The operator, Julianne, welcomes everyone to the Mastercard Incorporated Q2, 2024 earnings conference call. Michael Miebach, CEO, and Sachin Mehra, CFO, will be speaking. The operator will announce when the Q&A session will begin. The earnings release and accompanying materials can be found on the company's website. The call will include forward-looking statements and a replay will be available on the website. CEO Michael Miebach notes that the company had strong results this quarter.

The company's second quarter results showed a 13% increase in net revenues and a 24% increase in adjusted net income on a non-GAAP, currency neutral basis. This growth was driven by strong consumer spending and cross border volume growth. The macroeconomic environment remains mixed, with some positive factors such as a solid labor market and wage growth, but also concerns about inflation and interest rates. The company remains positive about its growth outlook and is focused on executing its strategic priorities, including organizational changes to support its growth algorithm and invest in long-term opportunities.

Mastercard is focused on investing in new verticals and applying technology to drive digital growth. They are also expanding their value added services, such as data analytics and fraud prevention. The company expects to incur a restructuring charge in the third quarter due to organizational realignment. In terms of their growth strategy, Mastercard is winning and retaining deals, expanding in new geographies, and digitizing the payments ecosystem. They have recently announced partnerships with Varo Bank, Wells Fargo, H&R Block, Blackhawk network, National Bank of Canada, and PostaPay, which will drive growth in the US and Canada.

The company has a strong focus on the travel industry and has signed partnerships with global digital payments providers and major airlines. They are also expanding their presence in emerging markets, particularly in Africa, by investing in new partnerships and increasing their acceptance footprint. This includes partnerships with large telecommunications companies and banks in Ethiopia and Kenya.

Mastercard has partnered with BlueSoft Financial in Nigeria and Ghana to issue cards and facilitate cross-border money movement with Access Bank Group. They are also expanding their services globally, especially in emerging markets like Latin America and Asia Pacific. They are focusing on enhancing the online shopping experience with one-click payments, which will phase out manual card entry by 2030. This will be achieved through tokenization and Click to Pay technology, which improve security and simplify guest checkout.

MasterCard is continuously working on making the checkout process more secure by implementing token technology and passkeys. They have seen a significant increase in Click to Pay transactions and are expanding their biometric checkout program to new regions. They are also migrating Maestro cards to Debit Mastercard, which has resulted in a 2x spend lift. MasterCard is also focused on capturing new payment flows, specifically in the commercial sector, with their market-leading virtual card capabilities.

The company is integrating its technology into top global procure-to-pay solution providers and has completed integration with Oracle Cloud ERP. They have also signed deals with several acquirers for their Mastercard receivables manager. The company is expanding distribution of virtual cards through partnerships with Brex and ad groups. They are also increasing distribution of commercial card products worldwide, including completing a portfolio migration with Wells Fargo and extending partnerships with Virgin Money and SAP Concur. In addition, the company is penetrating new B2B verticals, such as signing an exclusive partnership with Latin America's largest Pepsi distributor and a fintech enabler. They are also expanding into the healthcare space through partnerships with the Medical Tourism Association and Square.

In this paragraph, the speaker discusses the relationship between services and payments at Mastercard, highlighting how the two support each other. They also mention the company's strong growth in value-add services and solutions, driven by demand and deepening penetration with existing customers. The speaker gives examples of how Mastercard's services are helping customers improve their business objectives and diversify their business, as well as partnerships that allow for more efficient distribution of their services.

In the second quarter, Mastercard saw a 13% increase in net revenue, driven by growth in their payment network and value-added services. Operating expenses also increased by 10%, but operating income still saw a 15% increase. Net income and EPS both grew by 24% and 27%, respectively, due to a lower tax rate and strong operating income. EPS was $3.59, including a $0.07 contribution from share repurchases. Mastercard also repurchased $2.6 billion worth of stock during the quarter and an additional $820 million through July 26, 2024.

