Devin Corr, Head of Investor Relations, welcomed everyone to the Mastercard Inc. Q2 2023 Earnings Conference Call. He was joined by Michael Miebach, the Chief Executive Officer, and Sachin Mehra, the Chief Financial Officer. The operator announced the opportunity to get into the queue for the Q&A session. The release was furnished with the SEC earlier that morning. The comments were made on a non-GAAP currency-neutral basis. Finally, forward-looking statements were made regarding Mastercard's future performance and a replay of the call will be available for 30 days. Michael Miebach then began his comments.

The company continued to have strong performance in the second quarter with net revenue and operating income up on a non-GAAP currency-neutral basis. Consumers are supported by credit and savings, and central banks are attempting to curb inflation. Domestic volume growth is strong, and cross-border travel is at 154% of 2019 levels. The company is focused on expanding payments, extending services, and embracing new networks.

Mastercard is winning deals around the world with its innovative products, services and solution-selling approach. Examples include a significant win with UniCredit in Europe, conversion of Deutsche Bank's credit and debit cards in Germany, and partnerships with Fiserv's money network in the US, Coast Capital in Canada, and Openbank in Mexico. These partnerships highlight Mastercard's digital capabilities, shared focus on sustainability, and fraud services and technologies.

Mastercard has renewed their Fiesta Rewards co-brand credit card with Santander, expanded their partnership with Sicredi and Standard Chartered Bank, and launched the Travel One Card in Singapore, Malaysia, and Vietnam. Additionally, they have partnered with Alipay and WeChat Pay to enable international travelers to make payments with QR code merchants across China. They have also scaled their Click to Pay capability to enhance the guest checkout experience, which is now live in 30 markets. NatWest Group has become the first bank in the U.K. to go live with Click to Pay push provisioning for cardholders.

Mastercard has extended their partnership with Brex to support international expansion of their commercial portfolios, and with myPOS to drive merchant acceptance in 30 European markets. They have also established an exclusive partnership with Grow Finance to introduce credit cards to their small business customers. In B2B accounts payable, they are the market leaders in virtual card and have partnered with EasyTransfer in Greater China, SAP, Coupa, and GEP to integrate their virtual card technology. In addition, Mastercard has launched Receivables Manager with Billtrust and partnered with Boost Payment Solutions to expand and optimize commercial acceptance. Finally, they have deployed their disbursement and remittance capabilities in the US with Interchecks and Careem Pay in UAE.

Mastercard is expanding its infrastructure into new markets to facilitate cross-border travel and remittance services. They are introducing the Mastercard Multi-Token Network (MTN) which is designed to make transactions within digital asset and blockchain ecosystems more secure, scalable, and interoperable. They have also launched their Consumer Fraud Risk solution which uses AI capabilities to help banks predict and prevent payment scams. The initial sandbox for MTN will begin in the U.K. this summer.

Mastercard is partnering with a variety of banks and travel companies to provide customers with access to loyalty points and rewards. The partnerships include Expedia Group, Thomas Cook, Lufthansa Group, and Deutsche Bank. Mastercard is also leveraging its personalization and Test & Learn capabilities to help partners across the ecosystem enhance the customer experience, improve acquisition and conversion rates, and drive digital customer acquisition.

Ekata is partnering with various entities to increase financial inclusion and simplify digital interaction. These partnerships include FlightHub, New Jersey Devils, IKEA, and Greenwood. Ekata is also working with 7-Eleven in Australia to support their rollout of new store concepts and evolve their food and beverage offerings. This quarter, they have seen strong revenue and earnings growth, supported by resilient consumer spending, and have established new and expanded collaborations with Freddie Mac, Algon, and Dapi.

In the second quarter, net revenue increased by 15%, operating expenses increased by 13%, and operating income increased by 16%. Worldwide gross dollar volume (GDV) increased by 12% year-over-year on a local currency basis, with credit growth of 8% and debit growth of 3% in the U.S. and 14% and 17% respectively outside of the U.S. Cross-border volume increased 24% globally for the quarter on a local currency basis, reflecting an improvement in travel-related spending. The company also repurchased $2.4 billion worth of stock and $497 million through July 24, 2023.

