Q2 2019 Earnings Call
Good morning, My name is brandy and they will be your conference operator today.
At this time I would like to welcome everyone to the Mastercard second quarter 2019 earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.
I would now like to turn the call over to warn it can't Michelle.
Head of Investor Relations Mr. Kneeshaw you may begin.
Thank you Brandy good morning, everyone and thank you for joining us for our second quarter 2019 earnings call with me today are Archie bunker, our president and Chief Executive Officer, and saw Chimera, Our Chief Financial Officer. Following comments from Washington session. The operator will announce your opportunity to get into the queue for the Q and a session. There's only then that the Q will open for questions.
You can access our earnings release supplemental performance data in the slide deck that accompanies this call in the Investor Relations section of our website Mastercard Dot com. Additionally, the release was furnished with the FCC earlier this morning.
Our comments today regarding our financial results will be on a non-GAAP currency neutral basis, unless otherwise noted as a reminder, starting this quarter, we have updated our non-GAAP methodology to exclude the impact of gains or losses on our equity investments were excluding these items as we believe this will facilitate a better understanding of our operating performance and provide a meaningful comparison of our results between periods.
For the three and six months just ended net gains of 143 million and 140 million homes have been excluded.
Prior year periods were not restated as the impact of the change was de Minimis.
Our non-GAAP measures also exclude the impact of special items, which represent litigation judgments and settlements and certain one time items. In addition, we present growth rates adjusted for the impact of foreign currency.
Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts.
Finally, as set forth in more detail in our earnings release I would like to remind everyone that today's call will include forward looking statements regarding mastercard's future performance actual performance could differ materially from these forward looking statements information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings a replay of this call will be posted on our website for 30 days with that ill now turn the call over to our President and Chief Executive Officer, Archie Bunker. Thanks, a lot and good morning, everybody.
Saw strong performance continued this quarter revenue was up 15% EPS is up 17% versus the year ago on a non-GAAP currency neutral basis as Warren just said.
These results reflect the continued execution of our strategy as we invest for long term growth.
On the macro economic environment consumer sentiment and spending remains relatively strong.
With some moderation versus 2018 as expected the continuing to monitor ongoing trade negotiations and other economic and geopolitical factors, which are showing signs of England business sentiment in particular.
The U.S., we are seeing continued growth low unemployment healthy consumer confidence retail sales grew 3.2% versus a year ago X auto ex gas. According to our Spendingpulse estimates and that reflects some moderation from Q1 and from last year.
In Europe . The outlook is mostly unchanged as we continue to see modest growth you can't even spending remains healthy although it has slowed somewhat from Q1. According to Spendingpulse estimates and of course, the uncertainty around Brexit remains.
In Asia Pacific Trade tensions continue to win business sentiment, particularly in China, We honor harvest seeing improved consumer confidence and more accommodative monetary policies in several markets and the outlook in Latin America continues to be mixed as growth in markets like Brazil, Colombia, and Chile, partially offset offset by weakness in Argentina and Mexico.
Meanwhile, we continue to drive healthy double digit volume and transaction growth for Mastercard across most of our markets by successfully executing against our strategy and I'm going to give you a few examples of how we are growing our core business diversifying our customer base and building new it is for our business. So starting with growing our core we continue to make good progress driving growth across our credit and debit prepaid and commercial products and expanding acceptance across both physical and digital channels.
We expanded a number of important issue of relationships in the credit space, including National commercial Bank, the largest bank in Saudi Arabia, maybe secure exclusivity across that credit debit prepaid and commercial business loan with flipping the credit portfolio.
We also signed a new consumer and small business co brand partnership in the U.S. with housed is rapidly growing online home remodeling marketplace.
And we want a 10 year exclusive co brand credit deal with Destocking, a leading online travel agency in Latin America in five new markets across the region as with many of our other co brand that they got really integrating our loyalty program into their offering to deepen their customer engagement in Germany, we have renewed our credit relationship with DZ Bank. The second largest retail banking group in the country and they put them hundreds are appropriate and banks across the country and they will continue to issue Mastercard gone to their customers.
Turning to Devon, we signed an agreement in the UK with nationwide, who selected us as that business debit card provider to do with our experience in the small business space and our demonstrated expertise or working with fintech. So nationwide plans to launch a new business banking proposition to over 5 million small businesses in the UK early next year.
In Colombia.
We've got an exclusive debit partnership with Scotiabank and secure long term debit agreements both in Colombia, and Davivienda, the two largest debit issuer in the country.
And in Germany, we extended our long standing partnership with the German savings bank of Spark Asha collectively these debit and there will be leveraged a series of Mastercard services to help drive contact us adoption advanced digital security and accelerate the migration of maestro debit must occur.
In terms of the secure remote call. This initiative, we are making good progress in June and Pico launched the new Src payment icon and technical specs. We're currently testing Src in market with issuers and merchants.
Actively working on must above upgrades to Src with partners like tickets Dot Com Expedia group Saks Fifth Avenue, and Norwegian cruise line, and we expect to launch in the United States in the next few months.
