Q4 2024 Mastercard Inc Earnings Call
Julianne: 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 Q4 and full year 2024 earnings conference call.
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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
Julianne: 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.
Speaker Change: If you would like to withdraw your question, press star one. Thank you. Mr. Devin Corr, Head of Investor Relations. You may begin your conference.
Speaker Change: Thank you, Julian. Good morning, everyone, and thank you for joining us for our fourth quarter 2024 earnings call. 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.
Speaker Change: You can access our earnings release, supplemental performance data, and the slide deck that accompanied this call in the Investor Relations section of our website, MasterCard.com.
Speaker Change: Additionally, the release was furthest for the SEC earlier this morning.
Speaker Change: 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.
Speaker Change: Finally, as set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward-looking statements regarding MasterCard's future performance.
Actual performance could differ materially from these forward-looking statements.
Speaker Change: Information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings.
Speaker Change: A replay of this call will be posted on our website for 30 days.
Speaker Change: With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach. Thank you, Devin. Good morning, everyone.
Speaker Change: We finished the year strong. Fourth quarter net revenues were up 16% and adjusted net income up 19% versus a year ago on a non-gap currency neutral basis.
Speaker Change: Our diverse capabilities in payments and services and solutions including the acquisition of recorded future this quarter set us apart. They also position us well for long-term growth as we outlined at our investor day.
Speaker Change: And this is what you will see in the new and expanded partnerships we will discuss this morning.
Speaker Change: The macroeconomic environment continues to perform well, and it is underpinned by healthy consumer spending, as we've seen in today's news. The labor market is strong, with low unemployment and continued wage growth.
Speaker Change: Consumers remain engaged. Affluent consumers have benefited from the wealth effect, while the mass segment remains supported by the labor market.
Speaker Change: Our Economics Institute expects a year of global economic expansion in 2025 defined by shifts in monetary and fiscal policy, albeit geopolitical concerns remain.
Speaker Change: Overall, we remain positive about our growth outlook. We will continue to monitor the external environment and stand ready to adjust if needed. We remain hyper-focused on successfully executing on what we can control.
Our strategic priorities.
which fuel our growth algorithm.
Speaker Change: as we laid out in detail at our Investor Day. Those three strategic priority areas include consumer payments, commercial new payment flows, and services and solutions.
Speaker Change: A clear proof point on how we're executing is our steady drumbeat of share wins across products and geographies.
Speaker Change: Now, I often highlight our larger wins on these calls with you, but it's important to note that our local teams are competing for and winning deals of all sizes based on the differentiated value that we provide.
Speaker Change: Having a diverse portfolio with customers of all types is essential. It allows us to further expand our customer base and enables us to break into new areas where we can partner and grow together.
In 2024, we flipped or expanded hundreds of relationships globally.
Speaker Change: Let's first focus on the US, where we have won several large flips over the last few years. That momentum continued this quarter.
Speaker Change: ICBA payments, which serve thousands of community banks, will significantly expand its partnership with MasterCard.
Speaker Change: This includes card issuance across their partner banks, credit and debit portfolios.
Speaker Change: and Mid Florida, a large credit union, will migrate their credit and debit portfolios to us.
Speaker Change: Both partners highlighted our differentiated product suite, analytics capabilities, and the expertise of our people as a key in their decision to expand their relationship with MasterCard.
Speaker Change: In the public sector space, we renewed our long-standing relationship supporting the Direct Express program, one of the largest social benefit card programs in the world.
Speaker Change: Direct Express disburses benefits including social security, veterans and disability onto MasterCards held by over 3 million Americans.
Speaker Change: And the momentum also continues in the travel and retail verticals. Horta Airlines and Bank of Montreal will launch a new co-brand program with us in Canada.
Speaker Change: In the U.S., we renewed our consumer and small business co-brand credit card partnership with IHG and Chase.
Speaker Change: They will leverage our data analytics and loyalty assets to enhance their value proposition.
Speaker Change: And we renewed our co-brand partnership with Sam's Club who will continue to leverage our products and services.
Speaker Change: Our success extends across all regions with several significant renewals and expansions.
Speaker Change: We secured long-term exclusivity on debit with Saudi National Bank. We renewed and strengthened our partnership with Nubank.
We've extended our relationship with Banco Santander in the UK.
Speaker Change: and we successfully renewed our global premier credit card agreement with HSBC in over 20 countries.
Speaker Change: All these wins are a result of the successful execution of the strategic priorities we discussed at Investiday.
Speaker Change: I will share a few highlights on each area starting with consumer payments.
Speaker Change: Now, these flows represent a long runway of opportunity for sustained growth. Today, there's over $11 trillion and $1.5 trillion transactions in cash and check around the world.
Speaker Change: We are capitalizing on the significant secular opportunity by expanding acceptance, reimagining checkout, opening closed-loop systems, and enabling new verticals.
Speaker Change: First up, we're positioned to be the most accepted payments network in the world with around 150 million acceptance locations globally today.
Speaker Change: Second, we are reimagining checkout and that with our 2030 global plan to phase out manual card and password entry online in favor of smiles and fingerprints.
Speaker Change: Not only is that a better experience, but it's also more secure and it's fully aligned with our data privacy principles.
Speaker Change: And the online space needs that. Fraud rates are seven times higher online than in-store.
Speaker Change: Approximately 25% of online shopping carts are abandoned because checkout is just too slow.
Speaker Change: Our tokenization biometric capabilities sit at the heart of these solutions. The proof? Well, in 2024, we tokenized about 4 billion transactions per month, which is up 40 times over the past six years.
Thank you.
Speaker Change: As we have said in the past, there are many use cases for tokens. Take for example the next click of our multi-option payment solutions.
Speaker Change: We're rolling out the MasterCard One Credential, which allows consumers the flexibility and control to set their payment preferences in their banking app for each transaction, if they so choose to, be it credit, debit, prepaid, or buy now, pay later, all behind one credential, one token.
Speaker Change: and The Merchant. The Merchant accepts that through the same simple and secure digital connections as always. No added work.
Speaker Change: Tokens provide tremendous value and we offer a set of services on and around those tokens such as lifecycle management and authentication which enhance that value.