In the second quarter of 2020, cross-border travel was up 6 percentage points from the prior quarter and card-not-present excluding travel was up 2 percentage points. Switched transactions grew 17% year-over-year in Q2. Payment network net revenue increased 15% due to domestic and cross-border transaction and volume growth, while value-added services and solutions net revenue increased 16%. Key metrics related to the payment network included domestic assessments up 11% and worldwide GDV growing 12%.

In the second quarter, cross-border assessments increased 29% while cross-border volumes increased 24%, with the difference mainly due to favorable mix. Transaction processing assessments were up 16%, while switched transactions grew 17%. On a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 13% due to increased personnel spending. Overall spending has remained resilient year-over-year, and the metrics are holding up well in the first 3 weeks of July. The business fundamentals remain strong as consumer spending remains healthy and the company continues to deepen its relationships with partners. Domestic spending patterns have broadly normalized since the pandemic.

Cross-border travel is continuing to grow, and the company is well-positioned to capitalize on this growth with their travel-oriented portfolios and services. For the full year of 2023, net revenue growth is expected to remain in the low teens range on a currency-neutral basis. Operating expenses are expected to be at the high end of a high single-digit rate on a currency-neutral basis, and foreign exchange is expected to be a headwind of 0-1 ppt. For Q3, year-over-year net revenue is expected to grow at a low double-digit rate.

Foreign Exchange is expected to be a tailwind of 3 ppt and acquisitions are expected to add 0 to 1 ppt to the growth. Operating expense is expected to be at the high end of a high single-digit rate excluding acquisitions and special items. There is an expected non-GAAP tax rate of 18-19% for Q3 and Q4. The recently won UniCredit win is a multi-market strategy with sustainability as a factor. It is seen as a unique case study and there is speculation on timing and pricing.

Michael Miebach discusses the launch of FedNow and how it is a milestone to look at the topic of real-time payments rails. He states that the view on this hasn't changed and that it comes down to what problem merchants and consumers are looking for. Merchants are looking for reach to consumers and scale matters, while consumers are looking for convenience and security. He also mentions that UniCredit has proven their ability to serve customers from day 1 with migrations, such as with Deutsche Bank and NatWest.

Mastercard has a strong debit proposition with features like contactless payments, Tap on Phone, buy now, pay later, and Mastercard Installments. With the launch of FedNow, Mastercard will continue to compete and offer services to banking and issuing partners, while also looking for potential partnerships where it makes sense. Chase Pay by Bank is one example of a solution leveraging these systems, and Mastercard has similar solutions in the U.K. and Europe. Overall, Mastercard has a better solution in the market than FedNow.

Michael Miebach discusses how Mastercard's investment in Vocalink and Nets' Corporate Services has allowed them to differentiate themselves in terms of capturing account-to-account network payments and other flows. He explains that when the rise of real-time payments began in 2016 and 2017, they invested in Vocalink to gain street cred and talent to compete from day one.

The company has built an enviable and unique position in real-time payments, operating in 13 of the top 50 GDP countries. They are focusing on building applications and services on top of that infrastructure, such as an anti-scam solution in the UK with 9 banks. Value-added services have been a good tailwind for some time, growing just below transactions. Cyber and other categories have been strong, offset by weaknesses in other areas. The company is looking to continue this growth and cross-sell into their meaningful payments business.

Michael Miebach and Sachin Mehra discuss how payments and services complement each other and how this is the central strategy for their wins. They are diversifying their revenue base and have pruned their processing strategy, instead focusing on cybersecurity due to the digitization of the world. They have a vertically integrated value chain and are seeing healthy growth in their C&I business, D&S, and data analytics businesses. They love this business and will continue to nurture it.

