Mastercard Incorporated (MA) Earnings Call Transcript & Summary

Good afternoon everyone and welcome to our keynote fireside chat. I'm Dave McKay, President and Chief Executive Officer of RBC. And I'm really pleased to be joined today by Ajay Banga, Executive Chairman of Mastercard. Ajay, it's so good to see you. Welcome to our fireside chat.

Thank you. It's a pleasure to see you as always, David.

It's great to see you, albeit digitally. We get to see each other around the world fairly frequently. Ajay, as I was preparing for today's interview, and this is the first time we've had a chance to do it in this forum. I was just amazed at the last 11 years, you've been the CEO of Mastercard, just recently stepping in -- Chairman and CEO, just recently stepping into the Executive Chairman role. And I looked at your history over those 11 years, from a shareholder perspective, revenues tripled, profits quadrupled and the share price is up almost 15-fold. You must have a bunch of really happy shareholders. It's amazing, the stock trading, I think, near highs at $375. But what I've seen you lead over the last 11 years is you've really lived multi-stakeholder capitalism before it became a real thematic in the last 2 years. And I look at the transformation that you led inside Mastercard -- as a customer of Mastercard, the innovation, the value creation, thinking about consumers. As you always describe, you're a B2B2C company, and you've, I think, embraced that model and you've innovated around that model, creating enormous value. So the culture, how you've led your employees, you're very approachable how you thought about the innovation quotient. And then externally, whether it's helping communities, building a more inclusive society, more diverse society, as you think about supporting communities, you've walked the talk for over a decade now. And I think we're so thrilled to have you here as a true champion of multi-stakeholder capitalism. Welcome.

Thank you. Thanks, Dave. It's a pleasure to be with you. And you've become a bit of friend as well as a client, and I've watched you and I've watched how you conduct yourself. And I think we're both 2 of the kind. So I'm delighted to be anytime anywhere with you whenever you want.

It's very kind is particularly coming from such an esteemed leader, and I have enjoyed our friendship over the years to say the least. We've got a lot of questions here, and hopefully, we will have time to take a few questions from our online audience.

But Ajay, I'll start where we're starting with so many questions that we get as CEOs. We've come through a year of this pandemic, almost a year. In New York last year, we had the first signs of it. It's been a difficult year to lead, but so much has happened. How do you feel about where we are and where we're going, given the vaccination rates, the economy? You see the world and the economy through a very unique lens in kind of global payments activity. Just kick things off, how do you feel about things?

So it's actually a year. And I remember, March 12 or 13 is when the U.S. began to shut down last year. And you and I were in Davos in January, and this looked like a very long way away. And boy, were we wrong. It happened right then and there. And it's been quite a year. I -- Dave, right at the beginning of the -- of this whole event, which is when we were announcing my transition and Michael Miebach was becoming the President and CEO elect, all this happened at the same time. He and I sat down and said, let's define how we're going to run the company so that there's transparency to employees as well as to investors. And we said we'd have 4 phases and they're kind of playing through as we speak. And the first phase was containment, and that really was literally the shutdown, March, mostly March, parts of April when really we were all in free fall. There was nothing happening, offices, cross-border, travel, everything was just slamming the breaks on. And then we talked to the next phase, which we thought would come, which is meant to be stabilization, which was like you read the bottom. It's not really stable. It's bottom. There's nowhere else to go. And people are still buying groceries and toilet paper, but they're not really doing a lot else. And then normalization, and normalization in what had become because I would say we're living through some phase of normalization. But this is not normal the way you and I are talking to each other right now, and neither is your daily life in Toronto normal or buying in New York. Or I went to Miami, to my office in Miami yesterday and I've come back today and 4 days from now, I have to do a COVID test again as per New York state rules even though I've had one vaccination. And so nothing is normal. There's no entertainment. There's no cross-border travel. There's no mass entertainment anyway. And so some form of normalization, better than stabilization, but not there. And then finally, growth which we always said would happen when vaccines and the like would be freely and equitably distributed. I'd say most countries are currently in normalization. People have moved back and forth. This is not linear. I mean Singapore and Japan, if you remember, came out of it very quickly, then slipped back and then have come back out the hard way. The U.S. has gone back and forth with our second wave. People are scared of a third wave in Europe, whether it's true or not. And so there's -- I think it's not linear. That's the second point. We've got to run our company for those phases. So if your country is in normalization phase, what does that mean for investing in the following things, not doing the following things? That's the idea of creating the phases. So consumer spending currently seems to be in decent shape when you talk about domestic spending. Obviously, cross-border does not exist. I mean, look, Canada and the U.S., one of the biggest gross corridors, people driving across people, going back and forth and shopping, that's just gone to 0 right down. There's still cross-border e commerce, that's happening, but there isn't physical spending. And so as a whole, the consumer appears healthy. Savings are up. They're still spending a fair amount. I mean, January was a record month of growth on consumer spending in the U.S., for example, up almost 8% or 9% ex auto and gas. February is a little slow. March seems to be somewhere in between. I think if you get another stimulus round of checks coming through, you'll probably see a pickup again. That's the back end faulting that's going on, but all that doesn't make up for what people would have spent on holidays and travel and, of course, business travel. So the whole, I'd say there's more savings than you would otherwise have had, but there is a reasonably healthy consumer under it despite the K shaped recovery, despite the digital divide, despite the inequities, despite all the things that have happened during COVID. That's kind of the big picture of it. Merchants, seem to have done something interesting. They all seem to have figured out how to grow omnichannel, at least most of them, even the smaller ones. They've been helped by companies like yours and mine, but they've also been helped by governments and NGO to find a way to do that. At a point of time -- this is an interesting statistic, David, at a point of time in New York City at the beginning of the pandemic, as much as 50% to 60% of small businesses had no transactions for up to 2 months, 0.