And then we have developed the Mastercard digital wellness program, which provides merchants with access to a host of technology and resources, including its standards compliant click to pay check out, but most importantly added security through Tokenization and a high technology along with cyber security. This also to combat online attacks and we're working with payment processes and platforms, such as world pays square Ardian strike.
Diversify our business by expanding across new geographies and customers. An example in India. We are as you know we are building partnerships with local retailers and issuers to help drive growth and further develop the payment ecosystem.
We are pleased to have launched an exclusive credit Cobank program with Sep card the largest online retailer in India. In addition, Paytm payments Bank has signed a new issuance agreement with Mastercard. We have also established a new acquiring relationship with them to drive open loop acceptance with them in that market in India.
ATM will also be using our send capability to enable credit card bill payments.
We are leveraging our assets to design unique solutions for specific verticals.
Our verticals verticals, such as the growing gig economy.
We were selected as the network for the lift direct Mastercard debit card, which provides lyft drivers with instant access to the earnings collaborating with evolve Bank and trust and branch, who will issue Mastercard prepaid cards and will utilize mastercard send to help their corporate customers provide interest fee pay advances to their hourly workers and Mexico, we partnered with over and PVA to provide a new Mastercard debit card foot over drivers.
Working in the Fintech space I believe we just continue to lead that we have established a series of successful partnerships with fintech around the world who value. The service, we provide as well as our solution selling approach. This quarter, we signed the deal the rails bank to bring new consumer and commercial debit card programs to market in the UK and in Brazil, We are working with digital bank Bankey and via Varejo to offer a new digital prepaid card targeting data approximately 60 million customers.
So now onto the third pillar of our strategy focused on building new areas for our business. We have developed and acquired as you know a broad set of capabilities, which together with our existing guardrails allow us to differentiate our offerings.
Address new payment flows and most importantly operators a one stop shop for our customers and let me give you a few examples.
First we recently announced a partnership with Btwenty seven Nordic payments platform all by six of the largest banks in the nordics, providing leading edge real time and batch multicurrency payment platform across the region.
This new platform Leverages, our vocalink assets will replace the existing payments infrastructure and provides instant and secure payments across the region. I believe this partnership represents another milestone in our strategy to offer customer choice in the form of real time account to account payments infrastructure applications and services and builds on a series of wins across Latin America Asia Pacific and the Middle East that have highlighted to you over the last few quarters.
Second we continue to build additional depth and scale in our cross border capabilities, which already allow us to dispose payments across bank accounts mobile wallets and cards all through a single area.
For example, we just completed the acquisition of transfer fast, which will not only enable us to service a greater number of markets and end points for our customers are transferred by the way allows us to reach over 90% of the world's population, but also provides a suite of leading compliance FX.
Messaging and licensing capabilities to address many of the cross border pain points that exists today.
We are executing on our cross border strategy through a new partnership agreement with interact in kind of Canada, which leverages, our mastercard send push payment capabilities to allow Canadians to send money internationally across interact E transfer platform. The National Bank of Canada will be the first to ensure the launch this new international Remington solution.
We are developing new capabilities to penetrate the bill payment space and completed the acquisition of Transactis to accelerate our go to market strategy for the Mastercard Bill pay exchange.
Transactis offers a unique combination of technical assets distribution partnerships and customer relationships, which when combined with our current bill pay exchange capabilities will allow consumers to view.
Manage and pay bills across multiple payment methods and channels.
Whether we are ready to drill time account to account payments all guardrails on your mobile banking app or through a beginner's website.
And finally in pay TV, we announced a partnership to integrate our Mastercard track.
With the open text supplier portal to help buyers and suppliers in the automotive industry, streamline and digitize financial supply chain processes to increase the speed compliance and security associated with business information payments and financing.
So with that let me turn the call over to such as for an update on our financial results and operational metrics such as.
Thanks, Andrea and good morning, everyone.
So turning to page three you will see we continue to perform well youre a few highlights on a currency neutral basis, and excluding both special items related to certain legal matters as well as the impact of gains and losses on the company's equity investments.
Net revenue grew 15% driven by solid momentum in our core and was slightly ahead of our expectations due to stronger services growth.
Acquisitions contributed a minimal amount to net revenue in the quarter.
Total operating expenses increased 17%, which includes a two ppt increase related to acquisitions.
And a five ppt increase related to the differential in hedging gains and losses versus year ago.
The remaining 10% relates to our ongoing investment in strategic initiatives.
Operating income and net income each grew by 15%, reflecting our strong operating performance and each includes a one ppt reduction due to acquisitions.
EPS was $1.89 cents, including a two cents drag related to our recent acquisitions.
EPS growth was 17% year over year with share repurchases contributing four cents per share.
During the quarter, we repurchased about $1.9 billion worth of stock and an additional $493 million through July 25 2019.
So, let's turn to page four where you can see the operational metrics for the second quarter.
Worldwide gross dollar volume or GDV growth was 13% on a local currency basis up one ppt from last quarter in part due to the ramping of co brand wins in the us as well as fewer processing days in Q1.
