that's kind of what drives, you know, what we're trying to do, which is to win preference, which allows us to generate revenue from the payment stream as well as deliver services to drive on that revenue yield. So that's kind of the headline, your specific question around rebates and incentives, right? It's a combination typically of fixed and variable.

Thank you. Thank you everyone for joining.

Alright so.

Thank you for the questions today. Thank you for the trust and Mastercard I always thank our people and this is yet again the moment to do this at times are not that easy for everybody and they're leaning in and leaning into our customers. So thank you to everybody at Mastercard who's on the call and thank you to all of you who.

Sachin Mehra: It depends on a deal by deal basis. If it's a fixed incentive, the fixed incentive is typically amortized over the life of the deal. Variable incentives are variable in nature. They vary with the volume which are coming through and they are timed without the volume rolls on. So that's kind of the highest level. The other piece I can share with you is rebates and incentives are typically more indexed towards domestic volumes, less indexed towards cross-border. So those are the salient pieces I've mentioned to you on rebates and incentives. Great, we appreciate it. Thank you. Sure.

And ask questions.

One quarter from now thank you bye bye thank you.

And that concludes today's conference call. Thank you for your participation you may now disconnect.

Okay.

Uh huh.

Sure.

Okay.

[music].

Dan Dolev: We'll go next to Dan Dallab at Mizzouha. Okay, thanks.

Michael Miebach: Michael, I just want to give you a compliment first, because this is close to my heart, and I appreciate you mentioning the terror attack on Israel. I think your competitor made it more like of a politically correct comment on their calls. I really appreciate it. And then to my question, you know, a key European merchant acquire cold out like, you know, a big negative trend in Germany. And as you know, the whole market trended down, can you make some specific comments?

Michael Miebach: And how much of that was, you know, something you're seeing, because it seems like trends are actually pretty solid and pretty resilient. So there's quite a bit of confusion in the market. We would appreciate some comments on the European macro trend. Thank you. Thanks, Dan. I'm going to appreciate I keep a close eye on the German market very specifically. And, you know, we're not seeing that where consumer spending remains pretty, pretty steady in Germany and generally in Europe.

Yes.

[music].

Okay.

[music].

Michael Miebach: You know, Sachin talked a little bit about one, you know, UK might have a couple of a little bit of moderation here and there, but overall, we're not seeing that. So what we see on the other hand, as you know, is strong growth for us in Europe on all the migrations on our David Maestro migrations and still for us. So Europe's been a bright start, continues to be for us. So we don't quite relate to what others are reporting. Thank you. I appreciate it.

Yes.

Yes.

[music].

Darren Peller: We'll go next to Darren Peller at Wolf Research. Thanks, guys. You know, I just want to follow up a little bit more on the incentives and rebates, but first just Michael, the number of portfolios that you guys are winning on the different, different parts of the world really. But just talk a little bit about the competitive landscape with, you know, whether it's Unicredit or now, you know, citizens or others that you keep talking about, if anything's changed.

Darren Peller: And that kind of dovetails into incentives and rebates, because the growth, I mean, you're about 5,600 basis points faster than gross revenues you're seeing on it. Maybe that part's more for Sachin and just it offset some of the exciting opportunities we're seeing on gross revenue growth, kind of in a few quarters in a row now. And so I just want to get a better sense of what you're seeing, of anything structural on rebate incentives that's maybe a bit different and tied to winning business or is it just more business as usual and just maybe some comments on that. Thanks guys. Thank you.

Michael Miebach: Let me start off here. So I want to reiterate what Sachin said before. We are trying to win portfolios that are important for market relevance perspective for us to gain access to transactions to drive our services model and follow through on that virtual circle. That I talked about earlier in my remarks. So that's the whole idea. We keep net revenue yield in mind as we do all of this. That is the integrated payments and services model that we pursue.

Michael Miebach: Now, when you look at the competitive landscape payments is competitive. There's a lot of players out on the landscape. You know, we like competition and we feel we have a truly unique proposition between our payments and digital solutions on one hand and our services on the other hand. So when you think about when you credit. So why did they come to us? Well, they were looking at our proven track record in our engagement with only created before the expanded relationships and supporting their customers.

