Mastercard Incorporated (MA) Earnings Call Transcript & Summary

All right. Good morning, everyone. Thanks for joining us bright and early. Lisa Ellis here, of course, back at you today for day 2 of our Annual Payments, Processors and IT Services Summit. We are kicking off this morning with one of our main events and one of my favorite people to host, Craig Vosburg, the Head of North America at Mastercard. Craig, say hi.

Hi, good morning. Thank you. Thanks for having me. Thank you for that overly generous introduction there. I'm glad to know I'm one of your favorite people to host. That will keep me coming back if you keep inviting me.

Exactly. We like that Craig is sporting the coronavirus look this morning.

Yes, I did. I will -- just for the record, I did put on a collared shirt today for the first time in 2.5 months, so this is for you and your audience.

Yes, yes. We don't want to know what's happening underneath the table. And we heard your dog is with you, so if there's some barking, we know that that's not Craig.

Yes, exactly. It might be warrant by my IR guy.

Right, yes. Housekeeping item, as usual, folks. But for anyone that was with us yesterday, at the bottom of your little webcasting screen is something that says Ask a Question. It's very easy. You just type right into that box, and the questions pop up on my screen so I can see them. And I will layer them in to our discussion where they make sense in the flow. And then -- and if we don't get to your question for some reason, we'll certainly follow up with you, with the company afterwards. So thanks, everyone. With that, without any further ado, I think we will get started.

Craig, why don't we start with the topic that is top of mind for everyone? During earnings and some other forums, you and others at Mastercard have talked pretty extensively about the very broad-based support you're providing employees, your communities, your customers related to the COVID-19 pandemic. But maybe could you highlight a couple of unique things that Mastercard is doing that perhaps aren't as visible or haven't gotten as much awareness that investors...

Sure. Yes, I'd be happy to. Thanks again for having me, and hello, everyone, out there. I hope everyone is doing well and is safe and healthy, and happy to spend a little time with you all this morning. To your question, there's clearly -- I mean the impacts of the COVID-19 situation, it goes without saying, are just extreme, and they're impacting all of our businesses and all of our communities and families. Mastercard has been very focused on doing what we can and doing our part to help manage through this very difficult period and support our various constituents in ways that we can, both large and small. And some of the larger things are more well-known things that attract media attention. Some of the smaller things, as you asked about, don't, but are no less important. And there are a couple of areas where we're doing that clearly with government. I mean you see, on the large scale, things that we're working with government at the federal level to help facilitate disbursement of aid through to unbanked or underbanked recipients of aid through things like our Direct Express program. But that same sort of commitment to helping the underserved and underbanked extends down to the local level on much less visible ways through working with local partners. For example, in Los Angeles -- in the County of Los Angeles, we're working and supporting LALOVE, which is a program to channel social benefits and aid disbursements to underserved members of the Los Angeles community. We're working on a similar way with the New York Immigration Coalition to again get aid, benefits and financial support to underbanked, often immigrant folks, many of whom are working on the front lines in health care facilities, helping to fight our way through this situation. Similarly, on the customer front, there are things that we're doing at the macro level across our customer base to provide data and insights. So we've launched something called Recovery Insights to help our customers, both businesses and governments, a lot of local governments, city governments, governments like New York, London, Barcelona, all using Recovery Insights to understand what's happening at the city level to help inform decisions they may be making about where to invest, how to reopen, when and where to reopen. That's a little bit more at the macro level, but we're working with individual customers as well on very specific issues that they may be facing. If you're a grocery store that's gone through a very significant change in the demand patterns for your products, how do you think about managing your stocking programs and shelf displays and merchandising? We're working with grocers on things like that. If you're an airline that's curtailed your route system, how do you think about reintroducing routes and what city pairs based on the kinds of demand you're seeing in local city pairs? So again, it sort of runs the gamut from very sort of high-profile things to things that are a little bit more under the radar. We also are doing things, of course, in just pure, more humanitarian kinds of things. There's been some attention around the commitment we made along with the Gates Foundation and Wellcome to provide funding towards research on identification of vaccines and therapeutics. But we're also at the very local level here supporting White Plains Hospital in Westchester County and with some -- along with some other corporate partners here in Westchester County. So it really runs the gamut, just as a reflection of our commitment not only to support our communities as best we can, but support our partners in the private sector, in government and across the board.

