Mastercard Incorporated (MA) Earnings Call Transcript & Summary

They -- these are two different segments, but go around the house, government, different segment, yet again, retail and commerce. And so far there is a set of segments we have defined, and they all have somewhat different characteristics on what they're looking for. So back to what I just said on products and services, they do need different types of services. Fintech, what was particularly important on Fintech is, they come to us oftentimes for a path to scale, so particularly the smaller ones, they come to us for that reason. Neobanks, they're going to have a multi-geography expansion strategy, pick a few ones of those in Europe, like an N26 or so. They are now cutting across the continent. Take a new bank, one of the largest neobanks in the world, and they want to grow up beyond Brazil, which they are actively doing. And so path to scale and speed matters to these people. I think that is some of the -- one of the key differentiators here. And this sounds like we help them get better but the really important part about working with Fintechs is small and big is as they make us better as well because their focus on consumer experience is much, much elevated versus what we traditionally have been doing as an industry. Look at the Apple Card experience. I mean this is digital first. It's amazing. It's a digital-first program now for us around the world. So -- this goes both ways, and it's a very important part of our customer relationships, not uniquely better, but an important element and been a tremendous growth driver. That's where a lot of the growth in payments comes and they elevate the whole ecosystem as well. So when you think about acceptance solutions that are created by these folks, et cetera. So I love banks, I love Fintechs, I have to love them all, and I do that.

So driving acceptance, you mentioned it there, Michael. So it feels like every year, we're talking a bigger and bigger, bigger acceptance number, both in developing as well as developed world. So is there more expansion opportunity from an acceptance standpoint?

We could have sat here 5 years ago and had exactly this dialogue. I think I knew you by then about 5 years ago, I was just in the product role. And we were around about somewhere in 50 million acceptance point at that time. And it feels like a huge number. And nothing -- there is no other payment -- no other industry really that has that kind of reach in payment other than the networks. And -- would I have guessed that's 100 million 5 years later? No. But it is. And we just announced that. As you know, in the last earnings call is it's 102 million acceptance points. So -- there is this aspect of the value of the open leap system, the larger it gets, the more people see benefit in it. So therefore, the answer is very, very clearly, yes. But there is a demand for ubiquity and scale, predictable experiences to consumers go to as many as places as you can and has a similar reliable experience, that's really the value proposition but you have the tools to enable that. So one is, would people like more ways to pay in a simple and say, well, yes, but how do you create that? Contactless, that's a really important one. On the contactless side, we're now, I think, like 58% of all switched in-person transactions are contactless even Germany, has now accelerated rapidly around contactless. Take things like Tap on Phone. It's probably the first setting I'm sitting in a long time, but there's no phone on the table. But if there were one here, I would have pointed to it and say, this could be an acceptance device. So Tap on Phone started off as a certification and all of that. Today, this is reaching a point where on Android, you have some of the largest players like Stripe engaging on it. You have Apple with Tap-to-iPhone, which is now coming to live. We took that whole proposition and put it into our cloud commerce, cloud-enabled solution, which is now accelerating the whole thing. Imagine where this could go, any phone in this room could be an acceptance device. And then you go forward and you take this into with tokenization technology, any device could be a connected device and enabling commerce. So there's just technology there. There's demand there. And I think it's a tremendous opportunity for continued growth.

Yes. No, agreed. So given all this acceptance and a lot of payment credentials out there, Michael, I can't ask you around regulation as well. And so what's happening there in the U.S., or as I'll let you answer it. We get a lot of questions on Reg II, right? And this leveling of the playing field within online debit, which seems like a big opportunity for Mastercard. But I'd love to hear your thoughts against sitting on your seat sitting against -- across the table for regulators, what are you hearing?

Right. So the first thing to say is that at least from my perspective, from our perspective, payments has never been more competitive than it is today. So if you look at in terms of local systems, local payment schemes, government-owned systems, say, there's some plethora of offerings out there. Some of the differences between these two come to reach. Some of them are international. Many more are domestic. So with that landscape, you're also seeing, and this is enhanced through COVID, where the payment industry kept the world going a lot more government interest. And government interest oftentimes comes with regulation. Then we have the whole post-pandemic recovery aspect, inflation and so forth. So regulators are looking at the payment industry as well and saying this is yet another lever that I can look at in my tool set on how I steer my economy. So there's interest, there's focus. We welcome competition. So regulation that creates for a level playing field and welcomes competition is generally a good thing. It's also actually a helpful thing for newer technologies, think about blockchain-based technology with regulation, it would probably scale faster than in a world where it's unclear where regulation is going. So we're positively disposed. Reg II, very specifically, I mean what it does is two unaffiliated networks on our Card-Not-Present transaction, okay, July is -- we will be ready. No question. Compliance is always important and is nonnegotiable. If you look at that and say, the opportunity is a risk. I don't have a crystal ball here to see where this is going to go. But the focus on cybersecurity has been our strategy for the longest time. We have a really unique portfolio. We're investing in the latest technology always. Not every other competitor has been doing this out there. So this matters, particularly for online transactions, safety and security. This is where this regulation is hitting, we should be very well-positioned. Well, our team is looking at it as an opportunity, we got to play it and see where it goes.

