Q2 2024 Mastercard Inc Earnings Call

Good morning, my name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Incorporated Q2 2024 Earnings Conference Call.

Operator: At this time, I would like to welcome everyone to the MasterCard Incorporated Q2 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's 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. 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. If you would like to withdraw your question, press star 1.

Speaker Change: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.

Speaker Change: 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 1 once to queue up for a question as pressing star 1 multiple times may affect your position in the queue.

Operator: Thank you. Mr. Devin Corr, Head of Investor Relations, you may begin your conference. Thank you, Julianne.

If you would like to withdraw your question, press star 1. Thank you.

Speaker Change: Mr. Devin Corr, Head of Investor Relations, you may begin your conference.

Devin Corr: Good morning, everyone. And thank you for joining us for our second quarter 2024 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.

Devin Corr: Thank you, Julianne. Good morning, everyone, and thank you for joining us for our second quarter 2024 earnings call.

Devin Corr: With me today are Michael Miebach, our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer.

Speaker Change: 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.

Devin Corr: You can access our earnings release, supplemental performance data, and a slide deck that accompanies this call in the investor relations section of our website, MasterCard.com. Additionally, the release was furnished to the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP, currency-neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP-reported amounts. Finally, as set forth in more detail in our earnings release, I'd like to remind everyone that today's call will include forward-looking statements regarding MasterCard's future performance, and actual performance could differ materially from these four looking stages.

Speaker Change: You can access our earnings release, supplemental performance data, and a slide deck that accompanies this call in the Investor Relations section of our website, MasterCard.com.

Michael Miebach: Information about the factors that could affect future performance is summarized at the end of our earnings release and in our recent SEC filing. 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 Miebach. Second Quarter Net Revenues were up 13% and Adjusted Net Income up 24% versus a year ago on a non-GAAP currency-neutral basis.

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

Devin Corr: With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach. Thank you, Devin. Good morning, everyone. The headline this quarter, we delivered very strong results powered by broad-based momentum across all aspects of our business.

Michael Miebach: Second quarter net revenues were up 13 percent and adjusted net income up 24 percent versus a year ago on a non-gap currency neutral basis.

Michael Miebach: These results were underpinned by healthy consumer spending, including strong cross-border volume growth of 17% year-over-year in local currency. And value-added services and solutions net revenue grew 19% year-over-year on a currency-neutral basis. A macroeconomic environment remains mixed, and we continue to monitor the positives and negatives. Here are a few to note.

Michael Miebach: And value-added services and solutions net revenue grew 19% year-over-year on a currency-neutral basis.

Michael Miebach: Strength in consumer spending continues to be supported by a solid labor market and wage growth. While there are some signs of labor market growth moderating, this is off very strong levels of job creation. As in, inflation and interest rates also remain in focus. We've seen inflation cool, but to varying degrees across carded and non-carded categories. Price levels are still elevated for many goods and services. Interest rates also remain elevated, but many central banks have started to ease, and economic indicators support a broader rate reduction.

Speaker Change: Strength in consumer spending continues to be supported by a solid labor market and wage growth. While there are some signs of labor market growth moderating, this is off very strong levels of job creation.

Speaker Change: As in also inflation and interest rates remain in focus. We've seen inflation cool but to varying degrees across carded and non-carded categories.

Speaker Change: Price levels are still elevated for many goods and services.

Speaker Change: Interest rates also remain elevated but many central banks have started to ease and economic indicators support broader rate reductions.

Michael Miebach: While tailwinds and headwinds to economic growth remain on balance, we remain positive about our growth. But out of the backdrop, we remain focused on executing our strategic priorities, which fuel our growth algorithm: Discount Call Payments, New Payment Flows, and Services. You may recall that we recently announced organizational changes to further increase our focus on these priorities.

Speaker Change: While tailwinds and headwinds to economic growth remain on balance, we remain positive about our growth outlook.

Speaker Change: But out of the backdrop, we remain focused on executing our strategic priorities which fuel our growth algorithm, what's called payments, new payment flows, and services.

Speaker Change: You may remember that we recently announced organizational changes to further increase our focus on these priorities.

Michael Miebach: They included the realignment of both regional operations and payments and services to support our growth outcomes. These changes are designed to accelerate growth and unlock capacity to invest in long-term business opportunities. This also helps us continue to deliver positive operating leverage over the long term. For example, we plan to redeploy resources into growth markets with high cash levels.

Speaker Change: They included the realignment of both regional operations and payments and services to support our growth algorithm.

Speaker Change: These changes were designed to accelerate growth and unlock capacity to invest in long-term business opportunities.

Speaker Change: For example, we plan to redeploy resources into growth markets with high cash levels. We will invest in opening acceptance and new verticals.

Michael Miebach: Invest in Opening, Acceptance, and New Verticals, and we will continue to apply technology to help us realize even more of the shift to digital across both consumer and commercial. We will also enhance and expand our value-added services, such as data analytics, fraud, and cybersecurity, particularly as we further embed AI into our products and services. As a result of this organizational realignment, which positions us well for long-term growth, we expect to incur a one-time restructuring charge in the third quarter.

Speaker Change: And we will continue to apply technology to help us realize even more of the shift to digital across both consumer and commercial.

Speaker Change: We will also enhance and expand our value-added services, such as in data analytics, fraud and cybersecurity, particularly as we further embed AI into our products and services.

Michael Miebach: Now, moving on to an update on some specific elements of our growth algorithm. Unknown Speaker 0, We're driving growth by winning and retaining deals. And we're tapping into the vast secular shift opportunity by expanding into new geographies and further digitizing the payments ecosystem. Let's start with our continued deal momentum. I'm happy to announce that Varo Bank will convert their debit and credit portfolios to MasterCard.

Speaker Change: In payments, we're driving growth by winning and retaining deals, and we're tapping into the vast secular shift opportunity by expanding in new geographies and further digitizing the payments ecosystem.

Speaker Change: Let's start with our continued deal momentum. I'm happy to announce that Varo Bank will convert their debit and credit portfolios to MasterCard.

Michael Miebach: They were the first all-digital bank to receive a national charter in the United States. Varro chose MasterCard due to our differentiated data insights, merchant-funded offers platform, and our ability to seamlessly integrate into their technology. Stand by our enterprise agreement with Wells Fargo and partner to launch the Attune World Elite MasterCard. This is our first proprietary consumer credit program with the bank.

Speaker Change: They were the first all-digital bank to receive a national charter in the United States.

Speaker Change: Varro chose MasterCard due to our differentiated data insights, merchant-funded offers platform, and our ability to seamlessly integrate into their technology stack.

Speaker Change: We extended our enterprise agreement with Wells Fargo and partnered to launch the Attune World Elite MasterCard. This is our first proprietary consumer credit program with the bank.

Michael Miebach: We also want to renew deals this quarter with key U.S. prepaid partners, including Ouro H&R Block, Blackhawk Network, Relevate, and Dash Solutions. In aggregate, these partnerships will drive a meaningful increase in our U.S. prepaid market share. In Canada, we extended our long-standing partnership with the National Bank of Canada across consumer credit, commercial, and prepaid for the next decade. And PosterPay, who already issues millions of MasterCard cards in Italy, has expanded our collaboration to drive additional growth across debit and prepaid. Let's deep dive into a few specific verticals and geographies.

Speaker Change: We also want to renew deals this quarter with key U.S. prepaid partners including Ouro H&R Block, Blackhawk Network, Relevate and Dash Solutions. In aggregate these partnerships will drive meaningful increase in our U.S. prepaid market share.

Speaker Change: In Canada, we extended our long-standing partnership with the National Bank of Canada across consumer credit, commercial and prepaid for the next decade.

Speaker Change: And Postapay, who already issues millions of MasterCard cards in Italy, has expanded our collaboration to drive additional growth across debit and prepaid.

Speaker Change: Let's deep dive into a few specific verticals and geographies.

Michael Miebach: Travel is, of course, a key factor. It has strong growth potential and a meaningful cross-border component. Travel is also a natural fit with our virtual car technology and our marketing, loyalty, and consulting capabilities. We executed several new travel partnerships this quarter. For example, we signed a deal with global digital payments provider Checkout.com to enable them to deploy their virtual card issuing solution to their online travel agency customers.

Speaker Change: Travel is, of course, a key focus. It has strong growth potential and a meaningful cross-border component.

Speaker Change: Travel is also a natural fit with our virtual car technology and our marketing, loyalty, and consulting capabilities.

Michael Miebach: We also announced a multi-year agreement with Wells Fargo and Expedia to launch two new co-brand cards with a range of unique travel benefits. And we executed a new co-brand deal with Dachshund Bank and Ethiopian Airlines, the largest airline in Africa. It's built on a co-brand deal with RONDAIR and INM RONDA that we initiated earlier. I'm sure it wasn't lost on you that these last two deals I mentioned are in Africa. The continent is a great example of the vast secular opportunity in emerging markets. External sources estimate that approximately 90% of transactions in Africa are made in cash.

Speaker Change: We executed several new travel partnerships this quarter. We signed a deal with global digital payments provider Checkout.com to enable them to deploy their virtual card issuing solution to their online travel agency customers.

Speaker Change: We also announced a multi-year agreement with Wells Fargo and Expedia to launch two new co-brand cards with a range of unique travel benefits.

Speaker Change: And we executed a new co-brand deal with Dachshund Bank and Ethiopian Airlines, the largest airline in Africa.

Speaker Change: This bill is on a co-brand deal with RONDAIR and INM RONDA that we initiated earlier this year.

Speaker Change: I'm sure it wasn't lost on you that these two last deals I mentioned are in Africa. The continent is a great example of the vast secular opportunity in emerging markets. External sources estimate that approximately 90% of transactions in Africa are made in cash.

Michael Miebach: We are committed to the digital transformation of the region, and we're doing so by increasing our investments, developing new partnerships, and rapidly expanding our acceptance footprint. For example, Africa is the world's largest adopter of mobile money accounts. Our partnerships with large telcos and mobile network operators like Airtel, MTN, Vodafone Egypt, and others put us in a great position to accelerate inclusion and cash conversion. On the acceptance front, we've more than tripled the number of acceptance locations in Africa over the last five years.

Speaker Change: We are committed to the digital transformation of the region, and we're doing so by ranking up our investments, developing new partnerships, and rapidly expanding our acceptance footprint.

Speaker Change: For example, Africa is the world's largest adopter of mobile money accounts. Our partnerships with large telcos and mobile network operators like Airtel, MTN, Vodafone Egypt and others put us in a great position to accelerate inclusion and cash conversion.

Speaker Change: On the acceptance front, we've more than tripled the number of acceptance locations in Africa over the last five years.

Michael Miebach: We recently signed deals with the Commercial Bank of Ethiopia, the largest bank in the country, and INM Bank in Kenya. These partnerships will enable us to increase our share in both markets. In Nigeria and Ghana, we've partnered with BlueSolid Financial, who will work with FinTechs across the region to issue MasterCard cards.

Speaker Change: We recently signed deals with the Commercial Bank of Ethiopia, the largest bank in the country, and INM Bank in Kenya. These partnerships will enable us to increase share in both markets.

Speaker Change: In Nigeria and Ghana, we've partnered with BlueSalt Financial, who will work with FinTechs across the region to issue MasterCard cards.

Michael Miebach: Also, our MasterCard Move capabilities are the foundation for a new cross-border money movement solution with Access Bank Group. Together, we are enabling businesses and consumers in several African markets to send and receive international payments across over 140 countries. Now, this secular opportunity is not limited to Africa.

Speaker Change: Also, our MasterCard Move capabilities are the foundation for a new cross-border money movement solution with Axis Bank Group.