Wonderful. Well, one of -- the data and insights that you have at Mastercard are just such a fantastic asset and have been essential during this time. That's an area where you've also been very generous, as is many of your peer companies, in sharing a lot of that data freely on an ongoing basis so that everyone, governments, corporations, customers, merchants can have visibility into almost like a daily view of what's going on. Can you give us a sense right now what your best guess is at Mastercard around the current macroeconomic outlook and how you're expecting you running -- President of North America at Mastercard is expecting U.S. card volumes to trend over the next few months?

Yes. Well, it's consistent with the way we talked about it on our first quarter earnings call. And since -- we're looking at this -- the impacts of this series of events in stages: a containment stage, a stabilization phase, a normalization phase and a growth stage. We saw containment occur in the U.S. beginning mid-March into early April with some pretty dramatic fall-off in spending levels as a number of cities and states went into lockdown mode. We saw some -- the stabilization phase sort of take hold with the deceleration of spending bottoming out in mid-April into sort of early May. We've begun to see normalization through much of the month of May with spending levels beginning to recover, still in negative territory on a year-on-year comp basis but far less negative than we've been seeing in March and April. And the trends, that's at a macro level across the -- at the U.S. level overall. At a state-by-state level, it's interesting to kind of break that down based on where we see local restrictions. We saw every state in the country was in positive growth territory in early March. By the third or fourth week in March, every state in the country was in negative growth territory and some in very severe negative growth territory. We're now at a point where somewhere between 15, 20 states are at -- back in positive growth territory or at neutral levels, nominal. This is modest growth. This isn't what we would consider sort of a normal rate of growth. But there are a number of states that are still in negative territory that are reflecting ongoing restrictions in retail activity and the movement of people around cities and ability to travel and that sort of thing. So all that being said, we're seeing this normalization. We hope that, that continues on a path. We'll have to see if there are any setbacks. And we're even seeing now signs of New York City preparing for stages of opening, now slated for next week, dependent on what happens with other challenges that we're facing in New York at the moment. But -- so with all that being said, hopefully, that trend continues. I don't know that we get back to really meaningful rates of growth and the kinds of growth that we've seen pre COVID until there's a level of confidence broadly across consumers in the U.S. that they're safe, and that's going to require some period of time without meaningful new cases. It may require the development of effective therapeutics or a vaccine. That -- those kinds of things likely take us into next year before we get the level of confidence in the consumer psyche that life can resume or revert to some form of normalcy that we had sort of pre COVID.

Well, I remember when I hosted you at this event last year, and we talked about what the path was to get the U.S. from card penetration in the low 60s up to somewhere in the 80s. Now I don't think any of us asked for a pandemic to get us there. But certainly -- and it's certainly not -- and obviously, not to joke about it, jokes aside, it's obviously the last way we would have wanted to get there. But there are certainly a number of secular benefits that we've talked about a lot over the last weeks and certainly the last day at this conference coming out of the pandemic. And one of them and one of them that you talked about last year was contactless and how to finally get the U.S. onto contactless. Can you just talk about, from Mastercard's perspective, where we are now, how you see that accelerated through the pandemic? And then also maybe talk a little bit about how contactless obviously displaces cash, particularly with those stubborn small-dollar transactions, but talk a little bit about how it helps Mastercard beyond just the cash displacement and why you care so much, why you're -- why it's such a big important theme.