Speaker Change: Now while the growth of token makes the ecosystem safer and more secure, we also benefit on the natural tailwind associated with the growth of token usage.
Speaker Change: Shifting gears, we're also driving incremental volume and transactions in our network by opening up closed loop systems.
Speaker Change: Beyond the transit opportunities we talked about many times, we're also partnering with local wallet providers to create greater simplicity and access for the end consumer.
Speaker Change: In Sweden, we're working with Swish so that users can tap to pay and store both domestically and abroad by adding their MasterCard to the Swish app.
Speaker Change: In Latin America, we collaborated with David Yenda to co-create a digital first debit product aimed at driving financial inclusion. We signed an exclusive partnership with them to launch the product on the David Platter digital app.
Speaker Change: And our pay local service seamlessly connects with local digital wallets enabling consumers who use MasterCard to make card payments across a broader set of local merchants.
Speaker Change: At the same time, merchants benefit from access to more consumers and the protections we provide.
Speaker Change: The solution supports local tourism, that market that we traveled to where we couldn't pay, provides a seamless consumer experience, and helps drive cross-border volumes.
Speaker Change: Building on partnerships with leading wallet providers like Alipay and GrabPay, several additional players in Asia-Pacific will now open their wallets to cards.
Speaker Change: This includes Dana in Indonesia, Touch and Go in Malaysia, Bakong in Cambodia, and Lankapai in Sri Lanka.
Speaker Change: We're also capturing new verticals like consumer bill payments. This quarter we partnered with B-Mobi in Brazil. B-Mobi will integrate Click2Pay into their bill payment platform, enabling fast and secure payments for recurring services like telecoms and utilities.
Speaker Change: Now as a network company, we're focused on enabling the broader ecosystem. That's exactly what we have been doing in the crypto sector. We have a well-planned, balanced strategy that serves financial institutions, crypto players, and of course consumers to drive growth and provide choice in this space.
Speaker Change: We're partnering with a wide range of crypto players to enable consumers to buy cryptocurrencies on card and spend their crypto balances anywhere that Mastercard has accepted.
Speaker Change: I'm very excited about new partnerships with Crypto.com and Metamask. Just a few of the many new players we have added in 2024.
Speaker Change: And we're enthusiastic about the future of blockchain technology. But to reach its full potential, we believe there's a need for sound governance, interoperability, and real-world use cases.
Speaker Change: All this is a core competency of ours built over decades.
To meet these needs, we developed the multi-token network MTN.
Speaker Change: This quarter we partnered with Kinexus by J.P. Morgan, the firm's blockchain base unit, to integrate MTN as a payment settlement solution.
Speaker Change: By bringing together the power and connectivity of MasterCard's MTN with Connexus Digital Payments, we aim to unlock greater speed, transparency and faster settlement capabilities for cross-border B2B payments.
Speaker Change: And while it's early days, we're excited about the opportunities which digital assets can bring to the world of payments as the space evolves complementing our existing solutions.
Speaker Change: Now, while consumer payments offer a significant runway for growth, commercial flows represent an even larger $80 trillion serviceable, addressable market.
Only about 3 trillion is carded today.
Speaker Change: In 2024 our commercial credit and debit volumes represented 13% of our total GDV and grew at 11% year-over-year on a local currency basis just to give you the latest stats.
Speaker Change: On top of that, disbursements and remittances represent an additional $20 trillion in addressable market.
Speaker Change: We're pursuing that opportunity with MasterCard Move, where transactions were up over 40% year-over-year in the fourth quarter.
But let's dig into commercial.
First.
Speaker Change: We're expanding our global leadership in virtual cards by expanding across use cases, geographies, and verticals, for example.
Speaker Change: partnering with NetNoise to distribute our new mobile VCN to UK companies and their employees.
Speaker Change: We're deploying virtual cards with Citi in Argentina, the first deployment of VCN in that market.
Speaker Change: And in the travel vertical, we've established new partnerships with Worldpay and Emirates NBD to offer virtual cards to their customers.
Speaker Change: We're also leaning into our success in travel and applying it to new high-potential verticals, for example trade and logistics.
building on our previous announcement of the Dubai First World
Speaker Change: We're driving continued growth in this sector. Global Fintech Invoice Bazaar will distribute new co-branded MasterCards to help digitize payments across the trade ecosystem.
Speaker Change: And similar in consumer packaged goods, we partner with Diem Finance and Prime Dash to enable small business in the Middle East to automate payments to Coca-Cola distributors.
Speaker Change: This builds on partnerships with leading beverage distributors in Latin America that I spoke about in previous calls. We have good momentum on connecting small business in this space.
Speaker Change: We're also driving small business growth through expanded issue of partnerships.
Speaker Change: They signed an exclusive commercial deal with BNA, the state-owned bank in Argentina. AMP Bank in Australia will launch MasterCard debit cards for their new digital SME and consumer bank.
Speaker Change: And Ant International's World First will expand our partnership to now issue virtual cards for SMEs and new markets, including Singapore and Australia.
Now.
Speaker Change: Let me turn to our third strategic priority, services and solutions.
Speaker Change: We delivered almost $11 billion in service and solutions revenue in 2024, $11 billion. That's exciting, but it's equally exciting that we're less than 7% penetrated. That's a significant runway for growth. We have a clear plan to execute against it.
Speaker Change: First, we're developing and launching differentiated products. This quarter we launch new services to support customer acquisition, provide unique market insights, manage subscriptions, and identify threats.
Speaker Change: This includes closing on the acquisitions of both MinaTechnology and RecordedFuture.
Speaker Change: Let's stay right there. Cybercriminals have been around for decades but attacks and fraud attempts are increasing at high levels as commerce increasingly moves online and as AI becomes more prevalent.
Speaker Change: Our investments, both organic and inorganic, are key to fighting fraud and protecting the ecosystem. They also drive revenue growth.
Speaker Change: and add Recorded Future to this list. It is now part of Mastercard. Recorded Future is the world's largest threat intelligent company with more than 1,900 customers across 75 countries.
Customers include over 50% of the Fortune 100.
Speaker Change: and government agencies in 45 countries including more than half of the G20.
