Mastercard Incorporated (MA) Earnings Call Transcript & Summary

And it starts like that.

Here we are.

It was like on stage, off stage.

Exactly.

The audience is like that, we don't care. We just want you to get started. That's it. That's it. So Craig, thanks so much for being here.

Yes, my pleasure.

Super happy to have you. And I think such an amazing time to really be talking about the services organization here. It's funny. I think back to services going back 10 years, 15 years. I mean, some of this stuff didn't really -- it was -- it existed, but it wasn't really packaged as a product. And that was an early-stage distinction for your company. So what I was hoping to do as we start I think it's like 35% to 38% of the company. It's generating like 50% of the growth.

So it would be great if you could just start by sharing some examples in the capabilities that you are able to do within services around the framework of the security solutions, the business market intelligence and then consumer and acquisition, which I think were some of the big areas that you had outlined at the last Investor Day.

Yes, happy to. So again, thanks for the invite. Great to be here with you all this afternoon. It's interesting. Services has been a really important part of Mastercard's business and an important part of our strategy for a number of years that the origins of our services business are more than 20 years old. In fact, it's where I joined the company back in 2006, where we started out with a very clear focus on doing things related to consulting and executing marketing services kinds of campaigns to help our customers get the most value out of their cards portfolios. And that has just -- it's evolved over the course of those 20 years into what is now, as you've mentioned, a really significant part of the business, $11 billion in revenue, 38% of our total corporate revenue that's taken on a very different profile than in those early days. And there's a couple of areas in particular that you mentioned that are very important anchors of the portfolio. There is consumer acquisition and engagement, which is to an extent, what some of those things that we did many years ago that I mentioned evolved into, where we work very closely with our customers, our partners to leverage marketing services, executing different kinds of campaigns, building on our loyalty capabilities, to deepen engagement with consumers, leveraging some of our personalization technology to ensure that consumers are being targeted with the right offer at the right time, the right place, all in the spirit of increasing the value of every consumer relationship that any of our partners has. Very important part of the business. Second area you mentioned, business and market insights. This is where a lot of our consulting activity takes place. We leverage an enormous amount of data that we have access to within the franchise to undertake a wide range of consulting engagements, strategy work, custom analytics, things that help our partners understand how their portfolios are performing, where and how they can optimize performance, how they're benchmarking against their relevant competitive set, macroeconomic insights, all kinds of things just focused on operations, portfolio management, risk management, et cetera. And that's where the bulk of our consulting activity sits. We've got more than 3,000 consultants around the globe that are Mastercard employees located in the markets with our customers working alongside them to execute on a lot of these activities. And then the third that you mentioned is security solutions, which that's one that has just been fascinating to see how that's evolved. The origins of our Security Solutions business are something that we've done for a very long time, right? I mean it consists of our fraud solutions, now identity solutions, cybersecurity-related solutions. Managing fraud is something that's been in our DNA since the earliest manifestations of the network. Back in those days, it was a function of looking at a transaction just based on the card transaction data, which is relatively sparse. You get a transaction amount, you have a merchant category code, you have a location, you have a channel, is it in person or card not present, you have a date and trying to make sense of based on past transaction patterns, is that a legitimate transaction or not? Well, fast forward, now you have all that card transaction data, but we also have device data to understand, is this a device that this consumer has interacted with before. We have identity data. Does this appear to be triangulating with other indicators of this consumer's identity. We have behavioral attributes. We have biometric data, et cetera, all of which feeds into identifying signals to determine the authenticity of a transaction with a much greater degree of specificity. That's what led us into identity. That's what has now led us into a bigger play in cybersecurity. And so all of those areas, our value-added services and solutions business, that $11 billion in revenue consists of more than those 3, processing, our gateway business, digital and authentication solutions, things that we do in the solutions area, open banking, real-time payments, bill payments, et cetera. But those are 3 areas we're particularly focused on there. And as you saw in our Investor Day discussions, we really anchored on those as areas of growth, in part because they are such big markets in and of their own right, each is growing rapidly, in part because each of them has real synergies with our payments business. And services for us starts with the payments business and is intended to differentiate our payments propositions and help us win, but also because there's great synergies that exist between each of those areas. And while we kind of bucket them in big groups, those 3 broad families, kind of for convenience, but also because they align with particular buyers in the marketplace. It aligns with a CMO if we're talking about consumer acquisition engagement. It aligns with a CISO as a buyer if we're talking about cyber, but there's interplay between them. Identity solutions are an important part of what we do in a lot of cardholder acquisition campaigns to make sure it's a legitimate application that's coming in as part of that. So there's lots of examples like that, but it's a fascinating part of the business. It's changed so much in the nearly 20 years I've been with the company and continues to evolve every day.

