Mastercard Incorporated (MA) Earnings Call Transcript & Summary

We have always dealt with competition. And I say whenever I see competition, I get excited because I think competition indeed makes us better. It makes us more innovative because we have to differentiate. So it's not a new phenomenon. We have always lived with it. And I think the key here is, like I said, the reason for investing in the front line is we're going to stay very close to the customers. Again, we are a B2B model. So this whole co-creation, we cannot just inventing -- we cannot just be inventing our own widgets in the ivory tower. This ability to discover problems together with our customers, co-create solutions, I think, is very critical. We always want to win for sure. But we are also very disciplined. It's not like I want to win deals at any cost, right? Deals need to be profitable. So we want to win market share in a way that's profitable. So we do have an approach where we measure our success against not just share and the volume, but also profitability. And then the other thing I would say is, yes, deal economics is important. And sometimes we do have to go a little deeper in terms of price and economics to win a major deal because otherwise, you won't be able to do the services. But like I said, we do have services differentiation, and we use that as a lever as well. So new products, new services, use them as differentiation beyond just money or economics to win deals.

And has what clients are looking for in those deals changed over the last several years?

Well, I think that one thing that remains the same is customers like Mastercard, they're looking to grow their business. They want growth. They want better service to their consumers. So that's a commonality that hasn't changed. What probably has changed is on specific products or solutions, right? So it used to be debit and credit will carry the day and now people are talking about stablecoins, Gentech, what that means for them. So there are things that have not changed, but there are also innovations and solutions that are different. And that's what that's expected of Mastercard, and we have to continue to step up and come to the table with the right play.

Great. So you referenced value-added services several times in that answer. Maybe we could talk about the growth algorithm in this business. It's continued to be a very strong driver. It's a very large percentage of revenue now. How do you think about the growth of that bucket over time? And what are the certain pieces of that portfolio that are really carrying a lot of that strength?

Yes. Well, services constitute almost 40% of our net revenue now. When I joined Mastercard 17 years ago, it was a small percentage. So yes, it has grown. And -- but it's not just the revenue growth. It's also a differentiation. I mean in services, I talked about the 60% that attached to the network. But we also have another 40% that's data and insights and consulting advisory services, right, and merchant loyalty, for example. But those things are also really important because, for example, advisory and consulting, that's what enables our team to be like living and breathing with the customers every day and discover their problems before an RFP even comes out. So it's a differentiation even in our deal approach as well. So very important for our growth algorithm. I would also say today, with AI, that will also give Mastercard continued tailwind in terms of driving more growth. Now here, I'm talking about sustainable growth, right, long-term sustainable growth and optimize the mix as well. But why do I talk about AI as a way to create that sustainable momentum? It is because you're going to see more fraud. You're going to see more scam. Bad actors will leverage AI. There will be more sophistication in fraud and cybersecurity. So our customers expect Mastercard to continue to stay ahead and come up with new cybersecurity solutions. And by the way, when I say cybersecurity, it's cyber, but it's also identity. It is also fraud prevention. It's also scam prevention. It's the end-to-end security solutions that I'm thinking when I say cyber. So we need to continue to innovate, and that's the space that's going to give us continued momentum. And we will do this also through both organic growth but also acquisition as well.

And you've made several acquisitions in cyber. Maybe we can double-click on that a little bit because that's been a big topic of conversation over the past couple of days. What are you seeing in terms of the demand environment for cyber? And if you could comment just on the specific cyber solutions that Mastercard has, are you seeing broad-based demand across the portfolio? Is it specific products that are resonating the most right now?

Yes. Very much so strong demand, broad-based demand, and it's also end-to-end and Mastercard has been in this business for a long time. So therefore, again, like I said, cyber is identity, cyber is fraud, cyber is also cybersecurity capabilities. The best example I can give you is the Recorded Future, which is -- Recorded Future is in the business of providing customers with insights into the dark web, for example, compromised credentials, phone numbers, addresses, right? So we can then help customers proactively anticipate threat trends and fraud intelligence. So with the Recorded Future acquisition, we actually have developed a new product called Threat Intelligence, and it's attached to the network. It's distributed through the network and it's priced through the network. And that's a great example of saying we may have purchased the capability that's more a one-to-one sales model, which doesn't lend itself to scaling very quickly, but we're able to leverage the capabilities and create a new product that is distributed through the network, that is priced through the network, that creates much better scale more quickly. So that's an example of what we are doing with cyber.