60%, that's amazing.

It's flatlined out, flatlined out. That number now is about 20-odd percent. The partnership for New York City, which I used to chair, the partnership for New York City said that somewhere around 20% to 25% of New York City's small businesses will probably never come back. So you'll get a process of reinventing or people call it creative destruction. I think that's a horrible word to use when there are people's lives and livelihoods at stake, but I think that is going on as we speak. And so merchants have adapted, but not all. Those who have are doing okay. And of course, government largess in the form of fiscal inputs, and central bank largess have done a pretty good job of creating a safety net at the bottom for the economy in so many ways. So that's my net take on what's going on.

That's fascinating. Maybe just a quick follow-up question. So that 20%, we talk about a lot. So many are females and women in our society who have been displaced by this, they're attached to service-based industries that require proximity. As you look at past recoveries, you look at this recovery, that 20%, we would expect that to recover fairly quickly in the restaurant sector, in the domestic accommodation. What percent do you think will lag in the cross-border tourism accommodation? Do you have that? I know it's off the top of your head. What part of that do you think won't come back?

I think travel will continue to improve and it'll start with personal travel rather than B2B corporate travel, which, if you'd asked me at the beginning of the pandemic, I wouldn't have been so sure about which one would recover first. But I've kind of concluded that the risks in corporate sector of having your employees travel, is just not there right now. So I think people don't have the appetite for that. So I think personal travel, on the other hand, there is a lot of pent-up demand right there. People have been locked up at home and they haven't had a chance to go meet families and friends and basically get what they want to do with travel. That'll come back quicker. My sense is that the vaccination, increasing availability will help to drive that. Obviously, the lack of equitable distribution of these vaccines causes some stress on travel destinations as well as on the challenges around variants developing in those locations, which, by the way, comes back to hurt everybody even if you've been vaccinated in the past. And so I think that's a little bit of a hiccup we've got to keep an eye on. But on the whole, I am relatively optimistic on personal travel, recovering it towards the second half of this year, business travel more next year than this year.

Yes. I think you're right, business travel will lag. We saw it lag significantly during the financial crisis of '08, '09 took about 4, 5 years for it to come back, and I think we've seen some structural change. I think as soon as one team loses a deal to another team on a customer because they didn't travel and everyone will get back on a plane to compete. Competitive ferocity of our business world will create some of that coming back for sure. I don't know how you feel about that.

Pretty much the same. I've said for a long time that the demise of physical offices and the demise of relationships that get built with travel, that demise has been called too early. It's not the case. And I think actually, working from office, work from locations where creativity, innovation, culture, absorbing new employees, putting our arms around people, equity, quite frankly, ensuring diversity and equity in your promotions, I think a lot of that is going to depend on being back in an environment where we can meet each other, I think with more flexibility in most companies because they have seen that we could manage through the prior year without having the world kind of go under around us. And I think companies will reflect on that and provide some greater flexibility to their employees, which I think is excellent. It's about time. But I do think that we'll be back there. And David, you're absolutely correct, man, the day I don't show up to you and the deal goes to somebody else who did, which is entirely possible. Then I think the next time I will make sure I'm there. So well, I think that business travel will come back sooner rather than later.

And vice versa, absolutely so well said. So why don't we pivot to the strategy in the world of payments. You're the infrastructure, you're the B2B to C model, B2B to B model. In so many ways, you've kind of redefined the Mastercard strategy. Can we talk about the evolution of payments under your leadership? How you position Mastercard to be well positioned? Obviously, structurally, we're seeing payments change. We're seeing new competitors, new platforms, which we'll talk about next. But just from a Mastercard perspective, where do you see payments going? And how do you position the company?