Speaker Change: Together, we are enabling businesses and consumers in several African markets to send and receive international payments across over 140 countries.

Michael Miebach: We see opportunities around the globe. Think about emerging markets in Latin America and Asia Pacific. Fully capitalizing on that secular trend requires that we continue to innovate to support the digital economy at scale, and we're doing just that. We're enhancing the checkout experience and expanding our tap-on-phone payment acceptance capabilities. We're scaling our contactless technology in areas like transit, and we are driving the ongoing conversion of Maestro to Debit MasterCard. Let's dig into one. Online shopping. It must be simple, and it must work on all devices and all channels.

Speaker Change: Now, this secular opportunity is not limited to Africa. We see opportunities around the globe. Think about emerging markets in Latin America and Asia Pacific.

Speaker Change: Fully capitalizing on that secular trend requires that we continue to innovate to support the digital economy at scale. And we're doing just that.

Speaker Change: We're enhancing the checkout experience and expanding our tap-on-phone acceptance capabilities. We're scaling our contactless technology in areas like transit, and we are driving the ongoing conversion of Maestro to Debit MasterCard.

Speaker Change: Let's dig into one. Online shopping. It must be simple and it must work on all devices and all channels. That's why we are leaning into a new area of one-click payments.

Michael Miebach: That's why we're leaning into the new area of one click. We announced that we will phase out manual card entry for e-commerce payments in Europe by 2030 in favor of a one-click checkout button. There are three foundational components to this effort, all anchored in driving simplicity and security. First, tokenization. Tokenization replaces payment credentials with a digitally secure token. When deployed, fraud rates decrease, and approval rates improve. Since its launch a decade ago, the technology has been broadly adopted around the world. In fact, we surpassed 22 billion tokenized transactions in the first half of 2024, up 49% versus a year ago. Second, is Click2Pay. Click2Pay simplifies online guest checkout by eliminating the need to manually enter payment credentials.

Speaker Change: We announce that we will phase out manual card entry for e-commerce payments in Europe by 2030 in favor of a one-click checkout button.

Michael Miebach: Guest checkout becomes as easy as remembering your email address. It also makes checkout more secure using the token technology I just mentioned. We are working with our merchants and bank partners to drive adoption. Click to pay transactions will more than double year-over-year in the first half of 2025. And third, a payment pass. Passkeys eliminate the need for passwords or text for one-time passcodes. They allow consumers to authenticate online purchases. Using a fingerprint or facial features that you use every day when opening your phone.

Speaker Change: There are three foundational components to this effort, all anchored on driving simplicity and security.

Speaker Change: First, tokenization. Tokenization replaces payment credentials with a digitally secure token. When deployed, fraud rates decrease and approval rates improve.

Speaker Change: So launching a decade ago, the technology has been broadly adopted around the world. In fact, we surpassed 22 billion tokenized transactions in the first half of 2024, up 49% versus a year ago.

Speaker Change: Second is Click2Pay. Click2Pay simplifies online guest checkout by eliminating the need to manually enter payment credentials.

Speaker Change: Guest checkout becomes as easy as remembering your email address. It also makes checkout more secure using the token technology I just mentioned.

Speaker Change: We are working with our merchants and bank partners to drive adoption. Click to pay transactions more than double year-over-year in the first half of 2024.

Speaker Change: And third are payment passkeys. Passkeys eliminate the need for passwords or text for one-time passcodes.

Speaker Change: They allow consumers to authenticate online purchases using a fingerprint or facial features that you use every day when opening your phone.

Michael Miebach: When combined, these powerful technologies are enabling us to live on our promise of a simple and secure one-click online checkout experience for consumers. We also continue to enhance in-store checkout. For example, we are scaling our biometric checkout program to new regions. In Europe, we're partnering with Polish fintech PayEye to allow shoppers to pay with a simple glance.

Speaker Change: When combined, these powerful technologies are enabling us to live on our promise.

Speaker Change: of a simple and secure one-click online checkout experience for consumers.

Speaker Change: We also continue to enhance in-store checkout. For example, we are scaling our biometric checkout program to new regions. In Europe , we're partnering with Polish Fintech PayEye to allow shoppers to pay with a simple glance.

Michael Miebach: And in Latin America, we are working with Ingenico so that consumers at participating supermarkets can pay in a way. We're also working at pace to migrate Maestro cards to debit MasterCards outside the United States. Shifting to debit MasterCard is a critical element of our strategy as we see a two-time spend lift on cards once they are migrated. This is primarily due to the ability to capture both cross-border and online spend on Debit MasterCard. In the first half of 2024, we converted over 14 million cards.

Speaker Change: And in Latin America, we are working with Ingenico so that consumers that participate in supermarkets can pay with a WAVE.

Speaker Change: We are also working at pace to migrate Maestro cards to debit MasterCards outside the United States.

Speaker Change: Shifting to debit MasterCard is a critical element of our strategy as we see a two-time spend lift on cards once they are migrated. This is primarily due to the ability to capture both cross-border and online spend on debit MasterCard.

Speaker Change: The first half of 2024, we converted over 14 million cards.

Speaker Change: which brings us to almost 300 million cards migrated since 2016.

Michael Miebach: Which brings us to almost 300 million cards migrated since 2002. These innovations are examples of the investments we are making to differentiate the MasterCard experience versus other payment methods like P2P or local payments. We also continue to capture the large secular opportunity in targeted new payment flows. Today I will focus on commercial, starting with accounts payable payment. We are operating from a position of strength. Our market-leading virtual card capabilities have been deployed with over 90 issuers worldwide.

Speaker Change: These innovations are examples of the investments we are making to differentiate the MasterCard experience versus other payment methods like P2P or local payment schemes.

Speaker Change: We also continue to capture the large secular opportunity in targeted new payment flows. Today, I will focus on commercial, starting with accounts payable payments.

Speaker Change: We are operating from a position of strength.

Speaker Change: Our market-leading virtual card capabilities have been deployed with over 90 issuers worldwide. Additionally, we are integrating our technology into four of the top five leading global procure-to-pay solution providers.

Michael Miebach: Additionally, we are integrating our technology into four of the top five leading global procure-to-pay solution providers. We have completed the integration of our virtual card technology into Oracle Cloud ERP and commenced invoice payments for the first HSBC corporate customer on the web. On the supplier side, we signed several acquirers onto MasterCard Receivables Managers.

Speaker Change: We completed the integration of our virtual card technology into Oracle Cloud ERP and commenced invoice payments for the first HSBC corporate customer in OAPS.

Michael Miebach: This includes Elevon, whose customers are using our AI-powered platform to streamline the process of accepting virtual cards. We also continue to expand distribution of our virtual cards, signing new deals with Brex and Ant Groups worldwide. At commercial point of sale, we're increasing the distribution of our commercial card products worldwide. In the US, the Wells Fargo Small Business Credit Card Portfolio migration is now complete, in Europe.

Speaker Change: On the supplier side, we signed several acquirers onto MasterCard Receivables Managers. This includes Elevon, whose customers are using our AI-powered platform to streamline the process of accepting virtual cards.

Speaker Change: We also continue to expand distribution of our virtual cards signing new deals with Brex and Ant Groups world first.

Speaker Change: On commercial point of sale, we're increasing the distribution of our commercial card products worldwide.

Speaker Change: In the U.S., the Wells Fargo Small Business Credit Card Portfolio migration is now complete.

Michael Miebach: We've extended our partnership with Bergin Money to continue growing our small business portfolio. And our partnership with SAP Concur, which automatically integrates our corporate card data into Concur expense, is yielding results. Lodge Insure Scoree awarded their T&E card program to MasterCard based on the value delivered through this partnership.

Speaker Change: In Europe , we have extended our partnership with Bergin Money to continue growing our small business portfolio.

Speaker Change: And our partnership with SAP Concur, which automatically integrates our corporate card data into Concur expense, is yielding results.

Speaker Change: Lodge Insure Scoree awarded their T&E card program to MasterCard based on the value delivered through this joint offering.

Michael Miebach: And finally, we're executing against our strategy to penetrate new B2B verticals. This quarter, we signed an exclusive partnership with Latin America. With CBC, the largest Pepsi distributor in the region, and the fintech enabler Yalotech Mego Payments, this partnership will provide card distribution, acceptance, and financial education to almost 2 million retailers. These small businesses can now use their MasterCard small business cards to purchase inventory and other IT. In the healthcare space, we signed an exclusive partnership with the Medical Tourism Association.

Speaker Change: And finally, we're executing against our strategy to penetrate new B2B verticals. This quarter, we signed an exclusive partnership with Latin America.

Speaker Change: with CBC, the largest Pepsi distributor in the region, and the fintech enabler Yalotech Mego Payments. This partnership will provide card distribution, acceptance, and financial education to almost 2 million retailers.

Speaker Change: These small businesses can now use their MasterCard small business cards to purchase inventory and other items.

Speaker Change: In the healthcare space, we signed an exclusive partnership with the Medical Tourism Association. They will now accept cards from consumers and utilize virtual cards to make cross-border payments to medical providers.

Michael Miebach: They will now accept cards from consumers and utilize virtual cards to make cross-border payments to medical providers. Separately, we're working with Square to broaden card acceptance amongst smaller healthcare providers in the UK. Now, turning to service.

Speaker Change: Separately, we're working with Square to broaden card acceptance amongst smaller healthcare providers in the UK.

Michael Miebach: Payments support our services, and vice versa, services played an important part in winning many of the deals I just mentioned. And the strong payments drivers helped fuel services growth. That, coupled with strong demand, drove 19% value-added services and solution net revenue growth in the second quarter on a year-over-year currency-neutral basis. This is our powerful flywheel turning.

Speaker Change: Now turning to services. Payments support our services and vice versa. Services played an important part in winning many of the deals I just mentioned.

Speaker Change: And the strong payments drivers helped fuel services growth. That coupled with strong demand drove 19% value-added services and solution net revenue growth in the second quarter on a year-over-year currency-neutral basis. This is our powerful flywheel turning.

Michael Miebach: I'm excited about our momentum and our future potential. Whether it's deepening the penetration of existing customers, launching new capabilities, or distributing our services in new ways and across new customer and transaction types. Here are a few examples.

Speaker Change: I'm excited about our momentum and the future potential.

Speaker Change: Whether it's deepening penetration of existing customers, launching new capabilities, or distributing our services in new ways, and across new customer and transaction types.

Michael Miebach: First... Our services help to improve MasterCard issuer portfolio performance, thereby supporting our customers' core business objectives. For example, SEB in the Baltics is building its customer loyalty strategy together with MasterCard. And Revolut is working with us to develop and execute its marketing strategy, launching campaigns across the UK, Ireland, and Italy.

Speaker Change: A few examples. First...

Speaker Change: Our services help to improve MasterCard issuer portfolio performance, thereby supporting our customers' core business objectives.

Speaker Change: For example, SEB in the Baltics is building their customer loyalty strategy together with MasterCard. And Revolut is working with us to develop and execute their marketing strategy, launching campaigns across the UK, Ireland, and Italy.

Michael Miebach: We're also deploying our services across non-FIs, helping to diversify our business and capture a new set of growth opportunities. Customers as varied as Paramount and McDonald's in Taiwan are using our test and learn capabilities to address core business needs, including media measurement and new product introduction. And we're working with LATAM Airlines in Brazil to optimize their co-brand portfolio and develop innovative marketing campaigns. The partnership allows us to distribute our capabilities in new and more efficient ways.