Michael Miebach: They like our sustainability agenda on citizens. It was a similar kind of mix and on Webster yet again. It was a similar kind of mix. There's always something across the portfolio of services that sticks out citizens. I recall a conversation on open banking for example. I was clearly one that mattered and the sustainability agenda yet again.

Michael Miebach: [inaudible] Next, we'll move to Ashwin Shirvaikar at City. Thanks, so I want to talk about A by Bank. It's live with JP Morgan, I mean, Verizon is piloting. Can you speak to the momentum you're seeing in the product? And given that you, this traditional ACH banking rails, could you maybe more broadly speak to the economic model for this and similar products that may be and do not use, best career? So, this is a combination of bill pay, of open banking, this is for us sitting in a new flow space, very specifically what we are addressing is trying to bring value to ACH flows.

Michael Miebach: These are somebody paying a doctor or things like that and how do we add value to this is by plugging onto a flow that would take place and might not happen because of insufficient funds on an account where you're putting in our open banking connection to make it clear is there a balance on the account? It's called the payment success indicator, that is the product and it is a per click fee related to the AI call so that is the model.

Michael Miebach: That is bringing value to a part of the payments industry where there wasn't a particular problem to be solved and not anybody willing to pay for it. I think we're starting to find these corners where it is real value that we can bring. So, for us, this is tam expansion, this is new flows and as I said, we have a unique combination of services together.

Michael Miebach: We are in real time payments and we are in digital identity and we're in open banking, all of this is needed here to make the solution work and this is why a player like JP Morgan comes to us to do this for us and Verizon to the point about momentum will now be piloting it so it would be a little early to talk about momentum but we'll come back on that as that solution is then rolled out into the market. But it is now live and that was an important point for us because it had to be built and put together and we have done that.

Jeff Cantwell: We'll go next to Jeff Cantwell as support research. Hey, thanks.

Sachin Mehra: I want to ask about your business update in October specifically. We can see in the US, which volume growth is 5%, so that's 25% versus the 7% you did this quarter but can you talk a little more about how you see the holiday season developing this year because we've seen some estimates that consumers spend could increase by 5% versus last year. It was as pretty good all things considered. New highlighted resilience and consumers spend this quarter. So you wanted to take your temperature on how the entire quarter might fall specifically in the US. Thanks.

Sachin Mehra: Hey Jeff. So on the US specifically, what you're seeing in the day 21 numbers is like I said on my prepared remarks, right? It's primarily related the timing of social security payments between this year and last year. So that's really what you're seeing in the nature of that 7% growth in Q3, which now shows that 5% in the first three weeks of October. So there's really from an underlying standpoint all in that there's not much we're seeing in the nature of a trend shift in the US in the first three weeks of October.

Sachin Mehra: You also saw GDP came out this morning and it came out pretty strong. So I kind of generally think about this as saying our base case scenario around consumer strength and resilience is what we're assuming going into Q4.

Ramsey Ellisaw: Thank you very much.

Michael Miebach: We'll go next to Ramsey Ellisaw at Barclays. Hi, thanks for taking my question. I wanted to follow up on Dan Dolev's question earlier and basically just ask about the sort of dislocation between your evaluation and the marketplace and the valuation of your distribution channels, the acquires and banks that sort of flow transactions do you. Can you give us your updated thoughts on the overall health and campaign penetration of this core kind of value chain?

Michael Miebach: You know, when you look at the heritage distribution channels on both sides, are you seeing a people or are you seeing stability? In other words, in the market kind of getting the industry wrong at this point or are you seeing changes out there that are worth calling out? Right.

Michael Miebach: Hey, Ramsey. Let me start off on that. So if you look at how our distribution has evolved over the years, the whole theme of diversification across products and segments also applies here, so we're doing a whole number of things. I talked about our work on acceptance. That is part of our distribution, you know, contactless tap on phone, things like that. A whole range of new merchant groups scaling these kind of technologies with partners like Stripe.

Michael Miebach: There's all going into areas that we haven't been in. Then you have, you know, other parts of our go-to-market, we talked about in B2B, we talked about Oracle and SAP, you go over into the world of acquirers. There's a whole range of acquirers, more traditional acquirers, which are partners. So across the board, it's highly diversified. It's regionally highly diversified. So these blips here and there, I can't really talk about other people's business, but earlier on the question around what we're seeing in Europe, we're just not seeing it in our numbers.