Yes. So let's pivot and talk a little bit about the crypto and stablecoin ecosystem. Mastercard recently closed on the BVNK acquisition, which brings a lot of new stablecoin capabilities to the company. Now that, that acquisition is closed, can you remind us of the opportunity that you see in the digital asset space and how you're going after it?

Yes. Well, first of all, I just want to let you know that we closed BVNK on August 3. It's the same date when I became CFO of Mastercard. So this date will be in my memory forever. Not that I have anything to do with BVNK, but it's a very important asset. People ask me what are the use cases for stablecoin. First of all, I don't think it's really a P2M use case. In P2M, it's probably a solution looking for a problem. But stablecoins, I think, do address certain relevant use cases such as B2B payments, cross-border remittances, P2P, Me2Me, right? And also, I can envisage if, let's say, someday smart contracts take off. Like real estate transactions very clunky in most countries, right? There are a lot of friction. You need a lot of middlemen just because the buyers and sellers don't know each other. There's a trust issue. But if contracts truly become smart contracts and they can be executed on the blockchain, having a programmable money that can be executed condition upon the execution of the contract, I do see value in that. We do hear customers, i.e., the banks talk about tokenized deposits or tokenized assets in general, then I think stablecoin will become a good media of exchange in this world. So for that reason, Mastercard is at the table. We're embracing stablecoin. It may just be a percent of the payment flows, but we want to be there. So what is BVNK then? It creates that interoperability play. It is an orchestration layer in the first instance. It gives us the ability to provide a white label wallet. We don't go to consumers directly. Again, this is through our customers, but a wallet that helps store and convert and receive and send stablecoin assets. So we now truly have an interoperability play in the payment flows, whether this is among different stablecoins, among different blockchains or whether this is interoperability between digital assets, stablecoins or fiat currencies. And I think that's a very significant capability we have developed. You also probably heard that we made an announcement of Open Standard, right? This is, again, a joint venture among industry players and our BVNK capability will be very, very relevant in this.

Yes. So you just talked about one of the most recent acquisitions. I'd like to get your take maybe on M&A more broadly. Can you share your views on M&A and give us a sense if Mastercard will continue to be acquisitive as you have been in the past?

Yes. I mean if I think about my -- again, my role as CFO, part of the capital allocation will be making acquisitions and strategic investments. So I talked about the 3 pillars of our diversification, right? So we'll continue to make acquisitions when the opportunities serve us right in terms of growing the core. So it's -- acquisitions are not just in services, which is the third pillar I talked about. It's not just in new flows, which is the second pillar. But it's also in the first pillar, which is our core payment business because in some of the nascent markets or emerging markets, that may be the right relevant play. Why? Because it shortens our speed to market. So time to market can be faster. We will make acquisitions when it's about capabilities. Like BVNK is a great example of buying capabilities. It could also be about getting the right talent into the company. So for the right opportunities, we'll continue to make acquisitions to drive the growth algorithm.

That's great. All right. As you look at Mastercard's business today, can you comment just how you think about the durability of growth and the composition of revenues? How do you expect growth will trend from here? And then how do you think the mix of revenues will evolve?

Yes. Well, I have a lot of confidence in the durability of our revenue growth precisely because of the things I just talked about. It's the diversified nature of the business model, right? What makes the growth durable is because we're diversified. Sometimes in certain years, you may have puts and takes in terms of cross-border flows or you may have puts and takes between core revenue and the services. But on average, we'll continue to deliver consistent growth. So that's really important. But I think, again, our services capabilities create that durability as well for the core and the core business creates the durability for services. Those 2 things self reinforce each other, and that's also very important. But more importantly, I think, again, I talked about Apple Pay. Our ability to really spot the right trend and capitalize on them and create the right innovation to embrace those opportunities remains very critical. So the ability to work with Apple on Apple Pay, right, and now it is about working with all the AI platforms to think through what agentic commerce could mean, right? I think in the future, not everything is going to be agentic, just like today, after 30 years of growth and development, e-commerce, and I'm talking about market level data. This is now Mastercard data. At the market level, globally, after 30 years, e-commerce is not even 50% of overall retail commerce. It's not even 30%. It's 20%, right? So if we play this out another 10 years, 20 years, I still think that you're going to have a mix of different commerce. You have physical, in-person commerce, you're going to have online commerce, you have agentic commerce. I think the secret ingredient of the network credential is we'll be able to serve Mastercard credential, we'll be able to serve in all these different verticals, whether it's in person, whether it's online, whether it's agentic. And the ability to do that right to play in all verticals, so we're truly omnichannel is also another reason that will give us the durability of growth.