US GDV grew 10% up approximately two ppt from last quarter with credit and debit growth of 12% and 8% respectively.
Outside of the US volume growth was 14% up one ppt from last quarter.
Cross border volume grew at 16% on a local currency basis in line with expectations and driven by double digit growth in all regions.
Turning to page five switched transactions continue to show strong growth at 18% globally.
Reflecting in part the continued adoption of contactless.
We saw healthy double digit growth and switched transactions across all regions.
In addition card growth was 6%.
Globally, the 2.6 billion Mastercard and Maestro branded cards issued.
Now, let's turn to page six for highlights on a few of the revenue line items again described on a currency neutral basis, unless otherwise noted.
The 15% net revenue increase was primarily driven by strong transaction and volume growth as well as growth in our services offerings, partially offset by rebates and incentives.
Looking quickly at the individual revenue line items, you will see that domestic assessments grew 13% in line with worldwide GDV growth of 13%.
Cross border volume fees grew 19%, while cross border volume grew 16%.
The three ppt difference is mainly driven by pricing partially offset by mix.
Transaction processing fees grew 15% while switched transactions grew 18%.
The difference is primarily due to mix.
Finally, other revenues were particularly strong this quarter up 24% driven by growth in our cyber intelligence and data and services solutions.
Acquisitions contributed two ppt to this growth.
Moving to page seven you can see that on a currency neutral basis, excluding special items total operating expenses increased 17%.
As I just said this includes seven ppt related to acquisitions, and the differential and hedging gains and losses versus year ago.
The remaining 10 ppt of growth relates to our continued investments in strategic initiatives, such as digital enablement safety and security and geographic expansion.
Turning to slide eight let's discuss what we've seen through the first three weeks of July where each of our drivers are at or slightly ahead of what we saw in Q2.
The numbers through July 21st are as follows.
Starting with switched volume, we saw global growth of 16%.
In the us us, which volume grew 13% up one ppt from the second quarter due to the timing of certain social security payments this quarter.
Switched volume outside the US grew 19% also up one ppt, primarily driven by Europe .
Globally switched transaction growth was 19% a sequential increase of one ppt, primarily driven by the U.S and Europe .
With respect to cross border our volumes grew 16% globally similar to the second quarter.
Looking ahead, our expectations for 2019 are consistent with our prior estimates we had a solid first half and we continue to grow our business both in terms of new and renewed deals as well as with our service offerings.
We continue to see healthy consumer spending with some moderation versus year ago as expected.
In terms of net revenue on a currency neutral basis, and excluding acquisitions, we continue to expect to grow at a low teens rate for the year.
On this same basis for the third quarter. We also expect to grow at a low teens rate because of the sequential increase in deal activity as well as some moderation of services growth versus a very strong Q2.
We expect FX to be a two ppt headwind to revenue for the year and about a one to two ppt headwind for the quarter.
In addition acquisitions will add about one ppt to third quarter revenue growth.
Our operating expenses on a currency neutral basis, excluding both special items and acquisitions, we continue to expect growth at the high end up high single digits for the year.
On the same basis.
For the third quarter, we expect growth in the mid teens versus year ago due to the timing of marketing spend which is more heavily weighted to Q3. This year as we promote contact less usage and investment sponsorships.
Year over year, FX will be a tailwind to opex of about one ppt for both the year and Q3.
In additions acquisitions will add about five ppt to third quarter Opex growth.
As a reminder, we issued $2 billion in debt at the end of May and this will impact our interest expense run rate going forward.
In terms of the tax rate, we now expected to be approximately 19% for the year.
With that let me turn the call back to warn to begin the QNX sessions.
And fashion, Randy we're now ready for the question answer session.
At this time, if you would like to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from the line of George Mihalos with Cowen.
Thanks, and congrats on another strong quarter.
RJ wanted to ask a question you brought up contactless is that obviously that thats been a good driver.
How long does it take when you introduce contact with how long do you think it'll take as you introduce it in sort of a new geography for it to really pick up and meaningfully drive I guess accelerated growth.
The public has basically targets lower value cash transactions as the first place that it kind of changes the paradigm.
And the the speed of adoption.
I know, we've got our truck markets around the world, where contractors has grown very strongly Australia, Canada, Turkey, Poland, Hungary, and the likes UK. It depends a great deal on how many cards are in the market better contact us in April .
Combined with contactless terminals combined with the use case for everyday payments safer transport system gets contactors favor it tends to ramp faster if it doesn't it tends to ramp slower. So if you take Australia as an example, where the banks the acquirers.
And the merchant community worked really hard together on promoting contactless event from non existent to being like close to 80% of all transactions are under 100 Australian dollars were contractors in four or five years. After launch EBIT was not that case in other markets, but I'd say four five years to get to a rarity.
A large percentage of small dollar transactions with all the effort in the market is a pretty good level.
Next question please.
Your next question comes from 10, Jen Wong with Jpmorgan.
Hey, thanks, good the good growth here again, just a if you don't mind a couple of quick ones just on the stronger services growth. Maybe can you be more specific you mentioned cyber and and data I'm curious if these are project related.