So Dave, one of the things that I think we've done reasonably well over the past decade is we've navigated this changing environment with a level of luck and dexterity, luck always, dexterity is to make sure you take advantage of your luck, right? But you need both, as you know. This is not -- no one's all seen 10 years ago on where life will be 10 years later. And so the profile of our revenue mix has adjusted and adapted as we've done that navigation. So 10 years back, a very small single-digit proportion of our revenue came from data analytics and the services around that, AI, cybersecurity, loyalty. That space was a relatively small portion of our revenue. It's now in the last quarter, close to 1/3 of our revenue. Now maybe 1/3 is exaggerated because cross-border was down so the relative share of business that grew really well in the pandemic, which was this is probably over exaggerated from a normalization phase. But 1/3 is not going back to 30. It will be maybe a couple of percentage points lower. And in fact, given the energy Michael's putting into that space, it's probably going to be growing over the next few years as a percentage of our revenue. Similarly, B2B payments used to be a single-digit low number of our revenue. It's now in the low double digits, and I think there there's scope to grow substantially over the next period to come because of the capabilities we are building on multi-rail payments, and I'll come to that in a minute. But that's kind of another big phase. And then in our traditional consumer payment space, as you know, we don't make any money, whether you use a credit card or a debit card or whatever. That's the time manages the risk and earns the revenue from that risk arbitrage as they feel most appropriate for their willingness to absorb that risk. But what we have seen is the ratio of debit to credit has changed. Debit has become more popular, particularly with younger people. We've also seen prepaid, which did not exist as a category really for any effective purpose 10 years ago, has now become a fairly substantial category in its own right, largely for people at the lower end of the financial spectrum; but also for cross-border travel, where people like to lock in their FX costs when they fill that card. So whether you pay online or you pay with Apple Pay or a phone or a card, that doesn't matter -- I'm talking about the underlying payment stream, we've seen our revenue mix change quite substantially over this period. Now going forward, my sense is there are 3 or 4 things that will play very strongly in this space. The first one is increasing regulatory and national interest in the entire space, and that's mostly caused by the realization among governments that the digitization of payments is a excellent part of improving their own revenue streams, but also increasing the transparency of the economy and increasing the formalization of that economy. And so almost all governments in some way or the other today as compared to a decade ago speak to payments as being a national priority. And therefore, it gets attention that it did not get a decade ago. Now with that comes all kinds of vested interests, in some cases, people trying to protect local markets, people trying to -- I mean that's par for the course. You get that, but you get the idea that you'll get this aspect. The second, which is pretty strong, is the level of connected devices in the Internet of Things and what's that doing, and 5G will only accelerate that trend. But I mean estimates are that the more data created in the last 2 years than all the years of the Internet. And whichever way you count it, there'll be 50 billion devices connected and all that stuff that people talk of. The real problem here Dave is your phone is relatively secure. Or your computer is relatively secure, relatively. But when you start connecting a refrigerator to your phone or a Sonos music system to your phone or a blinds to your phone, you're connecting relatively unsecured devices on different scales of security to what was a relatively secure system, and that's creating a whole bunch of new vectors of attack and compromise. And I think, therefore, both cybersecurity as well as the privacy of your data as a human being are coming into play in this entire space. And we'll talk about cyber, I'm sure, so I'll keep some of the commentary for that. But the third space to me is the new technologies that are emerging, everything from instant payments. I mean we just won the contract for Payments Canada to provide instant payments to all of you in Canada. It's our software in the U.S. in the Clearing House and Vocalink in the UK and P27 in the Nordics and Saudi, in the Philippines, in Peru and Argentina. But 10 years back, Dave, when you and I were bankers as well, who talked about instant payments, ACH, that settlement was what you talked of. With all its idiosyncrasies and challenges, and we all learned how to navigate those. But instant payments is coming. It's not going to go away. It's coming. And ACH has tended to be unipolar by country. I think more interconnect country connectivity is also coming on instant payments. I think that will change over a period of time, the speed and reliability of B2B payments for everybody. And I think that, therefore, means more players are coming in because it's not just instant payments. There's all that's going on with cybercurrencies, with Central Bank, digital currencies at the one end, all the way to -- sort of cryptocurrencies of all types at the other end. And so I think this idea of multi-rail solutions of choice is going to be very important. That's what do I mean by that is that they're consumer. So Dave, looking on his performance, crowing and saying, actually, I want to pay with my credit card or no, I want to pay account-to-account, or no, I actually want to pay with my CBDC account or my DM or whatever you choose to pay. I think the consumer is going to want more and more to be in the driving seat of that choice. Merchants are going to want choice of routing, depending on what they're looking for. B2B payments, if you want factoring or you want credit or you want payments paid in advance or whichever gives you the best reconciliation capabilities, all that will determine how you get your payment. And so I think choice underlying all this, what we used to all talk about put the consumer at the center, as you think this technological evolution and revolution is going to definitely put choice at the center of what you and I do over the next decade. So I think those are the broad factors that are playing in my mind. There's a lot of things inside there. You get the idea.

No. I know, it's so well said, I could spend the next hour just pushing on that and then kind of fleshing it out. One of the concerns that we have, and I'm kind of bridging to the platform effect on payments and the social media companies and e-commerce companies is brand, and the way we think about brand historically is daily engagement with customers. I used to come into the branch. 2, 3 times a week 50 years ago, then less. But they pulled out their credit card every day, and they saw my brand on it and they saw your brand on it every day. And you had that brand reinforcement, that value proposition reinforcement. Now increasingly, we're being entered once into different e-commerce sites, different service sites, whether they're apps. And our brand isn't coming out as a payment vehicle every day. Do you think about that in the Mastercard brand and how to maintain its presence? I know it's a B2B to C, but you think a lot about that C brand and invest in that C brand. How do you think about it?

All the time, Dave. In fact, a lot of the technology that we've worked on and developed over time has been to make sure that the consumer knows which institution they have a relationship with. Truly, the institution is you, not me, because it's you who decides whether they get my branded card or somebody else's card. And I think we, as a company, have to respect that the consumer came to you for that relationship, not to me. And so my definition of where my role has lines drawn around it is that I use your distribution system or the distribution system of a fintech or a merchant in a co-brand or somebody else. That's my way to market. My way to market is not by myself, and that's been part of what's guided us over the last period of time. So therefore, making sure that the merchant's brand or your brand of the fintech's brand doesn't get lost in the process of making the transaction frictionless and simpler, is the point. Because I think consumers still get fit from the brand they connect with. While they search for the simplicity of a frictionless transaction, they still want to know. We look at all the research. They want to know that their bank was behind that or their financial institution was behind that. It matters to them. So all the things we've developed go from there. And I think banks and fintechs have got to view their role being a conduit to that experience. So you've got to make sure that the standards we put out there depict your brand as part of that connection to the consumer as compared to getting lost on the back. It doesn't always work. Sometimes a number of the digital players actually believe that having the brands there is suitable for them, too. You could see that with a number of players. Others start one way and come another way. And so this is a shifting target, and I think it all depends on whether you bring value to the players involved. If you do, they will show your brand. If you don't they will begin to obfuscate it. So I think our real task here is to work hard to keep showing the value we bring to a transaction, and that allows our brand to be valuable at the point of sale, whichever way it be done.