Yes. Contactless, it's interesting. Contactless has been an important theme for us as a company for many years and obviously has had much greater success in penetrating payments volumes in markets outside the U.S. Inside the U.S., it's been more of a challenge to create the adoption around contactless, but it's been no less of a priority for us to be an enabler of that. And as we talked about last year, we've been working for a number of years very hard at enabling the infrastructure in the U.S. payment system to be able to make contactless payments available to consumers on a ubiquitous basis. So we've been working with issuers to get them to recognize the benefits of contactless and begin to reissue cards with contactless capability. That's been a process of working through our issuing base. And we now have roughly 70% of issuers who represent about 70% of our cards in the U.S. have committed to issuing contactless, and many of them have a significant number of contactless cards in the market already. And in light of current events, a number of them are accelerating the reissuance of contactless card to get them into the hands of consumers more quickly. We've been working on the merchant side to work with acquirers and individual merchants to ensure the contactless-capable terminals are available at the point of sale. That effort was aided pretty significantly by the EMV migration, when there was a mass reterminalization in this market. And with that, we have now contactless-enabled terminals installed and functioning at merchants that represent 65% of our card-present transaction volume in the U.S. So that's a high degree of ubiquity on the acceptance side. The final leg in that journey towards making the U.S a contactless market was changing consumer behavior and getting consumers to adopt the new payments routine at the point of sale. And as you know, sometimes the hardest part of making a change in payments is changing consumer behaviors because we all -- as long as the behaviors that we have work and meet the need, it sometimes is difficult to get consumers to see a different or a better way of doing things. And of course, that's one of the reasons why we focused on and have been very enthusiastic about transit as a specific use case for contactless because it's a catalyst for changing consumer behavior, and that's something we continue to be excited about. Transit is obviously a bit depressed at the moment with ridership way down in a lot of mass transit systems. But the work continues to enable transit systems as to have open-loop contactless capabilities. Fast forward from last year to today, we've got perhaps the most forceful catalyst we could have imagined -- actually, we couldn't have imagined it when we talked about it last year, but the most forceful catalyst imaginable in changing consumer behavior. And that is suddenly, nobody wants to touch anything that they don't know, recognize, trust, haven't cleaned, and that includes terminals, that includes pens, that includes all kinds of who's working on the other side of the counter. Nobody wants to touch anything. And therefore, as a catalyst for changing consumer behavior, we're seeing a very significant uptake in consumers embracing contactless as a way to pay. We're seeing merchants encourage consumers to use contactless payments. And as I said, we see issuers accelerating the reissuance of cards. So there's real momentum building there, and we're seeing growth on the order of 40% in contactless transactions worldwide. We're seeing similar rates of growth in the U.S. And while it's off a very low base as a starting point, it's moving in a way that I believe, long before COVID, that we were finally at a point where the U.S. was on its way to becoming a contactless market. I believe that even more today, and we'll get there sooner because of the circumstances we're in with COVID. To your question around why does it matter for us, I think the main -- there are 2 main things. One you alluded to is contactless is a way of getting at what has been a difficult source of cash-based transactions for us to penetrate, persistently cash-based transactions or small ticket. And a high percentage of contactless transactions are targeting those small-ticket payments that historically have been made with cash. And so that's bringing new volume into the Mastercard network for our issuers, for our acquirers and for us. So we're very enthusiastic about it for that reason. And we also just love the consumer experience. It's a great consumer experience. Putting COVID-related concerns around touching things aside, it's smooth, it's easy, it's seamless, it's quick. You pull out a card, you tap it, you put it away and you're on your way. It is a very good consumer experience. And I think as you -- in this day and age of technology and the evolution of technology, you need to continue to deliver a great consumer experience to ensure someone else doesn't figure out a way to deliver a better consumer experience than you can. This is an evolution for our industry in providing a great consumer experience. It was a great experience to go from cash or writing a check to using a card. It was a great experience for the cards to go from being those paper-based zip-zap things to being electronic. It's a great experience for the card to go from being electronic and you have to sign for it to now you just tap and you go. And it's just an evolution of that path.

All right. Good. I am looking forward to tapping and going as much as possible.

Yes. You're looking forward to getting out and doing anything that involves buying stuff.

I guess. The other major, I guess, secular acceleration happening because of the pandemic is the shift into e-commerce, of course. Can you talk a little bit about -- sort of similar set of questions. One, maybe just dimensionalize the latest data points that you've disclosed at Mastercard in terms of how much shift or acceleration you're seeing in e-commerce. And then in a similar question. Beyond cash displacement, which, of course, e-comm does, also squeeze out cash, what are some of the other reasons why e-commerce transactions -- that shift into e-comm is beneficial to Mastercard?