Michael Miebach: Salesforce has integrated our dispute resolution services into its financial services cloud. This has enabled banks and other financial institutions to handle disputes and prevent chargebacks more effectively, and KPMG Norway has partnered with the Norwegian government to distribute our risk recon capabilities. The solution will help hundreds of local governments evaluate their cyber risk posture and that of their suppliers.

Michael Miebach: Turning to open banking, we continue to make strong progress in scaling new use cases. I'll use our account opening and account linking use case as an example. Klarna in the U.S. is now using MasterCard's open banking for this purpose.

Michael Miebach: PayPal will leverage account linking, balance check, and transaction history for their wallet in the U.S., and Jack Henry will distribute these capabilities to streamline the account opening process for hundreds of issuers it supports. So with that, I'll wrap it up. In summary, we delivered another strong quarter of revenue and earnings growth. We're driving growth by winning and retaining deals. We're penetrating the substantial secular opportunity. We continue to see strong demand for our services. Now differentiated capabilities, diversified business model, and focused strategy position us as well to capitalize on the significant opportunity ahead of us. Sachin, over to you.

Speaker Change: Klarna in the U.S. is now using MasterCard's Open Banking for this purpose. PayPal will leverage account linking, balance check, and transaction history for their wallet in the U.S. And Jack Henry will distribute these capabilities to streamline the account opening process for hundreds of issuers they support.

Sachin Mehra: Thanks, Michael. Turning to page three, which shows our financial performance for the second 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 13%, reflecting continued growth in our payment network and our value-added services and solutions. Operating expenses increased 10%, including a minimal impact from acquisitions, and operating income was up 15%, including a minimal impact from acquisitions.

Sachin Mehra: Net income and EPS increased 24% and 27%, respectively, both reflecting the strong operating income growth as well as a lower tax rate in the current quarter compared to Q2 2023, primarily due to a sizable discrete tax expense in the prior year, as well as a change in the geographic mix of earnings. EPS was $3.59, which includes a 7 cent contribution from Sharee Purchase. During the quarter, we repurchased $2.6 billion worth of stock and an additional $820 million through July 26, 2024.

Speaker Change: Net income and EPS increased 24% and 27% respectively.

Speaker Change: Primarily due to a sizable discrete tax expense in the prior year, as well as a change in the geographic mix of earnings.

Speaker Change: During the quarter, we repurchased $2.6 billion worth of stock and an additional $820 million through July 26, 2024.

Sachin Mehra: So let's turn to page four, where I'll speak to the growth rates of some of our key drivers for the second quarter in local currency. Worldwide gross dollar volume, or GDV, increased by 9% year over year. In the US, GDV increased by 6% with credit growth of 6% and debit growth of 7%. Debit growth was aided by the conversion of a previously announced debit win in the US. Outside of the US, volume increased 11% with credit growth of 10% and debit growth of 11%. Overall, cross-border volume increased 17% globally for the quarter, reflecting strong growth in both travel and non-travel related cross-border spending.

Speaker Change: So let's turn to page four where I'll speak to the growth rates of some of our key drivers for the second quarter on a local currency basis.

Speaker Change: Worldwide gross dollar volume or GDV increased by 9% year over year. In the US, GDV increased by 6% with credit growth of 6% and debit growth of 7%.

Speaker Change: Outside of the U.S., volume increased 11% with credit growth of 10% and debit growth of 11%. Overall, cross-border volume increased 17% globally for the quarter, reflecting continued strong growth in both travel and non-travel related cross-border spending.

Sachin Mehra: Turning to page 5, Switched transactions grew 11% year-over-year in Q2. Both card-present and card-not-present growth rates remained strong. Card Present growth was aided in part by an increase in contactless penetration, as contactless now represents approximately 69% of all in-person switched purchase transactions. In addition, card growth was 7%. Globally, there are 3.4 billion MasterCard and Maestro-branded cards issued.

Speaker Change: Turning to page 5, switch transactions grew 11% year-over-year in Q2. Both card-present and card-not-present growth rates remain strong.

Speaker Change: Card Present Growth was aided in part by an increase in contactless penetration, as contactless now represents approximately 69% of all in-person switched purchase transactions.

Speaker Change: In addition, card growth was 7%. Globally, there are 3.4 billion MasterCard and Maestro-branded cards issued.

Sachin Mehra: Turning to slide 6 for a look at our net revenue growth rates for the second quarter discussed on a currency-neutral basis, payment network net revenue increased 9%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives, which were lower than anticipated, primarily due to the timing of planned deal activity.

Speaker Change: Turning to slide 6 for a look into our Net Revenue Growth Rates for the second quarter discussed on a currency neutral basis.

Sachin Mehra: Tally's added services and solutions net revenue increased 19%, primarily driven by growth in our underlying drivers, strong demand for our consulting, data analytics, and marketing services, and the scaling of our fraud and security and our identity and authentication solutions. Now, let's turn to page 7 to discuss key metrics related to the payment network. Again, all growth rates are described on a currency neutral basis unless otherwise noted. Looking quickly at each key metric, domestic assessments were up 7% while worldwide GDD grew 9% primarily due to mix. Crosswater assessments increased 21%, while crosswater volumes increased 17%.

Speaker Change: Value-added services and solutions net revenue increased 19% primarily driven by growth in our underlying drivers, strong demand for our consulting, data analytics, and marketing services, and the scaling of our fraud and security and our identity and authentication solutions.

Speaker Change: Now let's turn to page 7 to discuss key metrics related to the payment network. Again, all growth rates are described on a currency neutral basis unless otherwise noted.

Speaker Change: Looking quickly at each key metric, domestic assessments were up 7% while worldwide GDD grew 9% primarily due to mix.

Speaker Change: Crosswater assessments increased 21% while crosswater volumes increased 17%. The full PPT difference is primarily driven by mix and pricing.

Sachin Mehra: The full PPT difference is primarily driven by mix and pricing. Transaction processing assessments were up 13%, while switch transactions grew 11%. The 2PPT difference is primarily due to mix and pricing. Other network assessments were $244 million this quarter.

Speaker Change: Transaction processing assessments were up 13% while switch transactions grew 11%. The 2PPT difference is primarily due to mix and pricing.

Sachin Mehra: As a reminder, these assessments primarily relate to licensing, implementation, and other franchise fees, and may fluctuate from period to period. Moving on to page 8, you can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 10%, which includes a minimal impact from acquisition. The growth in operating expenses was primarily due to increased spending to support the continued execution of our strategic initiatives, as well as an increase in indirect taxes, as discussed on our Q4 2023 earnings call. This was partially offset by the timing of advertising and marketing spend within the year.

Speaker Change: Moving on to page 8, you can see that on a non-GAAP currency neutral basis excluding special items, total adjusted operating expenses increased 10% which includes a minimal impact from acquisitions.

Speaker Change: This was partially offset by the timing of advertising and marketing spend within the year.

Sachin Mehra: Turning to page 9, let me comment on the operating metric trends in the second quarter and then through the first four weeks of July. As a reminder, our Q1 switch metrics include the impact of the leap year in 2024, which added just over 1 PPP to growth across each of switch volumes, switch transactions, and cross-border volumes. In addition, our switch metrics in Q1 and April were impacted by the timing of Easter, which occurred at the end of Q1 this year, as compared to in April in 2023.

Speaker Change: Turning to page 9, let me comment on the operating metric trends in the second quarter and then through the first four weeks of July .

Speaker Change: As a reminder, our Q1 switch metrics include the impact of the leap year in 2024, which added just over 1PPT to growth across each of switched volumes, switched transactions, and cross-border volumes.

Sachin Mehra: After adjusting for the leap year, the timing of Easter, and excluding the benefit from the U.S. debit portfolio win I previously discussed, our switch metrics in Q2 were generally stable sequentially in the U.S. and across the globe. Looking at the first four weeks of July, trends remain generally stable versus Q2.

Speaker Change: After adjusting for the leap year, the timing of Easter, and excluding the benefit from the U.S. debit portfolio win I previously discussed, our switch metrics in Q2 were generally stable sequentially in the U.S. and across the globe.

Sachin Mehra: Turning to page 10, I wanted to share our thoughts for the remainder of the year. As Michael said, there are a number of economic headwinds and tailwinds that we are monitoring, and we remain focused on executing on our strategy. However, business fundamentals remain strong, as evidenced by the results we delivered this quarter across all aspects of our business.

Speaker Change: Turning to page 10, I wanted to share our thoughts for the remainder of the year. As Michael said, there are a number of economic headwinds and tailwinds that we are monitoring and we remain focused on executing on our strategy.

Speaker Change: Business fundamentals remain strong as evidenced by the results we delivered this quarter across all aspects of our business.

Sachin Mehra: Our diversified business model, underpinned by healthy consumer spending, the continued secular shift to digital forms of payment, and strong demand for our value-added services and solutions, continues to position us well for the opportunities ahead. Overall, we remain positive about the growth outlook. Now turning to Q3 2024.

Speaker Change: Our diversified business model, underpinned by healthy consumer spending, the continued secular shift to digital forms of payment, and strong demand for our value-added services and solutions, continues to position us well for the opportunities ahead. Overall, we remain positive about the growth outlook.

Sachin Mehra: Year over year, net revenue growth is expected to be at the high end of a low double-digit range on a currency-neutral basis, excluding acquisitions. Acquisitions are forecasted to have a minimal impact on this growth rate, while we expect a 1-2 PPT headwind from foreign exchange for the quarter. From an operating expense standpoint, we expect Q3 operating expense growth to be in the low double-digit range versus a year ago, again on a currency-neutral basis, excluding acquisitions and special items.

Speaker Change: Now turning to Q3 2024. Year-over-year net revenue growth is expected to be at the high end of a low double-digit range on a currency neutral basis excluding acquisitions.

Speaker Change: Acquisitions are forecasted to have a minimal impact to this growth rate while we expect a 1 to 2 PPT headwind from foreign exchange for the quarter.

Speaker Change: From an operating expense standpoint, we expect Q3 operating expense growth to be at the low double-digit range versus a year ago, again on a currency-neutral basis, excluding acquisitions and special items.

Sachin Mehra: We expect higher growth in advertising and marketing in Q3 compared to the first half of the year, primarily driven by the cadence of spend related to our sponsorship activities. Acquisitions are forecasted to have a minimal impact on this APEX growth for the quarter, while we expect a 0 to 1 PPT tailwind from foreign exchange. As Michael mentioned, as part of our recent reorganization, we expect to record a one-time restructuring charge in Q3 of approximately $190 million. This will be recorded as a special item and excluded from our non-GAAP metric.

Speaker Change: We expect higher growth in advertising and marketing in Q3 compared to the first half of the year, primarily driven by the cadence of spend related to our sponsorship activities.

Speaker Change: Acquisitions are forecasted to have minimal impact to this APEX growth for the quarter while we expect a 0 to 1 PPT tailwind from foreign exchange.

Speaker Change: Separately, as Michael mentioned, as part of our recent reorganization, we expect to record a one-time restructuring charge in Q3 of approximately $190 million. This will be recorded as a special item and excluded from our non-GAAP metrics.

Sachin Mehra: We expect these actions will free up capacity to further invest in our strategic priorities as we continue to execute on our growth algorithm. We also expect they will contribute to delivering positive operating leverage over the long term. As it relates to the full year 2024, we expect net revenue to grow at the high end of a low double-digit range on a currency neutral basis excluding acquisitions. Acquisitions are forecasted to have a minimal impact for the year, and foreign exchange is now expected to be a headwind of approximately 1 PPT for the year.

Michael Miebach: We expect these actions will free up capacity to further invest in our strategic priorities as we continue to execute on our growth algorithm. We also expect they will contribute to delivering positive operating leverage over the long term.

