Q3 2024 Mastercard Inc Earnings Call
Yes.
Good morning, My name is Karina and I'll be your conference operator today.
Brianna: Good morning, my name is Brianna and I'll be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Incorporated 3rd Quarter 2020-4 conference call.
Brianna: At this time I would like to welcome everyone to the Mastercard incorporated third quarter 'twenty 'twenty four conference call.
Brianna: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
Brianna: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Brianna: Press Star one only wants to queue up for a question I was pressing star one multiple times may affect your position in the queue.
Brianna: If you would like to withdraw your question press the pound key thank you.
Speaker Change: Mr. Devin core head of Investor Relations you May begin your conference.
Speaker Change: To accelerate the adoption of Mastercard move for push to card payments.
Speaker Change: Latin America, we announced partnerships with pace and leap financial and Felix Pago to tackle the significant U S and Latin America, Latin America Cross border corridor opportunity.
Speaker Change: Another important element of our growth algorithm is gaining more share of the carpet market and we are even in todays competitive marketplace. We do this by understanding our customers' needs by offering differentiated service that can help them and drive value and our choice to the end customer.
Speaker Change: Example, this quarter in Belgium, Brussels Airlines announced that they will migrate their co brand card and loyalty program to Mastercard.
Speaker Change: We extended our agreement with the second largest bank in Europe BNP <unk> group. The extension includes additional services such as launch pads to co create new digital experiences through our dedicated innovation hub.
Speaker Change: We are building on our partnership with one of the largest commercial banks in Qatar Doha Bank. In addition to renewing debit and prepaid they will migrate the majority of the credit program to Mastercard.
Speaker Change: They were also the first bank in Qatar to launch our cross border payment services.
Speaker Change: We're teaming up with Alibaba dot com to enable their first co branded U S small business credit card and.
Speaker Change: And we signed an exclusive partnership with movie tells mobile wallets Ebola in Mozambique.
Speaker Change: To me all of these reinforce Mastercard as a valued partner to our customers.
Speaker Change: <unk> local currency basis.
Speaker Change: Worldwide gross dollar volume or <unk> increased by 10% year over year.
Speaker Change: In the U S GDP increased by 7% with credit growth of 6% and debit growth of 8%.
Credit and debit growth was aided by the conversions of the previously announced Wells Fargo commercial credits and citizens debit migrations respectively.
Speaker Change: Outside of the U S volume increased 12% with credit growth of 10% and debit growth of 14%.
Speaker Change: Overall cross border volume increased 17% globally for the quarter, reflecting continued strong growth in both travel and non travel related cross border spending.
Speaker Change: Turning to page five switched transactions grew 11% year over year in Q3, both card present and card not present growth rates remained strong.
Speaker Change: Present growth was aided in part by an increase in contactless penetration as contact list now represents approximately 70% of all in person switched purchase transactions. In addition card growth was 6% globally that are three 4 billion Mastercard and maestro branded cards issued.
Turning to slide six for a look into our net revenue growth rates for the third quarter discussed on a currency neutral basis.
Speaker Change: Payment network net revenue increased 11%, primarily driven by domestic and cross border transaction and volume growth. It also includes growth in rebates and incentives.
With reductions in the fed driven interest rates, but we've seen that the yield curve has actually gone right back up but the reality is there continues to be confidence from a consumer standpoint, we're seeing that come through and certainly playing through in their spending patterns as well.
Our next question comes from the line of Tien Tsin Huang with Jpmorgan. Your line is open.
Okay, great. Thanks, and such that maybe you wouldn't miss delivering these results I wanted to ask for Michael I like your disk.
Speaker Change: A discussion of acceptance and the trend in the growth and the benefits. There can you do the same thing maybe for Tokyo station in and where we are with respect to penetration growth benefits the ecosystem.
Of course benefits to Mastercard.
Speaker Change: P&L.
Right. So you know <unk> cutting edge technology as I call. It we've been investing at for years, where in the billions of transactions now the benefit of <unk> is pretty clear. It helps on the security side. It took a took a nice transaction has as a more secure transaction as the data will be owned.
Speaker Change: Available for onetime use.
That's it drives adoption across the ecosystem.
On the basis of higher security. This has been scaling rapidly around the world we are in.
A whole range of markets around the world today.
And it isn't it doesn't and it security there is benefit that is coming to merchants from <unk> nation as the higher conversion rates and online Commerce for example, so disability for us.
Is is cannot be underestimated. So if we're going to continue to invest in it there is a set of base functionality around <unk> and security as I explained there will be other <unk>.
Solutions that we can tag onto that for example, token lifecycle management and so forth now we have been investing.
