Thank you. Welcome, everybody, to the 43rd annual William Blair Growth Stock Conference. I'm excited to have with us this morning, Linda Kirkpatrick, who is President of North America for Mastercard. I've known Linda since the IPO of Mastercard. She's been with Mastercard over, you know, for about 25 years now. And I'm gonna —thank you for joining us. Really appreciate [crosstalk].
Thank you.
You being here. It's great to see you again.
Thank you for [crosstalk] having me.
Yeah.
I [crosstalk] appreciate it.
Yeah. Maybe you could give a little overview of your role at Mastercard. I would think that would be helpful.
Sure. I look after all the consumer-facing relationships and operations within the U.S. and Canada. It's our largest market at Mastercard, and as you said, I've been with the organization for about 25 years across a number of different disciplines.
Thank you. Yeah, I mean, the number one question that we always get is, I mean, people have been waiting for a recession for two years now. If you could you give us some update on what you're seeing, what Mastercard's seeing on the macroeconomic environment and, you know, how business is trending, I guess? Yeah.
Sure. The, you know, what we're seeing from a consumer perspective is a very resilient consumer. We talked about the fact that volumes in the first four weeks of May were largely consistent with our expectations for the quarter, and we've really been benefiting from the shift to experiential-based spending. As we look at travel and the return of cross-border, this has really supported consumer spending and trends that we're seeing in the space. You know, of course, there's some headwinds and tailwinds. From a headwinds perspective, we're staying, we're closely watching the economic uncertainty, the stability of the banking system, and certainly inflation. We're benefiting from a lot of tailwinds, and, you know, chief among them is, as I said, experiential spending.
Also we're seeing the shift from a consumer perspective to the digitization of payments, continuing to support our ecosystem. You know, while we're seeing some, in the U.S., some moderation of gas prices, and in March, the cadence of tax payments and moderation of tax refunds did have an impact, it was largely offset by the digitization of payments and travel. Really a very resilient consumer, and again, very consistent with our expectations for the quarter.
Great. Thank you. I appreciate that. Mastercard has announced, you know, a series of significant wins, you know, with fintechs, banks, and others.
Mm-hmm.
What is driving the success that you've been having? I mean, really, it's not just recent, it's been pretty continuous, but you've had some recent nice wins.
We have had some nice wins. I'd say it's largely based on three things.
Mm.
When we go and speak with customers and talk to them about the value that Mastercard brings to their ecosystems, there are three areas that we highlight most intensely. The first would be our customer-focused approach.
Mm.
Our account relationship management strategy. That is really getting to understand the objectives of a customer and supporting them not only with their card business, but across the entirety of their enterprise, whether that be their data and insights needs or their cyber and intelligence needs, or their loyalty and rewards needs. That ability for Mastercard to look end to end into what a customer needs to manage their business, and lock arms with them.
Mm
And achieve their objectives in a very partnership and collaborative-focused way, has been cited as by many of our customers, as a reason for working with us. Secondly, the way in which we've differentiated our value proposition through services has really been a benefit. As we look to grow the business, both organically and inorganically through acquisition, we've placed focus on innovation, we've placed focus on new payment experiences, and really being at the cutting edge of that innovation. Customers like Citizens Bank, for example.
Yep.
Who just decided to flip their debit portfolio to Mastercard, really recognize that innovation and partnership that we have with the fintech community as a way to supplement and complement the investments that they're making to create a national and a digital bank. Lastly, our brand has been increasingly synonymous with inclusion, and, you know, our marketing efforts and our brand efforts to support financial inclusion across the globe, but certainly here in the U.S. to bring the financially underserved into the financial mainstream and have our brand be associated with that, is something that our customers are acknowledging as well. Certainly the Gap, which was a longtime partner of our competition, decided to flip their credit co-brand business to Mastercard last year. We converted 10 million cards.
Mm
Over to the Mastercard brand. a brand.
Mm
A multifaceted brand that stands for inclusion. They saw the benefit of partnering with us, for that reason.
Mm.
It's, I'd say, largely focused on those three areas: the relationship model, products and services, and our brand.
Mm
Synonymous with inclusion.
Great. Thank you. Appreciate that. Mastercard has three strategic priorities, expanding in payments, expanding its services, and thank you for the new information and disclosures on services, and embracing, you know, new networks. Starting with payments, what are some of the key initiatives that you're focused on in that initiative?
Yeah, from a payments perspective, this is really the core of our business, and credit, debit, prepaid, and commercial. When you think about the expansion into payments, there is still tremendous opportunity and runway to digitize payments. We've been very focused on how consumers are paying and where they're paying, as a way to expand the pie and expand the use cases for digitization. When you think about where consumers can pay, we have been very focused on increasing acceptance, the number of places consumers can leverage Mastercard products. We recently reported over 100 million acceptance locations or points of acceptance where consumers can use Mastercard products. That has more than doubled in the past 5 years.
You know, this is, this has been both a deliberate investment on our part, as well as we've been benefiting from innovation in the ecosystem. If we look at the innovation around Tap on Phone, where any individual who has a RFID-enabled device can enable their phone to accept payments, well, now, hundreds of millions of people in the U.S. alone can effectively be a merchant. That capability, that expansion of Tap on Phone has been has helped expand our acceptance ecosystem as well. When you think about how people pay, again, digitization is happening everywhere. During the pandemic, we saw a large amount of volume shift to digital, to the online space, we have been investing in tokenization for quite some time.
Mm.
Tokenization, just to ground everybody in what that is, it's essentially taking the 16-digit account number on your card and turning it into a dynamic token that changes every time it's used. It's a helpful safety and security tool, but it's also the way commerce happens in digital devices. Fortunately, we have been investing in tokenization for many years.
Mm.