Yes. Well, of course, as we've talked about together for many years, one of the great tailwinds to our business and our business model is the secular migration from physical forms of payment, cash and checks, to digital and electronic. And certainly, the -- that's, we believe, a long-term trend, and there's plenty of runway left in that trend. The situation we're in now is accelerating that, and we've seen an acceleration in the growth of digital certainly relative to physical as physical has been curtailed and confined a bit, but we think that trend in terms of the acceleration towards digital has some staying power. As we talked about in Q1 earnings, we saw more than 50% of our transaction volume was card-not-present in the quarter, and that's up from 40%. We see -- that's worldwide. We see similar rates of growth in card-not-present volume in the U.S. On a merchant category-specific basis, we're seeing e-comm growth rates of 40%, 50%, 60%. Some of them have no alternative at this point, so there's probably an exaggerated shift. But the point being there is an accelerated adoption by consumers and accelerated adoption by merchants and focusing on digital channels as the way to sell things, that we see as a clear ongoing benefit in areas where our products will continue to add value for many years to come. To your point on why this matters, cash displacement, again, the obvious one, cash isn't much of a viable competitor as a form of payment in the digital realm, but it goes well beyond that. And a digital or an e-commerce transaction provides a very rich environment for us to deeply engage in the transaction and add value to that through our various partners. We can do that through things like the application of artificial intelligence and fraud solutions to enhance the detection of fraud by, for example, incorporating new streams of data and new attributes, behavioral attributes into a transaction that's initiated through a device that we can't necessarily incorporate through a card-based transaction at the point of sale, and we do that through NuData, the company we acquired a few years ago that helps incorporate those device-based behavioral attributes as part of the decision stream on whether or not to authorize a transaction. We have the ability to also incorporate other enhanced forms of authentication with things like biometrics that can be leveraged through the device. We can support our merchant partners more effectively and through things like cybersecurity and cyber risk tools, helping them identify vulnerabilities in their online environment. We do that through another company we acquired recently called RiskRecon. We can offer loyalty kinds of solutions to partners to engage in the transaction flow on a real-time basis through the extension of offers. We can engage on an ongoing basis through things like the capabilities that SessionM offers. There's gateway services. The list goes on and on. So it's just -- it becomes a very rich environment for us to really fully deploy the full breadth of capabilities and expertise that Mastercard has to enhance the transaction value for each of the parties involved.

All right. So you mentioned a lot of safety and security-related topics in there, but didn't touch on tokenization, although I know that, obviously, tokenization is one of the major technology enablements of doing secure transactions online. And our experts yesterday was calling out that one of the perils of this sort of step-function shift into e-comm is that fraud rates in e-comm can run 4x higher than the in-store transactions. So just give us an update on where you are with tokenization deployment in the U.S., particularly as merchants are -- consumers are using digital wallets perhaps more and then merchants are using more and more of a card-on-file type of model.

Right. That is a -- it's a fair critique at the moment of the online environment, that fraud rates are higher in digital transactions than they are in physical. And with physical transactions, we've seen those be reduced dramatically through the introduction of EMV chip technology at the point of sale on the order of 80-plus percent reduction in fraud across a number of categories. The technological equivalent to that chip technology that's at the point of sale being brought into the online environment is tokenization. And tokenization will enable us to achieve an EMV-standard level of security for online transactions. So it absolutely is a very high priority area of focus for us to ensure that we are proliferating tokenization as widely and as quickly as possible across the digital ecosystem. There are 3 primary channels or use cases through which we're -- that we're focusing on in as much as they represent the way in which consumers make online purchases, through wallets as one. And of course, we launched tokenization with Apple and Apple Pay and have continued to work with other partners in the wallet space to ensure that the credentials in those wallets are tokenized and, therefore, secure. The second environment is the card-on-file environment, which obviously, given the number of years that consumers have been lodging card credentials in a card-on-file way, there are a lot of credentials that we as consumers have put on file with merchants of all shapes and sizes. And getting those 16-digit card numbers replaced with tokens is -- it is a significant effort but it's a really important effort and one that is -- I think the entire ecosystem recognizes the value in that. The recognition of the value is even more heightened given the shift to more digital transaction activity that we're seeing in this environment. And therefore, we're working with merchants and merchant service providers, people like Netflix, people like PayPal, some of the big acquirers to systematically go across their base and replace those credentials with -- the card-on-file credentials with tokens. That's underway. That work is going to take some time to proliferate across the system, but we certainly hope, given this increased focus, that will accelerate. And then the third area really relates to the guest checkout experience, and that's where the SRC standard or Click to Pay, as it will be known to consumers, comes in. And Click to Pay offers a fully tokenized transaction experience through the guest checkout process that, in addition to being tokenized, is just easy and fast and intuitive and the one click kind of checkout experience. So those are the things we're focusing on, those 3 areas. And we're sort of at different stages with each, but equally focused on ensuring that we've got tokenization as widely proliferated as we can and as quickly as we can because the benefits are real. By the way, the benefits -- we tend to focus first on the benefits that relate to security, and that's logical because security is kind of -- that's a primary consideration here of reducing fraud. But we'll see benefits in terms of the consumer experience as well as it relates to the life cycle management of card credentials and how -- particularly credentials that are on file with different merchants. When cards expire and get reissued, you don't have to go back through all of your -- every place you've left the card credential and update with a new card number. We can do that through disconnecting and reconnecting the token to a new card. If a card is compromised and has to be reissued, same thing. So there's a lot of other benefits that will come downstream that will deliver a better consumer experience. Again, back to the importance of ensuring the consumer's experience is consistently good and cutting-edge. That will come as well as a result of the work, but job one is improving security.