Yes. That's such an important point as their worlds have evolved, and we need to kind of rethink what we mean to a customer. So that allows me to pivot to the next kind of major intersection with payments and the economy and the online versus physical world, and that's the effect of platforms, social media, e-commerce platforms. And as we see these platforms go from their initial incarnation and evolution to an expansive customer value creation strategy, payments increasingly gets pulled in, first and foremost, because the data around what a customer actually does is one of the most important parts of a value creation strategy. So we see a lot of these platforms originating an advertising platform, or an e-commerce or a social media platform wanting to create value for a customer, but needing the payments data, needing the understanding of what the customer decides versus intent. And we stand here as an industry in partnership starting with -- well, we know exactly what they did, but we didn't know what they started thinking down here, and we're trying to evolve the other way. From a network platform effect, you're the orchestrator here. I know partnerships are really important. How do you think about this equation, how it evolves over time?

Yes. I think that's a terrific question. Different players in this value chain are playing different roles, right? I mean for example, you as my bank, you don't know what I bought. And you do know that I bought something because I chose to have that relationship with you. You know that I paid X amount and I paid this merchant at this time using this instrument of the choices you gave me on that day, but you don't actually know what I bought. The merchant, on the other hand, knows what I bought, and they should because I'm buying it in their website, store or whatever. And so I think the important thing here again is the value. If somebody in between tries to go past their judge -- their trust with the consumer or the merchant or the bank while intervening on that data, I think that's actually inappropriate, and it's wrong, and it should not be what's allowed to happen. Because when you start doing that, trust breaks down. And this entire system works on trust, Dave. When consumers stop trusting the players in the ecosystem, that's going to be a hard day. And it has been. As you've seen, the number of stumbles in the tech world have happened around trust and integrity, and that's caused its own images. It happened back in the financial crisis when consumers didn't trust financial institutions for a while. You guys have done a great job to rebuild that trust, and so I think there's a lot here to be said for knowing your role and understanding it. Now my general sense of the tech players, big or small, is that if they provide great value in reaching consumers that you couldn't treat yourself, then most often, you'll be a willing partner. And I have no doubt that your institution has partnered with a number of fintechs in so many ways because they either extend your reach or you can give them something they don't have, anything from balance sheet strength to sourcing systems to safety and security to whatever. And open banking, as it's rolling out around the world, is actually designed for that symbiotic partnership if it's rolled out in a fair level playing field kind of the way. If it's not done that way, then essentially, you as the bank have to provide everything, but you don't get anything in return or you don't have a choice and you could end up that or you end up being responsible for fiduciary safety and security, that's not a level playing field. So I think a level playing field requires give and take from all sides, and that's one of the things that we advocate for, because to me, that creates a better competitive environment and creates a better long-term solution in the industry. So that's how I view this. I think there's a role for a number of players. I don't think there the power dynamic of how the economics are shared could change as the role played by these different players waxes and wanes. I think that's just reality. So if you have in the evidence someone who's capable of, let's say, managing the transaction in a stronger way, well, then they will want to extract some of the value of the transaction from you and so on. And I think that's part of business negotiation as in any other business we do. But that, to me, is how I think about this. It's kind of like everybody's got to role to play. So giving an example, a more tangible example. Take buy now, pay later. The advent in the last few years, I would say it's not that installment lending was not known. Banks have been in the installment lending business from as long as I can remember. But the idea of delivering it at the point of sale right then, right there and enabling it to happen on the point-of-sale for the consumer to make a choice, that's a different environment from, say, credit card, revolving credit or a preapproved installment loan or a pre part 2 loan by a consumer who came to your branch, took it and then went shopping. So in markets where you can do instant decisioning at the point of sale, which is not all, but a number of them. Buy now, pay later has really taken off as an alternative way. But banks play there too, and fintechs play there too. So I don't see that as a whole new thing. I just see it as a tussle of who can provide that better. The same with alternative -- or sort of with artificial intelligence enabled ways of underwriting small businesses and consumers. We've traditionally relied in the developed world on something like a FICO score or credit bureaus. And the truth is that we learned in our financial crisis, they tend to be more backward-looking scores than forward-looking scores. And so we've all looked at trying to find ways to use our decision analytics unit, whatever that be, called in each institution to try and find intelligent ways to use AI to write better -- to underwrite better. This is really important in emerging markets where Mastercard is working with tons of people for micro SMEs and people who don't get credit by underwriting their transaction flow. You grew up as a corporate banker. So what's the best way to underwrite risk in a corporate bank? Transactions, kick the tires, to have that space, right? So I think that kind of thinking, AI, BNPL or B2B payments, where I think there's a lot of scope to improve the efficiency of banking as a service and a lot of what we're doing with Citi and Google in the U.S., where they're going to offer a bank account, Google through Citibank bundled with debits, instant issuance debit card as well, all running on our platform. So long answer to your question. The point I'm trying to make is, I think, big tech, small tech, new tech, banks are all in this together. The value we all bring to the party will determine how the economics get shared. But if we can reach more consumers in a way that's better for them, then that's actually good for our society. And that's how I think about it.

You've pivoted so seamlessly to my next question, but I still want to kind of sum up to everything you've said because it's so important, and I know how Mastercard has really done a lot of work here. And that is you're right, there is going to be a greater opportunity to serve customers. What's changed, as you know and what you've adjusted to and we're adjusting to, is the moment of truth, transactional truth, the point of that taking it from -- since we started Mastercard and the payments businesses in the '60s to largely the last 5 years, has been in the physical world. And as we move online, as we move into different platform ecosystems, the moment of truth is moving and where the transaction happens, where the customer actually makes the decision for the exchange of value and services. And therefore, the evolution of payments for us and for Mastercard you've positioned us so successfully is to evolve to be part of that new moment of truth, which could be in someone else's ecosystem versus the ecosystem that we curated physically over the last 50, 60 years with the credit card and with the debit card. So that has changed. And you're right, that dimension and who creates value and who kind of controls that new moment of truth will dictate kind of the squeeze on who gets paid and how much, right? Banks will still take credit. Banks will still advance to merchants. Banks will do a lot of things. We talk about the fact that let's not build the best digital bank in the world and have a plug and look into our room and there's no outlet to plug into. We have to make sure we plug into where the moment of truth is moving to, and that requires partnerships, that requires partnering view in the networks, always being at the customer moment of truth. So such an important takeaway for our audience.

