Mastercard Incorporated (MA) Earnings Call Transcript & Summary

Yes. Good morning. We're ready to get started again. Thanks again for joining us. [Operator Instructions] This morning, we're lucky to have with us Raj Seshadri, I hope I said that correctly, President of Data & Services at Mastercard. Raj?

Craig, thank you very much for inviting me. It's good to be here, and your pronunciation was perfect.

Great. So I see you're in the office.

Well, kind of. This is the -- a virtual background of our New York City Tech Hub. And what I love about it, that Carl Sagan quote on the wall. So it's my favorite background.

Yes. I see that. Very nice. So if we can get started, since we have limited time, why don't you describe exactly what Data & Services is within Mastercard and the strategy for your business unit.

Sure. So I think all of you know that Data & Services is one of Mastercard's service businesses. We have an incredible legacy, a really rich legacy that, since taking it over in January, I've been learning more about. And it's got a lot of positive momentum. The components of Data & Services were built over decades, either organically within Mastercard or through acquisitions. And its role in our strategy is to diversify our revenue streams and also differentiate us. So diversify in terms of taking us into new customers, new areas at existing customers, differentiate in terms of optimizing our core business with flips, helping our customers with -- make the engagement that they have with their consumers a lot better. So in my last role, I spent 4 years with the U.S. issuers in the North America market, as you know. And what I found out was the D&S solutions, and Mastercard services more broadly, are a great catalyst for growth, both the growth of our customers as well as our growth effectively, right, because it does come back to us. The core strategy we have in D&S is to help our customers make smarter decisions for better outcomes, both in terms of how they run their own businesses as well as to help them engage with their consumers, right? We have a B2B2C model. So it's to help the middle B, which is our customers, and then help them engage with the end C, their consumers. And the opportunity we use is we partner and we bundle our capabilities to solve their particular need. Think of a 4-step approach: so the 4 steps are essentially discover, recommend, act and improve. So that's how we -- that's at the core of our strategy.

Okay. And what services make up Data & Services? I mean it's a very broad moniker. So if we can dig down into what exactly the offerings are, I think that would help clients understand that, investors understand that.

Absolutely. So let's sort of double-click on the [ strategies ] describing, right? So we put the customer at the center. And it comes -- it starts with the customer challenge and the key question you're trying to answer and framing the problem. And then we go into this cycle of discover, recommend, act, approve, right? So in discover, we use our data, our customers' data as well as third-party data. But it has to be relevant to the question being answered, that needs to be answered. And it has to essentially -- it's really important that we adhere to either principles as we think about all those data sources. And then so we take that data and we're going to recommend, which is where we think -- we try and identify insights to inform the solution. And these insights could come from many sources, right? So this is where our consulting services could play a role, our analytic services could play a role, our -- things like our software platform, Test & Learn. Or IC, our Mastercard Intelligence Center, could play a role. And then in the act stage, the way we approach act is in our -- just like in the core business, we talk about consumer choice. In our business, we talk about customer choice. So whether the customer wants to do it themselves, doing what we provide, or they want us to help them do it or they want us to do it for them, essentially, we have many ways of interacting in order to make it happen. And in here, things like managed services and marketing services, our Loyalty services, our innovation service come into play. And then that takes us to the fourth step, which is improve. This is about measuring, making sure we set very quantitative targets when we start acting. Did we achieve the targets? What more do we need to optimize? Are there other ideas to enhance? Are there other [ initiatives ] that one can go to from where you are? Are there broader deployments that will be done to really fully capture the opportunity? So that's the full cycle. So the capabilities, the component capabilities, which I'm also happy to talk to if you're interested, actually fall in these 4. And at the end of the day, we're [ solutioning ] and we're bundling to get to that customer-centric question at the center.

Yes. An understanding of those components might be helpful because the general perception, and I -- personally, I believe it's correct, is that there is a significant lead that Mastercard's built over time in terms of these capabilities versus competitors. So understanding those component parts and where you see Mastercard is differentiated in those parts would be very helpful.

