Mastercard Incorporated (MA) Earnings Call Transcript & Summary

Fantastic. Welcome back, everybody. We are very pleased and honored to have Raj Seshadri here with us, Chief Commercial Payments Officer at Mastercard, and I had to read that because you recently changed your role.

Yes, very recently. And thank you for having me here.

It's a great pleasure. Yes.

Maybe you can start by giving us some insight into the background and in your current role at Mastercard, which has changed recently, as we noted.

Yes, yes. So background. Well, I have a relatively [ checkered past ]. I was in academia in Physics. I've been in consulting and strategy, and I've also run large businesses and led lots of people. So I've sort of -- I've been an adviser, I've been a CMO twice, I've been in finance, I've worked with technology and, of course, driven revenue growth and operating leverage. At Mastercard, I came in many years ago to run our U.S. issuers business in North America and then did that for about 4 years. And then run our global Data & Services business for about 4 years until literally a few days ago, and I'm now responsible for our Commercial & New Payment Flows. We had a relatively recently an organizational realignment where we realigned our internal organizational units to our growth vectors, same growth vectors. Just the alignment, I think, will unlock more revenue growth for us. And that was relatively recently just a few days ago. And I know this conversation is going to be about Data & Services as opposed to the new role. But yes, maybe I'll be back to talk to you about the new role sometime.

I hope so. Why don't you share more about Mastercard Services strategy and how Data & Services fits in?

Sure. So our Services journey has been at least a decade old, a little over a decade. It started with consumer cards and some of what we were doing in consumer cards, things like benefits and insurances on cards, marketing, consulting. It started there, but today, it goes way beyond that. There's a lot that we do in Services. Just for context, about 10 or 12 years ago, it is about 1/6 of our revenues. It is now well over 1/3 of our revenues. So that just tells you how fast it's growing. It's growing faster than Core Payments, and it's a material part of the company. And it plays two roles in our strategy. One is differentiation. It differentiates payments. Like when you think about Services, we use them very often with our customers to grow their payments businesses, and when they grow, we grow. So things like acquiring customers, creating value propositions, marketing, making sure that the customers do as much as they can, providing offers, loyalty, fraud and risk services to protect the consumer for the customer and protect the customer. So a variety of services that differentiate payments and help grow payments. And then we have a bunch of services. Just because we have the same capabilities, are they relevant beyond payments at our payments customers, and they are also relevant to new customer segments and new customer types. And so we're also able to diversify using our services and using services, almost leading with services, entering with services and then getting to payments. So it plays two roles. Now your question on Data & Services. So when we think about Services, it includes things like fraud and cybersecurity, analytics, advisory, marketing. And Data & Services, specifically, there are essentially 5 broad product categories. There is -- the first one is consulting and innovation. We have, I would say, the preeminent consulting firm focused on payments globally. We also have a number of practice areas and things that we are strong at, technology areas like AI or crypto or loyalty, so things that we're very good at. We also have innovation services. So many years ago, we were innovative. So our customers came to us saying, "How do we become more innovative with your techniques?" So we provide those to co-create with our customers. The second area is it's broadly insights and analytics. So providing benchmarking insights, real-time data to make decisions, building models and deploying them for our customers, providing software and service solutions like Test & Learn so that you can optimize decision-making to maximize ROI. So that's the second area. The third area is Marketing Services where we look at a consumer's life cycle end-to-end and help our customers. By the way, when I say customer and consumer, we're B2B2C model . So our customer is that middle B, and their consumers is what we refer to as consumers. So consumer life cycle marketing from acquisition to deepening the relationship to making it sticky, which we do for our customers in partnership with them. The fourth area is loyalty, which as I was saying before, this business started with things like benefits and insurances on cards, especially affluent cards. But today, in loyalty, we go way beyond that with rewards and offers and redemption options, like we have a deal with Expedia where our consumers of our customers can redeem in the travel space. We have a lot of travel capabilities. So loyalty -- and we have a proprietary platform. So loyalty is a large area. And then the very last one, the fifth one is 2 years ago, we acquired Dynamic Yield. Very excited about that. It brings hyper-personalization into Mastercard. And yes, of course, they were doing it with brands previously. We continue to do it in brands, and that's [ growing ] really well, but now we're able to do it with banks as well. And so that's what's in Data & Services. It's a very rich and curated set of services that helps us both differentiate payments as well as diversify beyond payments and lead with Services into new customer types.