Dave, I'll add one interesting angle to it. As for everybody in my company over the years, nobody wakes up in the morning dying to make a payment. No consumer does that. And by the way, no merchant opens there store in the morning dying to interact with you only as a bank or a network. What they're really doing is trying to do their daily life. The consumer is trying to live a life. And in that life, the payment is just an instrument of facilitation. And the same for that merchant, it's the way to facilitate their business. So really, what we have to do for the payment is make it safe, simple, smart and reduce the friction. But if you want to play with a greater role in the value chain, then you have to extend yourself a little bit beyond the payment on all sides of it so you're more valuable to everyone. I think that's exactly the insight that you were just summing up, which is bring something else to the party. Not just the payment, and I think that's really important, really.

So that -- yes, well said. So pivoting to -- you started us going down the path of how you're leveraging AI, I was going to ask you because you've done so much work. As you think about some of the new technologies, you just gave an example, of leveraging the data and AI to be more predictive on risk going forward for your partners. How have you thought about where have you invested in new technologies? Where do you think they're taking us, AI and blockchain as 2 examples?

Okay. So let me give you 2 sets of technological investments. One, to make our company operate and connect better to merchants, banks, governments and the like and fintechs; and two, the kind of things that I think will be useful in the marketplace. So that this puts them into 2 buckets. I think they're both very important because if you only invest in what's in the marketplace you don't fix what's inside you, how is that plug going to collect to your point? If you don't have an outlet in your room it doesn't work. So same kind of idea. So for the company itself, we've been putting a lot of money into 3 places. First, protecting the company's systems. Everything to do with data encryption and motion and addressed in the cyber systems of our own company and its resiliency and reliability and that kind of space, right? The second big investment has been, connected to that, is in moving computing power to the edge of the network. And that's because I think in the advent of 5G, Dave, if the days of bringing everything back to some monolithic central place for things to get massaged and underwritten with AI and approved and sent back, I don't think that works. And I think 5G requires you to have computing power at the edge of the network. And we have what's called MIPS. Your bank has our Mastercard systems embedded with you, retailers in Canada to President choice, does and so on. And what happens there is that the transaction gets approved, in our case, different from our competitors. 80% of our transactions on the average get approved at that server because of intelligent logic that we download into it a few times in a day. That this kind of card does these kinds of transactions, if it fits go right ahead. It's very few transactions that don't fit the pattern that will come back into the mothership to be massaged or thrown out for a manual call by somebody in their shop, calling the consumer and saying, "Hi, I'm calling from your friendly institution. Just checking, were you trying to buy that right now? Or let me text you for a second fact of authentication or something." That process of seamlessness is facilitated by this moving computing power to the edge. Also facilitates, by the way, COB. So the undersea cable between Taiwan and the U.S. got zapped in an earthquake sometime back. I was able, to that time, turn our local servers Taiwan to approve 100% of transactions locally. We ran a risk on the 10%, 20% that didn't come back. But guess what, we were up and running without one issue.

So resiliency.

Right. So its got many angles to this. Because the idea of -- also think of us like a hybrid cloud, where we are effectively a cloud as well as operating servers. And we, in turn, can use other people's clouds for enabling computing power to go up and down as compared to only using us. So think of this whole spectrum, hybrid cloud, all the way to moving computing power to the edge, that's the second big investment that's going on in our company all the time. And the third big one is in everything to do with open APIs, so that institutions like yours and merchants and governments and transit authorities and fintechs can connect with us in forms that are much easier than used to be the old way of hard coding your systems, and that's just such a clunky way of doing business today. So it required us to change a lot of the things we did over the years. And I think we're still on a journey there in some places. But those 3, security edge and hybrid cloud and open APIs, that's internal. Outward facing, I think the single biggest investment is going into multi-rail choice. And what I mean by that is card rail, instant Payment rail or blockchain-enabled rail. I should be able to give your institutional a single pipe into me through an open API, so you don't have to build 3 pipes for 3 different access points. And then you are in the driver seat of offering choice to your clients. Then you can price for that choice, you can operate the features and benefits of different elements of that choice. So you can build what you want on that railroad. I'll give you the railroad, you build a railcar, you decide if you should have a first-class carriage or a third-class carriage, with air conditioning or not, free bedding or not, free meal or not, that's up to you, but I can give you the rail. And so this idea of a multi-rail, true multi-rail system, which enables domestic and cross-border payments to happen. You can see that's why we were interested in Payments Canada because it's an essential part of being that for you and your other institutions in Canada, and that's one big investment. Second big investment is in B2B payments. So as you know well, correspondent banking developed for a very good reason, but correspondent banking tends to, over the years, has moved the economics of the system more away from you who's taking the risk and a lot of things to the one who has the distribution at the other end into a developing country where these products are coming from, and I think that's inefficient. It takes many weeks for the payment to come through. It's expensive for both parties. Reconciliation is a nightmare of these payments, as you know well in your cash management business. So we can help with that. So we are building what we call BPS, which is the business payment system, and the idea is to enable electronic payments and invoice -- presentation of invoices, a payment optimization engine using these multi rails, a pricing engine and also, therefore, reconciliations to ISO 222 rails with thicker data feeds and doing that to make B2B a little easier less challenging. That's one of the reasons why we bought a couple of companies over the last few years that enable us to connect account-to-account with central banks in a number of countries to enable that payment to happen seamlessly. So that's the second big space of investment. And both of these are connected to open banking, which is another place where we're investing, but I'm attaching it to both of these. So the purchase of Finicity, which attempts to -- bring deals with banks and consumers enabled for open banking to be facilitated, for data transfer to be facilitated. That's another space. And the next one is everything to do with cyber and data and privacy and the management of that data and its encryption at motion addressed and the cyber solutions of preventing attacks, identifying threats, sort of detecting if they're coming in through the system and cauterizing them and helping you deal with them as a merchant or a bank is kind of a big space for us. Then the last one connected to that is digital identity. And there, what I -- if you've got a minute and I'm not taking up too much of your time on this question.