All right. Well, I'm going to take us back for 2 seconds because I did have one question coming in from the audience. Now you can defer this to Sachin, your CFO friend, if you'd like, but I'll just go ahead and ask. Just back on e-commerce, just a question. And this does come up frequently, which is when all is said and done with the value-added services like you were highlighting, are -- does Mastercard ultimately generate more revenue or higher margins off of e-commerce transactions than a brick-and-mortar transaction?

I -- that's not a question that you can sort of generalize on. The broad sort of general answer is not really. There's a lot of variables that go into determining that, some relate to the channels, some relate to the ticket size, some relate to the extent to which there are other services, value-added kinds of services that are associated with the transaction. So it's not broadly generalizable like that. We like all our transactions, and we like the yields and the revenues associated with all of them. We just want more.

Right. Good. Well, you mentioned that when you were talking about tokenization, your relationship with PayPal as one of your major card-on-file wallet partners. And you also have a strong relationship here in the U.S. with Apple, even deepening with the relationship related to the Apple Card. How is the pandemic impacting your major wallet partnerships in the U.S.?

I think it's again, kind of consistent with this idea of accelerating the trend and the shift and the focus on things that are digital. And there's clearly some benefits that are accruing to some of those partners as well as more consumers look to transact online. And it has just resulted in what has already been a very active and fruitful set of discussions around, hey, what can we do together to make this even better, to have those discussions be faster and more frequent and more creative. And so it's just helping to accelerate that direction that we've already been moving in. There's a real -- I think a very healthy spirit of collaboration across those partners. In some cases, the environment we're in hasn't directly driven this. But we announced last week or the week before the new program with Samsung Money along with SoFi. That's obviously been in the works for some time, but it's another example of areas where we can lean in with these big digital players and big wallet players to not just enable a wallet with acceptance capability but then enrich it with products that consumers will want to engage in and will help them deliver more value to the consumers that are part of their platforms.

Another group of technology companies that you have increasingly broad relationships with is all of the fintechs, digital banks, neobanks, whatever the name du jour is for them. So big ones in the U.S. have included players like Revolut, players like Robinhood. How is the pandemic impacting that ecosystem?

Yes. It's interesting question. I think I would start with a little bit of a broader view and not just focused on the "neobanks" but digital banking in general. And I think, again, there's a bit of a catalytic moment here that's accelerating the movement towards digital banking, whether digital banking is -- services are provided by a neobank or whether they're provided by a traditional bank, incumbent banks. A lot of the banks have had branches that have been closed and where people have been reluctant to go into branches. And it's again resulting in consumers figuring out new ways, new behavioral patterns that may have taken years for them to embrace being embraced due to necessity in a very short period of time. So I think there's a broad gravitation towards digital banking services that are relevant across the industry as a whole. An interesting segment of players are those neobanks that we've been focused on for some time, and we've had a number of successes with, with dedicated teams and a lot of great partnerships and thinking about products and programs with these partners that we can develop together. And it's interesting, they're -- you may have, going into this, thought, "Gee, this is going to be a tricky time for earlier-stage ventures, those that maybe don't have a big branch network as a deposit gathering mechanism to fund banking operations." It seems thus far anyway that businesses with good models are still able to attract funding and use that funding to then continue to innovate and deliver great consumer experiences and new products and new ways of engaging with a growing customer base. And with that, we're just continuing to lean in with them as we have to -- as a great source of partners with whom to innovate, with whom to create new ideas and leverage our technology and get some of our capabilities into the market so they can provide benefits to consumers that much more quickly, so...