Speaker Change: As it relates to the full year 2024 we expect net revenue to grow at the high end of a low double digits range on a currency neutral basis excluding acquisitions.

Speaker Change: Acquisitions are forecasted to have a minimal impact for the year and foreign exchange is now expected to be a headwind of approximately one PPT for the year.

Sachin Mehra: In terms of operating expenses, our expectations for the full year are for growth at the low end of a low double-digit range on a currency-neutral basis, excluding acquisitions and special items. Acquisitions in foreign exchange are forecasted to have a minimal impact on this growth for the year.

Speaker Change: In terms of operating expenses, our expectations for the full year are to grow at the low end of a low double-digit range on a currency-neutral basis, excluding acquisitions and special items.

Speaker Change: Acquisitions in foreign exchange are forecasted to have a minimal impact to this growth for the year.

Sachin Mehra: Other items to keep in mind. For other income and expenses in Q3, we expect an expense of approximately $100 million. This assumes the prevailing interest rates and debt levels continue and excludes gains and losses on our equity investments, which are excluded from our non-GAAP metric. Finally, we expect a non-GAAP tax rate of between 17% and 18% for Q3 and 17% to 17.5% on a full year basis, all based on the current geographic mix of our business.

Speaker Change: Other items to keep in mind, on other income and expenses, in Q3, we expect an expense of approximately $100 million. This assumes the prevailing interest rates and debt levels continue and excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.

Speaker Change: Finally, we expect a non-GAAP tax rate of between 17% and 18% for Q3 and 17% to 17.5% on a full year basis, all based on the current geographic mix of our business.

Devin Corr: One last point, I wanted to let you know that we are planning to host an Investor Day in New York on November 13th. We look forward to discussing our future plans with you at that time. And with that, I will turn the call back over to Devin. Thank you, Sachin.

Devin Corr: One last point. I wanted to let you know that we are planning to host an Investor Day in New York on November 13th. We look forward to discussing our future plans with you at that time. And with that, I will turn the call back over to Devin. Thank you, Sachin. Julian, please open the call for questions now.

Devin Corr: Julian, please open the call for questions now. At this time, I would like to remind everyone that in order to ask a question, press the stars and the number one on your telephone. Please only press star one once to queue up for questions, as pressing star one multiple times may affect your position.

Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. Please only press star 1 once to queue up for questions, as pressing star 1 multiple times may affect your position in the queue.

Operator: Pause for just a moment to compile the Q&A rock. Our first question comes from Harshita Rawat from Bernstein. Please go ahead. Your line is open. Good morning.

Speaker Change: Pause for just a moment to compile the Q&A roster.

Speaker Change: Our first question comes from Harshita Rawat from Bernstein. Please go ahead, your line is open.

Harshita Rawat: Michael, can you talk about U.S. merchant litigation, the settlement rejection, and the path forward from here? What should we think about the... Right, thanks, Harshita.

Harshita Rawat: Good morning. Michael, can you talk about U.S. merchant litigation, the settlement rejection, and the path forward from here? How should we think about the range of outcomes? Thank you.

Michael Miebach: You're not asking about the secular opportunity, I'm noticing, so the merchant settlement. So the first thing I would say is, We're disappointed where this has landed for now. And I would describe it as we respectfully disagree with the court's ruling to reject the settlement.

Speaker Change: Right, thanks Harshita. You're not asking about the secular opportunity, I'm noticing, so the merchant settlement. So the first thing I would say is

Speaker Change: We're disappointed where this has landed for now, and I would describe it as we respectfully disagree with the court's ruling.

Michael Miebach: This has been negotiated over many years across many parties. I think with the best intentions, and they would have produced a lot of benefits for consumers, for merchants, and across all parties. But this is now not happening.

Speaker Change: to reject the settlement. This has been negotiated over many years across many parties.

Harshita Rawat: I think with best intentions and they would have produced a lot of benefit for consumers, for merchants, and across all parties. So this is now not happening.

Michael Miebach: We are obviously ready, and we will make all efforts to ensure that a solution is found before this goes to trial. Engage all parties. We've done this in previous scenarios before.

Speaker Change: We are obviously ready and we will take all efforts to ensure that a solution is found. Before this goes to trial, engage all parties. We've done this in previous scenarios before.

Michael Miebach: It's difficult to speculate about outcomes at this point, but I think this intention to lean in and see how we can provide more security predictability to merchants and banks and all parties here is what's driving us. So there are a number of co-defendants in this, and everybody will obviously make their own decisions here. But across the board, obviously, there has to be a dialogue to find the best. Our next question comes from Trevor Williams from Jeffries. Please go ahead.

Speaker Change: It's difficult to speculate about outcomes at this point, but I think this intention to lean in and see how we can provide more security predictability to merchants

Speaker Change: and to banks and all parties here is what's driving us. So there's a number of co-defendants in this and everybody will obviously take their own decisions here but across the board obviously there has to be a dialogue on to find the best outcome of this.

Trevor Ellis Williams: Your line is, A little bit better than you guys had been expecting for 2Q, Sachin. If you could just unpack some of the upside there relative to expectations and then any help for what you're expecting for R&I. So you're right, as I mentioned in my prepared remarks, our rebates and incentives did come in slightly lower than our expectations for the second quarter. But I just want to kind of take it up a notch just to kind of remind everybody that we're very active in the markets; we are constantly looking at what opportunities exist with existing customers and then with who could be potential new customers.

Speaker Change: Our next question comes from Trevor Williams from Jeffreys. Please go ahead, your line is open.

Trevor Ellis Williams: Great, thanks a lot. Yeah, I wanted to ask on rebates and incentives growth. I think that came in a little bit better than you guys had been expecting for 2Q, Sachin, if you could just unpack some of the upside there relative to expectations and then any help for what you're expecting for R&I growth over the next couple quarters. Thanks.

Sachin Mehra: Sure, Trevor. So, you're right, as I mentioned in my prepared remarks, our rebates and incentives did come in slightly lower than our expectations for the second quarter.

Speaker Change: You know, I just want to kind of take it up a level just to kind of remind everybody, you know...

Speaker Change: We're very active in the markets. We are constantly looking at what opportunities exist with existing customers and then with who could be potential new customers.

Trevor Ellis Williams: And we have a view of what our pipeline of activities is. So, you know, the vast majority of what we had in the nature of better, I would say lower rebates and incentives in the second quarter were driven by, you know, some of that deal activity not materializing in the second quarter still remains in the pipeline. It's still something we expect will occur as the year progresses.

Speaker Change: and we have a view on what our pipeline of activities is so you know the vast majority of what we had in the nature of better I would say lower rebates and incentives in the second quarter were driven by you know some of those that deal activity not materializing in the second quarter

Speaker Change: [inaudible]

Sachin Mehra: And then more specifically, as it relates to Q3, we expect that our rebates and incentives as a percentage of our payment network assessments will be higher than they were in Q2. And it's essentially based on exactly what I just said, which is that we have a very rich deal pipeline that we have. And again, this is more of a timing issue than anything else.

Speaker Change: [inaudible]

Sachin Mehra: We want to be in the transaction flow, we want to be relevant to our customers, and we want to be relevant in the eyes of the consumers so that they know they have a MasterCard product in their hands. And we fight for the deals that we find strategically relevant that also meet our financial criteria. In the end, it all has to add up in combination between payments and services so that our net revenue yield develops positively and that... Our next question comes from Dan Perlin from RBC. Please go ahead; your line is open. Thanks. Good morning.

Speaker Change: It comes back to the point, in the end, we want to be in the transaction flow, we want to be relevant to our customers, we want to be relevant in the eyes of the consumers that they have a MasterCard product in their hand, and we fight for the deals that we find strategically relevant that also meet our financial criteria.

Speaker Change: In the end, it all has to add up in combination between payments and services that our net revenue yield develops positively and that we keep in focus.

Daniel Rock Perlin: Can we just spend a second on the realignment or the organization a little bit? I know you talk about it to create capacity and drive incremental growth. I think the question I have is, how should we think about that and driving kind of new constituencies as you talk about new verticals and maybe the expansion of data analytics? And then more specifically, you know, how does that open up the, you know, aperture of the network as we think about that going forward? Thank you. Right, Dan?

Speaker Change: Our next question comes from Dan Perlin from RBC. Please go ahead, your line is open.

Daniel Rock Perlin: Thanks, good morning. Can we just spend a second on the realignment of the organization a little bit? I know you talk about it to create capacity and drive incremental growth.

Daniel Rock Perlin: I think the question I have is how should we think about that in driving kind of new constituencies as you talk about new verticals and maybe expansion of data analytics and then more specifically, you know, how does that open up the, you know, the aperture of the network as we think about that going forward? Thank you.

Michael Miebach: So, as I said earlier, the idea here is to accelerate growth. The idea is not to reposition our strategy; we've articulated our strategy, and you'll hear more of that at the investor community meeting in November and how we see that play out in more detail across our core payment solutions, new flows, and the services portfolio. You know, I purposefully stated the point on markets with high cash penetration. So here is, you know, as I laid out in the context of Africa, but there are more in other emerging markets around the world, there's a tremendous opportunity here. So we want to strengthen our front line.

Daniel Rock Perlin: Right, Dan. So, as I said earlier, the idea here is to...

Speaker Change: Accelerate growth. The idea is not to reposition our strategy. We've articulated our strategy. You'll hear more of that in the investor community meeting in November and how we see that play out in more detail across our core payment solutions, new flows, and the services portfolio.

Daniel Rock Perlin: You know, I purposefully stated the point on markets with high cash penetration. So here is, you know, as I laid out in the context of Africa, but there's more in other emerging markets around the world, there's a tremendous opportunity here. So we want to strengthen our front line. It's also clear that the recipe to particulate, to participate in the secular opportunity emerging markets isn't the same as in developed markets, so we're investing in product and so forth.

Michael Miebach: But it's also clear that the recipe to participate in the secular opportunity of emerging markets isn't the same as in developed markets. So we're investing in product, and so forth. It's pretty clear that on the services side, as far as the areas of focus are concerned, we continue to be guided by underlying strong secular trends. And one of those is that, for really any of our corporate partners and B2B partners, they want to make sense of their enterprise data and make better decisions. And how do we do that?

Daniel Rock Perlin: It's pretty clear that on the services side, as far as the areas of focus are concerned,

Speaker Change: We continue to be guided by underlying strong secular trends and one of that is for really any of our corporate partners and B2B partners that they want to make sense of their enterprise data and make better decisions.

Michael Miebach: We do that by leveraging our artificial intelligence solutions, a set of assistance, a set of fine tuning, how they could have more personalized suggestions for their end consumers, etc, etc. That's one part; help our customers make better decisions, not changing, but very specific solutions with a higher weightage on AI. And then on the security side, and the cyber security side, all of this data has to be kept safe. We keep saying that for years; that's a strong secular trend in itself.

Speaker Change: And how do we do that? We do that by leveraging our artificial intelligence solutions.

Speaker Change: A set of assistance, a set of fine-tuning, how they could have more personalized suggestions to their end consumers, etc., etc. That's one part, help our customers make better decisions, not changing, but very specific solutions with a higher weightage to AI.

Speaker Change: and then on the security side and the cyber security side all of this data has has to be kept safe we kept saying that for years that's a strong secular trend in itself

Michael Miebach: And making sure that we fine-tune our solutions here, we got to move faster, because you know, the bad guys are also moving faster, and they have similar technological tools at their disposal now. So leveraging artificial intelligence, you know, an example I gave last quarter around Decision Intelligence Pro, that's predicting what the next card that might be defrauded before it actually happens, those kind of solutions provide significant lifts to our customers in terms of preventing fraud, obviously giving peace of mind to their consumers, and overall helping our business, and it's a close link to our underlying payments business.