I got all day. So we have tons of time. We've got 20 minutes left.

I think you and I talked a little bit about this during one of our prior conversations, maybe a year or so ago. But the idea is that today, if you buy a case of wine and it's delivered to your house, along with somebody from one of the courier companies, FedEx or UPS, they come, they ask you for proof that you are above the legal age, that you are who you say you are, and that you are standing right there. So nobody can accuse them of having delivered it to your son who's under age or whatever. So what do you do? You pull out a driving license or some proof of ID, the guy takes a photograph. Now your photograph, which is in your driving license; your exact date of birth, which he didn't need to know; your full name, which he didn't need to know, obviously, your address because you're there. But maybe even you're driving license number or in some countries, your national security number is on that document. That's enough to open a bank account. That, to me, is there, and it's got to stop. And the way to do this in a better way is to allow you, as the consumer to say, "Hey, trusted provider, it could be a conglomerated banks, people like us and cell phone companies, like we're doing in Australia, saying, just please tell FedEx that I'm above the age of 21, and I am who I claim to be, and I am standing here." So we would go to all these individual providers, bring back a cryptogram protected, yes and no the answer, unlock those cryptograms and give the answer to FedEx saying, go ahead. I think that gives citizens back their privacy, and I think this idea of universal digital identity that's designed for privacy is another big investment that we're trying to do. So lots of stuff going on. Michael's got a few important things to get done, and the good news is it's now his problem.

There's so many themes there. I do want to kind of recap. So you're positioning the firm to compute and to be ready at the periphery of this explosion in device connectivity, just prove -- if you've got 50 billion devices connecting, there will be economic activity and payments occurring at the fringe that's expanding. So you've got to prepare at a computing resilience perspective to do that. You've got to cyber wrap that, which I'll go to next. You've got the core B2B capabilities that you're doing. And as a whole concept, you're absolutely right of -- I call it aliasing because that's what we've seen success on the payment side. Walt said alias that information and allow a transaction to proceed seamlessly without divulging too much information. Authentication and ID management, to your point, has to pursue unaliasing. And who better to do that than the networks and trusted providers through APIs? So it's amazing kind of how you're seeing the world and how it's going to change and how we're all going to have to change. So that's exciting. How do you cyber-protect this because if there's one conversation I've had with every bank CEO today and through the last years, but even this morning we all started with, obviously the pandemic, and then went to cyber. The risks are closing in. And you have to read the newspaper this week, last week, solar wins, this is becoming a nation to nation issue, not just in e-commerce. How do we have to work with our regulators, with their governments, with society to stop this progression?

Dave, I had the privilege of serving on President Obama's cyber commission, the last 6 months of his second term with an effort to produce a set of recommendations that could be implemented irrespective of who came into power. And a number of them have got implemented, others have not, and they're sitting there. But if you look at the idea behind it, it recognized some years ago now that this explosion of connected devices, combined with a relatively ill-informed consumer, combined with a large number of small businesses providing the interface of commerce who are unable to think in terms of how to protect themselves. After all, the small business, the proprietors, everything, a guy or the lady is CFO, treasurer, buyer, merchandiser, beggar, seller, everything, right? And where is the time to then worry about all this? So when you go to your dentist and you fill out that form and you put all that stuff to the dentist's receptionist, it has your social security number in the U.S., what you're allergic to, all kinds of stuff about your history. There's no way that's safe, and yet we all fill it out. And so I think there's this combination of explosion of devices, relatively uninformed consumer and the role of SMEs and their importance, which is creating too many vectors of attack in the system. And that's -- and then we make it complicated by the password generation. So I mean you probably have to remember 30 passwords. So guess what, you're not going to do it. or you write it down on a sticky and put it behind your computer, which is the worst thing, but lots of people do that. Or even worse, you'll make your password Dave, capital D and then McKay, capital M, hashtag 1, and the next one will be hashtag 2. By the way, a kid can break into that. Or as you know, in the U.S.

You guys have seen my password now, Geez.