Or more recurring type work, maybe just a little bit more there and then just on the payback on on your M&A I know you gave that third quarter.
Look which is helpful is the is the payback on those types of deals outside of the traditional retail card space and bill pay and read it in its et cetera is it different than.
What we've seen in the past thank you.
Hey, Jim Let me take a first crack and then suddenly being far more comprehensive on numbers is probably correct, but here we go.
The first one is.
The services revenue.
A lot of the cyber revenue has regarding confidence built into it because it involves the selling of.
And the other products that are sold into banks and merchants and governments in a way that they tend to have the utilization quarter over quarter. What won't change is if the volumes going through that change in our revenue profile from them will obviously change because it's not dissimilar to our card business wind down of the volume goes through our cost we own more that's kind of the the first part what is improving our capability in cyber intelligence aside from our own.
Efforts of developing new tools and the acquisitions of bacteria than new data on all the work you're doing well, it's improving it is we now see a much larger percentage of our transactions can be used to 10 years ago. We are now seeing 55, 56% of our transactions you do see 40 something percent every time, you see more transactions the predictive power of your of your tools improves. So that's kind of the that second part by the way impacts some of our data business as well.
On to see a nice pace it tends to be more regarding the data and into the data and services space sarcastic for them are recording some of them are one off projects.
Sachin referred to the fact that you should expect that the third quarter and so maybe a little slower than growth in the second quarter, primarily caused by the fact that the Twoq you had enormous growth rates, but part of that is lapping of our comparison to prior year for part of that is some projects in part of our business like Indiana. So that's kind of the DNS sorry, if these acronyms confusing the data business and so.
You've got a mix inside our business as a cyber business is more recurring the data business is a fairly high proportion of recurring but it does have some project related work as well.
Yeah, and change and I'll, just add to that so like I said right. So in the second quarter, but this number moves around quarter to quarter as you've seen our even last year in the first quarter of last year, we had.
Very strong services growth take place and that's a little bit a function of what are the projects, which are being delivered in a particular quarter, which calls for things to move you know between quarter and quarter.
And that's particularly on the advisory side. So I would tell you in the second quarter. Our advisors growth came in slightly stronger which would be in line with what you said on the consulting side of our business on the second part of your question on M&A team.
Look I mean weve shared with you what we think the dilutive impact will be for for further acquisitions, which have been completed the couple of things, which I'll remind you is.
The acquisitions that closed during the course of the second quarter, There's one acquisition, which as trans fats, which closed early in the third quarter. So all of that has been taken into consideration as we think about what our outlook for acquisitions as we continue to expect that our acquisitions will be dilutive between seven and eight cents.
In 2019, and as it relates to the revenue profile.
These acquisitions are across different lines of of what we do so for example, the acquisition of ethical which is in the safety and security space will follow follow a little bit more from a revenue model standpoint, along the lines of what are you just described.
Then there are other businesses such as.
The actors, which is in the bill payment space, where it's a function of what kind of engagement volume, we get of Bill Presentment Cummings coming into the business and how we charge on the basis of that so that will be more in the nature of up or build presented what kind of transaction fees, we charge on those bills.
Hi, guys. This is nothing's changed in our basic M&A philosophy that chose to philosophies remain one being we try and make sure the dilution stops by year, two and therefore becomes increases in the third year Secondly, remember that by the second year. The business is embedded in the core of whatever business. We are running and therefore, we don't do a next acquisition after the secondary which means the discipline on buying something and making it work for you by the end of the second there is now fairly strongly embedded in every business line in the company.
Next question. Please thank you.
Your next question comes from the line of Sanjay Sakhrani with KBW.
Thanks, Good morning.
I've been saying this is Dan became CEO that Europe is a growth market for our company. It's now almost 10 years I see no reason to change that prediction for you.
Europe is a cash dominant market in large parts of the continent, even now and therefore the opportunity to convert cash in personal payments remains strong and healthy to give you. An example, just in quarter. One of 2019 that the first quarter. This year, we grew merchant acceptance locations in Europe by 10%.
Over the prior year first quarter and so.
This is not a developed payments market in the sense by now having said that the Nordics are developed strong maybe wrong I'm talking about most of Continental Europe has got enormous opportunity for growth as yet there's market share growth as well, which is share growth not just against.
Our large global competitors, but also against local national schemes, all of whom are finding it hard to keep pace with technology innovation and regulation trends and therefore, they tend to come to us for help and assistance and that allows us to get a stronger foothold even in their businesses and so.
And this is all about commercial NPV.
And as yet another space in the <unk> and semi and B to B space in Europe . So we are growing so.
The Fintex, yes of course, the regular backs, yes of course that share growth angle, but just think in terms of cash and acceptance and better be payments, there's an enormous opportunity even now in Europe and I remain very bullish on what Europe is capable of doing.
Thank you.
Okay.
Next question please.
Your next question Okay.
So I forgot to answer the Brexit impact for Firstenergy.
And.
Not think directly yet I mean.