Speaker Change: We've been deploying AI at scale for well over a decade, so has Recorded Future.
Speaker Change: They leverage AI-powered insights to analyze threat data from every corner of the internet.
Speaker Change: and customers gain real-time visibility and actionable insights to proactively reduce risks.
Speaker Change: These uniquely differentiated technologies will enable us to create smarter models, distribute these capabilities more broadly, and help our customers anticipate threats before cyber attacks can take place.
That means...
Speaker Change: Better protection for governments, businesses, banks, consumers, the entire ecosystem, and well beyond the payment transactions.
Speaker Change: We're also leveraging our distribution at scale to deepen market penetration of our services and solutions.
Speaker Change: For example, we provide a fraud solution that facilitates real-time information sharing between merchants, issuers, and consumers to streamline disputes and reduce chargebacks.
Speaker Change: This quarter, we announced a new partnership with Stripe, who will offer these capabilities to their millions of users.
Speaker Change: and Latin America, Itaú Unibanco, will make them available across its digital channels to somewhat millions of cardholders.
Speaker Change: In Loyalty, we partnered with Nordea to consolidate their loyalty offerings MasterCard and launch new cashback offers across Norway and Sweden.
Speaker Change: And we're also selling it to new buying centers with traditional customers, opening up a larger share of wallet. For example, we partnered with the CISO at Webster Bank to deploy risk recon and cyber quant solutions.
And finally...
Speaker Change: We're seeing strong demand for our services and solutions across a more diverse customer base, including online delivery services, gaming companies, and travel partners.
Speaker Change: For example, we expanded our partnership with DoorDash, who will use our insights and analytics to optimize business performance globally. Sony PlayStation will leverage our capabilities to showcase digital receipts to cardholders and banking apps and provide purchase information to banks, call center agents.
Speaker Change: and Currency will incorporate our open banking capabilities to support Hilton's new debit co-grant offering.
Services and solutions are a large and
Speaker Change: Powerful virtuous cycle without payments. Where laser focus and executing capitalized on a significant runway in services in front of us.
Speaker Change: So in summary, we deliver another strong quarter, close out another strong year, there's significant opportunity ahead, the fundamentals of our business are strong, so I'm very optimistic about the future for us, for us here at MasterCard.
Speaker Change: Our proven growth algorithm and differentiated solutions position us to deliver and to win as we've demonstrated time and time again.
Speaker Change: Well great, thanks Michael. Turning to page three which shows our financial performance for the fourth quarter on a currency neutral basis excluding where applicable special items and the impact of gains and losses on our equity investments.
Speaker Change: Net revenue was up 16% reflecting continued growth in our payment network and our value-added services and solutions. Acquisitions had a minimal impact to this growth.
Speaker Change: Operating expenses increased 15%, including a 1 PPT increase from acquisitions.
Speaker Change: and operating income was up 17% which includes a minimal impact from acquisitions.
Speaker Change: Net income and EPS increased 19% and 22% respectively, driven primarily by the strong operating income growth and further aided by a discrete tax benefit recognized in the fourth quarter.
Speaker Change: EPS was $3.82, which includes an $0.08 contribution from share repurchases.
Speaker Change: During the quarter, we repurchased $3.4 billion worth of stock and an additional $644 million through January 27, 2025.
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 fourth quarter on a local currency basis.
Speaker Change: Worldwide gross dollar volume or GDV increased by 12% year-over-year. In the U.S. GDV increased by 9% with credit growth of 8% and debit growth of 11%.
Speaker Change: Credit and debit growth was aided by the conversions of the previously announced Wells Fargo Commercial Credit and Citizens Debit Migrations, respectively.
Speaker Change: Overall, cross-border volume increased 20% globally for the quarter, reflecting continued strong growth in both travel and non-travel related cross-border spending.
Speaker Change: Turning to page 5, switch transactions grew 11% year-over-year in Q4. Both card-present and card-not-present growth rates remain strong.
Speaker Change: CartPresent growth was aided in part by an increase in contactless penetration, as contactless now represents approximately 72% of all in-person switched purchase transactions.
Speaker Change: In addition, card growth was 6%. Globally, there are 3.5 billion MasterCard and Maestro-branded cards issued.
Speaker Change: Turning now to Slide 6 for a look into our Net Revenue Growth Rates for the 4th Quarter discussed on a Currency Neutral Basis.
Speaker Change: Payment network net revenue increased 15%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives.
Value Added Services and Solutions Net Revenue increased 17%
Acquisitions contributed approximately half of PPT to this growth.
Speaker Change: Growth was primarily driven by growth in our underlying drivers, strong demand for our consumer acquisition and engagement, and business and market insight services, the scaling of our security, digital, and authentication solutions, and pricing.
looking at each key metric.
Speaker Change: Domestic assessments were up 10 percent while worldwide GDV grew 12 percent. The difference is primarily driven by cross-border mix.
Speaker Change: Cross-border assessments increased 24% while cross-border volumes increased 20%. The 4 PPP difference is primarily driven by pricing in international markets.
Speaker Change: Transaction processing assessments were up 15 percent while switch transactions grew 11 percent. The 4PPT difference is primarily due to favorable cross-border mix and pricing.
Speaker Change: Other network assessments were $239 million this quarter. As a reminder, these assessments primarily relate to licensing, implementation, and other franchise fees, and they may fluctuate from period to period.
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 15%, which includes a 1 PPT impact from acquisitions.
Speaker Change: Total adjusted operating expenses were higher than anticipated, primarily due to the impact of the acquisition expenses.
Speaker Change: The acquisition of Recorded Future closed earlier than expected in Q4 2024 versus originally expected in Q1 2025 and was therefore not part of our Q4 forecast.
Speaker Change: Excluding acquisitions, the growth in operating expenses was primarily due to increased spending to support the continued execution of our strategic initiatives.
Speaker Change: Now turning to page 9, let me comment on the Operating Metric Trends.
Speaker Change: Starting with Q4, our switched volume metrics were strong with sequential increases versus the prior quarter driven by healthy consumer and commercial spending.