The single most popular password in the U.S. is password. That's not very safe. And I don't blame consumers. We make it difficult. We tell them we want to change it every 30 days. How is the guy going to remember? So then you have password keepers and then people don't trust that and there's this whole thing. So I think there's a series -- the way this industry has evolved, which is not designed for the ubiquity of connected devices. And for the convenience that consumers want and for the convenience that merchants want and the idea is to reduce friction and increase throughput, all that leads to stress in the system. Social media makes it more complicated because, as you know well, if you call a bank and say you've forgotten your password, they'll ask you 4 or 5 questions. If those questions are things that you've put in your social media feed or your mother fed onto it, your dog, your Alma Mater, the port's name and so on, well, you're dead. So there's a lot going on here that we have to be thoughtful about in the coming ages. And I think both protecting your enterprise with what we call starting from threat scanning, which is the ability to be able to see how your website and your inward systems are open to threat, we can actually -- people like us can help, others can help, too. All the way to designing layers of security, which you do as an institution, and having ways of checking those; all the way to decision intelligence tools that we have, which allow you to look at patterns of behavior and patterns of attack and look at those. All these identification systems from that digital identity to 3DS2 that we've deployed for consumers, all these tools are really important, Dave. And I think the challenge is how do you do it in a safe, simple way. So there were 3 recommendations or 4 that go beyond your institution and mine that I think we really need to be talking about as people. One, greater cooperation between government and the private sector in this space because the threat actors tend to be nation states more than just common criminals. Those, we can try and fight. It's the nation states that are hard for guys like us. So closer collaboration that allows that collaboration to happen in a legal way is going to be really important. And there's a series of things we could go into on that, but that's a topic for another day. Second is the idea of putting -- they're going to be all these connected devices, how does the consumer know that this television is safer than that television, even though this one is actually cheaper than that? You have to be a geek to read -- or a nerd to read all that stuff and figure it out, and even then you won't. So can we create the equivalent of a food nutrition label, x percentage of your cholesterol and Y percentage of your vitamin, can we create -- or an A-B-C-D stamp on that TV certified A+ or A- for cyber. And then you as a consumer can say, "Hey, $1,000 for this one, $950 for that one, I think it's worth the $50." So that's kind of another space. And then the third space is getting out of the password generation. We really need to move on from this to other forms of authentication, digital identity, biometrics, that kind of stuff, while protecting citizen's privacy. And then finally, I think the idea of educating people early. So here, we don't really have cyber education for kids. They should be getting cyber-educated in kindergarten because they're using devices in kindergarten. And the habits they are building in the next 5, 6 years will be very difficult to break on how they think about their ecosystem and their privacy and their sales case. There's a whole series of things here beyond what institutions like you and I can do on preventing, identifying, detecting and making it seamless. There's other stuff that needs to happen.

It's so important. I call it the bionic future. We're going to build technologies, use AI to defend the perimeters. At the same time, behavior is our most vulnerable aspect. You referenced passwords. And as we do cyber phishing testing, we have red teams, blue teams that are defending, attacking, seeing where the vulnerabil -- trying to train our employees not to respond to e-mails or instructions. And then even here in Canada recently, we've seen federal and provincial levels of government take out general advertising campaigns, anti-phishing campaigns, to say you know you're getting phished. You know this is a criminal activity. There's no way someone is giving you $12 billion, yet we have citizens in our society that believe there is $12 billion wading into their account for them if they hand over $200. So it's -- we have to get the literacy, the cyber financial literacy of our community up or else we'll -- both avenues are so important. I mean this is the very fabric infrastructure of our society or democracy or economy that is at risk right now. And you're right, businesses and governments have to work together. I'm running out of time, but I do want to...

The tradeoff between security and privacy. That's not a trade-off. As a citizen, you deserve both.

Yes. So important. I'm going to try to hit a couple more topics. We have a few minutes left. Crypto, digital currency, we all get asked as CEOs, am I launching an RBC digital currency? Are Central banks launching digital currencies? Is Mastercard launching a digital currency? Quickly, how do you see the future of digital currency?

So I think of digital currencies as one use of the blockchain, and I think of them as being all the way from the bitcoin type of digital currency, which has a series of interesting problems with it as a currency. Forget about an asset class. But volatility, the lack of transparency for KYC AML, the kind of protection for consumers that you need in a payment system. There's some challenges there all the way to central bank digital currencies at the other end, which now a number of countries are thinking through, or in the case of China, have already been experimenting with, but Canada, Sweden, the U.K., Singapore or a number of countries that are thinking of how we play with this. I think in between, our stable coins of different types, which take away the volatility, but they don't all deal with the transparency or the data privacy angles of citizens with deeper transparency. I think if you move, therefore, a siding scale, my own take is that CBDCs are probably got some life coming their way over the next few years. This is not something that will happen tomorrow, but I think it will. And engaging with them and creating which we've done, we've launched a sandbox for central banks and commercial banks to connect on how to work on CBDCs together. I generally believe that some form of 2 tier payment system where commercial banks have a role to play, the central bank puts a digital currency into it, and the commercial bank provides the connectivity to the business and the consumer, some such thing is probably going to come over the next period of time. And figuring that out and putting it into the choice segment of multi-rail is going to be quite important. I suspect stable coins will also attempt to play there. And the question will be, how will they get accepted by the citizenry and the governments, depending on their feature functionality and how many of these safeguards they build in or they don't build in. And so that's kind of where I am. I'm -- we, as a company, there, we've hold among the largest patents in the spaces of blockchain through CBDCs. Both actual patents granted and patents applied for because I believe that you ignore this at your peril.

Interesting. That's a powerful statement. Because you're right, we have to view bitcoin as an asset class now, but the underlying technology and the need for various digital clearing capabilities and liquidity in different formats and this whole world moving to the fringe, right? And there's 50 billion connected devices, does it require different solutions? And you're saying absolutely, and you're well prepared for it through your current research.

We're trying to be. I've said that, with blockchains and a whole bunch of other uses, which I think are actually very interesting, proof of provenance. That's really interesting. I think change of ownership where you can figure out how to solve for the legal rights of the transfer and dispute settlement if that comes up, right, and so on and so forth. So there's lots of things that have to evolve in the ecosystem for this to become more ubiquitous, but I don't think that movement will not happen. I think it will happen. And I think institutions like ours that understand these rules should participate in the creation of the next round of rules around these cases.