It's interesting the UK still remains a market where people seem to be spending and growth in spending remains healthy. So I can't tell you that I'm seeing direct impact to there, but just for the currency is volatile obviously, you expect that as we get closer to October 31st if there isn't clarity youre going to get more volatility in the market, but consumer spending is still healthy inbound and outbound.
Cross border flows are pretty interesting gets Phil I think in fact inbound is stronger than our bottom bar.
Lucas supplements and attractive market.
So next question.
Your next question comes from the line of Jim Schneider with Goldman Sachs.
Good morning, Thanks for taking my question I was wondering if you could maybe just comment on the what you did before relative to transactions processed growth. It seems like the big drivers there have been.
First of all that the move to contact lists but also the reduction maestro cards can you, maybe just kind of give us a sense about whether there is any reason to believe that level of growth in the high teens is not sustainable from here since it's pretty much at the highest level, it's been and I think last five or six years. Thank you.
Yeah, So Jim I'll take that one I think you should think about our switched transaction growth across the vectors, which you just spoke about which is as we continue to drive contact us adoption thats going to be.
Helpful fact in terms of driving growth and switched transactions. The other pieces, obviously, the migration, which we are doing from maestro to debit Mastercard, which should be helpful. These which we should also remain focused on is you will see over the years the percentage of switched transactions for Mastercard as a company has increased and that continues to remain a focus area for us which is how do we continue to engage to drive more switching over our net book visibly that have local teams. So all of these factors are.
Helpful. Thanks in terms of driving switched transaction growth.
That those are things, which you know I would keep a close eye on as it relates to.
What the trajectory of both would look like on a going forward basis.
Yes.
Next question please.
Your next question comes from the line of Lisa Ellis with Moffettnathanson.
Hi, Good morning, guys actually I wanted to follow up on your call out to that Mastercard signed in issuing agreement with pay team in India. It seems like we're seeing an increasing number of examples of this where these digital wallets are issuing debit cards against the balances which.
Seems like a pretty significant competitive shift in the environment relative to a couple of years ago, where many of these players would have been at least aspiring to compete with Mastercard. So can you just talk about this competitive dynamic has it in fact shifted like this are you seeing this more broadly across the developing markets and then how is working with these players little bit different than your traditional banking customers. Thank you.
So we have a lot of these guys at the end of the day.
Some of them standalone, but trying to find a way to use.
Bank account to account values.
As you are generating favors the factor that in so many markets around the world debit interchange other ROI mdrs on regulation and therefore, the economic benefit of great account to account versus growing on a debit card has changed quite dramatically over the last decade.
You know what used to be in one or two markets incident of.
Regulation has been quite fall on different a lot of the Asian markets India.
As an example has regulated debit card AMDR and therefore.
The benefits the economic benefits of moving around.
The U.S. where devin.
And the changes regulator, so I'll stop economic benefits has changed but the analogy of the conversation has changed recently guardrails versus account to account.
Ravi ourselves as a company have adopted the view that offering choice to consumers and merchants and customers about most account to account and card is a good idea.
And Thats why the investments Vocalink, that's why the investments in building our infrastructure with real time payments and the nordics or in parts of Asia and parts of Latin America, and the Middle East Africa region, and Thats why on our efforts to build applications and services on top of real time payment rails as well I believe over the next decade, you will see more and more of us being.
Sort of rail agnostic, if thats, what our customers and consumers and merchants buffer because I believe that's the best way to cater to the changing payment landscape.
Next question please.
Your next question comes from the line of Mushy Orenbuch with credit Suisse.
So you'd kind of talked a little bit about the acquisitions and there are a number of them.
Hey, what might be different about this round of acquisitions there more platform I guess then.
Perhaps just getting.
Specific amount of revenues and maybe could you just talk a little bit about how you think they factor in kind of over the course of the next.
The next several years.
Well first of all.
I would say most of our acquisitions even over the past few years.
Platform oriented or.
In a couple of cases oriented towards skill sets. We didnt have three years ago, We bought a company called C, Sam which give us access to 450 mobile technology engineers, which would have been quite a challenge to hire organically.
But the majority of our deals you know be.
A merchant loyalty programs of pinpoint from Australia or.
The last ones Hemodefend platform or some service oriented of that type of strategic applied predictive technologies of the deterrent and services space that gave us a testing and learning platform or take new data that give us.
Hi platforms for cyber security, So I'd say most of our acquisitions tend to connect back to wanting to be the owner of a platform that we can add into what we have and then sell as a bundled service.
So.
That's kind of what we're trying to do.
So I don't see these as being dramatically different on Datalogic.
I think whats getting interesting is that we are seeing more deal flow than we ever did you want to see a lot of deals and picked one or two or three out of 23, we see many more deals in the last two years and we saw the first five years I think part of that is seen as a credible acquirer who tries to develop the company, we acquire and stay tuned into the kind of business. We have and then give people opportunities to grow in a career in a growth. So we've not seen as a as a as an acquirer who.
To plant the Mastercard, we're doing things I would tell you the things like BP and new data and breakeven has taught us a great deal that we didn't even know.
Before we bought them so.