And I guess building on that, could you provide examples of Mastercard Services -- of how Mastercard Services helped to reinforce your other strategic priorities, expanding into payments, embracing new networks?

Yes. So I should start by saying this is a beautiful cycle, right, where the more we grow in payments, the more it creates transactions and data for our Services business. And the more transactions and data there is in Services, the more we're able to create services or deepen our services, which enhance payments and grow payments. So payments growth and Services growth have this beautiful reinforcing relationship, which is quite unique from everything that I've seen in my lifetime. And so we use services to differentiate payments. So it's things like winning deals. We won UniCredit. We won Citizens. Citizens went with us because of our open banking, our digital capabilities, our financial inclusion approaches, our fraud, our cyber, right? That's why we won that. It helps us with -- there was a European issuer recently that wanted to enter SME in a big way. And so we help them end-to-end from their strategy to their go-to-market execution, and they're doing very well now in the SME space. And if they do well and their card balances and spend and GDV grows and their revenues grow, ours does too. So it's a symbiotic relationship there. Other examples, Financiera El Corte Inglés. We helped them go from closed loop to co-badged open loop, huge value in it for them as well as for us. We helped Saudi National Bank go into credit by helping them underwrite credit. And what they're trying to do is take their debit book and deepen their credit book with those relationships. So there's a lot that we can do using Services to drive differentiation in payments quite effectively.

And you mentioned that Services were growing quite fast over time. What is the strategy to kind of drive growth? Is it -- how do you get there?

So as I was saying this is a beautiful reinforcement between payments growth and Services growth. And when you think about the vectors of Services growth, it's transactions, it is our existing capabilities to existing customers, taking it to new customers, developing new capabilities, leveraging our data, these are all the vectors of growth. The way we approach it, maybe I'll take a step back and just talk about how we approach it. We put the customer at the center and think about what opportunity or challenge they're trying to solve. And then we think about our services to figure out whether there is a way we can work with them to get them achieve what they want to achieve faster, better, more efficiently, more effectively. And sometimes, the answer is one service and sometimes, it's a combination of services. And the analogy I like to use it's like LEGOs. I happen to have 2 sons, so I know LEGOs pretty well. So sometimes it's one piece of a particular shape, color type that is the right answer. Sometimes, it's a group of them that you snap together to create exactly what the customer needs for that particular opportunity. And so that's really how we approach it. And with the services that I was talking about, we go to market in different ways. In some cases, it's bespoke, where it's in a conversation with the customer that's very targeted. In some cases, the service is right in our transactions and our customers can consume it. In some cases, there's a Software-as-a-Service platform where once they couple into it, they can use it or call it with an API. So the go-to-market, it comes in many forms. What is the basis deep in it is trust and value. So it builds the relationship with the customer. It's really important for us to create a trust-based partnership with the customer. And that only comes if we can demonstrate to the customer and to ourselves that the services work that we're doing creates value for the customer, that we can articulate very clearly, and it's good for the customer and good for us. The other thing I should say, Ramsey, is what underpins our services and makes them very unique relative to the specific services they compete with, the capabilities they compete with in the market, which is an entirely different set of competitors from the ones in our traditional payments business. What makes it unique is our data. We see something like 140 billion transactions every year from 3 billion cards in 210 countries. That's a lot of data. That's just in the card business. We have a lot of proprietary data. And then we have hundreds of third-party sources that we leverage to create, add nuance and color. And we've been doing this for 2 decades. So we use advanced analytics, machine learning, AI to really create datasets that are high quality and machine readable. And that's really important for analytics. And so that is really fundamental to differentiation of our services relative to the services competitors that we are up against for those services. So it is -- that's what makes it truly unique.