Yes. Craig, thank you. I certainly believe this point that you made. What I would say is -- so let me give you some examples of the components and also address your question as to how they differentiate it, right? So each one of these goes back over the last 2 decades to what we've done organically or inorganically. So the first one I'll mention is late in the 1990s, predecessors gathered, cleansed warehouse data and started applying analytics to it. That now gives us, in analytics, an unrivaled breadth and depth of expertise. And as there's more data and more capabilities to analyze data and strong principles to adhere to as we do that, that is a big competitive advantage. We have a very unique global consulting firm, advisers. Here, we recruit and build this talent and this group both from lateral hires from other consultancies as well as from campus hiring. We grow our own. And it's really the level of expertise in payments and adjacent space is quite deep in this consulting firm. Loyalty is another good example. Loyalty, as you know, started with benefits in insurances on affluent cards in order to compete in the core business. But today, it goes way beyond that. We have a proprietary platform that is quite unique. We have -- we've made acquisitions such as SessionM and Truaxis, Pinpoint. We have a huge partner network, a partner network where we source offers and benefit scale for our customers. And so that's a win. And so Loyalty is a distinctive at Mastercard. And things like managed services, I think where this business started, it started with like sending direct mail, right, many, many, many years ago. Managed services today is data-driven. It is multi-omnichannel -- multichannel and quite quantitative. And another component is, I mentioned software when we were talking about our discover, recommend, act, improve cycle. We've built software. The Mastercard Intelligence Center is an example. The new Acquirer Intelligence Center is an example. We've also bought software. We bought APT many years ago. That's given us the Test & Learn software. We recently bought SessionM. That comes with a software platform. And then there are things like we launched the Economics Institute at the beginning of the year. Very timely, by the way, right before COVID, could not have -- I couldn't have timed it better. It was just very fortunate. That gives us all kinds of macroeconomic insights for our customers. It's been hugely valuable in the COVID crisis. And then there are historically strong -- [ else there ], too, like SpendingPulse, which all of you know about, which thinks about consumer spending, predicts -- measures consumer spend across all tender types for -- in various markets. So those have been extremely helpful in the COVID context. So those are some of the components, I don't know if that gives flavor. But what I will say is under each component -- you asked about competitive differentiation. Under each component, there's an element of economies of scale or skill and then a deployment through bundles and solutions, very locally, to make it locally relevant to a particular customer's problems or challenges or aspirations. That really is the secret sauce.

So you had touched on something that maybe we can expand upon, which is how has COVID changed the demands for these products. And a fundamental question to those on the phone is, are the clients paying for the additional services they're asking for right now?

I run a business. So yes, there are revenues. Actually, the COVID has been a really -- it's -- listen, it's accelerated a lot of [ consumer ] trends in the marketplace, right, that we all know like e-commerce, touch experiences, contactless. But in this business, the additional thing that is really underscored is when faced with uncertainty, data becomes very important. And it's data that's available now. It's not last year's data. And when you look at consumer preferences, it's what consumers are doing now, not what they did last year. And so data really helps and insights -- actually, it's less the data. It's actually the insights that you get from analytics helps you understand the situation, assess, react, recover, right? It also helps a customer migrate to the -- to tomorrow's more digital world across -- whether it's in their businesses or how they engage their -- with their consumers. And so COVID has really accelerated a lot of what we -- in a good way. I'll give you some customer examples, right, because it's always fun to talk about customer examples. So I'll give you 3. SessionM, which we acquired late last year, was helping a CPG company launch its first-ever, at-home hair coloring product. Now here comes COVID. Hair salons are closed. Nobody's able to go get their hair colored, right?

I don't have this problem.

No. Well, some of us do. You're lucky. And so essentially, what SessionM was able to help the CPG company do is really accelerate their plans and way beyond anything anyone forecasted, right? A second example might come from our Loyalty business, where we've had to very agile and pivot and innovate quickly, and we've done that. So things that -- we have Mastercard Travel & Lifestyle Services. So one thing about COVID, we all know, is travel is down, right? And so what we did very quickly, people are working from home and they're living at home and their families are together. So we quickly pivoted to making it about Loyalty now via virtual museum tours, children's programs, recipes to cook at home, things like that. In Europe, we've introduced a Concierge service for [ Google ] appointments. In Latin America, we provide telemedicine, whether that's by video, phone or chat. In the Middle East, we've -- this is an example how our services come together. We've taken D&S service and our C&I service, bundled them together. So we took e-commerce [ and insurance ] and we took identity theft protection and glued it together to create a service that is very valuable to consumers and, therefore, for our customers. So these are some of the COVID examples. And then in terms of assess, react, recover, what COVID has allowed us to do is achieve both of our missions. As I said, it's differentiate and diversify, right? So it helped us do more with our current customers to help them navigate the crisis [ and get ready ] for the future. It's also brought in many new customers. So we [ become ] relevant to various merch verticals, to various types of governments at all different levels, central banks, federal, state, local, city, right? And so that's really -- they're all consuming our data as they think about what they need to do, and we are there to help them.