Speaker Change: As was the case with switched volumes, cross-border volumes also benefited from healthy spending, easier comps, as well as a pull-forward of travel spent.
Speaker Change: Specific to cross-border card not present X travel, we saw an uptick due to the purchases of cryptocurrency in Q4.
Speaker Change: Of note, the timing of high-volume versus low-volume calendar days, as well as the timing of Black Friday, impacted switched volume and cross-border metrics within the quarter.
Speaker Change: Transaction growth remained flat sequentially as compared to volumes due to higher average ticket sizes in Q4.
Speaker Change: Now looking through the first four weeks of January, the metrics are holding up well and are generally in line with the fourth quarter.
Speaker Change: The increase in switched volume growth in the U.S. was primarily driven by an easier comp. Specifically, severe weather events across the country negatively impacted volumes this year and last year. However, the impact was more pronounced last year.
Speaker Change: As it relates to the decrease in intra-Europe cross-border volumes, this is primarily driven by the mix of calendar days and travel spent pulled forward I just mentioned.
Speaker Change: Turning to page 10, I wanted to share our thoughts on fiscal year 2025.
Speaker Change: Let me start by saying that the fundamentals of our business remain strong.
Speaker Change: And we are well positioned for the opportunities ahead, driven by a diversified business model, the significant opportunity for further secular shift to digital forms of payment in both consumer and commercial, and strong demand for our differentiated value-added services and solutions.
Speaker Change: The macro environment remains supportive of our base case, reflecting healthy consumer spending. And we remain confident in our ability to successfully execute our strategy while maintaining a disciplined capital planning approach.
Speaker Change: Overall, we are positive about the growth outlook for the short, medium and long term.
Speaker Change: We estimate a headwind of approximately 2 PPT from foreign exchange, while acquisitions are expected to add 1 to 1.5 PPT to this growth rate for the year.
Speaker Change: From an operating expense standpoint, we expect growth to be at the low end of a low double digits range versus a year ago on a currency neutral basis, excluding acquisitions and special items.
Speaker Change: We expect a tailwind of approximately 1 to 2 PPT from foreign exchange, while acquisitions are forecasted to increase the ARPEX growth rate for the year by approximately 5 PPT.
Speaker Change: To be clear, this impact of acquisition-related expenses was already contemplated in the three-year performance objectives that we shared with you last November at our Investor Community Meeting.
Let's dig into the acquisition-related expenses a bit.
Speaker Change: We closed the acquisition of Recorded Future and MENA Technologies at the very end of 2024, and now we will see a full year impact in 2025. The 5PPT impact can be broken down into three main components.
Speaker Change: Slightly more than 2.5 PPT relates to the run rate expenses for operating the business.
Speaker Change: Approximately one PPT is from the amortization of acquired intangible assets related to the purchase price allocation and the remaining relates to integration costs and other one-time expenses.
Now, let me remind you about our acquisition philosophy.
As you know, our acquisitions are strategy-led.
Speaker Change: We purchase companies that are complementary to our capability suite, and they add to our addressable market. These companies are primarily in earlier stages with modest revenues compared to MasterCard, albeit fast-growing. At the same time, these companies are in investment mode to drive longer-term growth.
Speaker Change: Post-acquisition, we look to scale revenues, drive synergies, and ultimately deliver positive operating leverage over the medium term, consistent with how we run our overall business.
Speaker Change: Acquisitions are forecasted to have a 1 to 1.5 PPT impact to this growth rate while we expect a headwind of approximately 3 PPT from foreign exchange for the quarter.
Speaker Change: From an operating expense standpoint, we expect Q1 growth to be in the low double digits range versus a year ago, again on a currency neutral basis excluding acquisitions and special items. Acquisitions are forecasted to have a 4 to 5 PPT impact to this OPEX growth, while we expect a tailwind of approximately 2 PPT from foreign exchange for the quarter.
Speaker Change: Other items to keep in mind, on other approximately $120 million, given the prevailing interest rates and debt levels. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.
Speaker Change: Finally, we expect a non-gap tax rate in the range of 20 to 21 percent for the full year and approximately 20 percent for Q1 based on the current geographic mix of our business.
Speaker Change: A lower forecasted tax rate for Q1, as compared to the balance of the year, is consistent with prior years due to expected discrete tax benefits related to share-based payments in the first quarter. And with that, I will turn the call back over to Devin. Thank you, Sachin. Thank you, Michael. Julianne, you may now open the line for questions.
Speaker Change: Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Please only press star one once to queue up for a question, as pressing star one multiple times may affect your position in the queue. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from Andrew Schmidt from Citi. Please go ahead, your line is open.
Andrew Schmidt: Hey, Michael. Hey, Sachin. Thanks for taking my questions this morning. Good metrics across the board here. Great to see.
Speaker Change: If we could just dig into the cross-border piece, the month-to-date trends through Jan 28. If we talk about just the drivers of growth there, whether it was relatively similar to the fourth quarter, and then expectations for 25. And then if I could just sneak one more in, just thinking about 25, we get a lot of questions on Cap One and Discover, maybe some thoughts about how you're thinking about that with respect to the model.
Speaker Change: Sure, no problem Andrew. I'll take that question. So, from a cross-border volume standpoint, just at the highest level, what I'm going to remind you is the value prop we offer from a cross-border standpoint continues to be incredibly solid. Our teams are out there, they're working hard, they're out there winning various kinds of portfolios, some of which Michael spoke about even today about, which is some of the co-brand programs we've got with
Speaker Change: various airlines, etc, etc. Specific to your question around the metrics...
Speaker Change: Again, really good performance from a volume growth standpoint and cross-border at 20% for Q4. First of all, what you're seeing for the first four weeks...
of January is exactly that.
Speaker Change: It's the first four weeks of January. And, you know, what you're seeing in the nature of the 20% going down to 18% is going back exactly to the comments I made in my prepared remarks, which is, at the end of the day, the vast majority of that you're seeing come through an intra-Europe, which is primarily being driven by two factors. One is...