Michael Miebach discusses the growth rates for value-added services and solutions in the second quarter of 16%, noting that there was a 1 ppt drop in the second quarter due to acquisitions. He also explains that the strength in Cyber & Intelligence and Data & Services was offset by other solutions, such as real-time ACH, which tend to grow at a lower pace. He then goes on to discuss Mastercard Send, noting that many of the initial use cases were domestic but are now evolving to include more cross-border use cases.

Mastercard is pursuing the B2B opportunity by adding new geographies, use cases, and corridors to its cross-border payments and remittances. They are also making it easier for customers to onboard with their services through the Cross-Border Service Express solution. Mastercard has the right assets to capitalize on this opportunity and is confident that the business is growing at a healthy pace.

Michael Miebach is discussing the trends he is seeing in B2B payments in the current macro environment. He notes that commercial payments are growing at a healthy rate, with particular strength in the international markets business. He has two main focuses in this area: commercial point of sale and B2B accounts payable. He states that there is a large TAM with a lot of cash and checks, as well as opportunities to leverage existing capabilities to target SMEs and corporate T&E. He is seeing the growth reward them for their focus on this area.

Companies are looking to automate and digitize their processes to get rid of paper and virtual cards are a solution that works well. Mastercard is investing a lot of energy into making the solution better and Receivables Manager is a way to automate virtual card payments and get the benefits without manual processes. It is a big growth opportunity for the company and they are seeing healthy growth. Citi's Ashwin Shirvaikar asked a question about the cadence of operating expenses and the types of investments being made. Sachin Mehra responded with the expectations for the full year numbers.

Michael Miebach states that the company is using the current tailwind of growth to continue to invest in a prudent and disciplined fashion. He also mentions that there is nothing unusual going on from an OpEx standpoint in the fourth quarter and that they are focused on driving operating expenses in the strategic priorities.

Sachin Mehra explains the thought process behind not boosting the guidance for the year. He mentions that the guidance was given in ranges, and that the beat in Q2 was due to timing of deal activity. He also mentions that in Q1 they had modestly increased their thoughts relative to what was shared at the start of the year. Michael Miebach then talks about open banking, and how it is a trend that is here to stay, and that Mastercard is investing in it. He states that they have to move beyond connectivity, and that they have a good start in the US.

Mastercard is investing in two assets, Finicity and Aiia, to build use cases such as Chase Pay by Bank, which is powered by Mastercard's open banking technology. Cross-border travel volume growth has decelerated from April to June, and Sachin Mehra explains that the value prop of cross-border travel remains strong despite the deceleration.

Mastercard is seeing strong growth in cross-border payments and services, both on travel and non-travel, across the globe. In particular, Asia Pacific is experiencing an accelerating trend. This is due to the company's diversified business model and presence across various regions. When looking at the growth rates of cross-border travel, it is important to look at the numbers indexed to 2019 since the year-over-year growth rates are impacted by tougher comps.

Sachin and Michael discussed the opportunity for cross-border travel, both inbound and outbound from China, as well as the imbalance between demand and supply in the travel industry. They also mentioned the moderation in inflation and spending, and the decrease in average tickets during the current quarter.

Sachin Mehra notes that inflation has begun to decrease, leading to a moderation in consumer spending in select markets. In the U.K., rising interest rates and high inflation levels have put a squeeze on people's ability to spend, leading to a decrease in discretionary spending. Despite this, Mehra believes the consumer remains resilient and has factored this into his guidance for the rest of the year.

Sachin Mehra and Devin Corr addressed a question from Bryan Keane at Deutsche Bank about how FX volatility impacts Mastercard's model. Mehra explained that FX volatility affects transaction processing assessments, not cross-border assessments. He also noted that the higher growth rate in cross-border assessments relative to volume was driven by a favorable mix of inter and intra-Europe volumes, which tend to be higher yielding. Corr then asked Miebach for any closing comments.

Warren is listening in the other room as Devin soloed this next chapter of Mastercard. Sachin thanked everyone for their support and questions and concluded the conference call. He also expressed his appreciation to the 30,000 people at Mastercard who make this happen.

This summary was generated with AI and may contain some inaccuracies.