I think they're benefiting enormously from our acquisitions, both culturally for our mother company. We're also in the cross floor successes between the two of them I don't think they're very different for an ethical or transactors or transfers or otherwise I can see all of these following similar patterns.
Okay. Thank you.
Your next question comes from the line of Bob Napoli with William Blair.
Thank you and good morning.
A question on baby payments.
Jay you had mentioned.
You haven't even scratched the surface internationally I was wondering if you could maybe.
Sosh and give an update on trends in that business in the us.
Growth rates any signs of acceleration the automation piece and is there is the international market far behind the U.S. and the growth of BTB payments.
Yes, so our beauty business, Bob as you know you should think about as.
Things, we've been doing for many many years on the commercial side.
Catering to the small business universe, the teeny side of the business our.
We got fleet card management side of the business that business continues to grow well, there's still remains a lot of opportunity from a secular shift standpoint, I would tell you and that part of the business. We continue to grow that nicely. We've got some very solid platforms, which youre familiar with which support the growth of that commercial business.
The more recent Sop, which we've done as it relates to.
The b to B hub again, we're seeing good interest from our customers on that.
So like we said previously those things take time the adoption Goldman those things is something which is a multiyear adoption curve process, but still showed a lot of promise because in solving for real endpoints.
And the business.
Then I think about the new and different stuff for example, we announced.
Just NRG RG his comments earlier today, we talked about the partnership we've established for our master contract capabilities with Opentext again early days, but showed a lot of promise because and solving for real pain points on the b to b side as it relates to.
Compliance and Onboarding of customers in this instance in the automotive segment I think you should think about.
Our BD business across across multiple spectrums does business weve been in which continues to grow healthily, which delivers revenue right now the the other businesses Weve invested in over the last few years, which are starting to show good trajectory and traction and then the other new things, which we are doing such as Mastercard crack, which are just getting going which will pay off over the longer term.
And not much has changed in terms of our views on the opportunity there both in the us as well as from a global often standpoint.
Is the international market.
The further behind the U.S. market.
I would imagine the opportunities are yes.
Bob.
That question is yes.
Yes.
The answer to that question as clearly as we announced last quarter, our partnership with them why it will be for example in Australia that would be an example, again taking the lead on what we did at the B to B hub in the U.S. and taking it overseas for an opportunity which exists there as well this quarter, we talk about.
Our agreement with nationwide, which is primarily keeping towards the small business space in Europe again, a big opportunity. There. So I think the answer really is yes things typically start up in the U.S. and there's opportunity globally on this as well.
Okay. Thank you appreciate it.
Sure.
Your next question comes from the line of Jason Kupferberg with Bank of America Merrill Lynch.
Hey, Good morning, guys, just one for Sachin and one for Friday Im just starting on the domestic assessments. It looked like the revenue growth there decelerated about 300 points in constant currency. So just wanted to get some color on the drivers there and maybe what moving parts, we should be considering for the second half and that revenue line.
And then maybe Jay if you can just go a little further on on Src now that we're getting closer to actually live implementations what the plan in terms of educating consumers. There will we see actual targeted advertising kind of like what we had seen historically with masterpass.
So Jason I'll take the first one domestic assessments right. They grew at 13% this quarter in line with our GDV growth rate of 13% that's down sequentially from a 16% domestic assessments growth rate in Q1 that is primarily due to the lapping of certain pricing that was put in place last year and from a trajectory standpoint, you would need to see the pricing effect of that margin to come down as the year progresses.
Tend to Parliament Src.
Yes, once they get the testing completed and the debt the current Masterpass merchants.
Florida into Src, and we start rolling Src out for the broader marketplace, you will probably see the whole industry, making substantial effort banks networks acquired making substantial efforts on marketing and promotion to get consumers used to the idea of the fact that there's one button as the simplicity of checkout that you would expect in today's digital World you would see that coming but I'm talking it's still a few months away before that kind of stuff starts.
Next question please.
Your next question comes from the line of Don Fandetti with Wells Fargo.
Don.
Mr. Vendetti your line is open.
Yes, RJ on cross border can you parse out a little bit different trends in e-commerce versus TNT in terms of growth and then just a follow up on the commercial I know there has been some talk in the industry that maybe it's been a little bit.
Or some concerns around growth in commercial can you just clarify how you're feeling on commercial spend overall.
Okay.
You spend on that.
Exactly when such in just on so.
The bottom line.
Mark Cross border E Commerce Cross border growth is in the high double digits high teens kind of thing and that's a good number for us in DRAM, but stronger because as you remember the old.
Got to see punches stuff that you talked about well landlocked. So some part of the cross border growth improvement quarter over quarter is the lapping of the cryptocurrency effect that you saw back in 2018, and Thats, a real benefit to be getting out of that the seed capital kind of expense cross border tourism.
By and large cross border tourism is still alive and well you would find changes in bad people live weights dig China in China Cross border growth from Chinese God only knows is actually up this quarter over the prior quarter, but is primarily due to increased travel not just to what has begun to happen, which is Japan and Australia, but this quarter you are seeing some travel to Europe to Germany to Canada, and the United States as well and I.