Speaker Change: [inaudible]

Speaker Change: before it actually happens.

Speaker Change: Those kind of solutions provide significant lifts to our customers in terms of you know preventing fraud Obviously giving peace of mind to their consumers and overall helping our business and it's a close link to our payments Underlying payments business. So all of that. It's largely the same strategy But we're really focusing on very specific assets Aspects of that and there are other aspects of our portfolio that we're going to dial down as a result of this effort

Michael Miebach: So all of that. It's largely the same strategy, but we're really focusing on very specific aspects of it. Our next question comes from David Togut from Evercore ISI. Please go ahead; your line is open. Thank you. Good morning, Michael and Sachin.

Speaker Change: Our next question comes from David Togut from Evercore ISI. Please go ahead, your line is open.

David Mark Togut: Europe continues to be your largest geo by GDV, and also highly differentiated growth there continues. We'd appreciate your look forward on the cash digitization opportunity, thoughts on the consumer, and then the outlook also for cross-border travel in and out of Europe. Right, so let me start.

David Mark Togut: Thank you. Good morning, Michael and Sachin. Europe continues to be your largest geo by GDV and also a highly differentiated growth there continues. Would appreciate your look forward on cash digitization opportunity, thoughts on the consumer.

Speaker Change: And then the outlook also for cross-border travel in and out of Europe .

Michael Miebach: I want to focus on how you framed your question. It's been a strong growth story for us in Europe, you know, that is, continental Europe, as well as the UK. We've seen tremendous share growth there, and that's really focusing down and investing more locally in Europe, having a better presence there, engaging with national governments, as well as with, you know, European institutions. We feel very European in Europe. That's the first thing I would say.

Speaker Change: Right, so let me start. I want to anchor on how you framed your question. It's been a strong growth story for us in Europe .

Speaker Change: You know that's continental Europe as well as the UK. We've seen tremendous share growth there.

Speaker Change: And that's really focusing down and investing more locally in Europe , have a better presence there, engage with national governments as well as with European institutions. We feel very European in Europe . That's the first thing I would say.

Michael Miebach: When we come back to the times of COVID, there was a large set of economies in Europe that were lagging, I would argue, on the digitization front; changing behaviors and consumers have, you know, increased the pressure to digitize further, and that has happened. So we've seen Europe catch up, and it obviously shows in our numbers. But back to the point of secular opportunity we just discussed, if you look at the economies in Germany and Italy, there's significant cash, you know, in the higher double digits that we're seeing that we can go after, and we will continue to go after.

David Mark Togut: When we come back to the times of COVID, there was a large set of economies in Europe that were lagging, I would argue, on the digitization front.

David Mark Togut: Chaining behaviors in consumers have increased the pressure to digitize further, and it has happened. So we've seen Europe catch up, and it obviously shows in our numbers.

David Mark Togut: But back to the point of secular opportunity we just discussed, if you look at the economies in Germany, in Italy, there's significant cash, you know, in the higher double digits that we're seeing there that we can go after and we will continue to go after.

Michael Miebach: So I continue to expect a growth opportunity there. But it's also true that there are markets that are so highly digitized today that the secular opportunity in itself is something that, you know, from cash to check isn't really happening. And there you come to the point about what are the emerging business models in a highly digitized world. The Nordics is a good example of that.

David Mark Togut: Continue to expect a growth opportunity there But it's also true that there are markets that are so highly digitized today that the secular opportunity in Itself is something that you know from cash to check isn't really happening and there you come to the point about what are the emerging Business models in a highly digitized world the Nordics is a good example of that There's a whole new set of business models coming up, and we're supporting those fintechs you know which is why Europe is one of the geographies around the world that we have a tremendous and

Michael Miebach: There's a whole new set of business models coming up, and we're supporting those fintechs, you know, which is why Europe is one of the geographies around the world where we have a tremendous position in fintech and other market leaders in those parts. So I'm excited about the European outlook, and we continue to invest there. And David, on your question around cross-border in and out of Europe, you know, a couple of thoughts around that. Look, I mean, globally, I would say we're well-positioned from a cross-border standpoint.

Speaker Change: Their position in FinTech and other market leaders in those partnerships.

David Mark Togut: So I'm excited about the Europe outlook and we continue to invest there.

David Mark Togut: All the best.

David Mark Togut: And David, on your question around cross-border in and out of Europe , you know, a couple of thoughts around there is, look, I mean, globally, I would say, we're well positioned from a cross-border standpoint, you could see that in our metrics. And then as it relates to Europe , back to what Michael just said, as we've been doing portfolios, you know, there's been a mix of portfolios we've been there, some of which are high cross-border and others are, you know, lower from a cross-border standpoint. The idea is to actually

Sachin Mehra: You can see that in our metrics. And then as it relates to Europe, back to what Michael just said, as we've been winning portfolios, there's been a mix of portfolios we've been in, some of which are high cross-border, and others are, you know, lower from a cross-border standpoint. The idea is to actually be in the flow, participate, and create opportunities for yourself to actually leverage our services, our loyalty assets in order to drive cross-border business, whether it's Europe or anywhere else in the world.

David Mark Togut: Be in the flow. Participate and create opportunities for yourself to actually leverage our services, our loyalty assets in order to drive cross-border, whether it's Europe or anywhere else in the world. The last point I'll make is sensitivity to foreign exchange rates, right? Strong dollar.

Sachin Mehra: The last point I'll make is sensitivity to foreign exchange rates, right? A strong dollar certainly helps in terms of inbound tourism into Europe because you tend to see a lot more travelers from the U.S. actually show up in Europe as part of that process.

David Mark Togut: Certainly helps in terms of the inbound into Europe because you tend to see a lot more travelers from the U.S. actually show up in Europe as part of that process. So again, we feel good about the cross-border opportunity, not only in and out of Europe , but globally for the company.

Michael Miebach: So, again, we feel good about the cross-border opportunity, not only in and out of Europe but globally for the company. And one last point to add, based on the financial framework that Sachin just put around it to return to the RNI question. So in Europe, we really feel we are well-positioned in the markets from a share perspective. So this aspect of financial discipline as we continue to, you know, look for deals and partnerships in Europe really rises to the top. Our next question comes from Darrin Peller from Wolf Research. Please go ahead.

Speaker Change: Right. And one last point to add based on the financial frame that Sachin just put around it, back to the R&I question.

Sachin Mehra: So in Europe , we really feel we are well-positioned in the markets from a share perspective. So this aspect of financial discipline as we continue to, you know, look for deals and partnerships in Europe really rises to the top.

Darrin David Peller: Your line is open. Hey guys, thanks. Um, it's good to see the stability into July on the US volume side. So if you could just help us understand a little more on the key, there's anything from CrowdStrike or weather, and then I guess really Michael is also more important.

Speaker Change: Our next question comes from Darrin Peller from Wolf Research. Please go ahead, your line is open.

Darrin David Peller: Hey guys, thanks. It's good to see the stability into July in the U.S. volume side, so if you could just help us understand a little more on the key...

Speaker Change: If there's anything from CrowdStrike or weather and then...

Sachin Mehra: The ability for you guys to win these portfolios, if you could help us just remind ourselves what the driving factors are, how much of it is, if there's any competitive pricing dynamic, and how much of it might be just the icing on the cake.

Michael Miebach: I guess, really, Michael, also, more importantly, just the ability for you guys to win these portfolios, if you could help us just remind us, understanding

Speaker Change: What the driving factors are how much of it is if there's any competitive pricing dynamics

Speaker Change: How much of it might be just VAS? Maybe a little bit more of what you see ahead.

Michael Miebach: Maybe a little bit more of what you see ahead. Why don't I take the first part of that question, Darrin, in terms of, you know, the trends we've seen for the first week, four weeks of July, it's like I said, you know, look, I mean, general stability and drivers across the board. And you can see that on, you know, page nine of our presentation. And really, I mean, to your question as to whether there was an impact from, you know, the events with CrowdStrike or whether, the reality is, the weather piece had a little bit of an impact.

Michael Miebach: Yeah, why don't I take the first part of that question, Darrin. In terms of, you know, the trends we've seen for the first three, four weeks of July , it's like I said, you know, look, I mean, general stability in drivers across the board. And you can see that on, you know, page nine of our presentation. And really, I mean, to your question as to whether there was an impact from, you know, the events over with CrowdStrike or whether, I mean, the reality is

Sachin Mehra: That's what I would actually mention, but it's kind of muted in terms of the context of you've got now four weeks worth of data in there. And so the reality is, these things kind of happen, they come, they come, you know, a particular week, if you look at it, it might look lower or higher, and then there might be a catch-up factor, which takes place as weeks kind of follow. By and large, we feel good about what we're seeing from a consumer spending standpoint. And that's reflective of what you see on the metrics right here.

Michael Miebach: The weather piece had a little bit of an impact, that's what I would actually mention, but

Michael Miebach: It's kind of muted in terms of the context of you've got now four weeks' worth of data in there. And so the reality is these things kind of happen. There comes, you know, a particular week. If you look at it, it might look lower or higher, and then there might be a catch-up factor which takes place as weeks kind of follow. By and large, we feel good about what we're seeing from a consumer spending standpoint, and that's reflective of what you see on the metrics right here.

Michael Miebach: And the second part of your question, you have a market in the US, and same as Europe, which we just talked about, that remains incredibly competitive. I think we haven't seen such an elevated level of competition in payments that we're currently seeing. You see a lot of movements in the market, you know, there's banks looking at network opportunities and so forth. So there's a lot going on. But it's also true that, for us, we continue to broaden our payment solutions and our service offerings. And that really comes to that part of your question: what matters here?

Speaker Change: Right, and in the second part of your question, you have a market in the US, and same as Europe since we just talked about that, remains incredibly competitive.

Speaker Change: I think we haven't seen such elevated level of competition and payments that we're currently seeing. You see a lot of movements in the market, you know, there's banks looking at network opportunities and so forth. So there's a lot going on.

David Mark Togut: But it's also true that, you know, for us, we continue to broaden our payment solutions and our service offerings and really that comes to that part of your question, what matters here? What matters here is that we can help our customers run their business in a better way.

Michael Miebach: What matters here is that we can help our customers run their business in a better way. So, what are they trying to do, and are solutions helping data insights, and cybersecurity certainly important? The fact that cards aren't the best answer to all payments, but there is also a multi-rail set of solutions that customers are looking for. We have all of that.

David Mark Togut: So, what are they trying to do and are solutions helping data insights, saver security, certainly matter. The fact that cards isn't the best answer to all payments, but there is also a multi-rail set of solutions that customers are looking for, we have all of that. So that puts us in a differentiated position.

Michael Miebach: So that puts us in a differentiated position. We're trying not to sell products but really come in with solutions through our sales force. That's working for us, but it's pretty clear. We have to be financially competitive. That always matters.

David Mark Togut: We're trying not to sell product, but really come in with solutions through our sales force. That's working for us, but it's...

Michael Miebach: But if you can have a conversation around the top line outcome with your customer vis-a-vis the cost of payments, that changes the dialogue quite significantly. So when I talk to CEOs and the customer side, that's what they're really interested in. So that's working.

David Mark Togut: Pretty clear. You know, we have to be financially competitive. That always matters. But if you can have a conversation around the top-line outcome with your customer vis-a-vis the cost of payments, that changes the dialogue quite significantly. So when I talk to CEOs and the customer side, that's what they're really interested in. So

Michael Miebach: That's a lot of value that we bring, and we price for that. So we continue to price for that. You've heard us mention pricing changes in the last quarter. So we do that wherever we see the opportunity. Tokenization is a great example.