Speaker Change: A pull forward of travel spent into the month of December, and you can see those metrics because you'll see intra-Europe growth in December at about 23%, and then there's the calendarization of days, which I kind of mentioned to you as well. Those are the two factors, but fundamentally, the health of what we're seeing from our overall
Speaker Change: and Ramesh. We have no real reason to believe that going forward that there is something going to change as it relates to the value problem. Obviously the strength of cross-border as well as domestic spend is a function of how consumer health is. Right now we are seeing the consumer to be in very good shape. We also mentioned how commercial is performing well. Commercial also lends to our cross-border metrics. Something to keep in mind there as well.
All right, on the KAB1 end group...
Speaker Change: Let me start, and then I happily hand it to Sachin for the model side of the question. But overall, you know, the acquisition is in flight. As we know, it's going through the motions. I think it's fair to say the indications are positive that it will be approved.
Um... here and...
Speaker Change: There's a whole range of examples where we have strategic partners who we also compete with on certain aspects of the business. Look in the acquiring space, for example. So this is not a new situation for us. Now Capital One is a tremendous partner to ours, highly strategic partner, tremendous growth that we've seen in our joint business.
Speaker Change: They have been public about shifting debit volumes to the Discover Network. Now we are a competing network and we will continue to invest in our network and ensure that we have a leading and differentiated solution out there.
Speaker Change: At the same time, we've been growing together in credit and other parts of the business. So we value this partnership and we'll continue along those lines fundamentally.
There's no surprises here to what we've said last time.
Sachin
Sachin Mehra: Yeah, and I'll just add to what Michael said. Like Michael said right now, right, I mean, they've talked about Capital One has talked about migrating the debit volumes over. I think you're aware about the fact that those debit volumes are primarily on the MasterCard network. And, you know, we built in our best assumptions, both from a timing and a, you know, migration pace standpoint into the full year thoughts that I've shared with you today. So again, you know, things might move around and they likely will just because ours is a forecast, there's no predictability, the deal's got to get approved.
Speaker Change: You know, migrations have to start, but we've built in our test estimates as to how that's going to roll out.
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Speaker Change: One last thing, I should add one more thing. I talked about it in my prepared remarks earlier. There's great momentum in Devid which we have created in the U.S. So, you know, this isn't the only partner that we have and we're building out the set of partnerships.
Speaker Change: Our next question comes from Darren Peller from Wolf Research. Please go ahead, your line is open.
Speaker Change: Hey, thanks guys. Nice job. When we follow up on what we learned at your investor day, which was really helpful on the long-term trajectory of growth,
Darren Peller: If we could just take that and then put it into 25, what are you expecting more specifically around, you know, your value-added services in the year ahead of us that we're in right now versus the consumer payments, just to triangulate with growth, and maybe, Sachin, also, just as a reminder,
Darren Peller: You know we're exiting the year at a 16% constant currency growth obviously discovered to be a factor But what other comp compares or lapping?
Darren Peller: Just remind us how much is in the outlook for lapping or other factors that could cause a deceleration from the exit rate.
Down to the 12 to 13 from 16
Thanks again guys
Sachin Mehra: Sure, no problem. So, first on your question around value-added services and solutions, look, I mean, it goes back to what Michael said, Darren, in his prepared remarks, which is
Sachin Mehra: We continue to invest in that space, continue to build out excellent capabilities which are going after what is a sizable and fast-growing addressable market. So, you know, again, we're not giving you a forecast as it relates to what we expect value-added services solutions to grow in 2025.
The reality is, across the globe...
Sachin Mehra: We're working hard, the teams are working incredibly hard to actually keep pushing Value Added Services and Solutions. We close the year strong again there, right? Now again, remember, Value Added Services and Solutions is one of those things where quarter over quarter you might see some level of variability, but the reality is overall the fundamentals of the business continue to be very strong.
Sachin Mehra: Your second question was around the fact that we closed Q4 exit rates at about 16% on a local currency basis, and you're kind of doing this compare with what the thoughts for 2025 are. A few things to keep in mind. Number one,
Sachin Mehra: The fact that, you know, we talked about pricing coming on, starting off Q2 2024, ramping up in Q3 and Q4, you're going to start to see, you know, some level of lapping take place on that.
Sachin Mehra: We've had several significant wins in 2024, the likes of Citizens, the likes of Wells Fargo, and Unicredit. Now, Unicredit will still continue to convert because it's a multi-year conversion, but some of those are going to start to lap as the year kind of progresses, right?
You know, the point really is...
You've got to kind of remember that
Speaker Change: Overall, the consumer remains healthy. We factored that in. The thoughts we shared for 2025 is a range which is high end of low double digits.
to low teens.
Speaker Change: FX volatility picked up in Q4, you saw that come through in the exit rate you're talking about.
Speaker Change: Hard to predict what FX volatility looks like through the end of the year of 2025. We build in our best assumptions around that, but things could move around on that as well. So again, there are various factors which are actually influencing this, but that's what I kind of tell you more holistically as to what's going on here.
Speaker Change: Our next question comes from Harshita Rawat from Bernstein. Please go ahead, your line is open.
Harshita Rawat: Good morning. I want to ask about stablecoins. It's likely that we get some regulatory clarity.
Harshita Rawat: in the U.S. this year. I know vast majority of stablecoin usage is in crypto native use cases and trading, but are you seeing anything in the cross-border money movement front? And more importantly, and Michael, I know you talked about kind of like the new settlement capabilities and you've done a lot of work on crypto over the years. How are you positioned for the growth in the crypto ecosystem? Thank you.
Right, thank you Harshida
Harshita Rawat: So overall, as I said in my prepared remarks, this is a space that we've been active in over a while. Your question doesn't really talk about the crypto space as crypto as an investment, you know, on-ramp, off-ramp. We've been doing this successfully. Crypto.com is clearly an exciting addition to the set of partnerships.
Harshita Rawat: You were really talking more about the potential of the underlying technology and what can it do and the cross-border use case has been talked about for years now.
Now...
Harshita Rawat: We've started to move beyond the proof-of-concept stage. Now, there are real transactions that took place, first one in Hong Kong last year, so we're in the business of stablecoin transactions. We're in the business of having the MTN live.