And I think the Mastercard's growth algorithm has -- Services is a more important part of it. And part of that algorithm is now penetrating existing customers rather than just thinking of the model is just cash-to-card conversion, which is a critical piece of it. But in addition now, you have a penetration story. How do you approach kind of further penetrating your existing customers with Services?

Yes. Penetrating existing customers. And by existing customers, we mean of the payments model. So issuers, acquirers, right, in the payments model. There's a ton of opportunity there. We were recently looking at our Services penetration across our top 50 customers. And on average, they have about 2 or 3x the services for the rest of the customer base -- of the traditional customer base. And as you know, globally, that customer base is huge. And so that points to 2 types of opportunities. So of course, we can penetrate customers beyond that top 50 in many ways that we're working with the top 50 on. And we're already doing some of this, but there's a lot of runway. And to some degree, they need the capabilities at scale even more because they don't have the same scale the top 50 do. In addition to that, if you say average of 2 or 3x and then you start examining those top 50, not every customer in the top 50 is using the same services. So when you look at the diversity of services that are being used and you look at the needs that are alike even the top 50, there's the opportunity. If customer A is using a particular service to do something and customer B has the same need, there's an opportunity to use the same service as a second customer. There's opportunity in the top 50 as well. And we're doing a lot of this around the globe. So to give you some examples, Westpac, that we converted, I mean, the initial services we provide with conversion assurance, where we won the deal with them in Australia and New Zealand. They now use a variety of our services from loyalty to marketing, to consulting to analytics, a variety of different services to fraud and cyber. You take Bank of America that uses a lot of our services. They recently started using Test & Learn. If you take Axis Bank in India, they're using our marketing services. Worldpay is using some of our fraud tools. Citi and Square are using Consumer Clarity. So it just tells you the depth of opportunity here, both in doing more with our top 50 customers, sort of looking at what resonates, what creates value, who has what needs as well as continuing to extend it beyond the top 50, where there's a real -- even a deeper need because the access to the same capabilities, access to scale is something we can provide uniquely at Mastercard.

And tellingly, I think you asked me to clarify whether we're going to talk about existing customers in terms of categories of customers versus new customers. So maybe talk about how your customer base has evolved over time, share maybe more about how you're going after new customer segments.

Yes. And by the way, by new customers, I mean, things like merchants beyond just the payments business, so retail and commerce players or CPGs or governments, increasingly governments do, et cetera. And there are capabilities that we have that resonates with them, so things like Test & Learn or loyalty or things like Dynamic Yield for personalization or some of our cyber and fraud solutions, our analytics. These are all things that resonate with them, and we can help them grow their top line, grow their bottom line, engage more deeply with their consumers, innovate more, keep their ecosystems more safe and secure. So there's a lot that we can do with them and we are doing with them. So for example, we can do things like reduce cart abandonment in the shopping experience, increase the frequency of visits from a customer to a retailer, increase the basket size, understand what offers will trigger, what kind of purchases so that they can make -- drive more revenue more profitably. So there's a lot we can do with these customer segments, provide macroeconomic insights. We have a depth of insights from a macroeconomic institute, a Mastercard institute, which is amazing, provide some of those insights. And so we're working with a lot of them. To give you some examples, Saks Fifth Avenue does personalization with us or a Dunkin' is using us for analytics, all these using us for Test & Learn. So a lot of these folks are using a lot of our capabilities to drive their core businesses, and we're able to help them create real tangible value.

And is the sales and distribution approach relatively similar? I mean I know you have folks who face off against merchants, but is it an easy kind of a segue to say, "Hey, we're already important to your business from the network side. Maybe there's more we can do for you."

Absolutely is. In fact, more we can do from the network that sometimes, like I said, we also lead with Services. So the example I'll give you is Gap. Gap was a Test & Learn client for many, many, many years, very deep relationship. And as a result of it, when the co-brand opportunity came up -- the co-brand for a decade has been with our competitor. And when the co-brand opportunity came up, it opened the door for us to go and win it, convert it and bring it to the Mastercard brand on the payments side. So yes, we have the distribution capability to support many of these customers, new and existing, both in payments and in Services, but in a way that's very linked to each other.