So maybe you can go a little deeper on that point. Who is the target customer set? Is it everybody? Is it -- are there some you don't work with? So maybe a little help there.

Yes. I think it's a targeted -- a target customer set comes in many flavors, right? So I have to anchor us back in our traditional customers because that's part of our services business and then we go into new territories with new customers. So let me anchor us on sort of traditional customers and what we do for them. Let me give you the examples, right? And these are pretty common things that we do around the globe for many customers. The first example I'd give you in terms of how we support our core customers is conversions. So we do this globally. So we recently did one in Asia Pacific. Typically, it has millions of cards, sometimes one market, sometimes many market. It comes with opportunities to change the product suite. So we often retire some product. We often introduce new products, right, pretty substantial changes to the product suite. And what we typically do is in the D&S team, we co-locate a D&S team and advisers team at the customer to work with them. And they work with them through -- in a discover, recommend, act, improve cycle. So think about this strategy, what is the multichannel customer journey we want to go -- want the consumer -- customer to take the consumer on? What role does mobile play? What's the playbook that leverage everything the customer has and we have that can be targeted or tailored to a particular segment or a particular market? And then we usually help them create a frictionless experience to facilitate the migration, do things like trigger new features, recurring payments is one, that the customer would like the consumers to sign up for. Or we do things like reactivate dormant cards. We -- and then we continue to optimize even as we facilitate the conversion. But it's really important to drive consumer engagement. So that's one example. Another one from our core business. And I was talking about D&S and C&I together, right? So we do this in a number of places. The example that comes to mind is a U.K. bank, where we helped them essentially rethink their fraud management. So we took our Mastercard [ auth ] and fraud data. We took the customers' data. We put it together. We used not just analytics but proprietary algorithms to look at it and say, "What new rules that might help the customer manage fraud?" And then based on that and all those analytics and those algorithms, we came up with a recommendation. Then we put a project team in to project manage the end-to-end reengineering of their fraud process. And then in terms of managing the metrics, we are really focused on impact, right? So in this case, the customer that comes to mind, we reduced their process by 80%, which is millions of pounds, you can imagine, for this U.K. bank. And it also allowed them to provide them a much more friction-free, seamless consumer experience, which is really important. And a third example -- we do a lot of this work across the core business. A third example that comes to mind is migrating consumers to activate debit cards and use it at point-of-sale versus just using it to cash out or access their accounts. And so a recent example -- we do this again globally. A recent example that comes to mind is Banco Nacional in Costa Rica, where again, it's going through this cycle of discover, recommend, act, improve, using all of our capabilities. So we did our data and their data to figure out what are the different customer types. Who uses it already? How did they -- what [ year ] got them there? What are the different segmentations? How did they work? By the way, as we did this, we also separately identified other opportunities. So in this case, while we were doing this point-of-sale migration to debit, we also identified cards that could be upgraded. We identified small businesses that could actually [ move ] a small business card, right? So this is -- the data like other answers as well, which help the customer with. And so in this case, like we do in many cases, we came up with this analytics strategy. And then we executed the campaign, which is the communications, the content, the user experience across multiple channels. And then we set goals. We measure very aggressively against the goals, and then we optimize. So it's a [ complete ] story. So those are 3 examples from our business, just to illustrate.

Yes. Maybe a question about the core, right? It's always been a big question of how these services and do these services help Mastercard win at the core. And one thing that comes to mind for me, and this was an odd thing, but I was driving down the Garden State Parkway with my family, and I immediately had my wife take notes because on a billboard, there was an advertisement for Mastercard and Brighterion, that Brighterion was integrated with 74% -- or 74 of the top 100 U.S. banks. And I was saying to myself, "Mastercard is not the leading issuer at 74 of the top 100 U.S. banks." So talk about how that happens, how that helps you win at the core and what -- how that opens the door for you.

Yes. So it's -- Brighterion, as one of our AI capabilities, we have many, as you know, the -- so the way it helps the core -- I just illustrated a few ways, right? So if you read between the lines of my examples, it gives you the answer. We optimize portfolios for our customers. When they [ get ] better performance out of their portfolios and a better experience for their consumers, they win and we win. We also think about how to help them optimize their own businesses as they deliver some of these results. We also -- there are examples where we've gone in with services, worked with a bank or a merchant, and in the case of a bank, then flipped the portfolio. Our core allows us to -- Loyalty services help there, for example. Consulting services help there. Analytical services help there. So we help the -- as far as cyber solutions, right? So in those [ instances ], it gives us other ways of working with the institution and getting to know them and then help flip the portfolio. So services help both enhance the current business that we have in core as well as bring us new business in core.