Harshita Rawat: Crypto has gone mainstream with the ETFs and there's clearly push from the incoming administration here in the U.S. So we'll see more momentum and I feel we're well prepared and our strong partnerships with players like
Harshita Rawat: JP Morgan and other large settlement bank players will help us on that front.
Harshita Rawat: Now, this isn't the only cross-border solution that's out there. There is, you know, real-time payments, where there's initiatives to potentially connect those systems. It's important to keep in mind that we're in 12 of those.
Harshita Rawat: large RTP markets where we have a presence. So that's an interesting space for us to also watch. In the end, it fundamentally comes down to choice. Where do countries want to take this?
Countries have looked at this
Harshita Rawat: As in potentially connecting in bilateral fashions, we've always been an advocate to saying multilateral approaches work better. That's what we've proven on the COD side.
Harshita Rawat: That's a topic that we engage on when it comes to RTP side of things but also from the stablecoin side. Again, interoperability between different kinds of stablecoins also matters, which is kind of the same concept.
Harshita Rawat: So, exciting space, leaning in. For now, we're powering on with cross-border payments on the card side, which work really well.
Reina Kumar: Our next question comes from Reina Kumar from Oppenheimer. Please go ahead, your line is open.
Reina Kumar: Right, so Europe's been a real success story for Mastercard. If I look back over the last five, six years, we've seen tremendous growth on the continent.
seen tremendous growth in the UK.
Reina Kumar: in the UK with market share leaders, credit, prepaid and in debit it's about a third of the cards, the debit cards that are now MasterCard, large conversions. I just talked in earlier about
Reina Kumar: you know extending our partnership with Santander in the UK so that's a growth story. On the continent I'm particularly excited about the strategic partnership with Unicredit that's 13 markets across continent so there's not that many pan-european players in fact that is probably the most pan-european player there is that's a fantastic
Reina Kumar: Big momentum. I think that's the first thing to say. The second thing to say is, in these markets, it's not just about shifting shares. It's also really taking advantage of the secular opportunity that still exists in Europe. If you take some of the large developed economic, you know, economies
Reina Kumar: G7 economy like Italy still significant amounts of cash to go after and we're doing that very actively
Reina Kumar: And we're doing that very actively, also deploying our services in that space. You know, Italy has historically been one of the most significant services opportunities for us. So with all the talk that's there about...
Reina Kumar: Europe, you know, concerns about Europe, Europe's competitiveness, you know, and Davos, this is, you know, a big theme. Really it's important to remember that our business in Europe is in the European economy overall. We're well positioned and growing as parts of that economy.
Reina Kumar: and this is tremendous for us. Now, we've seen volumes grow in Europe at 16% levels. That's, you know, that's a tremendous growth rate for us.
Reina Kumar: So overall, I think we're pressing every button that is there to press for us to push ahead on that growth story.
Speaker Change: Our next question comes from Tinjin Huang from J.P. Morgan. Please go ahead, your line is open.
Tinjin Huang: Thanks a lot. I want to stay in Europe, if you don't mind, and ask about MasterCard 2030. I think the whole One Click Payments initiative to get rid of manual card entry in Europe, to me it feels like...
Tinjin Huang: eliminating Signature, which ushered in growth in contactless. Is that a fair analogy to think about MasterCard 2030 potentially pushing tokenization? I'm curious why Europe, why not more regions, and what makes Europe special for you to set this goal up for MasterCard. Thanks.
So, um...
Tinjin Huang: Tokenization in Europe, when I think of the evolution of the European payment markets from PSD1 to PSD2 to PSD3, the topic of security, the topic of
Tinjin Huang: You know during a wave with one-time passports and keying in card numbers I think all everything that is needed to make that successful is there in Europe
Tinjin Huang: and we want to prove it. It's been a strategy of ours to have reference markets and show that an initiative works and we go where there's open arms and where we feel this is going to be successful.
Tinjin Huang: In Europe, we now have, you know, very relevant share position that makes us a strategic partner across markets because if you do this just in one country in Europe, then, you know, it is going to be problematic, so...
Tinjin Huang: And then we'll see where we take it from that, you know, why the use of tokens.
Tinjin Huang: This sets us up for exactly that, and we'll be looking at other use cases and see what that can do for our company overall, but it's a tremendous opportunity, and of course, this is not about just Europe. You asked the question about Europe. This is a global goal. This is what we're going to go after.
Tinjin Huang: It's a safer ecosystem that makes sense for everybody in the world where, you know, there's government interest in payments and so forth. If we're seen as a responsible party that drives overall payment ecosystem safety, that's a fantastic position for us as well, and I'm sure that will be received well globally. We'll go region by region whenever we feel is the right time.
Ramsey Ellisall: Our next question comes from Ramsey Ellisall from Barclays. Please go ahead, your line is open.
Ramsey Ellisall: Hi, thank you for taking my question. Michael, I wanted to get your view on potential impacts of the sort of new political environment. I'm just curious if you're expecting any, or you're seeing any tailwinds or headwinds from policy changes, and more specifically, if we do end up seeing kind of widespread tariffs applied, which we may or may not, how would that impact your business?
Michael Miebach: Ramsey, this is a question that I think is top of mind in many industries.
So here's how it would go about that
Michael Miebach: Now, the new political environment, first of all, we've seen waves of political changes around the world. I think at the earlier part of last year, we were looking into 2024, and more than half of the population of the world was going to go to the polls.
Michael Miebach: from India to Europe and now in November in the United States, so there is a lot of change, there's a lot of volatility. There's some political uncertainty.
Michael Miebach: But you know when we sit in our boardroom and we sit in our management team and we talk about this is
Michael Miebach: Payments will continue regardless, because we power the economy, and we power in particular the digital economy, and that is a fundamental underlying secular trend as we discussed at our investor day.
dead.
Michael Miebach: just keeps going on. So that's the fundamental starting point in response to your question. Now, we have a new administration here in the United States. Confirmations haven't fully been done yet, but, you know, the Secretary of Treasury is confirmed and so forth, so some of the key partners that we would normally engage with.
Michael Miebach: And we have an administration coming in that is touting a business-friendly approach, and that's fundamentally good for us. You know, the conversation around tariffs and the intended, you know, intended use of tariffs
Michael Miebach: It's been discussed. We have to see how it plays out and what will happen. It's also clear we're not in the import-export industry, so the way that we would be affected is really in indirect ways and how potentially some of our customers and partners get affected by that.