Yes. I mean, we've seen -- I mean, there's been so many waves of changes and threats, and we -- there's a lot of talk about disintermediation, right, during the pandemic with a -- Buy Now Pay Later exactly was a big theme. Crypto has definitely faded almost a bad word to talk about now these days. Of course, we've overcome that. But we do get questions beyond regulation, right, around Pay by Bank. You mentioned open banking. I know FedNow in the U.S. gets a lot of attention with that coming, with real-time payments. Same question. How do you see Pay by Bank, FedNow? How does that disrupt or potentially enhance things? I know fraud is very difficult. It seems like opportunity, again, for MasterCard, but I love to have your thoughts on it.

Yes. So when it comes to alternative payment solutions of all kinds, there could be a competitive threat. They could disintermediate us, if we were just to sit there and do nothing. Emerging technologies, though, we have -- we spend a lot of energy in trying to decipher for our customers and our partners what is a relevant solution that solves a problem, let's say, a small business? What do we have to invest in so that we have the right kind of solution set for our customers? So we spend a lot of energy and evolving. If you look at the diversification of the Mastercard business over the years, it proves that. And we're not just about comp payment because if we were, we would have probably been disintermediated by now, but we're not. So that's been a long journey. When you look very specifically at some of buy now pay later, we took the idea and say, "This is a great idea." Is my son actually going to use a credit card, I don't know, he's 17 so he might want to pay in a different way. That's fair enough. But what is difficult is if that experience is not repetitive and predictable because it only happens at whatever, 15 large merchants and then for the rest, it's something else. So we build it into the network. You all know that, and that is now out there as Mastercard installments. That was one way to deal with that. FedNow. So this is -- in the end, it's a push payment systems, getting money from A to B, where you don't rely on the wire system. That's fundamentally a good thing and very common in most countries and not here. So that is fundamentally good. But the proposition that Mastercard debit brings to make such payments, it comes along with dispute resolutions with liability shift and so forth. So the technology to get money from A to B isn't a proposition as such. It's an element. And here, we come along and say, it is the technology. It's the franchise that comes with it. It's the safety, security and all of that together. So we will compete. At the same time, we have a stated multi-rail strategy for years. And if you look what you can do with the account-to-account flows. The Pay-by-Bank solution that we have put out there with Chase is a good example. This is target market expansions. It's flows that are not carded where we're using our open banking technology to say, we solve a problem for a bunch of smaller billers that are trying to bill their customers and don't know if there's a balance on the account. So there's ways to make money out of that, which I think will scale. In the end, the fundamental underlying point is businesses/merchants, as we call them, will want to have reach and consumers want something that's predictable and safe. The two have to go hand in hand. If you have a piece of technology that only gets reached, but it's not a good experience for the consumer that matches with what other alternatives they have, it's going to be hard to scale it. So we'll see where it goes. We lean into real-time payments anyway, and find the right solutions that we believe actually will scale.

Yes. And there's a lot of opportunities to scale, right, beyond person-to-merchant type flows. I think you led with it, Michael, when you're going into commercial and remittances. There's a whole host of different new flows. Can you just -- in B2B, bill pay, when I think a Mastercard with RPPS is a lot of things that you did early, right, to go into these areas, which are now becoming more mainstream. Maybe I should say that. So I'm curious, again, the same question, how are you prioritizing that? What should we be watching in these new flows?

You initially, when in 2017, we said, okay, there is a massive volume of flows beyond cards. it was an outrageously large number, $235 trillion. We said, "Okay, fine. How do you eat an elephant? one bite at a time. So we called out very specifically these 4 flows. Let me just callout -- take 2 of them. I just talk a little bit about that. So commercial POS, that's a set of flows that are happening between commercial entities, sometimes between consumers and commercial entities, and you can go after them through different tools. We have the whole tool set in our multi-rail strategy, but a good chunk is cards. So we don't have to go and invent something, just simply focus and adjusting our solutions across T&E, fleet card, purchasing cards, VCNs, small business cards, you name it. There's a full menu on it. This is a tremendous growth opportunity. We gave you a number in the last earnings call, 21% year-over-year. It's there. And with consumers experiencing a very, very -- much increased digital experiences in their life. So the world is getting more digital for everybody as they go and go into their job. And then suddenly, that is not digital. It's [indiscernible] like why? So there is appetite for these kind of solutions as well as all of our lives are changing. So that's a tremendous opportunity. Disbursements and remittances is another one. We bought Transfast a few years back. It's been a tremendous asset. This is a fast-growing space. And here again, I think we have a unique set. We have a unique reach in terms of cards, bank accounts and mobile wallets. So we don't need to invent anything either, and the demand is there. So these are 2 sets of flows that we have not traditionally been in. This is not P2M stuff, but we have what it takes and the numbers to show it. So the counter count part, where you go beyond cards, it's a little bit of a longer play. So the B2B accounts payable that's a two-sided network you have to build. It took us kind of like 30 years to build a P2M two-sided network that will take a little longer. But do I have conviction that there is problems to solve, and we have a good set of assets for that, absolutely. So we will keep at that.

