The operator, Briana, welcomes everyone to the Mastercard Q4 and Full Year 2023 Earnings Conference Call. Devin Corr, Head of Investor Relations, introduces the CEO, Michael Miebach, and CFO, Sachin Mehra. The operator will open the Q&A session after their comments. Non-GAAP currency-neutral basis will be used for financial results. Forward-looking statements will be made, and factors that could affect future performance are summarized in the earnings release and SEC filings. A replay of the call will be available on the website for 30 days. CEO Michael Miebach announces strong earnings and revenue growth for the fourth quarter of 2023.

The company saw an 11% increase in net revenues and a 13% increase in operating income in the fourth quarter, driven by strong consumer spending and successful execution of their strategy. They are closely monitoring economic factors such as labor market strength, inflation, and geopolitical uncertainty. The company remains positive about growth but will adjust accordingly. Their growth algorithm focuses on capturing natural economic growth, shifting to electronic payments, expanding their market, increasing market share, and optimizing customer portfolios.

In order to accelerate the secular shift towards digital transactions, the company is focusing on scaling acceptance, improving user experience, and driving adoption in new sectors and use cases. This has led to the addition of millions of new acceptance locations worldwide, aided by tap on phone and cloud commerce capabilities. The company is also promoting contactless payments, particularly in the transit sector, and is leveraging advanced payment technologies like Click to Pay, tokenization, and biometrics to provide secure and seamless checkout experiences. There is still significant potential for growth in open-loop systems globally, and the company is committed to providing secure and convenient payment solutions across all devices and platforms.

Mastercard's solutions, such as Click to Pay and biometric payments, benefit both consumers and merchants by reducing transaction abandonment and increasing customer loyalty. They are also expanding their tokenization and biometric payment capabilities globally, with partnerships in over 35 countries. Mastercard has also won and retained deals with major financial institutions, such as BOK Financial, Citizens, and Shinhan Card, solidifying their leadership in the industry.

Mastercard's relationship with consumers and businesses extends beyond just card offerings and includes services such as data analytics. They have also renewed partnerships with President's Choice Financial in Canada and Starling Bank in the UK. In the fintech, co-brand, and public sector spaces, Mastercard has secured partnerships with top companies such as J. Crew, Synchrony, and Fiserv Money Network. They are also excited about their joint venture in China and the potential for growth in the market. However, there is still work to be done in building out their presence in the country.

In November, ICBC launched the first world Mastercard product and Bank of Communications selected Mastercard for their first international debit card. Mastercard also announced a strategic partnership with The Clearing House for real-time payments in the United States. They continue to focus on capturing new flows in commercial payments and disbursements, with recent partnerships with JPMorgan, FLEETCOR, BNP Paribas Fortis, Booking.com, and Agoda. They have also seen growth in cross-border transactions and have partnered with UBS and Alipay to expand their capabilities. Mastercard's services and new networks support each other and drive growth in payments and rich data.

The company's services and networks help to drive digitization of payments and generate more data and transactions, leading to a need for fraud tools. They have expanded their relationships with various customers, including Bank of America, Axis Bank, Worldpay, Citi, Square, and Nexi, by providing services such as test and learn program management, supplier enablement, consulting, marketing, analytics, and fraud alerts. They are also extending their services to new customer types, such as large marketplaces like Alibaba and Meta, to improve authentication and reduce fraud.

The company is constantly developing new services and solutions using Generative AI, which will enhance customer experiences, extract insights from data, and increase productivity. Examples of these services include Shopping Muse, Mastercard Small Business AI, and Mastercard Access. These advancements will help the company achieve its growth goals and take advantage of the opportunities ahead.

In the fourth quarter, our financial performance showed a net revenue increase of 11% and operating income increase of 13%, with a non-recurring tax benefit contributing to a 15% increase in net income and 18% increase in EPS. Worldwide gross dollar volume increased by 10%, with the U.S. seeing a 4% increase and international volume increasing by 13%. Cross-border volume increased by 18%, but was sequentially lower due to tougher comps. Switched transactions grew by 12% in both card-present and card-not-present categories.