Michael Miebach: So that's something that we'll come to when we get, I think the point that I just made before, fundamentally underlying drive of a digitizing world.
Michael Miebach: Questions like digital trade are going to be important questions. So, how's the world dealing with digital trade and how digital trade policy will play out over the years and we have been actively engaging here in the US, in Europe, in ASEAN and so forth. So, important topic for us to continue to watch in advance because that's good for all economies around the world.
Michael Miebach: So fundamentally, positive business outlook here from the U.S. administration, and we see a Europe that is, you know, now in active conversations with, you know, the second term of Ursula von der Leyen to drive a more growth-oriented approach in Europe as well, which with our position in Europe should be a good thing.
Speaker Change: Our next question comes from Dave Koenig from Baird. Please go ahead, your line is open.
Dave Koenig: Yeah, hey guys, thanks. Good job. I guess my question, you mentioned FX volatility briefly. It got better kind of through Q4 and quite a bit better in January. I just want to refresh on that. That helps the transaction line, right? And it should help the transaction yield going forward. Should that be a nice accelerant factor to the transaction yield over the next quarter if it stays kind of where it is now?
Speaker Change: Hey David, so yes it's in our Transaction Processing Assessments line that's where it is so you got that right and again volatility will be what volatility will be but to the extent you know there's higher volatility you get the impact comes through in that line item which impacts yields positively to the extent it kind of you know goes in the opposite direction it has a negative impact on yield but that's the line item where you'll see that.
Speaker Change: Our next question comes from Brian Bergen from TD Cowen. Please go ahead, your line is open.
Brian Bergen: Hi all, good morning, thank you. Wanted to ask on rebates and incentives, just how to think about the level of renewal activity here in 25 and directionally just any commentary you can share on how you expect R&I growth to progress versus how you finished in 24.
Brian Bergen: to talk about this a little bit earlier. We continue to compete out in the marketplace. We are winning and we're winning
Brian Bergen: The right kinds of portfolio, which is really important. We're not going to win every portfolio. We're going to hopefully win the... Yeah, and we don't want to. But we want to win the right kinds of portfolios, which is what we've been doing and that's the plan going forward as well. From a renewal activity standpoint, nothing unusual to call out in 2025, as in, you know, there isn't like a lumpiness in terms of renewals in 2025 versus prior years. So it's kind of business as usual.
Brian Bergen: Our teams are out there, engaged with our customers, selling on the basis of the value we deliver across payments, but also across value-added services and solutions. And you know that's been a key enabler to help us win on the payment side. So super important for us to continue to do that. I'll tell you from an overall rebates and incentives standpoint.
Brian Bergen: You know, you can see what the metrics are for Q4. For Q1, we expect rebates and incentives.
Brian Bergen: as a percentage of payment network assessments to be roughly similar to what we saw in Q4. I'm not going to give you an outlook as it relates to the full year. I mean, that's really subject to what kind of deal flow and deal activity we see. The most important thing to keep in mind is
Brian Bergen: Well, we're all very focused on the level of rebates and incentives we pay. What we're even more focused on is driving an accretion in our net revenue yield. And that is really important. And that's what we'll continue to do from a strategy standpoint and an execution standpoint.
Thank you very much.
Brian Bergen: It comes back to the virtuous cycle between payments and services. We have to be relevant in payments. We have to be in the flow so we can apply our payment solutions and our services solutions.
Brian Bergen: That is, you know, what's always in focus and our strategic portfolios to win and less strategic portfolios to win but important across the spectrum of different types of wins as I talked about smaller deals earlier. The mix of all of that is
Brian Bergen: is always focused on the outcome of an attractive net revenue yield. That is the target in mind where we press all of them.
Speaker Change: Our next question comes from Tim Chiodo from UBS. Please go ahead, your line is open.
Thank you.
Tim Chiodo: Great. Thank you for taking the question. Just given the stronger dollar, there's been a lot of incoming questions around the hedging strategy. I just thought maybe it'd be a good opportunity to recap some of the mechanics. Understand you've talked about doing it on a net basis, a basket of roughly 30 currencies, but not hedging some of the functional currencies. Maybe you could just recap the approach and some of the mechanics and how this all flows through to the income statement.
sharing a problem
Tim Chiodo: So, let me first define where the exposure arises from and then what the hedging strategy is. So, you got to think about the exposure to foreign exchange rates coming across three primary areas. One is what we call transaction exposures.
which is when...
Tim Chiodo: The transaction currency is different than the functional currency of the business unit in question.
layer number one which is transaction
Tim Chiodo: We hedge them, we have a philosophy around that, we have hedge ratios which vary by currency, they're generally in that range of...
Tim Chiodo: call it somewhere in that 50-80% range in terms of what we hedge on a net basis, net of expenses. So again, that's kind of the thinking there. There are some currencies which are not necessarily hedgeable just because the market is not liquid enough and we don't hedge those. We also don't hedge.
Tim Chiodo: right down to the smallest currency exposure, which is there. So we exercise materiality thresholds on that.
Tim Chiodo: On the monetary assets and liabilities similar to transaction exposures, we hedge those as well, right? And again, it's based on what the forecasts are. On the translation exposures, we do not hedge them.
Tim Chiodo: focused on driving the right economic outcome for the company. So what we try and do is we hedge cash flow exposures, where we expect cash movements to take place.
In the instance of translation...
Tim Chiodo: There is no real cash movement taking place from a Euro-functional entity to a U.S. dollar-functional entity. The cash movement takes place when dividends are made, and then we'll hedge the dividend payment at that point in time. So that's kind of the philosophy as to how we go about hedging. Also remember, on-translation exposures, which are not hedged, which is what I just spoke about right now,
Tim Chiodo: Things move around, right? I mean, we all know that there's dollar strength, you know in the last couple of months
Tim Chiodo: and then the zero strength or the BRL strength, Brazilian Real strength. So these things tend to revert to the mean. We run the business for the fundamentals of the business in terms of driving underlying value. Currencies will do what currencies do. We hedge them on an economic basis much like I just explained.