David Mark Togut: That's working. That's a lot of value that we bring, and we price for that. So we continue to price for that. You've heard us mention pricing changes in the last quarter. So we do that wherever we see the opportunity. Tokenization is a great example. We've invested in tokenization.

Michael Miebach: We've invested in tokenization, and we needed to scale it up. Now we have an opportunity to build a whole set of services on top of the basic token that we can price for and that we feel we should price for because they drive a better, I think we're well positioned in a very competitive market, and we're going to continue to try to. Our next question comes from Dave Koning from Baird. Please go ahead; your line is open.

David Mark Togut: Needed to scale it up now We have an opportunity to build a whole set of services on top of the basic token that we can price for and that we Feel we should price for because they drive a better outcome in terms of better approval rates lower fraud and so forth for our customers so

David Mark Togut: I think we're well positioned in a very competitive market and we're going to continue to try to keep that edge.

David John Koning: Yeah, guys, thank you. And I guess my question on the cross-border line is, you've had a very nice positive divergence between constant currency revenues and constant currency volumes. This quarter was about 4%. And I think for 13 quarters in a row, it's been nicely positive. In prior years, it was pretty close to neutral, sometimes even a little negative.

David Mark Togut: Our next question comes from Dave Koning from Baird. Please go ahead, your line is open.

David John Koning: Yeah, hey guys, thank you. And I guess my question on the cross borderline, you've had a very nice positive divergence between constant currency revenues and constant currency volumes. This quarter was about 4%. And I think for 13 quarters in a row, it's been nicely positive.

Sachin Mehra: Why does that continue to be positive? And you know, how should we think of that going forward? Is that going to stay that nice positive divergence? Yeah, David.

Speaker Change: In prior years, it was pretty close to neutral, sometimes even a little negative. Why does that continue to be positive in, you know, how should we think of that going forward? Is that going to stay that nice positive divergence?

Sachin Mehra: So, look, I mean, it's like I said, right, it's being driven by favorable mix and a little bit of pricing in the second quarter. But the reality is that the mix piece is really what's been causing that positive divergence you're talking about. As you're aware, our cross-border volumes are, and we show you the metrics on this, we have intra-European cross-border, and then we have other cross-border. Intra-European is lower yielding; other cross-border is high yielding for us.

David Mark Togut: David, so, um, look, I mean, it's, it's like I said, right, it's being driven by favorable mix and a little bit of pricing in the second quarter. The reality is that the mixed piece is really what's been actually causing that positive divergence you're talking about. As you're aware, our cross-border volumes are, and we show you the metrics on this, we have intra-Europe cross-border, and then we have...

Speaker Change: and S. S. B. Rath, and S. M. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S. S.

Sachin Mehra: And so as you think about this, if the other cross-border volumes are growing at a faster pace than intra-Europe, you tend to see that positive divergence. But I'll remind you, during COVID, we actually had the reverse phenomena take place.

Sachin Mehra: We had intra-Europe growing faster than other cross-border, and you actually had the reverse happening, which is you had cross-border assessments growing at a slower clip than the actual underlying driver growth. So that's really what we mean by mix there. And then, of course, there's pricing, which we do back to the point Michael was making around the value we deliver, which is another contributing factor in the second quarter. Our next question comes from Sanjay Sakhrani from KVW. Please go ahead with your line. Thanks. Good morning.

David Mark Togut: I'll remind you, during COVID, we actually had the reverse phenomena take place. We had intra-Europe going faster than other cross-border, and you actually had the reverse happening, which is you had...

David Mark Togut: [inaudible]

David Mark Togut: Our next question comes from Sanjay Sakhrani from KVW. Please go ahead, your line is open.

Sanjay Harkishin Sakhrani: Um, I was wondering, Sachin, could you just talk about the share gain benefits for the quarter and maybe what's on the horizon? I think you mentioned it in the context of incentives. And then just specific to some of the revenue items or revenue lines, when I look at domestic assessment revenue, that kind of slowed from a trend line that we've seen that was much stronger. I know some of it was FX, but was there anything else similar for other revenues? Those were down a little bit. I know it's a smaller line, but any call-outs?

Sanjay Harkishin Sakhrani: Thanks. Good morning. I was wondering, Sachin, you know, could you just talk about the share gain benefits in the quarter and maybe what's on the horizon? I think you mentioned it in the context of incentives.

Speaker Change: And then just specific to some of the revenue items or revenue lines, when I look at domestic assessment revenue, that kind of slowed from a trend line that we've seen that was much stronger. I know some of it was FX, but was there anything else similar for other revenues? Those were down a little bit. I know it's a smaller line, but any call-outs there?

Sachin Mehra: So I'll take, I think there were three questions there. So I'm going to take all three of them, which are on domestic assessments. It is that the delta you're seeing in terms of domestic assessments growing at 7% compared to GDV going at 9% is primarily driven by mix. I need to remind everybody that GDV and domestic assessments are not a perfect proxy, just because in domestic assessments, there's a whole bunch of other stuff which is there.

Speaker Change: So I'll take, I think there were three questions there. So I'm going to take all three of them, which is on domestic assessments, it's that the delta you're seeing in terms of domestic assessments growing at 7% compared to GDV going at 9% is primarily been driven by mix. I need to remind everybody that GDV and domestic assessments is not a perfect proxy, just because in domestic assessments,

Sachin Mehra: You've got card fees, you've got a bunch of stuff going on in there. So there's always going to be some level of kind of difference in terms of growth rates there. But what we like to call out is what are the salient features or factors which are causing that, for the different growth rates between domestic assessments and GDV growth. And when I talk about mix there, just so that you're clear, I mean, the mix could come from a whole host of things. So, for example, our GDV includes our cross-border volumes, while domestic assessments do not include our cross-border related revenues.

David Mark Togut: There's a whole bunch of other stuff which is there. You've got card fees. You've got a bunch of stuff going on in there. So there's always going to be some level of kind of...

David Mark Togut: difference in terms of growth rates there. But what we like to call out is what are the salient features or factors which are causing for that for the the different growth rates between domestic assessments and

David Mark Togut: And when I talk about mix there, just so that you're clear, I mean, the mix could come from a whole host of things. So, for example, our GDD includes

David Mark Togut: [inaudible]

Sachin Mehra: And so what you've got is with GDV growing, you don't have the associated cross-border revenue which is there, which would come in terms of domestic assessments. You could also have changes in geographic mix. You've got high-yielding and low-yielding regions, and depending on the growth rate of regions, you might see deltas go to the positive or the negative there.

Speaker Change: You don't have the associated cross-border revenue, which is there, which would come in terms of the domestic assessments. You could also have changes in geographic mix. You've got high-yielding and low-yielding regions, and depending on the growth rate of regions, you might see deltas come to the positive or the negative there.

Sachin Mehra: So that, Sanjay, is the domestic assessments piece. On the other payment network revenues, again, you look, I mean, this is not something which we are necessarily focused on as a business. That is, it's one of the things which is required to run the network. It's a range of things from licensing fees, implementation fees, franchise fees, things of that sort, and those things move around.

Speaker Change: So that, Sanjay, is the domestic assessments piece.

Speaker Change: On the other payment network revenues, again, you know, look, I mean, this is not something which we are necessarily focused on as a business, that is...

Speaker Change: It's one of the things which is required to run the network. It's a range of things from licensing fees, implementation fees, franchise fees, things of that sort. And those things move around, so I wouldn't get too fussed about the fact that, you know, in one quarter it grows at an exceptional pace and the next quarter it's actually going in the opposite direction. Just because, first, the number is fairly small, and second, it's, you know, there are a whole host of reasons why that might happen.

Sachin Mehra: So I wouldn't get too fussed about the fact that, you know, in one quarter, it grows at an exceptional pace, and the next quarter, it's actually going in the opposite direction, just because, first, the number is fairly small, and second, there are a whole host of reasons why that might happen. For example, as customers get more compliant, you know, you might have lessened the nature of the compliance fees that you're charging them.

Speaker Change: For example, as customers get more compliant, you know, you might have less in the nature of compliance fees that you're charging them. So that's a good thing for the network, by the way, over the long term.

Sachin Mehra: So that's a good thing for the network, by the way, over the long term. And then the last point you asked, actually, the first question you asked, which was about share gain benefits in the quarter, you know, the one I called out really was around the debit conversion in the U.S., and, you know, we had previously announced this. We announced our win of the debit portfolio from citizens. We are super pleased with our relationship with citizens.

Speaker Change: And then the last point you asked, actually it was the first question you asked, which was around share gain benefits in the quarter.

Speaker Change: You know, the one I called out really was around the debit conversion in the U.S. And, you know, we've previously announced this. We've announced our win of the debit portfolio from Citizens. We're super pleased with our relationship with Citizens. That conversion is going exceptionally well. That conversion, for the most part, was complete in the

Sachin Mehra: That conversion is going exceptionally well. That conversion, for the most part, was complete in the second quarter, so we had new cards which were, you know, sent out to customers. So there's a little bit of that which is there. Again, what I wanted to share was that when we're looking at drivers, right, between Q2 and the first four weeks of July, or, for that matter, between Q1 and Q2, when you take out the impact of these share wins, there's still underlying stability in terms of consumer spending trends.

David Mark Togut: [inaudible]

Speaker Change: or for that matter between Q1 and Q2, when you take out the impact of these share wins, there's still underlying stability in terms of consumer spending trends.

Sachin Mehra: On share gains, just so that you've got the overall picture, right, so we talked a little bit about citizens, we had the Webster win, you've got a whole bunch of stuff which will roll on, and those will be multi-year kinds of conversions which will come through. In particular, I call out Unicredit.

Speaker Change: On share gains, just so that you've got the overall picture, right, so we've talked a little bit about citizens, we had the Webster win, you've got a whole bunch of stuff which will roll on, and those will be multi-year kind of conversions which will come through. In particular, I'd call out Unicredit. So in Unicredit, we had announced this deal win in 2023. Well, that conversion's underway. That'll be over a multi-year kind of timeframe again. Deutsche Bank, again, the conversion's underway. It'll take a couple of years before you actually start to see the completion of that occur. So all of these things will play out over time.

Sachin Mehra: So in Unicredit, we had announced this deal win in 2023. Well, the conversions underway, that'll be over a multi-year kind of timeframe again. Deutsche Bank, again, the conversions underway. It'll take a couple of years before you actually start to see the completion of that occur. So, all of these things will play out over time. Our next question comes from Tianjin Huang from J.P. Morgan. Please go ahead; your line is open.

Speaker Change: Our next question comes from Tianjin Huang from J.P. Morgan. Please go ahead, your line is open.

Tianjin Huang: Thank you. Good results here. Just on the value-added services and solutions that accelerated, I know there's an easy comp from the first quarter, but any interesting trends in terms of the composition of growth within Vass and any, call us for the second half of the year in terms of the best growth. Tianjin, good to hear from you.

Tianjin Huang: Thank you. Good results here. Just on the value-added services and solutions, that accelerated. I know there's an easy comp from the first quarter, but any interesting trends in terms of composition of growth within VAS and any

Speaker Change: Call us for the second half of the year in terms of best growth.

Michael Miebach: You know, 19% is a strong growth rate for sure. The usual suspect in terms of driving growth is the payments-related part of this, particularly on the cyber security side. So that continues to grow and grow very well. So there's more need for more fraud solutions. That's one thing.

Tianjin Huang: Right. Tianjin, good to hear you.

Tianjin: You know, 19% is a strong growth rate, for sure.

Speaker Change: The usual suspect in terms of driving for growth is the payments related part of this, particularly on the cyber security side, so that continues to grow and grow very well, so there's more need for more fraud solutions.