The growth of card-present transactions was boosted by the increasing use of contactless payments, which now make up 65% of all in-person switched purchase transactions. The total number of Mastercard and Maestro-branded cards issued globally is 3.3 billion. Net revenues for the fourth quarter increased on a currency-neutral basis, with Payment Network net revenue up 7% and Value-added Services & Solutions net revenue up 17%. Domestic assessments and worldwide GDV both saw growth, while cross-border assessments and volumes increased at a higher rate due to favorable mix. Transaction processing assessments and switched transactions also showed growth, while other network assessments fluctuated.

In the fourth quarter, non-GAAP currency-neutral adjusted operating expenses increased by 9%, mainly due to increased spending on personnel and marketing campaigns. Operating metrics as a percentage of 2019 are no longer provided as the pandemic is no longer a factor. Switch volume growth in the US declined sequentially due to lapping effects and was further impacted by severe weather events in January. However, in the fourth week of January, switched volume in the US returned to 5% growth. Cross-border travel growth is still impacted by tougher comps, but cross-border card-not-present transactions continue to show strength. The company also shared their thoughts on fiscal year 2024, stating that their business fundamentals remain strong.

The company is experiencing growth due to consumer spending, customer agreements, and a shift from cash to card. They are closely monitoring the macro environment and geopolitical events and expect net revenues to grow at a high rate in 2024. Operating expenses are expected to increase due to a new Brazil tax legislation, but acquisitions and foreign exchange will have minimal impact. In Q1 2024, net revenue growth is expected to be at a low rate.

The speaker explains that the company's full year currency-neutral net revenue growth is expected to be higher than the first quarter of 2024 due to two factors: higher revenues related to FX volatility in Q1 2023 and slower growth in value-added services and solutions. They also mention that Q1 operating expenses are expected to grow at a high single-digit rate compared to the previous year, with an increase of 1 ppt due to Brazil tax legislation. Acquisitions and foreign exchange are also expected to impact operating expenses. Other information includes an expected expense of $60-65 million for Q1, a non-GAAP tax rate of 16-17%, and a full year tax rate of 17%, reflecting the benefit of the Brazil tax legislation. The call is then opened for questions.

The growth of card volume in the U.S. has slowed down in recent years, but there is still potential for growth due to changing business models and spending behaviors. The impact of inflation on PCE (personal consumption expenditures) should also be taken into consideration when analyzing card volume growth. There has been no significant impact from Reg II so far.

The speaker discusses the opportunities and growth in the U.S. market, citing factors such as secular shifts, consumer health, and winning share. They also mention the importance of the card payment volume side of the business and answer a question about the company's plans for expansion in China, expressing excitement about the potential in the market. They also mention their unique position to provide a seamless solution for Chinese consumers.

The company is actively working with partners in China to roll out new products and services on both the issuing and acceptance sides. They have strong relationships with banks in the country and are well positioned to move forward quickly. While they plan to go live within the first six months, it will take time to fully build out their opportunities. They also mention recent conversions in the US and Europe, with future conversions staggered over the course of 2024. The company takes these conversions into account when planning for the year.

The speaker is responding to a question about the expectations for payments and value-added service revenues, as well as the impact of Brazil's tax legislation. They explain that the tax increase will lead to higher operating expenses, but will be offset by lower taxes, making it slightly accretive to EPS. They also mention that they are not giving specific guidance for payments and value-added services, but expect both to continue growing. They note that value-added services are expected to grow at a faster pace than payments, and that their outlook takes into account factors such as market volume growth and share wins.

During a recent conference call, Sachin Mehra, the CFO of a company, was asked about the outlook for growth between the U.S. and the rest of the world. He stated that the secular opportunity for growth is greater outside of the U.S., but the company has been successful in driving growth in the U.S. However, there may be some geopolitical concerns, such as elections, that could affect the company's expansion into certain regions. Mehra does not expect any significant changes in the trajectory of growth between the U.S. and the rest of the world in the next year. Another analyst on the call asked about how these concerns could impact the company's growth, and Mehra responded that there could be pockets of nationalistic behavior in certain regions, or that elections could slow down adoption of the company's services.