Yes. No, as I said at the beginning, I mean, I remember kind of harkening back to the beginnings of this. And I always thought Mastercard was very early in promoting this services -- value-added services concept relative to your peers. And that was clearly a point of differentiation, and it showed, I think, in the market and it mandated with growth. Now if we're talking about the opportunity set, and we did hit on these 3, I think they're 80% of the business, but there's a lot of other things in the portfolio. How do you think about the opportunity to truly size services like in its realistic context today and then where does Mastercard actually fit into that framework today?

Yes. Well, there's a couple of aspects to that. One which I won't attempt to size is the role that services plays in helping to differentiate and drive growth in our payments business. And you've heard us talk about the flywheel, the very constructive cycle we have of winning -- increasing transaction volume, switching more volume, getting more data, using the data.

It was the infinite loop.

Well, there's...

Isn't that what it is?

You got to do it that way, too. In either case, it's continuous. And it actually has the potential to accelerate, right? You get more data, you get more insights, you differentiate your products, you win more market share and you drive payments volume. So that's an important part and something not to lose sight of in terms of what's the purpose of the services business, differentiate and grow core payments volume, help us accelerate growth in commercial and new payments flows. But there's a third objective that's around diversification of revenue streams for us and tapping into adjacent revenue pools. And this is where the sizing that you're alluding to, I think, becomes pretty interesting. The services -- the broad suite of services that I've referenced that we have within the organization plays in what we've sized as a total addressable market opportunity of nearly $500 billion revenue pool. And it's important to distinguish that's a revenue pool. A lot of our other market sizings are based on dollar flows of payments volume. This is an actual revenue pool. And within that, we've got -- there's about $165 billion of it, we think, where we -- that's serviceable to us today based on products and services that we have in market and are actively selling and engaging with our customers on. So those are big numbers. The three areas that we talked about, consumer acquisition and engagement, business and market insights and security solutions represent a very significant portion of that overall opportunity. But in each case, despite the fact that there are already large businesses for us, all well over $1 billion in revenue, growing at healthy double-digit rates year-on-year, we're still very underpenetrated. We're 2% penetrated in the TAM and 7% -- less than 7% penetrated in the SAM. And so we've got a lot of runway for growth in those areas, which is part of the reason we continue to invest. One, the virtuous cycle and fueling the flywheel, but also the opportunity to continue tapping into these adjacent revenue pools to diversify our revenue streams.

Yes. I mean $11 billion out of $165 billion is a good jumping off point.

Yes, it's not a great place to start.

A good business, right? You alluded to this a little bit earlier, but the competitive differentiation that Mastercard brings in value-added services. So there's the concept of proprietary data assets. And so I want you to speak to that a little bit more. But then you hinted at payment synergies and service product synergies. So maybe we could tease some of those out in real-world examples so that we can understand how that actually does create competitive differentiation.