That goes in and out depending on which quarter and what's going on but by and large travel tourism is still intact and doing okay.
And ill just add ratio, which is we continue to see double digit growth in cross border volumes across all regions.
And for full year 2019, we continue to expect cross border growth rates to be in the mid teens.
Next question please.
Your next question comes from the line of Bryan Keane with Deutsche Bank.
Hi, guys just wanted to ask about algae your comment about now seeing.
55, or so percent of transactions that you guys are switching is talk a little bit about where that percentage can go over time obviously.
There is an economic lift there for you as well maybe you can talk about that throughout the model maybe higher yields and then it sounds like it's it pushes services revenues higher so just thinking about the different applications there. Thanks.
Well all I can tell you that expect 55% to keep growing but I'm not.
Good to be able to tell you.
What number and I expect this year next year the year. After the reason for its continuing growth and multiple please.
One reason is that local payments schemes venturing struggled to keep pace with innovation technology with cyber security with regulations and that gives opportunities.
For companies like ours to come in part or are happen to show that our transactions are better protected or better service to have more analytics behind them and that allows us to grow that's happening all across Europe . As an example, it also happens when regulatory environments change like some years ago that changes in Brazil, and they are beginning to change in Colombia that changing in Argentina, and as they change there.
You tend to begin to see more of your transactions because the low the locally.
The locally formatted scheme, either no longer has control ubiquitous controller, where the transaction resulted and the control choices now goes to merchant or insurance or kind of changes that dynamic in the market that's behind.
Some of the growth in what you're seeing and then obviously certain kinds of technologies allow you will see more transactions.
Got it I guess in many markets allows you will see more transactions than the old Mag stripe chip cards could do and so.
There's a number of things behind the 45, becoming 55 or 40, something I forget the exact number 10 years ago, I think 40% to 43% coming up to 55% now I expect to see that continuing to grow and yes. The implication of that is that it does help us win the predictive power of our data both in cyber and in our data and services businesses and that does allow us to bundle our solutions better for merchants and banks that is correct.
Next question please.
Your next question comes from the line of David Togut with Evercore.
Thanks, Good morning, good to see your peak 27 partnership and the Nordics leveraging Vocalink can you talk more broadly about vocalink positioning on the European continent ahead of the launch of FCTA on September 14th and.
When we go live on September 14th with secure customer authentication.
What do you expect to happen in terms of transaction authorization and approvals in Continental Europe .
Hi, Thanks, a lot of fun. So let me let me walk you. So September 14th isn't important date, but theyve also been.
Some announcements that there would be some flexibility in the enforcement of CA at a national level from the European banking authority I think a month or two back they gave out some clarification on that.
That.
It will be interesting because you'll get some degree of friction caused by the fact that there will be different enforced on in different countries and I think that could lead to some consumer confusion. Some merchant confusion so be sure confusion. So we're going to have to work our way through this over the next few months as this happens.
We are trying to focus on our customers help them better understand their requirements provide them with solutions to help assist with their compliance on on as CEO I continue to believe that.
There will be very windy Vela advantage. During this process is signed by them as they try and meet the needs of what the regulation of PRC tourists loans.
Limited disconnected stuff around open banking beverages, everything from connecting to protecting to resolving for disputes were working that through with a number of countries. We've launched in the UK launched in Poland, but in the process of doing that kind of work in different parts of Europe Vocalink is not the only entity that is helping us to that its guardrails account to account sales, it's actually more to do with the cyber intelligence and data services businesses that there's a lot of opportunity in PST to in Europe .
Vocalink as a whole in Europe and in Continental Europe .
Okay. The Nordics would give us the first physical presence once its fully implemented across continental Europe , because otherwise we will in the UK in the case of Europe and no one knows where the UK will be on November one so.
This gives us a foothold on continental Europe as well by the time, we get this implemented over the next few years.
As my follow up on the UK in the UK all the.
All our contracts have been extended out by a substantial number of years or more vocal in provides both the back on track the linked contract and the faster payment contract and of course. Some years later, there will be RFP isn't all of those but we are busy.
Making sure we are well positioned for those.
I understood and then as my follow up what is your expectation for the adoption.
Have you know pay by bank.
In a in continental Europe , or or consumer CH payments.
Once we go live September 14th.
Yeah, I don't know yet like I said, Burma September 14 doesn't really switch on it it's got some switch on angles and it's got a bunch of demos attached to it. So the life may or may not come on fully on September 14.
Do I think could be my bank is a great opportunity, yes, just remember this.
That comment that was made to Liza earlier, the incentive to switch to paying by a bank account direct debit the economic incentive for merchant to help advance that or for merchant to therefore give better benefits to their consumers to choose that is the way to pay as compared to paying by some other matter has reduced as the economic difference between the MTR and debit cards and the cost of a fully loaded.
Account to account payment are taken into account and so this is less of an economic argument as compared to a preference.