Speaker Change: For many years in this capability and of course, we see this as an opportunity for us to drive our revenue line and charge for that but it is very clearly related to direct upside that our customer sees a merchant from higher conversion or lower fraud on the security side.
Speaker Change: Okay.
It's a we keep investing in that as I just spoke about but you know it's also pretty clear in that competitive environment, where we hope to have the better solution for our customers and the end consumer Theres not every deal is for us and we don't want to win every deal and you know there is competitive movement in different parts of the world and we are very sorry.
Phil about that there's financial discipline Indian in India, and we'll be keep in mind is the net revenue yield.
Our next question comes from the line of Tim Chiodo. Your line is open.
Great. Thanks for taking the question I wanted to dig in a little bit on Mastercard move so the combination of Mastercard send and the cross border services to brief topics one around mix across that entire capability would you describe the cross border mix as similar higher or lower than the rest of mastercard's business and then in terms of.
The accounting for the revenues I believe and maybe you could correct me that any of the domestic related activity tends to be a little bit more card based so it's sitting within payment network and some of the cross border activity. Some at least is more account to account and would be within bassinet.
So maybe I, maybe I start on that so these are very different and complementary businesses. So I think thats. The first to think about so obviously, we have a thriving cross border.
Driven part of our <unk> business in the <unk> space.
Speaker Change: Something very complex across border pretty simple for consumers. That's a good starting point, but there's many other use cases that are not actually happening so parts today and as part of our.
One stop strategy for payments for years, we have been investing and going after those flows and having a differentiated proposition there. So mastercard move which has domestic domestic and cross border type of payments currently what we see here is this is a pretty differentiated reach that we have across 95% of the worlds.
<unk> population of 180 countries 150 currencies, that's a very different proposition I kind of use cases that you think about insurance distributions.
Gig look us as we work remotely.
Develop an application for another company somewhere else around the world. So this is a it's a.
Pain point for many companies how to do this effectively and.
Speaker Change: Attractive price and our growth rates tell us that we're having the right proposition out there in the third quarter, we saw seeing over 40% of transaction growth in this business, so differentiated solution and I come back to the announcement around <unk> with Citi has the city as a strong player in cross border.
And here. This is one plus one is three as we have more endpoints and starting points for a transaction that we can bring into this partnership.
Speaker Change: And then on your question around the accounting Youll have it right I mean, the stuff, which is uncalled rooms for example, domestics and.
Speaker Change: The related revenues and payment network and then the cross border.
Volumes, which flow on non card rails are sitting in our value added services and solutions.
Speaker Change: Our next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.
Darrin Peller: Hey, guys. Thanks, Sachin first of all I just want to reiterate it's great to hear you on the call again.
Guys I just want to start off first I mean, the yield and the spread and what we're seeing in growth of transaction revenues and cross border continuing.
Continuing to outperform the Kpis I think it just shows the value add you're bringing to your customers can you just touch on the expansion of that.
Speaker Change: And what kind of opportunities youre seeing taken on by the customers to allow you to have those better yields.
Speaker Change: Relative to the volumetric. So this basically incremental glass or services or even pricing and then just answered just a quick follow up on tax rate I think you said four point so.
Want to be clear, we should be expecting around 20% tax rate next year.
Speaker Change: Thanks, Yes, so sure Darren.
Thanks for your question. So let me take the tax rate question first and I'll come back to your question around what Youre seeing in terms of yield trends. So on the tax rate you know look now we see greater clarity as it relates to the implementation of this pillar two global minimum tax and what what we talked and you've seen this in our 10-K 10-K disclosures in the past that we've had this incentive agreement with Singapore.
Speaker Change: The reality is no Singapore is actually an <unk>.
Those rules there is one final step, which left is left to be done in Singapore.
But the reality is it's getting pretty close so what we wanted to do was.
Our investors understand what is the impact Q3 year to date that we have experienced as a result of these incentive plans in Singapore tax rate and Thats the four percentage.
Number, which I kind of shared with you I can't tell you exactly what our tax rate is going to look like on a going forward basis, but order of magnitude right the impact of not getting the incentive grant in Singapore. This year would have had an impact of about four points on our tax rate. So I wanted to get that clarity out for for the investor community on that on the first part of your question.
Which is around yields look we're very pleased with the value we're delivering to our customers whether it's in cross border or whether it's in domestic whether its through the services, we bring and the reality is what you're seeing come through is I think you were talking about the spread between the driver metric and the revenue metric here.
Look there are a number of factors, which go into this right. So for example in the transaction processing side.
Speaker Change: You can see the impact of mix come through and this is a mix from both the cross border and domestic standpoint, when you're comparing the drive of trend with the revenue trend, but it's also a geographical mix depending on what geographies are growing faster than the geographies are growing slower. So you've got to take those factors into consideration. We certainly do when we're running the business. We look like Michael said, we're not looking to win ever.