Tim Chiodo: and the one thing I would like to add to that is we love the fact that we have a geographically diversified business.
Tim Chiodo: So, this comes with it. This is a fundamental differentiator for us.
Tim Chiodo: and many of these markets around the world are fast-growing markets where that is where we find the biggest secular opportunity. So the FX is the last thing that I think about. I think about the growth opportunity in those markets.
Speaker Change: Our next question comes from Trevor Williams from Jeffries. Please go ahead. Your line is open.
Trevor Williams: Great, thanks very much. I want to go back to domestic assessments and the growth there relative to GDV and purchase volume. There's been a pretty consistent spread.
Trevor Williams: between those growth rates over the last few years. And then Sachin, you called out cross-border mix as a driver of that spread this quarter. If you could just unpack what that means and if we should interpret as meaning if cross-border volume is outgrowing GDV that we'll kind of see that mix headwind persist. Thanks.
Sure.
Trevor Williams: So, the first thing I'll mention in terms of the delta between what we see in domestic assessments and GDV is there's a rounding impact which is taking place there. So, while you see the numbers as we've kind of talked about it as 10% and 12%, the reality is the 10 is a rounded down number, the 12 is a rounded up number. So, the delta isn't as big as it kind of seems out there, but that's by the way, just FYI.
on your question around the cross-border mix component.
Trevor Williams: Here's the reality, by its very definition, domestic assessments does not include cross-border revenue. GDV includes cross-border volumes.
Trevor Williams: And so what happens effectively is if GDV, if cross-border volumes are growing at 20 percent, which is what we kind of reported for the fourth quarter, you've got the impact of that coming through in the GDV number, you have no associated revenue coming through in domestic assessments and that's what I mean by cross-border.
Thank you.
Speaker Change: Our next question comes from Will Nance from Goldman Sachs. Please go ahead, your line is open.
Hey, appreciate you taking the question.
Will Nance: Michael, I wanted to ask you about your thoughts on the European market, following up on the kind of mid-teens growth you've been putting up in that geography more recently. Just wanted to get your thoughts on the competitive dynamics with some of the local schemes being folded up into the European Payments Initiative, I think including in your home market of Germany. Any thoughts about how this kind of changes the landscape and just remind us kind of conceptually how you think about the competitive dynamics on the continent. Thanks.
All right, so let's.
That's a great question.
and I always love to talk about my home country.
Will Nance: You know, I want to put a stat into your mind. You know, earlier on we talked about how we're driving payments growth by shifting volumes from domestic networks and closed-loop networks.
Will Nance: Over the years, we have driven up our switching ratio to 70%, so that's important as a backdrop into this question. So we have success, and we know how to deal with domestic issues.
competitors and partners.
Will Nance: Now, on that backdrop, particularly in Europe, there has been, over the years, push to come up with local payment solutions as an alternative offer to consumers.
Will Nance: And there's a whole range of reasons why that is contemplated in Europe partly sovereignty partly more control You know all of that the fundamental truth though is that in the end the consumer is a really deciding factor here What's a good user user experience? How about availability?
Will Nance: If you put a new app into a payment market that has tons of choices already, it's going to be very hard to convince.
Merchants and consumers to change. We've seen it
Will Nance: in the U.S. with a bank-led app as well. So, all in, we feel this is good for competition. It motivates us to continue to compete and invest in our proposition across channels. We talked about the token topic earlier on and how that makes checkout easier and so forth.
Will Nance: Right now we are looking at particularly at WIRO. So WIRO is currently an initiative of three countries. This was multi-country in previous years and now it's down to three and you know first transaction took place in December so there's proof of concept, pilot stage and we'll see where it goes.
Will Nance: At this point in time, we don't see it as a material concern or threat to our business.
Will Nance: You know, but you know, our approach has always been of one of partnership, you know, we partner with domestic schemes in many countries around the world, maybe on the services side, and we'll see how that goes over time.
Will Nance: The more choice there is, because it will generally vote for a level playing field on the competition side, is which we'd like, and then we'd love to compete with our solutions.
So that we can squeeze one more question in.
Speaker Change: Certainly. Our last question will come from Sanjay Sakhrani from KBW. Please go ahead, your line is open.
Sanjay Sakhrani: Thank you. Good morning. I just wanted to go back to the the volume acceleration, Sachin. I mean, I know you mentioned a bunch of different things, but
Sanjay Sakhrani: You know, as we look underneath it all, is it that the consumer is really gaining strength and that's sort of what's driving the acceleration? Is it share, part of it share gains? I'm just trying to think about the acceleration in the fourth quarter, the stained one in actually a further acceleration in the United States.
Thank you.
Sanjay Sakhrani: I'll speak to the fact that the metrics you're talking about for the fourth quarter compared to the third quarter's acceleration you're kind of alluding to. I think at the highest level
We should all kind of take
Sanjay Sakhrani: comfort in the fact that the consumer continues to be very healthy, and we're seeing strong consumer spending and good commercial spending as well. So, those are important. As it relates to whether it's driven by share or not driven by share, frankly quarter to quarter, there is, you know, a very minimal impact which is there from a share standpoint, because the wins which we've talked about have been helping our volume growth in the third quarter as they have in the fourth quarter.
Sanjay Sakhrani: So it's really the underlying strength of the consumer and the merchant's brand which is Alcantara.
Sanjay Sakhrani: There's a little bit of lift which is coming from crypto, which we kind of talked about, right? Which is there and there's a little bit in the nature of
Thank you, Sachin. Michael, any closing remarks?
Sanjay Sakhrani: Well, I'm happy we got Sanjay in, even though we're over time, so excellent. Good conversation. Thank you very much for your support, as always.
Sanjay Sakhrani: There was a lot going on this quarter, so it was good to overrun a little bit.
Sanjay Sakhrani: I still want to do what I always do is thank the 34,000 colleagues at MasterCard for being out there with our customers every day and pushing in this business forward And thank you to all of you for your support. We'll speak to you next quarter very much. Thanks everyone
This concludes today's conference call. You may now disconnect.
Transcribed by ESA, translated by —
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