All right. Another -- you highlighted in the opening when talking about actions Mastercard is taking related to COVID some of your value-added services, particularly things around data and analytics that are gaining a lot of visibility and a lot of traction. How are your value-added services trending during the pandemic? Which ones are maybe seeing more demand and which ones maybe are seeing less demand?

Yes. We're seeing pretty healthy demand across the board for a couple of reasons, I think. One, a lot of the value-added services revolve around data and analytics and then on the back end of those data and analytics, the kinds of consulting work we can do with partners to understand that data and interpret it and act on it for their benefit. Things are just -- have just been so different in ways that would have been difficult to imagine and in ways that a lot of our partners' systems just aren't really tooled for and geared for, that the demand for data and the demand for understanding what's happening in the broader environment, what's happening at a local level, what's happening by merchant category, what's happening in different consumer segments, the demand for that information has been high. And as a follow-on to that, the kind of sort of "so whats" around what does that imply for me as a merchant, for me as a player in the travel industry, whatever the case may be, what does that imply and what should I start doing with that, there's an incredible amount of demand there. At the same time, the other big family of value-added services that we see continual -- continuous and strong demand for revolve around risk in Cyber & Intelligence and fraud solutions. Market dislocations like the ones that we're going through create opportunities for fraudsters because the behavioral norms that a lot of fraud detecting algorithms are geared towards get out of whack because, suddenly, you've got these massive aberrations in behaviors that -- and so there's a real opportunity there to be working with our partners to interpret that data and use it to their benefit to be able to refine fraud detection in this environment. We have -- within that part of our business, obviously, there's an increase in cyber attacks and cyber risk. This is a field day for the bad guys. So again, when things are disruptive, the bad guys see that as a business opportunity. And with so much more activity moving online, with a lot of businesses coming online for the first time, businesses that may not be as adept in managing their cyber risks and the environment from a digital perspective, there's demand for helping them identify vulnerabilities that for a small or medium-sized business could be a life-threatening issue if they get breached. There's been, unfortunately, a massive increase in chargeback activity. As you would expect, so many services have not been able to be delivered because of the environment that we're in. And part of that -- part of our business focuses on chargebacks through Ethoca that we acquired a couple of years ago, and Ethoca services have been in extremely high demand to help both issuers and acquirers manage the chargeback stream more efficiently in a streamlined basis to try to eliminate chargebacks before they actually occur. So it's been pretty widespread, I would say. And I would anticipate that, that will continue, that we'll see pretty widespread demand across our services portfolio.

All right. In the middle of this, Mastercard announced the launch of Mastercard Track, one of your payments platforms, into the U.S. Can you just remind everyone what Mastercard Track exactly is? And then what role it plays in starting to help digitize payments?