I consider lots of Europeans, who think of paying with debit as a natural way of paying as compared to paying with credit. They think of beverages safer I suspect a number of them will adopt pay by Banco pay by a bank account as something they understand and appeal to the survey of planning for differentials I think that's the way this will grow as compared to some very strong economic opportunity benefit to consumers and merchants, which means there will be a slow build.
Thank you.
Your next question comes from the line of Darrin Peller with Wolfe Research.
Hey, guys. Thanks.
Are they more broadly I mean, your volume trends continue to remain really strong EBIT to the July period, a new school may be in a pretty good spreads versus competition across a lot of volume growth metrics.
Can you just comment I mean is this just solid macro trend is or how much of this is actually market share in your mind or.
No other technology innovation driving growth just maybe you could try to parse out it.
Do you think there is anything in this comment if you're seeing that would change that current calling anytime in the next half.
And then just quickly sat and also cross border revenue. It was up a little more account the card Peter Guenter like cross border volume growth rate is there anything on pricing there we expect that.
Okay.
To answer the cross border one for sure.
So you're right our cross border assessments were up 19% in the second quarter, which is about three DPG more than what you saw on the driver at 16% rolled and that was due to pricing, which is partially offset by mix and.
You would add to that pricing continue for a few quarters going forward. So nothing more really on that.
Darren.
So on on transaction growth in GDP growth for like for them to broad pictures Marcos macro spending environment by consumers and in the in the B to B business is still good.
Is it moderated towards up compared to the prior year, yes, but it's still relatively healthy there are pockets of concern or macro spending I think China is something that everybody has now begun to talk about which.
The challenge in Med Supp, It's trust Mexicos floor, but there are other markets that are doing better. So you know, Brazil is doing better than the U.S. and holding strong. The UK is warming up parts of northern Europe are doing fine.
India is doing okay in Japan, and Australia doing okay. So the market is doing okay. That's the macro trends are the direction, absolutely and we've been growing share consistently for a while across product categories, but growing share.
Business doesn't change share growth from you don't grow share by 200 basis points in a corner roshe by Incrementalism, mostly even if you win big deals in one country, but combination of that country contributing to the total world Spenders still a smaller number and saw share growth and share gives you a consistent tailwind, but its first the macro and secular and second share growth and third remember were smaller than some of the other competitors in some of these overall numbers because of our position in different markets that tends to make the percentage number look better. It's a combination of all three I believe it's a little bit of all three going on so you should take that into account.
Randy I think we have time for one last question.
Your last question comes from the line of Craig Maurer with Autonomous research.
Hi, good morning, Thanks concerning my peers have circled the wagons on all these enormous positives thought I'd ask on some of the.
[laughter] few controversial items.
First can you discuss.
The Australian proposal to completely eliminate interchange by yearend.
And if you can comment on the fact that the.
UK Supreme Court has agreed to hear the class action case against Mastercard. Thanks.
So first of all Chris Murphy is delighted to get a chance to speak on the UK.
Let him go ahead of that sure Frank Thanks.
We feel very good about the decision of the Supreme Court to look at.
To improve our appeal will take that forward in the next couple of months.
Just to context on that issue. This is one of the first major major cases in the UK looking at their new collective action. There class action law, we think the appellate court set a two lower standard and that would produce.
An outcome in the UK that is was not intended under the law. So we think there's great opportunity for the Supreme Court to come to.
A more balanced decision and then we'll we'll proceed on that basis, but we were very pleased with without approval.
And then the Australian proposal, it's just Australia wherever you come to zero interchange RMD are in our country I continue to believe that no economic incentive for increasing user acceptance, our digitization of payments doesn't make sense to me.
At the end of the day, if there is a value being derived.
By an entity BJ consumer need a merchant the bank from doing something and somebody else is providing the capability for that value to be derived in this case, specifically if merchants are deriving some value from digitize payments be it.
Ticket sizes be lower traffic be it better cash management be at lower expenses and Matt.
And collecting the series of studies around the world that demonstrate what Digitization does for the merchant community in terms of benefit for them and I believe that in some way incenting the providers, who enable that digitization acquirers processors issuers, who take on risk expense and the capital allocation that is required to enable this sensible business model.
So going to zero, just says I am not going to do it and you need to find a way to do it anyway and I suspect thats not the smartest way to go about it but you don't want at the end of the day countries, we'll make decisions our job is to help illustrate to them through research through logic and three experience in other markets. What we believe to be conducive regulatory systems and then when they make that decision our job is to work with it. The best we can that's been our approach for years I see approaches stake in Australia, as well I consider Australia to be a very important market for our company. We are market leader there in a number of categories that the west facts recently, we are definitely market leaders in more categories and I consider our presence in Australia to be that over responsible payments partner for the Australian government ecosystem and I will keep trying my best to work with them.
Great. Thank you very much so sure.
Few closing thoughts, we continue to execute well against our strategy. We just had another strong quarter of revenue and earnings growth.
We are really pleased to further extend the reach of our real time payments capabilities with the Btwenty seven pending the Nordics and we look forward to working with all our new colleagues from our recent acquisitions and with that thank you for your continued support of the company. Thank you for joining us today.
This concludes today's conference call you may now disconnect.