The portfolio, we want to win the right portfolios in the right regions with the fastest growth opportunity, which have the best yield because at the end of the day, what we're trying to optimize is driving that yield up and thats, what youre seeing come through in my comments around the mixed spread which is their bolt on cross border as well as in transaction processing. The other factor I would point out is in the third quarter, you did get a little bit of a lift to come through.
<unk> from FX volatility now that sits in our transaction.
Processing assessments a line item that is very hard to predict I would tell you right now FX volatility is running at record low levels over the last few weeks. So it's a little bit of you know what we can do to enable the yield which is what we do by delivering good value. Good products. Good services as well as winning the right portfolios and then there's a little bit of stuff, which happens from a macro stance.
Points, such as FX yield et cetera, et cetera, which kind of plays into that so hopefully that gives you a little bit of color as to how we're trying to optimize the mix between you know.
What we're seeing from a driver trend standpoint, and what you're seeing from an overall assess.
Assessment revenue standpoint.
Our next question comes from the line of James Faucette with Morgan Stanley. Your line is open.
Speaker Change: Okay.
Great. Thank you very much I wanted to dig in a little bit into <unk> to be in commercial volumes.
I think there has been good and steady progress there over the over the years, including this year, but.
At the same time, a lot of us are surprised that there hasn't been an acceleration so I'm just wondering.
Speaker Change: Kind of how you would assess that situation and what are the the tools and.
Speaker Change: Capabilities. The Mastercard, we should think about that Mastercard is bringing to market to help accelerate that market or do you think this is going to continue to be the case that we should expect that it will be steadily.
<unk> to growth, but it just takes time.
Speaker Change: Thank you great question.
My favorite topics to talk about commercial.
Earlier I spoke about the tremendous secular opportunity we see in consumer.
And then build on that and said, while there's an even bigger opportunity in commercial so we like it for those reasons.
As I commented on previous calls there were various structural issues over the years why this hasnt really unlocked in the emerging markets. There were issues that were not familiar with the risk.
There isn't a technology that was available and back offices of smaller companies and so on and so on if you fast forward to today.
We're seeing a situation where this.
The momentum feels solid.
We're seeing 11% growth in commercial.
And that's that's good and that's you know above consumer and Thats, we like that.
Speaker Change: So when I look ahead and say.
What should we expect going forward I'm not going to give you an outlook right now maybe you should dial into the Investor day.
And a little while but the.
But the point here is we see.
Speaker Change: Our ability to put out solutions with different partners more globally into the back office systems of companies all partnership with Oracle and SAP. For example, we see a whole new generation of treasure us that are digitally minded and businesses.
Having an expectation that their digital lives in the office should be not worst and our digital lives in their personal lives. So well when we put out our mobile based <unk> proposition and people are saying that is cool we like that so that there is there is definitely changes happening. The most significant change that I see is really the interest of our.
Issuing partners around the world start to see this is a this is a proposition to go into I can talk to my customer about the working capital effect of a virtual card as part of their payment. That's 30 days of working capital that is a real winning argument that everybody can understand including our issue is getting very excited about so we see this is.
Speaker Change: As a space that's going to continue and drive growth for us and you saw our reorganization, where we aligned behind commercial and new payment flows because we believe it's going to be a tremendous growth driver.
Hey, I'll just quickly jump in and clarify when Michael talked about the 11% growth rate in commercial he was talking about in the currency neutral growth rate for the third quarter of this year just wanted to be sure that we add that up there.
Sachin Thank you for clarifying.
Speaker Change: Sure.
Our next question comes from the line of Craig Maurer with Ft Partners. Your line is open.
Hi, Thanks, and good to hear your assumption.
Speaker Change: I want there's a lot of discussion around that.
As you know.
It's difficult for us to really.
Speaker Change: Curt.
Under the covers on that too much but wanted to ask you. Michael if you could characterize perhaps where you think mastercard is better than your closer closest competitors in vas, when you're presenting to an issuer or merchant.
And it allows you to win that business. Thanks.
Speaker Change: Alright.
So value added services and solutions, it's been a true differentiator for Mastercard for the last seven years seven years at least.
And we anchored around two fundamental points I talked about one earlier, which is in a digitized world keeping that digital ecosystem and our company are in consumer context, or a bank context safes. Our security solutions has been a differentiator and I think as a truly differentiated proposition.
Second big underlying trend here is with highly.
And Ah rapidly digitizing world more and more data becomes available and a lot of more business as want to make sense of that data. So this is another powerful trend. So the second leg of the stool was we're building out a set of data insights solutions. So that is the general proposition no.