Your question suggests to me that, that brand name is now resonating with you guys. So Mastercard Track, we have -- as you know, we've talked for some time about the B2B opportunity as one that we're very excited about, and we continue to be. I'm very enthusiastic about the B2B opportunity in the U.S. Globally, at Investor Day, we talked about this as being a $110 trillion opportunity, but one that historically our ability to participate in has been relatively narrow because it's been defined by the kinds of B2B transactions that are appropriate for being paid with a card, which is a limited set of what a business actually pays out. It's their T&E expenses, it's procurement, it's some expenses they can pay for using virtual cards. But the bulk of that opportunity sits in the kinds of transactions that are managed as accounts payable. And B2B -- Mastercard Track Business Payment Service, BPS, the brand just keeps getting better. That is aimed at that opportunity to basically -- the theory behind this is we've established on the consumer side of our business a great model where we, as a network, engage with issuers and acquirers who then, in turn, engage with consumers and merchants to enable payments to occur between counterparties who don't know each other. Mastercard Track is similar in as much as we will have agents representing on either side of that system, buyers, agents and suppliers, agents working with buyers and suppliers, again, respectively, who don't necessarily not know each other. That's not the value-added component on the B2B side. The value-added component is that the way in which they engage even though they know each other is very inefficient. The data flows are inefficient, the flows of funds are inefficient. It's expensive to process and invoice. There are challenges in reconciling the payment data with the invoice data, et cetera. And therefore, while we're building out that partner -- that ecosystem around the buyer and supplier agents, we'll focus as a network on bringing value around establishing a directory of payments preferences that exist between those partners, creating a data switch to enable formatted data exchange between those partners, creating optionality in terms of how the payment is actually made. It may be made with a virtual card. It may be made via ACH. It might be a real-time payment. It might be a regular card. There are lots of ways in which we can facilitate that through our multi-rail strategy. And then to enable those partners to optimize the way in which the payment is made based on that variety of factors, the payments preferences, the policies that might exist for either of the counterparties, the terms that they've agreed to with each other, the relative cost and speed and transparency of the payment mechanism itself, that's the idea and that's what it's all about. We've launched that. We've got -- the initial phases of that are in market. We're working with partners to bring that into the market now and signing up buyers and suppliers and focusing initially on virtual cards as the use case. So it's going to be -- it's a long journey because it's a build. It's a big thing that we're looking to build here. But as we've talked about, we have big ambitions in the B2B space and think this is going to be an important part of helping us get there.

And where does Mastercard Track fit in B2B? You have relationships with a number of the accounts payable and accounts receivables software platforms and obviously, with all of the treasury banks. Is sort of -- are they the customers of Mastercard Track? Or how does that relationship work?

Many will be. The -- so it is -- for us, it continues to be part of our B2B sort of go-to-market architecture. So we'll work with partners who are aggregating end users, whether they're buyers or suppliers, and seek to integrate them into this network and use that as the way to drive scale and growth across this. So there's a number of large partners that we've communicated already. Some are specialists in that -- sort of these kinds of specialist software providers, some are players that focus specifically on the B2B space, some are processors. So it's a variety of different kinds of B2B partners that we'll go to market with. We're open to any and all as a means of -- because, ultimately, the value of this for -- we believe the value of this for everyone increases as the network effect grows and there's more buyers and more suppliers that are -- that can participate in a more seamless and efficient way.

All right. One more before we get to our closing questions. I did want to talk about the role of government, as you see it, through the lens of North America in payments. Relationships with governments have always been a little bit of a mixed dynamic, some positive, some negative. How is the current situation impacting your relationship with the U.S. government and the other North American government?

Yes. Well, I think one of the things that we've always or for some time have really focused on with government is not just sort of trying to influence from a policymaking perspective but to engage with governments in ways where they see the value of what Mastercard does, and they can touch it and feel it and that it helps them be more effective in serving the needs of their constituents, which ultimately should be the goal of government. And we do that in a variety of ways that revolve around helping governments manage their own business, so to speak, more effectively. Governments have massive inflows and outflows of payments. We help governments make more informed decisions about how to serve the needs of their constituents and understanding the impact of investment in their community and the impact of how their local economies are developing if it's a local government, how the broader economy is developing if it's a federal government, particular focus on serving the needs of underserved members of any government's respective communities. These are things we've been focusing on for some time. This environment has, again, put a very sharp focus and the spotlight on, initially, how to get aid into the hands of people who need it the most through the federal stimulus programs. And in a number of cases, the people who need it the most aren't going to be reached through the more established means of governments pushing money out because they don't have bank accounts, they don't have federal tax returns on record with the IRS and all these kinds of things. So there's been a very active and creative set of dialogues underway with government around how do we extend their reach to get aid into the hands of people who need it most and do it quickly and safely and securely so we're able to leverage some of the kinds of programs I touched on early. That's sort of an initial right now kind of thing. We'll see the extent to which the need for stimulus continues. Beyond that, there will be an increased need for information to help with decision-making along the lines that I mentioned with Recovery Insights, where we're working with a number of cities. We work with governments at all levels to leverage our data to help them understand what's -- so a follow-on question is going to be, what's been the impact of the stimulus payment? Where are people spending it? Where are they spending it? How is it being -- how is that helping with overall economic recovery? What categories? What kinds of businesses? So again, it drives a different dialogue with them in terms of areas where Mastercard can add value to what they're trying to do and demonstrate the power of the Mastercard network as a partner, as a vital player in the economy. Just aside from all of those things, if you just take a step back for a minute and think that we went through, in the period of a couple of weeks, this incredible contraction, shutdown, shifts in how people were spending, inability to transact physically. Suddenly, cash was a very challenging way to make purchases because stores weren't open and people didn't want to touch it. The economy shifted like almost overnight to be electronically, digitally enabled to a much greater extent than it was previously, and that happened absolutely seamlessly, absolutely seamlessly, which was something we take great pride in. We expected it. But again, that's another conversation with government. Like we sort of helped -- played a pretty big role in keeping things working in a way that -- they weren't working the way anybody wanted them to because the economy was so disrupted. But the part that wasn't disrupted was working very well, thanks to technology like ours that enable people to continue to transact, get what they need, need -- what they need for their families, those kinds of things. So that's the kind of dialogue that we're having with governments and having it fast and furiously.