Yes. No. I mean, I think -- I always joke, I think I wrote a paper for my boss around B2B payments 22 years ago. The numbers are...

Well, you're largely right.

Well, I think we can basically copy and paste it and still say it's a big opportunity still relatively underpenetrated, but it does feel like it's moving with some momentum now because of better software and Mastercard working with a lot of different providers. And it does feel like learning from this whole software theme, which is my -- I know we're getting out of time here, I want to make sure we hit this. Learning from a lot of these software companies that are going after payments, Michael, services -- value-added services, expanding ARPU in the words of software is becoming more important. And now you're disclosing value-added services, specifically for MasterCard. So for those that are less close to Mastercard, this does feel very important in terms of an opportunity to monetize, whether it be the data or the transactions or the scale of the relationships with banks, nonbanks, merchants, you name it. So just tell us a little bit more why is Mastercard be a winner on this whole value-added services initiative?

Right. So first of all, how do services matter for us revenue growth enhancement. So this is a separate revenue pool. It's diversification of revenues, again, separate pools. So they come from a different source. Not all of them are transaction related, and it's a diversification game for us, compared to other providers in similar space like ours, unique service set helps us get into the payment transaction because we make them safer in a better way, we make them smarter and so forth. So it's all interlinked. Services matter for payments and vice versa. From a growth perspective and how this matters into -- compared to SaaS companies and other service companies, if you just look at the competitive landscape there, like who's out there that is competing versus us and how we are positioned. We're positioned very uniquely, right, between payments and value-add services. We -- neither nor we have the data that makes our services enhanced from day 1. And then you look at the various players in -- on the services side, you have loyalty companies, you have managed services companies, you have consulting companies. We do all of that. And we provide that our customer set as a package solution, as I mentioned earlier. The go-to-market, we're getting better to take all of that into platform-based solutions. So it's much easier for us to deploy that through cloud-enabled men, service enabled men, different type of connections that are not relying solely on payments. In the end, with this strategy, we can sell services to payments companies, and we can sell payments to services companies. So it's a segment diversification strategy at the same time. What do we have? Two big areas, cyber, all range of cyber solutions from prevention, detection, identification technology. I could go through the whole menu, but I will not do that now. It's just -- it's a large menu. And on the Data Insight side, we got loyalty solutions, we have data analytics solutions, consulting, marketing services and as of late personalization. Personalization is a particularly interesting one. If you have a combination of services and payments. In the end, what our customers want to do is offer to you the right kind of payment offer and purchasing opportunity at the right channel. How do you do that? Personalization is the way do we take all of this technology and to deliver it to you at the same point. So that is services for us. It's very unique. So it doesn't really play on the competitive landscape of the services side or the payment side. I think we're pretty much a unique player there, and it's been a tremendous story, more to invest. So you will see us investing in that continuously.

Yes. So a lot's going on, obviously, within payments, in the macro world, you're dealing with the new services initiative that we can hold you accountable for because you share the data, which is great. So thank you for that. So we'll end on this in the last minute or so, what do you -- what would you rank as most exciting for you from a technology perspective?

Right. I think this point about personalization, it points to a world where we are going to see a lot more social and immersed commerce happening so this will be entirely new environment, straight out of your chat, you will buy something and the offer will come. I find that personally very exciting. And that comes along with the physical and digital world merging into one as well. So that whole space of smarter experiences that people will want to use and businesses will want to use. There's so much technology in there, but it's not just technology. There's a big trust questions in that as well. That's a big one. I think the whole point -- the whole space of blockchain-based technology is going to be very interesting. This is helping to connect people that don't know each other in businesses. It's trust enhancing, the crypto winter hasn't helped, but I think we were going to find a way through that with government providing better guardrail. So that is for sure, exciting. We touched on AI, but it's a more fundamental technology. But what will AI do? Generative AI in combination with 5G, 6G, cloud, edge computing. Back to the first point about intelligent experiences, you can deliver them anywhere, any which way you like through that foundational technology. So that's a little bit of the triangle on the technology side that I personally find very exciting, and our Chief Innovation Officer gets really worked up about.

Yes. And I appreciate you taking a product first view on all of this, Michael. Well, thank you for the time. Always enjoy chatting with you. I know you're very, very busy. You have a lot of international travel by coming up ahead. So safe travels to you as well.

Thank you. Thanks, Tien-Tsin.