It's -- that's such an important point because some of the flaws in the current kind of crypto environment, lack of recovery if you lose the keys to the asset. When we think about a Bitcoin ETF, the first question, who's going to be custodian of the underlying asset? And it's, "Well, what happens if you lose the key? The asset's gone." So there's no recovery. So do you place that with a third-party custodian who's got $50 million in capital? Or do you even want to take on that risk yourself if there's ever a cyber breach or an operational error, and there's no recovery as there is in an equity asset or obviously a fixed income asset. So any time you're working through the society solutions, there are problems.

But you would have thought of that right at the beginning when the product was being launched because you're trained in your business to think through that angle. And I think that's the role we can help play, which is to enable what looks like a very interesting technology find a way to the market that has all the right safeguards but also the right enablers to make a difference for consumers. And I think there's something there. The question is, can we do it the right way without stifling innovation?

Can I ask you one more question? We're almost out of time, and I've got so many more questions, but I'm going to pivot to my last question. 11 years as Chairman and CEO of Mastercard and very successful career with Citibank and I think Pepsico before that for many years. And -- but when you think of leadership, and you've learned so much, and I've read about a lot of your ideas, can you talk about kind of some of the big things you've learned about leading others, whether it's through a pandemic and a challenge? Or how do leaders, CEOs prepare for this future? What have you learned? I've heard you talk about managing expectations of markets through short-termism versus long-termism. You may want to touch on how to motivate individuals. How you connect with your staff, how do you manage personal time? And there's always on the world that we're on. So if you could leave us with a few messages on what you've learned on this amazing journey you've been on as CEO.

Oh, boy. I'll tell you what I've done -- and mistakes along away plenty. So the first one I've learned is humanity because you know we both make mistakes. I'm sure you've done a few in these 2.5, 3 months, let alone the prior year. And you're a very successful CEO with an enviable track record as a banker, right? But you've made your mistakes. And so humility, to recognize them and move on from them and learn from them is kind of great and that is luck. So I mean that's why luck is so important. Luck is 50% of your success. The question is, do you grab the luck when it's going by? Or do you let it go by? Two, there's a good chance to make something off it, and that requires you to have 1 of the 3 traits I tell all our managers to have. First trait is the ability to have thoughtful risk taking inside your system because there is no perfect information. A risk/reward arbitrage is the only way to make money in anything we all do. But if you don't listen and understand the thoughtfulness behind those risks, well, you're going to be on the wrong side, more often than not. And so that connects to the second one, which is a sense of urgency because the system is moving pretty fast around us. And if you keep waiting for perfect information, first of all, we're not taking any thoughtful risk. But secondly, you're going to be left behind. That luck will pass you by. And so the ability to listen while also making a call with a sense of urgency, that one I describe to everybody as God gave you 2 ears, 2 eyes and 1 month for a really good reason. It's kind of a nice ratio there, and you should apply that ratio in your life. And then the third angle to this is empowering people, closest to the customer, but then they should be willing to be accountable. There's no free ride. You want to be empowered, then stand up to be counted. And I think that's really an important aspect of who you are as a person. And so if you're a leader of people, and you want to be empowered to manage your people, then stand up to be counted in treating them well and making them successful. And so that connects to bringing your heart and your mind to work, and that's why I talk about decency quotient. When I was young, IQ was everything. And then at business school we started talking about EQ. And I'm saying, bring your decency quotient to work so that people follow you and they feel your hand on their back and not in their face. So they feel the pleasure of your company. I feel like -- I don't know how to describe that differently. It's who you have to be. You've got to manage by touching, feeling and walking around them. COVID is very challenging on all that, very . So my view of this kind of leadership has all to do with being part of the system with people with humility, with luck, with this risk-taking and listening and urgency and a degree of empowerment. And the final 2 pieces are it's very attractive to -- if you lose your humility, to start giving short term soundbites. And the truth is nobody will remember your soundbite when you are gone, just your manner. What they remember is the net result of what you did. And so you should think beyond the sound bite to the longer-term implications of the foundation you are building, and that's all that matters finally. And so that matters to me enormously, and I'm kind of devoted to that in every which way I can. I'm a Sikh and I was telling someone the other day in the Sikh religion, one of the most important sayings is that you reward yourself by serving others. And that's a very deep thought. And if you kind of keep it in you and you imbibe it, then all these other points become that much easier to embrace and live them. And your last point on managing personal time. I know what you listened to. That's the example of me saying that I don't take my phone with me when I go out for dinner with the family and friends. That is actually correct. So I don't actually carry my phone when I'm out with family and friends. I leave it behind because then I don't -- I'm not tempted to touch it, and I've always been like that. And even when I'm on holiday, my wife likes to lock my phone into the safe towards the back of the hotel and keeps the cord. And I get the phone early in the morning before the kids are up. And then in the afternoon, well, nobody gives a damn for me. They're all kind of relaxing somewhere. And during those 2 bus, you get lots of emails from me and then I go silent, And that's kind of my way of finding a balance between life and my office life.

I could probe each one of these themes with you because I know you live all of these humility, listening, urgency, empowerment, decency and what more and more as we go into this pandemic and our employees, our clients are isolated, this moral fiber, this decency, this being there as a support network for your employees who are struggling is so important. As I think in the last hour and 10 minutes, I think you just showed everyone how a CEO raises revenue by 3x, profits by 4x, stock up 15x, brings their community with them, brings their employees with them. Through the vision, the attention to detail, the caring, the leadership, this has been a wonderful hour. I mean thank you so much. But I just love listening to you, and you've left us with so many thoughts from payments, to cyber, to crypto, to the pandemic, to individual leadership lessons. Thank you. A sincere thank you from all of us.

Thank you, Dave. Thank you for what you do, man. Thank you for the example you've set for so many of us over the years and just keep going. Keep doing it.

Let's keep doing it. Exactly. Look forward to seeing you soon.

Thank you. Bye.

Be well.