Great. Well, we got a couple of minutes left here. I want to squeeze a few more in. One is on pricing. I was wondering if you could share your thoughts on how Mastercard approaches pricing and how you think about the run rate going forward?

Yes. I think about pricing as pricing for value. Like tokenization is a great example, right? We launched tokenization a while back. We continue to drive more penetration in different markets. But then in this emerging agentic world, I think tokenization becomes so important in terms of protecting consumers and ensuring the integrity of the payment network. So -- and now we can actually price for the value that we deliver to the ecosystem. And there are many, many other examples like that. Cybersecurity is also such an example. Someday, we will deliver even more merchant-specific services. I talked about loyalty, and we'll price for those as well. So I think the ability to deliver value in the first instance is what gives us the runway to price, to drive more economics from the network.

Makes sense. All right. One more here. And if I can take advantage of the experience you have in some of your prior roles, I'd be remiss if I didn't ask you for an update on the opportunity in China and the state of Mastercard's various initiatives there.

Yes. Look, I've been working on China -- I mean, for the entire 17 years, this has been part of my mission to get a license, domestic license. And for those of you who are familiar with China, it's not easy. It's not an easy market. And we -- it took us a long time. We got there. And we have our domestic license granted to us 2, 3 years ago. And in terms of revenue numbers, it's still probably going to be a medium-term opportunity. But if I look at what we're doing in China, it gives me tremendous optimism. We're working really hard with all the Chinese banks across the board on issuance, driving different products. And it's not just credit products, but also debit, right? People think China is very saturated in terms of debit because the country has billions of debit cards already. But well, guess what? Because we are a global player, we have global acceptance. We have better global acceptance than the domestic players. We're able to even issue additional new programs in the debit space as well. So that's very exciting. We drive acceptance, right? We're starting from almost ground zero in terms of acceptance. What gives me a lot of confidence is also if you now go to Shanghai or Beijing or Guangzhou or Shenzhen, you can actually use your card, your international card and tap and go into a subway station, right? You do not need to have Alipay or WeChat Pay account, and you don't need to buy a transit card either. Open loop tap and go in the transit systems in China now is a reality in these 4 cities. And we also launched in Chengdu as well. So that is actually really important. And given that we now have a domestic license and we're domestically relevant, the strength now we have is not just on the issuance side and the acceptance side, but it's also our ability to work with all the digital players in China, including Alipay, WeChat Pay, including Meituan and JD.com because now we are domestically relevant. You may say, hey, look, in China, everybody uses Alipay, why would they use a card? They do. If you're buying a robot on JD.com, the ticket size is oftentimes much greater than what you would have in a digital wallet. So people will use credit cards. So that's something we're working on. And then services is another realm of opportunities for us that I'm extremely optimistic about. But more fundamentally, in our business, I always have this saying: without home, there's no away. So in order to get cross-border transactions, you must first be relevant in the domestic space. So our domestic relevance is fueling the growth in outbound travel for the Chinese consumers, and we're seeing that very clearly in our data. And also without home, you're not going to have inbound acceptance either because if I have limited card acceptance. Well, when you go to Shanghai, you won't be able to use your U.S. issued card. Now with the development of our domestic acceptance, foreign visitors can use their Mastercard in China as well. So both from an outbound and inbound perspective, it is also helping us drive growth.

Great. That's a great update. Maybe we should leave it there. But thank you so much for being here. Really enjoyed the conversation.

Thank you.