If you look under the hood of that to your point.
Speaker Change: There isn't much of a hood under.
Because that makes us a strategic partner for our customers.
Overall, we believe this is differentiate it you've seen strong growth for us from years of for years, you've seen another set of strong numbers for this quarter.
And it's been boosting the revenue of the company and our yield.
Our next question comes from the line of Trevor Williams with Jefferies. Your line is open.
Great. Thanks, a lot with the Q4 outlook for low teens growth. If we think about that as the stepping off point for 25 is there anything in that fourth quarter growth that we should be mindful of either working for or against you that might not carry into next year or is that a reasonable baseline for us to use as we start to think about 25%.
Speaker Change: Thanks very much.
Speaker Change: Sure.
First of all.
We'll talk about 25 million at the right time, but let me give you a little bit of color and things to think about between what youre seeing in 2024, and 2025 rate. Obviously, you guys know about the leap year effect I know you were asking a Q4 question, but more broadly speaking you've got the leap year effect, that's taking place in 2024, you're not going to have that in 2025, the things, which you've got to keep in mind our number one.
We've had significant share wins, which are starting to actually roll alone and.
Speaker Change: In 2024, so we talked a little bit about the citizens when we talked a little bit about the wells Fargo. When he talked about Unicredit Deutsche Bank now these will lap and the lapping effect of this one comfortable full quarters. After you know they they typically come on our books. So for example.
It takes something like the Wells Fargo commercial critical and that was completely migrated on to Mastercard in the second quarter.
The second quarter of this year 2024, so you'll see the lapping effect of that come through in 2025.
Emily as it relates to citizens the vast majority of the ramp up on citizens took place in Q2 of 2024 with a little tail effect into Q3, so you'll see that again lap off in 2025. So I wanted to kind of just make sure that you've got that as a line of sight element. The other element of their own pricing right. I mean, we've talked a little bit about some of the price.
For us as we invest in this market.
And this is regardless of up and down of the overall economy in China.
Speaker Change: Sure situation, it's a secular opportunity as a starting point.
It will take investment and will take investment it will take time.
Speaker Change: Coming back to the acceptance part issuing is a little easier to solve but without acceptance and that's going to be hard to do so we will continue to focus on that.
As you know we have a joint venture there.
And we have our own set of activities in China through services, and so forth, which we continued and we have always done in China, so exciting opportunity medium to long term.
The fact that we are in China does make US now the most accepted payment solution in the world and that is you know it's.
A differentiating factor for us as we look ahead.
Our next question comes from the line of Fahad <unk> with Redburn Atlantic Your line is open.
Hi, Thanks, and ultra powerful my well wishes fashion as well.
Fahad: Love to get just a bit more on price and we've touched on it a few times over these questions for Tim.
Once you've taken pricing I think on cross border and elements of that but is there more room for pricing increases and if we were looking across your stock and suite of products, where do you see that kind of what does it have potential for pricing more value. Thank you.
Sorry, I just want to make sure can you help me size.
Yes, yes, okay.
Fahad: Looking at at the end of the day.
Fahad: I just wanted to be sure you can hear me look at the end of the day I think the way you should think about our philosophy.
Along bolt our investments as well as how we drive remuneration from those investments is unchanged. We've always been in the business of investing heavily in driving innovation as we drive innovation, we deliver value to our customers and to our merchants and consumers and <unk>.
Fahad: <unk> the market in the U S with citizens, how we make the moves in the market in Europe, when he credits or Nat west So that that model isn't changing that's exactly what we're doing if you look back at my remarks prepared remarks, all that we're doing on strengthening our product solutions and.
Our acquisitions and everything that I think is going to be the way for us to win I see there is a tremendous opportunity for us and it is unrelated to this particular set of headlines that are out there and we'll see how that plays out, but we will lean in with our customers and be there with them for their needs and push on.
Our next question comes from the line of will Nance with Goldman Sachs. Your line is open.
I appreciate you squeezing me in here.
Kind of follow up on the earlier question around <unk>.
<unk> added surfaces that you're attaching just kind of transactions around the world and heard the earlier contacts around some of the breakouts you provided historically, but I wanted to I was wondering if you could kind of talk specifically to the kind of multi rail strategy and the embrace of new networks and just what the progress has been and where you see the most opportunity to attach your value added services to other networks.
What those conversations look like.
And if there are any kind of areas in the vast portfolio, where you think that you could be potentially add more capabilities over time to address some of the needs of other networks.
Fahad: Right.
It's interesting when you when you look at the rise of alternative payment tools are.
Speaker Change: Soon take care Bye bye.
This concludes today's conference call. Thank you all for your participation you may now disconnect.
Speaker Change: Okay.
Speaker Change: [music].