In the second quarter, Mastercard saw growth in key drivers such as Gross Dollar Volume (GDV) and Switched transactions. GDV increased by 9% globally, with the US seeing a 6% increase in both credit and debit growth. Cross-border volume increased by 17%, driven by strong growth in travel and non-travel related spending. Switched transactions grew by 11%, with both card present and card-not-present transactions seeing strong growth. Net revenue increased by 9%, driven by transaction and volume growth, as well as demand for value-added services and solutions. Mastercard also saw an increase in the number of cards issued globally.

In the second quarter, domestic and worldwide assessments increased due to mix and pricing, while cross-border assessments and volumes grew at a higher rate. Transaction processing assessments and switch transactions also saw growth, with a slight difference due to mix and pricing. Other network assessments were stable. Operating expenses increased due to strategic initiatives and indirect taxes. The operating metrics were generally stable in the second quarter and the first four weeks of July, after adjusting for leap year and Easter. Trends are expected to remain stable for the rest of the year.

In the third quarter of 2024, the company expects strong net revenue growth and low double-digit operating expense growth, with a one-time restructuring charge of $190 million. This charge will allow for further investment in strategic priorities and positive operating leverage in the future. The company remains positive about its growth outlook, citing strong business fundamentals and a diversified business model.

The company expects net revenue to grow at the high end of a low double-digit range for the full year, with minimal impact from acquisitions and a headwind from foreign exchange. Operating expenses are expected to grow at the low end of a low double-digit range, with minimal impact from acquisitions and foreign exchange. The company also expects an expense of $100 million in Q3 and a non-GAAP tax rate of 17-18% for Q3 and 17-17.5% for the full year. They will be hosting an Investor Day in November. The company is disappointed with the outcome of the US merchant litigation settlement and is unsure of the range of outcomes going forward.

The speaker addresses the recent court ruling to reject a settlement and expresses disappointment, but also a determination to find a solution before going to trial. They mention the efforts to provide security and predictability for merchants and banks, and recognize the need for dialogue with co-defendants. The speaker then moves on to discuss rebates and incentives growth in the second quarter, which came in slightly lower than expected. They mention their constant activity in the market and their pipeline of potential opportunities.

In the second quarter, we had fewer rebates and incentives due to a delay in deal activity, but we expect it to pick up in the third quarter. This is part of our strategy to remain relevant to our customers and maintain a positive net revenue yield. The realignment of our organization is aimed at accelerating growth and expanding into new verticals and data analytics, while still staying true to our overall strategy.

In November, the investor community meeting will discuss how the company plans to capitalize on the opportunities in emerging markets with high cash penetration. The company is investing in product development and services, particularly in artificial intelligence, to help customers make better decisions and improve cybersecurity. The company recognizes the need to move quickly in this area due to the advancements of technology by potential threats.

The company's solutions help prevent fraud and give peace of mind to consumers, which is closely linked to their payments business. They are focusing on specific aspects of their portfolio and dialing down others. Europe has been a strong growth story for the company, with a focus on investing locally and engaging with national governments and European institutions. The COVID-19 pandemic has increased the pressure to digitize in Europe, and the company sees a secular opportunity to reduce cash usage in countries like Germany and Italy.

Michael Miebach discusses the growth opportunities in Europe due to the emergence of new business models in the highly digitized market. He mentions the company's strong position in fintech and partnerships in Europe. Sachin Mehra adds that the company is well positioned globally for cross-border transactions and is leveraging its services and loyalty assets to drive cross-border opportunities. They also mention the sensitivity to foreign exchange rates and the potential for increased travel from the US to Europe.

The speaker discusses the company's strong position in the European market and the importance of financial discipline in seeking deals and partnerships. The next question is about the stability of US volume and the factors driving the company's ability to win portfolios. The speaker mentions that there has been general stability in the first four weeks of July, with some potential impact from events with CrowdStrike and weather, but overall, consumer spending remains strong.

The payment market in the US and Europe is highly competitive, with many banks and networks vying for customers. However, the company remains competitive by offering a broad range of payment solutions and services, such as data insights and cybersecurity. They focus on providing solutions rather than just selling products and have been able to have successful conversations with customers by demonstrating the value they bring. They also adjust their pricing to reflect the value they provide, such as with tokenization services which improve approval rates and reduce fraud for customers.