All right. So 2 wrap-up questions: biggest challenge facing you currently; and then, I'd say, in light of the current situation, maybe the #1 thing you're also very excited about.

Well, biggest challenge sort of continues on -- plays on the question we just talked about, I think, the role of government. Notwithstanding all that I just said, we're in a period where the role of government and the way in which government is, I guess, interjecting itself into the economy is -- it's different, right? It also has changed because of some of the actions that need to be taken. Some of that is related to stimulus, but that also has implications with respect to potentially the legislation, policymaking. So that's an area to keep a very close eye on to make sure that to the extent there are changes in the way government views its role, that we're positioning ourselves to -- in all the ways I just described, where they see the value of what we do and continue to, I guess, enforce its will with respect to its role and ways that enable us to continue providing that value. I'd put it that way. So that's one. The other is -- again, I talked about the changes in consumer behavior that are happening very quickly. Those changes historically tend to take a long time for consumers en masse to undertake behavioral changes. We've got this compression in that behavioral change pattern, and that creates opportunity. It also creates some risk, right, that as consumers change the way they behave and the way they want to engage with the world around them, that someone else figures out how to serve those needs. And therefore, we're -- that's why I've alluded on many occasions this morning to delivering a great consumer experience and making sure that we're staying first and foremost in the consumers' mind as the partner with whom they want to work and whose products they want to use. On the opportunities front, it's that. I mean I have been for years, I continue to be just super excited about the potential in our business. We talked earlier about that long-term trend that we've been, I think, beneficiaries of with respect to the secular migration, the acceleration of that and what that means and the things that we can do in the digital realm and what that means for digital and electronic payments and all the things we can wrap around that is really exciting to see what's probably multiple years' worth of evolution towards digitization happening in the period of months or just a couple of years. And that's true not just on the consumer side, which is what we focused on a lot because of the impacts on consumer spending have been so visible, but I think it's equally true on the B2B side, which we didn't really touch on. But businesses are also faced with this need to reinvent the way they manage things like accounts payables, processes because nobody is in the office. And you can't get a paper invoice and do the checks and all that stuff when you're not in the office as easily as you could before. So again, that's been one of these sources of inertia that has posed a challenge in migrating the B2B environment to more digital forms of payment that we've got this catalyst, a catalytic moment, I think, to accelerate some of that movement. So I'm excited about that, too.

Excellent. All right. Well, thank you, Craig. And we will see where we are 1 year from now, I guess, in terms of our penetration levels.

We will, we will.

I think it's 80%. I don't think we thought that a year ago, but now with this acceleration, I don't know. I think we could get there by next year.

You never know, you never know.

All right. Well, thanks a lot again, and thank you for joining us. Thank you for making the trek to Westchester to do it. That was cool.

Yes. My pleasure.

All right.

Thanks for having me.

And with that -- absolutely. All right. Thanks, Craig.

All right. Good to see you. Take care.

Take care. Be safe.