Michael Miebach and Dan discussed the key things to watch out for in terms of monitoring fiscal and monetary policy reactions by central banks and governments, as well as potential effects on consumer sentiment and spending. They emphasized the importance of scenario planning and maintaining a responsible financial playbook. They also mentioned that elections and geopolitical conflicts are regular occurrences, and the company is keeping a close eye on their potential impact on energy prices and the broader economy through their Economics Institute. The value-added services and solutions segment saw a strong acceleration, with growth reaching 17% from 14%. The company is confident that this growth will continue due to factors such as real-time payment assets.

The company has historically focused on cyber and intelligence solutions, fraud solutions, and data insights and analytics solutions. These solutions are driven by the increasing need for secure payments and data analytics. The company also expects growth in their personalization solution, digital identity and authentication solutions, and real-time payments.

The speaker discusses the company's digital identity solutions and their strategy for using them to impact their business. They mention their ability to provide an identity confidence score and combine their identity data with open banking. They also give an example of how they are using their technology for account opening. Overall, they view digital identity as a key driver of value in the digital economy.

The speaker explains that the reason for putting identity data in the new network is to serve as a trusted partner for those who have identity data and those who want to use it. They do not want to hold the data themselves and are focused on minimal use and permission. The speaker then addresses a question about Finicity and mentions that they are also building out connectivity in Europe and Australia. Open banking is seen as a potential value-added service and solution driver, with current use cases including account opening, payments, lending, and small business. The speaker concludes by stating that open banking could potentially be a volume driver.

Mastercard is focused on facilitating payments in non-carded use cases, such as their pay by bank solution in partnership with JS Bank. They hope to see significant volume growth from this approach, building on their experience in the U.K. In terms of acceptance growth, there is potential for growth in both the U.S. and internationally, with a focus on new use cases and verticals in the U.S. and broader acceptance across the payments landscape in the rest of the world. Europe continues to be a driver of growth for Mastercard, with potential for growth in countries like Germany and Italy.

Miebach discusses Europe's role in the growth of the company, highlighting the success in gaining market share and adapting to the accelerated shift towards contactless payments due to COVID. He also mentions the potential for further growth through alternative payment systems and differentiated assets in bill pay. Services have also been a strong contributor to the company's success in Europe, particularly in consulting. Miebach notes that Europe has caught up with the trend of digitization and the company is fully invested in the region.

The speaker discusses European sovereignty and their efforts to engage with nations in the region. They state that payments drive value-added services and vice versa, creating new opportunities for growth. They also mention that the same cycle applies globally. The speaker then answers a question about the decline in yields on the domestic assessment revenue line, stating that it is due to a mix of factors and that they are working to improve the situation.

Sachin Mehra and Michael Miebach discuss the decline in yields seen in the fourth quarter of 2023, which is a pattern that has existed in prior years. Mehra explains that this is due to the strong cross-border performance in the third quarter, which has higher yields compared to domestic volume. Miebach emphasizes that they are focused on optimizing both payment network net revenue yield and overall net revenue yield for the company. He also mentions the importance of financial discipline and not winning every deal.

The speaker discusses the company's focus on winning deals and their disciplined approach. They then address a question about their pay by bank initiatives and how it relates to open banking. They see an intersection between open banking and payments, which allows them to pursue new use cases. They mention specific examples of real-time payment systems where they have experience and connectivity.

The speaker discusses the growth of the digital economy, particularly through public sector initiatives like Pix and UPI, and how it presents both competition and opportunity for their payment solutions. They are focused on providing the best choice for customers and see potential for open banking solutions. The speaker declines to give specific growth forecasts but mentions the base case.

The paragraph discusses the assumptions and outlook for consumer spending and pricing for a company. It also mentions the role of Contra in enabling volume growth and expectations for it in the first quarter. The speaker also mentions their involvement in real-time payments and a recent renewal with TCH.

The speaker discusses Mastercard's strategic relationship with the Clearinghouse and their position in real-time payments. They mention their presence in 10 of the top 50 GDP countries and their focus on new applications and use cases for real-time payments. They also mention their interest in finding global solutions but acknowledge the geographic-specific nature of the market. The speaker thanks the audience for their support.

The speaker thanks the audience and Mastercard for their support and announces that they will speak again in one quarter. They also mention that this is the first time they have had a call on a Wednesday and will mix things up for the next call. The call is then concluded by thanking everyone and ending the call.

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