Speaker Change: That's one thing. And on the data analytics side, we continue to see great interest, as I laid out in remarks, test and learn, for example. So I'll give you a number of examples how customers are trying to figure out

Michael Miebach: And on the data analytics side, we continue to see great interest, as I laid out in my remarks, test and learn, for example. So I'll give you a number of examples of how customers are trying to figure out what kind of campaigns make sense, or how they can serve their customers better, and so forth. So no particular change there. But I think the fundamental trend that I touched on earlier in an earlier response, more infusion of AI across the board to make these products scale better and be more effective. That's certainly a trend.

Tianjin: What kind of campaigns make sense? How can they serve their customers better? And so forth. So no particular change there. I think the fundamental trend that I touched on earlier in an earlier response, more infusion of AI across the board to make these products scale better and be more effective, that's certainly a trend.

Tianjin: Overall, the whole mix of this is largely unchanged. We continue to invest in, you know,

Michael Miebach: Overall, the whole mix of this is largely unchanged. We continue to invest in, you know, newer aspects of our services portfolio, particularly on the open banking side. I talked through a couple of use cases here. They still have to scale up in a significant way, but we feel we're well positioned in Europe, Australia, and the US on the open banking side. So it's good to see.

Tianjin: Newer aspects of our services portfolio, particularly on the open banking side. I talked through a couple of use cases here. They still have to scale up in a significant way, but we feel we're well positioned in Europe , Australia, in the US, on the

Michael Miebach: We said in the first quarter where we had a slightly lower growth rate, we're going to be higher in every single quarter for the rest of this year, and that is playing out as predicted. So occasionally you have tougher comps and so forth, but this is a pretty solid trend. Our next question comes from Dan Dolev from Mizuho. Please go ahead, your line is open. Oh, hey guys. Good morning.

Speaker Change: Open Banking and the Open Banking Side. So good to see. We said in the first quarter where we had a slightly lower growth rate, we're going to be higher quarter every single quarter for the rest of this year. And that is playing out as predicted. So occasionally, you have tougher comps and so forth. But this is a pretty solid trend for us.

Speaker Change: Our next question comes from Dan Dolev from Mizuho. Please go ahead, your line is open.

Dan Dolev: Thank you for taking my question. Last quarter, I believe you gave us a cadence on rebates and incentives growing slower in the second half versus the first half. Can you maybe give us a little bit more color on the cadence? Thanks. Hey Dan. Dan, last quarter I shared with you a point of view around what we thought rebates and incentives would look like in the second quarter. And what we had said was that they would be flat to slightly lower for the second quarter. And in the second quarter, rebates and incentives came in lower than the first quarter, lower than even what we had expected for the reasons I mentioned earlier, which is the timing of deal activity.

Dan Dolev: Oh, hey guys. Good morning. Thank you for taking my question. Last quarter, I believe you gave us a cadence on rebates and incentives growing slower.

Dan Dolev: In the second half versus the first half, can you maybe give us a little bit more color onto the cadence of rebates and incentives this year and great results again. Thank you.

Speaker Change: Hey Dan. Dan, last quarter I shared with you a point of view around what we thought rebates and incentives would look like in the second quarter and what we had said is it would be flat to slightly lower for the second quarter.

Speaker Change: In the second quarter, rebates and incentives came in lower than the first quarter, lower than even what we had expected for the reasons which I mentioned earlier, which is the timing of deal activity.

Sachin Mehra: And then today I shared with you what I think will be rebates and incentives in the third quarter, which we expect that rebates and incentives as a percentage of payment network assessments will be higher in the third quarter compared to the second quarter. We really haven't shared much about the nature of rebates and incentives beyond that. So really just for clarification, that's what I wanted to share. Our next question comes from Andrew Jeffrey of William Blair. Please go ahead; your line is open. Hi, good morning.

Speaker Change: And then today I shared with you what I think will be rebates and incentives in the third quarter, which we expect that rebates and incentives as a percentage of payment network assessments will be higher in the third quarter compared to the second quarter.

Speaker Change: We really haven't shared much in the nature of rebates and incentives beyond that. So really, just for clarification, that's what I wanted to share with you.

Speaker Change: Our next question comes from Andrew Jeffrey from William Blair. Please go ahead, your line is open.

Andrew William Jeffrey: Thanks for taking the question. Michael, I want to ask about open banking and, particularly, in the US. I'm hearing some conflicting things about the price of real-time payments, interchange in real-time payments, I guess, versus debit. Durbin Regulated Debit, Perhaps the enthusiasm on the consumers' behalf to pay from. Unknown Speaker, Unknown Speaker, Unknown Speaker, Right.

Andrew William Jeffrey: Hi, good morning. Thanks for taking the question.

Andrew William Jeffrey: Michael, I want to ask about open banking and particularly in the U.S.

Andrew William Jeffrey: I've been hearing some conflicting things about the price of real-time payments, interchanging real-time payments, I guess, versus

Andrew William Jeffrey: Debate.

Andrew William Jeffrey: [inaudible]

Michael Miebach: So, um, interesting you call that out. I just mentioned that just before. And, you know, I said, it's not quite where I think most market participants would have wished open banking got to over the years, and that applies. Here in the United States, when I look at open banking with a focus on, you know, particular services, a set of actions around account opening or account linking or data aggregation or things like that, you know, we see good momentum. I talked about that earlier.

Speaker Change: Right, so...

Speaker Change: interesting you you call that out I just mentioned that just before and you know I said it's not quite where I think most market participants would

Andrew William Jeffrey: Would have wished open banking got to over the years and that applies I think globally

Andrew William Jeffrey: Here in the United States, when I look at open banking with a focus on particular services, a set of actions around account opening or account linking or data aggregation or things like that.

Michael Miebach: When it comes to payments, the payment side of open banking, you know, it's still true that the value that the card ecosystem brings is significant. And you made a point about chargebacks. You know, that is, it's not comfortable if there's a problem, and then there's no established way to get your money back.

Speaker Change: You know, we see good momentum, I talked about that earlier, when it comes to payments, the payment side of open banking, you know, it's still true that the value that the card ecosystem brings is significant, and you made a point on chargebacks, you know, that is

Speaker Change: It's not comfortable if there's a problem and then there's no established way to get your money back. On cards we do that. The same is for fraud protection. I think we know exactly how that works in the world of card payments. It's not so clear yet in the world of account-to-account payments. Nevertheless...

Michael Miebach: On cards, we do that. The same is true for fraud protection. I think we know exactly how that works in the world of card payments. It's not so clear yet in the world of counter account payments. Nevertheless, it is our, you know, it's our role as an ecosystem custodian to understand where emerging technologies are going, where customer interest is going, and that consumers want to use their data footprint to get better services. Well, absolutely. First of all, that starts with data protection and data consent management, which we invest a lot of energy in. But then to say, all right, you know, how could this kind of technology be used?

Speaker Change: It is our, you know, it's our role as an ecosystem custodian to understand where emerging technologies are going, where is customer interest going, that consumers want to use their data footprint to get better services. Well, absolutely. First of all, that starts with data protection and data consent management, which we invest a lot of energy on.

Michael Miebach: So we do invest in it, which is why we called out open banking as an element of a kind of future-oriented activity for us in investment. What we currently see are those use cases that I mentioned; they are the most near-term opportunity. And this is around lending; it's around account opening, account linking, asset verification, and more recently around data aggregation. Our smart subscription solution is one example of that. You know, that works really well for consumers if you get, you know, 15 subscriptions and you see them all in one place, and it makes a real difference. So I think it's evolving.

Speaker Change: But then to say, all right, you know, how could this kind of technology be used? So we do invest in it, which is why we called out open banking as an element of a kind of a future-oriented...

Andrew William Jeffrey: [inaudible]

Speaker Change: That I mentioned they are the most near-term opportunity. And this is around lending, it's around account opening, account linking, asset verification, and more recently around data aggregation. Our smart subscription solution is one example of that. Yeah, that works really well for consumers. If you get you know 15 subscriptions and you see them in one place, then it makes a real difference.

Michael Miebach: It's evolving, and we're at the forefront of evolving it, but we're also trying to make sure that it's understood that the value we bring through cards is really unparalleled. Our next question comes from Fahad Khanwar from Redburn Atlantic. Please go ahead.

Speaker Change: So I think it's it's evolving it's evolving and we're at the forefront of evolving it But we're also trying to make sure that it's understood that the value we bring through cards is really unparalleled

Speaker Change: Our next question comes from Fahad Khanwar from Redburn Atlantic. Please go ahead, your line is open.

Fahed Irshad Kunwar: Your line is: Hi both, thanks for taking the question. I just wanted to ask about profitability. Obviously, there's a lot of different moving parts with VAS growing really nicely cross-border. How do you think about margin expansion though versus kind of investing in all of these various product areas, in distribution, and the products themselves? Should we expect margins to carry on expanding as they have been, or will there be continued areas of investment that you think will kind of drive expenses higher from here? Hi Fahad.

Fahad Khanwar: Hi both, thanks for taking the question. I just wanted to ask about profitability, obviously there's a lot of various moving parts with VATs growing really nicely, cross-border, how do you think about margin expansion though versus kind of investing in all of these various product areas, in distribution and the products themselves, should we expect margins to carry on expanding as they have been or?

Speaker Change: Will there be continued areas of investment that you think will kind of drive expenses higher from here? Thanks.

Sachin Mehra: So a couple of thoughts here for you, number one, I think we mentioned in the past, and this philosophy of ours remains unchanged, which is we aspire to deliver positive operating leverage, which is driving net revenue growth at a faster clip than operating expense growth over the long term. So that's really what the aspiration is for how we run the business. The most important thing to remember is we're running the business for top line growth and bottom line growth. And in order to do that, we keep a very close eye on making investments to drive growth in the near term, medium term, and long term.

Bud: Hi Bud

Speaker Change: So, a couple of thoughts here for you, which is, number one, I think we mentioned in the past, and this philosophy of ours remains unchanged, which is, we aspire to deliver positive operating leverage, which is driving net revenue growth at a faster clip than operating expense growth over the long term. So, that's really what the aspiration is for how we're running the business.

Speaker Change: The most important thing to remember is we're running the business for top line growth and bottom line growth. And in order to do that, we keep a very close eye on making investments to drive

Sachin Mehra: So yes, we are investing in things that will drive growth in the near, medium, and long term. That is super essential from our perspective, not only because that's what our shareholders desire, but also because we believe the set of opportunities in front of us are sizable. And so for us to leave those opportunities under-invested would be a bad move for the long-term health of our company.

Speaker Change: Growth in the near term, medium term, and long term. So yes, we are investing in things which will drive growth in the near, medium, and long term. That is super essential from our perspective, not only because that's what our shareholders desire, but also because we believe the set of opportunities in front of us

Speaker Change: are sizable and so for us to leave those opportunities

Sachin Mehra: So we will continue to invest in the business. We will do that with the strategic priorities which Michael has laid out with that focus. We will constantly look at those priorities to see how the market conditions are evolving, and we will pivot as necessary. But the general kind of flow is yes, we will continue to invest in the growth of our business because we see tremendous opportunity going forward. Our next question comes from Paul Golding from Macquarie Capital. Please go ahead. Your line is open.

Speaker Change: Underinvested would be a bad move for the long-term health of our company. So we will continue to invest in the business We will do that With the strategic priorities, which Michael has laid out with that focus

Speaker Change: We will constantly look at those priorities to see how the market conditions are evolving and we will pivot as necessary. But the general kind of flow is yes, we will continue to invest in the growth of our business because we see tremendous opportunity on a going forward basis.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Paul Golding from Macquarie Capital. Please go ahead, your line is open.