Yes, happy to. And I think competitive -- I think of our competition for this part of the business as being fairly broad. There's obviously other payment networks that we compete against and we look to differentiate ourselves. I believe we are very differentiated. There's also a lot of point solution providers in some of these specific areas that we're also seeking to differentiate from and win more of that addressable opportunity for ourselves. There's five things that I think in the aggregate represent the key differentiators for us. The first and foremost is data, which I'll come back to because that really is the kernel around which so much of our services business is built and is the enabler of so much differentiation in the business. A second has to do with technology and the fact that we have the reach of our network that extends literally around the globe, 150 million merchants, tens of thousands of issuing partners. The third is this full suite of services and products that we have, both payments products and other services where there's a considerable amount of synergies that exist between them, extensive customer relationships and then finally, the expertise of our people. The ones that I see as being most differentiating relative to other payment networks, which are those you and others probably look at most frequently when assessing our business, is the data. Yes, other networks also have significant amount of card transaction data. We have -- we processed 160 billion transactions last year on our network. So there's data at scale. And it's not just data, it's data we've invested in for well over a decade, approaching two at this point in really cleansing that data, warehousing the data, making it accessible to our data scientists, making it available to use to train models and algorithms, using it to derive literally thousands of attributes on every account that runs on our network, attributes around spending patterns and behaviors, propensities for spending in categories, locations, times of day, risk of attrition, et cetera. It's enormous. And there is a learning curve involved in that. And we're well down the experience curve in that, and we'll continue to invest to stay ahead. But in addition to going deep on that card transaction data, we've been very intentional to expand the universe of data that we have access to. Some of that we've acquired. Some of that we've built businesses to enable us to go into those areas. And so you think about complementing the card transaction data with other kinds of payment transactions, real-time payment transactions, account-to-account payment transactions, our Mastercard move that's processing billions of transactions a year in disbursements and remittances, commercial payments transactions, then to move beyond payments transaction data into identity data, device data, open banking data, buyer supplier preferences that exist between commercial partners in the B2B realm. The list goes on and on. But it is -- every one of our gateway, our gateway process, every one of those data sets that I referenced number in the billions of transactions or the billions of records. And so there's a combinatory power that exists between them that gives us the ability to drive, I think, richer and richer insights across a whole range of areas. So it starts with the data and the differentiation that provides. The second relative to other networks, I think, is the breadth of capability we have. We have intentionally targeted, I think, a broader swath of the value chain and therefore, have capabilities in areas like cybersecurity that we see as being both important and relevant to payments, important to our customers in areas that go beyond payments, important to governments. And so there's a nice continuum of adjacencies there that we can extend our participation in, in an area like cybersecurity, like personalization as an important capability that fuels loyalty, that fuels commerce going forward. And then the third, I'd say, is the expertise of our people. I alluded to the numbers of consultants that we've built up over the years, more than 3,000 people, but it's not just consultants, it's data scientists, it's fraud experts. It's people who have very deep domain experience to be able to work with our partners on issues ranging from very broad strategic questions to very in-depth, not just recommendations, but implementation. And oftentimes, we're sitting alongside our partners, working through implementation oftentimes complementing that with technology, a platform that we offer, a payment solution that goes alongside of that. And so I think those things we feel are very differentiated, and that's how we're going to continue to invest to maintain what we see as an advantage and a really strong proposition that we have.

Awesome. So you talked about cybersecurity a lot, and I do think that's a huge component of differentiation. Back in December, you closed Recorded Future. Threat intelligence space fits right in with everything that you've just been describing. So there's kind of two things there. One is, how do you think about M&A within services and what's the high hurdle to get over in order for you to do that? But then also any progress that you're making around Recorded Future because I feel like I think we all appreciated how important it was. But to your point, like the world is changing so fast. AI is clearly going to accelerate that pace. And so assets like this are going to be crucial to have within inside of your portfolio.