Michael Miebach: And because we have a highly diversified model, so whatever specific sector of focus somebody has that is a partner of ours doesn't necessarily throw through for us. So I don't know if the market got it wrong or not, we're not the Oracle, but we make sure we ponder with everybody to drive the overall digital ecosystem.

Bob Napoli: Next we'll go to Bob Napoli at William Blair.

Unknown Executive: Thank you.

Michael Miebach: Good morning. I wanted to follow up on commentary around the open banking, you know, banking is a service. And, you know, Mastercard also, you've been done a great job of partnering with a lot of FinTechs. We were at just at money 2020, and I would say this year there were a lot more regulators than I remember in the past and talking about open banking and how active they are in reviewing all the partners in those relationships. So just any thoughts on your outlook for your open banking investments and then how you think about the regulation, the growing regulation around open banking or banking is a service.

Michael Miebach: Right. So we continue to believe in the whole notion of open banking and open data at large, where people and businesses use their own data towards better services and propositions for them. So the idea stands, and I think the idea gets hold and hold. If you look at Europe with, you know, So, more regulation coming in, looking at PSD-3 and so forth, you're looking at the CFPB here in the United States, putting out some thoughts on how regulation could look like.

Michael Miebach: For us, I put this in context of the ideas understood, how do you make it safer? What does that need? It needs trusted parties in the middle. If you can imagine a world full of a bunch of bilateral relationships where people exchange data in a not so safe way, that would be a bad world. That's what regulars want to prohibit. We're coming in and saying, we could be one of those parties that really bring the idea to life for consumers.

Michael Miebach: I can use my data for better financial services. So when I look at what the CFPB has put out, we largely support the idea. It aligns very well with our data responsibility principles that we put out. It's your data, the consumer, you benefit from it, you control it. It is our role as a company to keep it safe and we're very good at that. So our interlocking circle stands for trust, for open banging to work, you need trust.

Michael Miebach: I think that is where we're going. So, we're engaging. In fact, we're oftentimes in the room when these things are being thought about. In Europe, we have a very much part of the dialogue on how data privacy in this context could look like.

Unknown Executive: Last question, Arjun.

Jason Kupferberg: Thank you.

Sachin Mehra: And we'll take that last question from Jason Kupferberg at Bank of America. Hey, thanks guys. Just wanted to flash back to the analyst day two years ago. I know you would share a three-year guide at the time for a revenue caterer of high teens through 2024. And it looks like you'll basically be right there through the first two years of that forecast period. So just wanted to take your temperature on that three-year guide.

Sachin Mehra: It looks like we're exiting 23 more in the low-double-digit range. And really just trying to get a sense of how you're thinking about normalized top-line growth going forward with the COVID noise essentially in the rearview mirror.

Sachin Mehra: Yeah, Jason. So, look, we're not updating anything on the three-year outlook at this point in time. You know, it's like you said, you know, the first year actually turned out to be a very nice year. Again, in the second year, we've delivered quite strongly year-to-date. And then we've shared with you what we think will happen from an expectation standpoint in Q4.

Sachin Mehra: The one thing I just want to kind of orient everybody to is when we had the investor day, it was in November of 2021. And the world has actually changed quite meaningfully since then, which is that what I'm alluding to here is, you know, the invasion of Ukraine by Russia and our suspension of activities in Russia. So that's something to keep in mind. We certainly keep in mind as part of, you know, the fact that, you know, what we're assuming at that point in time in theory of Russia right now, obviously we don't have revenues related to Russia, which are coming through. But beyond that, I have nothing really to share in terms of updated thoughts around our three-year outlook.

Unknown Executive: Thank you.

Michael Miebach: Thank you everyone for joining today. All right, so thank you for the questions today. Thank you for the trust in MasterCard. I always thank our people, interested yet again in the moment to do this. Times are not that easy for everybody, and they're leaning in and they're leaning in for our customers. So thank you to everybody at MasterCard, who's on the call, and thank you to all of you who listen in and ask questions.

Unknown Executive: Speak to you at one quarter from now. Thank you, bye-bye. Thank you.

Unknown Executive: And that concludes today's conference call. Thank you for your participation. You may now disconnect . .