Paul Alexander Golding: Thanks so much for taking my question. I wanted to ask about AI in a fraud sense. I know that you're incorporating AI into your products and, presumably, as part of VAS to combat fraud. Just wanted to ask what you're seeing in terms of the offense of fraud using AI and how that might accelerate the adoption of your new products and your investment in new products around AI to combat that. Thank you.

Paul Alexander Golding: Thanks so much for taking the question.

Paul Alexander Golding: I wanted to ask about AI in a fraud sense. I know that you're incorporating AI into your products and presumably as part of VAST to combat fraud. I just wanted to ask what you're seeing in terms of the offense of fraud using AI and how that might accelerate the adoption of your new products and your investment in new products around AI to combat that. Thank you.

Michael Miebach: So, you know, with rapid digitization around the world, we've seen a lot, a lot of new entrants into the ecosystem, a lot of small businesses have digitized post-COVID, as you see, you know, in emerging markets, a lot of people for the first time using digital solutions. So digitization is growing, vulnerabilities are growing, and technology in the hands of fraudsters is also evolving. Players like ourselves, who, you know, oversee an ecosystem, a franchise between banks and merchants and for the benefit of the end consumer, need to really invest in safety and security. We've done that before.

Andrew William Jeffrey: Right.

Speaker Change: So, you know, with with rapid digitization around the world, we've seen a lot, a lot of new entrance into the ecosystem, a lot of small businesses have digitized post COVID, as you see, you know, in emerging markets, a lot of people for the first time using digital solutions. So

Andrew William Jeffrey: Digitalization is growing, vulnerabilities are growing, and technology in the hands of fraudsters is also evolving, so this makes for an environment where, you know,

Andrew William Jeffrey: Players like ourselves who...

Michael Miebach: And AI isn't actually anything new for us. So, for the better part of a decade, we've been using AI, this is discrete machine learning technology, to really predict where the next problem will be and, you know, analyze data that we have and data that our customers have to prevent fraud. So that's been very successful. As far as generative AI is concerned, you know, the evolving technology here, there is obviously an opportunity for us to understand more data in a quicker way. And we have used that initially to train our AI models, our discriminative AI models using generative AI to create artificial data sets.

Andrew William Jeffrey: [inaudible]

Andrew William Jeffrey: As far as generative AI is concerned, you know, evolving technology here, there is obviously an opportunity for us to understand more data in a quicker way. And we have used that initially to train our AI models, our discriminative AI models using generative AI to create artificial data sets. So that was the first step.

Michael Miebach: So that was the first step. And then we went into, you know, putting out a new set of products. I mentioned Decision Intelligence Pro.

Andrew William Jeffrey: And then we went into, you know, putting out a new set of products. I mentioned Decision Intelligence Pro. Decision Intelligence is a product that we've had for a long time, machine learning driven, that was predicting fraud outcomes, and now we're using more data sets that are externally available, stolen card data, and so forth, to understand

Michael Miebach: Decision Intelligence is a product that we've had for a long time, machine learning driven, that was predicting fraud outcomes. And now we're using more data sets that are, you know, externally available, stolen card data, and so forth to understand where fraud vulnerabilities might be. The lift is tremendous.

Michael Miebach: 20% we see in terms of, you know, effectiveness out of that product. So we start to see demand for the whole reason for the vulnerabilities that I talked about. So we expect continued growth. We also expect the fraudsters to come up with new techniques themselves. We need to continue to evolve.

Andrew William Jeffrey: where our fraud vulnerabilities might be, the lift is tremendous, 20% we see in terms of effectiveness out of that product. So we start to see demand for the whole reason of the vulnerabilities that I talked about. So we expect continued growth. We also expect...

Andrew William Jeffrey: The fraudsters to come up with a...

Andrew William Jeffrey: New techniques themselves, we need to continue to evolve. So, I believe that the penetration of generative AI and fraud in cybersecurity products will only expand. Now, I talked a lot about transaction-related fraud. The vectors around cybersecurity are obviously much broader.

Michael Miebach: So I believe that the penetration of generative AI and fraud and cybersecurity products will only expand. Now, I talked a lot about transaction-related fraud, but the vectors around cybersecurity are obviously much broader, it's prediction of fraud, it's what's the general cybersecurity posture of a company, risk recon capabilities, and so forth. We try to cover the whole ecosystem and become a true strategic partner of our customers. So if anything, this whole space is going to grow further, and you're going to continue to see us invest in that.

Andrew William Jeffrey: It's prediction of fraud. It is what's the general cyber security posture of a company. Risk recon capabilities and so forth. We try to cover the whole ecosystem and become a true strategic partner of our customers. So if anything, this whole space is going to grow further and you're going to continue to see us invest in that area.

Michael Miebach: We have time for one more question, Julian. Our last question will come from Andrew Schmidt from Citi. Please go ahead. Your line is, Hi Michael, hi Sachin. Thanks for squeezing me in. I just want to double click on macro viewpoint.

Andrew William Jeffrey: We have time for one more question, Julian.

Speaker Change: Our last question will come from Andrew Schmidt from Citi. Please go ahead, your line is open.

Andrew William Jeffrey: If I hear the message correctly, it sounds like macro Transcribed by https://otter.ai, and let us know if there's any divergence amongst different consumer demographics and correspondingly what that might mean for debit versus credit, and transaction size. That'd be super helpful. Thanks so much. Right? So, you know, at the outset of my prepared remarks, I talked about the puts and takes on inflation, on prices. Now, the bottom line there is that, for now, the consumer is supported, and that's pretty, pretty much irrelevant to the income cohort is supported by a strong labor market. So that's fundamentally true, and it's fundamentally true around the world. It's in aggregate, but it's not a uniform answer. The picture obviously plays out very differently country by country.

Andrew William Jeffrey: Hi Michael, hi Sachin, thanks for squeezing me in. I just want to double click on macro viewpoint. If I hear the message correctly, it sounds like macro viewpoint is mixed but

Speaker Change: Consumer Spends Trends are stable for the most part.

Speaker Change: If you could just double-click on that and...

Andrew William Jeffrey: And let us know if there's any divergence amongst different consumer demographics and correspondingly what that might mean for debit versus credit, transaction sizes, anything like that. That'd be super helpful. Thanks so much.

Speaker Change: Alright, so...

Speaker Change: You know...

Speaker Change: At the outset of my prepared remarks, I talked about the puts and takes on inflation, on prices. The bottom line there is that for now, the consumer is supported, and that's pretty much irrelevant of income cohort is supported by a strong labor market. So that's fundamentally true, and it's fundamentally true around the world.

Speaker Change: But it's in aggregate, but it's not a uniform answer. The picture obviously plays out very differently country by country. We have a very

Michael Miebach: We have a very global business, so we look at what the Central Bank of Japan is doing, and we saw that today. They raised rates. And in Europe, you'll see Germany came through with actually a small recession in the past quarter. So there's a lot of back and forth, but that fundamental point that the consumer is supported by the outlook. You peel the onion a bit further, you look into different cohorts, and it's pretty clear that when it comes to higher income versus lower income, you know, if you spend on an expensive trip, experiences during the summer, whatever you're trying to do, if you have more income, then you can do more of that. And if you have less income, then you can do less of that.

Speaker Change: ...very global business, so we look at what is the Central Bank of Japan doing, and we saw that today, they raised rates, and in Europe you'll see...

Speaker Change: [inaudible]

Michael Miebach: What we generally see, though, as a function of the digital economy, the higher-end consumer, but certainly the mid-income and lower-income consumer, is much more empowered, empowered by having more data and the ability to look for a better deal. And that's what everybody's trying to do, to make things add up and work for them, that they still want to do that trip. So all of that together overall adds up to a picture that we feel pretty good about, at least on our side of the business. And why do I say that?

Speaker Change: about the Outlook.

Speaker Change: If you peel the onion a bit further you look into different cohorts and it's pretty clear that when it comes to higher income versus lower income.

Speaker Change: If you spend on an expensive trip or on experiences during the summer, whatever you're trying to do, if you have more income, then you can do more of that. And if you have less income, then you can do less of that. What we generally see, though, as a function of the digital economy,

Speaker Change: The higher-end consumer, but certainly the mid-income and lower-income consumer, is much more empowered. Empowered by having more data and the ability to look for a better deal. And that's what everybody's trying to do, to make things add up and work for them, that they still want to do that trip. So all of that together overall adds up to a picture that we feel pretty good, at least about our side of the business. And why do I say that? Because, you know, inflation and prices cut across carded and non-carded.

Michael Miebach: Because inflation and prices cut across carded and non-carded, but we're obviously particularly positioned in, you know, we're well-positioned in card categories. We've seen these cycles go on. Post-COVID, there was a lot of travel that was highly carded.

Speaker Change: But we're obviously particularly positioned in, you know, well-positioned in credit categories.

Michael Miebach: So you saw that rise. And, you know, right now you see a lot of inflation in auto insurance and rent that's not necessarily so much carded. So these are all the things that we think through, and it comes back to the fundamental point in aggregate. We see healthy consumer spending and don't see that changing in the short term.

Speaker Change: We've seen, you know, these cycles go on. Post-COVID, there was a lot of travel that's highly carded. So you saw that rise. And, you know, right now you see a lot of inflation in auto insurance and rent that's not necessarily so much carded. So these are all the things that we think through. Comes back to the fundamental point in aggregate.

Sachin Mehra: And Andrew, I'll just add one point, and Michael touched on this before, which is that, at the end of the day, our diversified business model blends really well in different environments because, at the end of the day, right, we're geographically diversified. We've got great diversification across debit and credit. We've got good diversification around channels of spend. So, you know, the reality is when these puts and takes take place in certain sectors of the economy, a dollar spent on one sector versus a dollar spent on the other sector will be relatively indifferent so long as it's card spending. And that diversification really helps our business the way we are actually structured, which has not happened by chance. It's happened by design.

Andrew William Jeffrey: We see healthy consumer spending and don't see that changing in the short term. And Andrew, I'll just add one point, and Michael's touched on this before, which is at the end of the day, our diversified business model blends really well in different environments, because at the end of the day, right, we're geographically diversified, we've got great diversification across debit and credit.

Speaker Change: [inaudible]

Andrew: A dollar spent on one sector versus a dollar spent on the other sector will be relatively indifferent so long as it's gotten spent, and that diversification really helps our business the way we are actually structured, which has not happened by chance, it's happened by design, and so that's something which is super important for us.

Sachin Mehra: And so that's something which is super important for us. Thank you. On a note, I'll hand it back to Michael for any closing comments. All right. Thanks, Devin. So, everybody, in the past hour, we talked about the momentum and a good quarter. You know, all of this obviously only happens because it takes the hard work of our colleagues at MasterCard.

Speaker Change: Thank you. On the note, I'll hand it back to Michael for any closing comments. All right. Thanks, Devin. So, everybody, past hour, we talked about the momentum and a good quarter.

Michael Miebach: So, I thank them. And I also want to thank you for your support for MasterCard. We're looking forward to speaking to you in a quarter from now and, hopefully, to see some of you at our Invest Today community meeting on November 13 in New York. Thank you very much. This concludes today's conference call. Thank you for your participation. You may now disconnect. Thanks for watching!

Michael Miebach: You know, all of this obviously only happens because it takes the hard work of our colleagues at MasterCard, so I thank them and I also want to thank you for your support for MasterCard. We're looking forward to speak to you in a quarter from now and hopefully see some of you at our Investor Day community meeting on November 13 in New York. Thank you very much.

Speaker Change: This concludes today's conference call. Thank you for your participation. You may now disconnect.