Yes, for sure. M&A has played an important part in how we've thought about expanding our suite of capabilities. Just kind of starting at the high level, I talked about total addressable market. I talked about serviceable addressable market. M&A has played a really important role in helping us migrate TAM into SAM so that we have capabilities to actually sell into the market and go after those revenue pools. There's lots of things that we've developed organically as well, and we'll continue to do that, but we use M&A as a catalyst to get access to expertise, products, customers, in some cases to be able to go after those opportunities more quickly. The strategy around that -- around M&A is anchored in strategy. And so it's going to focus on things that continue to differentiate our payments in consumer payments, things that help us accelerate growth in commercial new payments flows, things that will help us deepen our penetration in the revenue pools that I've already described. And I think that's where the focus will be is deepening as opposed to broadening. And we'll continue to look for opportunities out there. Recorded Future, I think, is a great example of one where I described that progression that we had within our -- what's now our security solutions portfolio of fraud to identity to cyber. We started in cyber with some relatively modest acquisitions that played a particular role in the cybersecurity space. One, in particular, RiskRecon is a company that helps any organization sort of identify vulnerabilities in its digital footprint, where you've got missing security patches, where you've got gaps that the bad guys can get in, which is a really valuable capability, not just for big companies, small companies, is something we can distribute through partners, through acquirers, for example, to make available to small businesses. A cybersecurity threat is often an existential event for a small- to medium-sized business. It puts them out of business. And so we saw through our engagement there, there's demand. It got us engaged with a new buying group in the risk and CISO side of our customer organizations. Threat intelligence was a capability that we lacked. And therefore, when we looked across the market at potential acquisition targets, Recorded Future just jumped out as the market leader in that space as having incredible capability, great technology, sizable customer base of both corporates and governments, 1,900 customers, 45 governments around the world who are using that capability for national security level cybersecurity protection. That just is -- it's a step function acceleration in our capabilities in that space. And it's exciting as we're progressing, we're five months into it. We closed late December of '24. We had some experience working with Recorded Future pre-acquisition where we were working on a commercial basis to use the insights they had into dark web trading activity to identify stolen card credentials, incorporate that into some of our fraud capabilities, which is obviously a valuable data element to incorporate in there. We know the credential is for sale on the dark web. That's a pretty good indication that something bad might happen. So we started with working with them on that basis. But already in our early days since we've acquired them, the number of areas where we see complementarity of their capability with other parts of our business, just we're finding them every day. There -- the interesting data point I heard the other day, there's 30 million new merchant websites created every day. They're looking at all 30 million of them every day, an application of AI, obviously, no human could actually do that. But looking across the globe at all of these websites to identify merchant websites that appear suspicious. And some percentage of these websites are being created so that fraudsters can test stolen card credentials to see if the card is still active because when they sell it on the dark web, if it's proven to be an active account, they get more for it than if it's just a number and you take your chances, some percentage of them are active and some percentage aren't. So that's a capability we ingest -- you can imagine the value of that to working with our acquiring partners. We've introduced a new capability called malware intelligence where they're looking at 1.5 million different malware scripts every day and using that as, again, leveraging AI, using that to inform their customers and our partners on different kinds of malware that is appearing, where and how it's connected with different threat actors and different attack vectors. It's just an enhancement in the ability to be able to defend against that. So you can tell I'm excited. We're excited about the acquisition. It's a great set of capabilities, great customers, great team, and there's just tons of synergies in our business.

Yes. I mean it seems like the velocity of all that activity is only going to accelerate as we would expect. So you brought up AI. Agentic commerce is a huge topic of discussion. and quite frankly, of discovery for a lot of people, even still early days. I think you have what they refer to as Agent Pay will be kind of the branded mechanics of what you've created. So how do you think about using AI, not just in services, it can be with that, but then also broadly throughout the organization? And what does Agentic commerce ultimately mean to Mastercard long term?