The speaker discusses the company's position in a competitive market and their efforts to maintain an edge. The next question is about the positive divergence between constant currency revenues and volumes in the cross-border line, which has been consistently positive for 13 quarters. The speaker attributes this to favorable mix and pricing, with the mix being driven by the difference in yields between intra-Europe and other cross-border volumes. They also note that during COVID, the reverse phenomenon occurred with intra-Europe growing faster than other cross-border. The last question is about the company's value and its impact on pricing. The next question is from Sanjay Sakhrani about this topic.

Sanjay Sakhrani asks Sachin Mehra about share gain benefits and revenue lines in the quarter. Mehra explains that the slower growth in domestic assessments compared to GDP is due to mix, as GDV includes cross-border volumes while domestic assessments do not. Changes in geographic mix could also affect revenue lines.

In this paragraph, the speaker discusses the assessment of domestic regions and the impact on payment network revenues. They also address the fluctuations in these revenues and the reasons behind them, such as compliance fees. The speaker then mentions the share gain benefits in the quarter, specifically citing the successful debit portfolio conversion with citizens. They clarify that this conversion was mostly complete in the second quarter and that it has had a positive impact on the company's drivers. Overall, the speaker emphasizes the stability in consumer spending trends, despite the fluctuations in revenues and share gains.

The speaker discusses the growth of value-added services and solutions, which saw a 19% increase. The growth was driven by payments and cybersecurity solutions, as well as data analytics. The trend of using AI to improve scalability and effectiveness is also mentioned, and there is continued investment in open banking services. The conversions for deals with UniCredit and Deutsche Bank will take place over a multiyear timeframe.

The speaker discussed a few use cases and mentioned that they are well positioned in Europe, Australia, and the US for open banking. They had a slightly lower growth rate in the first quarter but expect higher growth for the rest of the year. The rebates and incentives were lower in the second quarter but are expected to be higher in the third quarter. They haven't shared much about the nature of rebates and incentives beyond that. A question was asked about the cadence of rebates and incentives for the year, but the speaker only provided information for the second and third quarters.

Michael Miebach discusses the current state of open banking in the US, noting that while there is good momentum in certain areas such as account opening and data aggregation, the value of the card ecosystem is still significant in terms of payments. He acknowledges the concerns around chargebacks and fraud protection in alternative payment methods, but also recognizes the importance of understanding emerging technologies and customer interests in using their data for better services.

The company is investing in open banking and sees near-term opportunities in lending, account opening, and data aggregation. They are also focused on their core business of cards. When it comes to profitability, they aim for positive operating leverage, with net revenue growth exceeding operating expense growth in the long term. They prioritize top and bottom line growth.

The company is investing in growth opportunities in the near, medium, and long term, as they see potential for significant growth. They will continue to invest in their business with a focus on strategic priorities and will adapt as necessary. The question asks about the use of AI in combating fraud, and the CEO responds by mentioning the increase in fraud due to rapid digitization and the evolution of technology in the hands of fraudsters.

The speaker discusses the importance of investing in safety and security in the ecosystem of banks, merchants, and consumers. They have been using AI, specifically machine learning, for a decade to predict and prevent fraud. They have also utilized generative AI to create artificial data sets and improve their products, resulting in a 20% increase in effectiveness. They expect continued growth and plan to expand their use of generative AI in fraud and cybersecurity. They aim to be a strategic partner for their customers in addressing various cybersecurity risks.

The speaker discusses the growth of the company and their investments in the future. They also mention the stability of consumer spending and the support of a strong labor market, but note that there may be differences in spending trends among different demographics. Overall, they remain positive about the outlook for the company.

The digital economy has empowered consumers to find better deals, allowing them to continue spending on expensive trips and experiences despite varying income levels. Inflation affects both carded and non-carded spending, but the company's diverse business model is well-positioned to handle these fluctuations. The company's structure is a result of intentional design.

In the paragraph, Michael Miebach thanks his colleagues at Mastercard for their hard work and expresses gratitude to investors for their support. He also mentions the upcoming Investor Day Community Meeting on November 13 in New York and concludes the call.

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