Yes. AI, as you would imagine, is a big part of our business. We've been active with artificial intelligence in various forms for well over a decade, starting with machine learning and predictive AI and generative AI and now moving into Agentic. A lot of the early work focused on fraud and some of the kinds of examples I alluded to earlier. But as AI has evolved so quickly and our engagement with it has evolved alongside, AI at this point powers 1 in 3 of our services products. And so it's not like a new experimental kind of hobby. It's deeply embedded in the business and how we develop and differentiate and go to market with a lot of these products. We think about using it in ways to help make commerce safer. And so the kinds of fraud examples, some of the things related to Recorded Future that I use to illustrate where and how AI can help improve the safety and security of commerce, which obviously is incredibly important to us and our brand and our customers and the consumers that we all ultimately serve together. We look at using AI to make commerce smarter and where and how we can provide insights into how to manage the business, how to manage portfolios. We look at how to use AI to make commerce more personal. There'll be an important link to Agentic on the personalization front, which I'll come back to. And then we use it across our business internally to make Mastercard more efficient. We're using AI for software coding and development. We're using AI to enhance and accelerate product implementations that we're working on with customers for customer service, et cetera. So very broad-based usage and application, but very targeted at the same time. We're focused on use cases. We're focused on building the infrastructure that enables us to make the best use of that, obviously focused on continuing to adhere to our very strict data integrity standards and privacy standards that you have. Agentic is an interesting manifestation of that, Agentic Commerce and Agent Pay for us that I think is super exciting. It's something that a few months ago, we might have been talking about as, oh, maybe that's coming already, it's here, the pace at which it's going to progress, anyone can guess. I think it's fair to say it's going to progress quickly as everything in AI land has. But the idea of Agentic Commerce and Agent Pay being kind of the next step in the evolution of commerce from you go to a store and you buy something to you go on the Internet and you shop for something to you've got your phone and you're shopping all the time, probably some people shopping here right now to, you've got an agent who's shopping for you while you go do more interesting things with your life based on some instructions you've given that agent. Think about that in the continuum of commerce, one, it's a very, I think, beneficial trend for us being at the center of digital commerce, digital transactions, digital payments. It has the potential to be a whole another growth curve in transaction volume. And it is very much aligned with the role that we as Mastercard play in the payments ecosystem around safety and security and trust as the starting point. It builds off of the token -- our token technology, the token requester model that we put in place many years ago with the advent of Apple Pay and others where we established rules of the road for the use of tokens. What token issuers could expect in terms of where and how the token would be used, what token requesters, the users of those tokens, whether at the time it was a wallet, a digital site, the rules that they needed to adhere to, that same philosophy now can be applied in the Agentic world where instead of the token requester, it's an agent that needs to be registered with us. It needs to adhere to certain guidelines that adhere to our rules, our franchise requirements. And we can then introduce additional elements of value into that. So with the provisioning of the token, ensuring that there's clear authentication on the part of the consumer that there's ability to ensure that it's not being used fraudulently and there are fraudulent transactions, the ability to ensure that there is a clean data stream to enable dispute resolution in the event the token is misused, which is going to be an interesting aspect of this, right, if there's an agent out there conducting commerce on your behalf. How do we know -- how do we tie back a transaction to a consumer's instruction, go buy this for me. Well, bought the wrong thing or I didn't ask for that or this is actually what you asked for. So to be able to close that loop and be able to provide dispute resolution. Ultimately, that's all kind of in the realm of safety and security, but there's a whole other side of this, which has to do with enabling sellers of goods and services to make themselves discoverable and have them have a position of priority in a realm where you or I aren't doing a search anymore and looking at a list of hotels that come up when it says, I'm going to London, the agent just picks it for you. So the issue of discoverability on the side of the sellers as well as how to align discoverability with the personal preferences of the consumer creates a lot of opportunities around personalization, et cetera. So it's a very exciting, I think, step that we're on the cusp of seeing take some pretty dramatic steps over the coming months and years.

Yes. Agentic commerce is definitely going to change the pace of play with my wife's shopping. So no doubt about that, right? So we're almost up with our first half of this double header we're doing. So I'm going to give you the last words, kind of the 3 to 4 topics or thematics that you want the audience to take away as we think about Mastercard's opportunities within services.

Yes. Well, I think one is it's closely aligned with where we've got tailwinds on our -- in our payments business. The world continues to digitize. Agentic will, I think, accelerate that trend. That's a positive for our payments business and the payments business is ultimately what fuels services and vice versa. And so that secular trend and the momentum behind it, we remain very enthusiastic about that. The breadth of capabilities that we have, both in terms of the data -- underlying data and the different roles across the value chain that we're occupying, growth areas that help differentiate and drive incremental revenue, and all have really great growth runways. And so it's an exciting part of our business. It's one that's going to continue to grow and evolve, particularly in a world of increased digitization, increase in the availability of data, increase in the velocity with which that data can be used with things like AI and deployed to create new experiences for consumers and businesses. So...

That's awesome.

That's what we're excited about.

We're excited, too, Craig. We're excited too. You're driving a big part of the growth engine here. So keep it up.

Thank you.

Thank you so much for being here. Really appreciate it.

My pleasure.

Awesome.

Thanks, Dan.

Thank you so much. Appreciate it.