When the world went almost fully digital, we were well-poised to capture that opportunity.
Mm.
When you think about card-present transactions, contactless has really taken off in the U.S. and around the globe, for many years.
Mm.
We recently reported that 58% of our card-present transactions are now happening through contactless payments, and in over 100 markets, greater than 50% of those transactions are contactless. And what we know about contactless transactions is, of course, they're just as safe and secure, as any other transaction, but they create stickiness, and they create use cases in point-of-sale models that, where speed matters, like quick-service restaurants, and certainly subway turnstiles, and in taxi cabs. Enabling that contactless experience has also been a tremendous opportunity for us to expand.
Mm
Payments.
Mm.
It's where people are paying and how they're paying.
Mm.
We've been at the forefront of that innovation.
Great. Thank you. extending in services has been a key pillar, second pillar, I guess, of your strategy. I think it's been a differentiator for you. It's actually very interesting. you know, you have a lot of, you know, initiatives there, and the information you gave us, the disclosures, I think it's really under the radar still with investors. It's like, but it's 36% of your business.
Yes
Growing almost 20%.
Yeah.
You know, around 20%. I think 19% last quarter. Can you maybe give a little color on why services are so important and some of the key areas of investment or key capabilities there?
Happy to, Bob. When you think about services, the way we define it at Mastercard, this is our data and insights capabilities, our cyber and intelligence tools, our loyalty and rewards platforms, and our processing capabilities. The reason why services are so important, there are several reasons. One is they really provide us with an opportunity to differentiate our core value proposition. I mentioned a few of the wins earlier. They were very much grounded in our services capabilities. It provides us with an opportunity to diversify our revenue base. As you mentioned, almost 40% of our revenue now is coming from one of those lines of businesses. It definitely provides an opportunity for growth. Services are growing at a very fast clip.
Of course, as we do M&A in this space, it provides us with an opportunity to attract the best talent. We've had a services-based strategy for well over a decade. We've been very deliberate about how we've been making investments in services. Across these topics, we've been, you know, very focused across the topics that I mentioned. We see lots of opportunity for continued growth. Most recently, we announced an acquisition of a company called Baffin Bay. In the cyber and intelligence space, we have lots of tools that help identify the cyber readiness of companies. Baffin Bay allows those organizations to act on, you know, the cyber readiness of their ecosystem by using an AI-based model to help them protect against malware, ransomware, DDoS attacks.
As we all know, as payments have digitized, so too have fraudsters. We look for any way to strengthen the toolset of our customer base to protect them against fraud, and Baffin Bay is the latest example of how we're expanding in the services space.
Great. Thank you. The third strategic priority is embracing new networks. This includes open banking, which we're very intrigued by, and digital identity. Can you talk about some of your progress in the open banking space, and maybe a little color on your recent partnership with J.P. Morgan, the Pay-by-bank effort?
Sure. So we as a, as an ecos, we manage networks, and we see that skill set that we have in managing a network as being applicable in other adjacencies. New networks is another adjacency for us, and we're largely focused here, as you mentioned, Bob, on open banking and digital ID capabilities. You know, from our perspective, open banking widens the financial aperture of what a lender can see in a consumer profile. So we purchased two companies, Finicity here in the U.S., and Aiia in Europe. Finicity, in particular, provides access to greater than 95% of the deposit accounts across the U.S.
What that does is when a consumer provides their permission to access their accounts, so consumer provision data, a lender that we work with can access that data for the purposes of connecting them to financial tools and instruments. Finicity, at their core, they were grounded in mortgage payments.
Mm.
They were leveraging their availability of data to help lenders with mortgage payments. We saw the opportunity to expand that business model into payments, into account openings, and into use cases that have not yet even been ideated. The opportunity to, again, look beyond just what a bank sees or what a lender sees with their business with the consumer, and look holistically at telco payments, utility payments, car payments, as a way to potentially look beyond credit score to provide access to consumers, we believe is the next frontier in payments. Providing that choice, that optionality, that different rail, this is all very consistent with Mastercard's strategy to grow in the space.
Mm.
Now, as again, as you get closer to account-based payments, protecting consumer identity.
Mm
Is absolutely paramount.
Mm.
We see digital ID and open banking going hand in hand. Similarly here, we acquired a company called Ekata, which validates that a consumer is who they say they are. Again, this is really, really important. Our head of identity solutions likes to say that companies don't have fraud problems, they have identity problems, because if you can validate a business or consumer identity in an affirmative way, then, well, you can prevent fraud before it happens. Having Ekata-based solutions on top of Finicity-based solutions is really, really important to us, and increasingly, our customers are recognizing that as well. You mentioned Chase.
Right.
Uh, a very-
Mm
... very good customer of Mastercard, and we've recently actually extended our consumer credit-based business with them, with the Freedom Flex portfolio. This was an area of opportunity to work with Chase in a different part of their business.
Mm
where they're looking to provide account-based payments to merchants who are in the bill pay space. They have a technology called eCheck. What this does is it's an opportunity to expand the pie in payments to really take advantage of a net new part of the business where a merchant is not accepting today, a biller is not accepting electronic payments today. Chase is leveraging Finicity and Ekata-based solutions to help power eCheck and to help make those transactions.
Mm
More transparent, safe, secure, and to give the merchant perspective into when it's appropriate to access the consumer's account to make a payment.
Mm.
That capability is all, you know, net new and very different from the core.
Mm
Carded payment space that we see today. Again, we see it as very much pie expanding, economically advantageous, and a frontier that, you know, has yet to be explored. It's still new and nascent, but we're at the, again, the cutting edge of that innovation with our customers.
Thank you. another focus, I think, of Mastercard has been in, innovating on new products.
Mm-hmm.
One area is the buy now, Pay Later space.
Mm-hmm.
Maybe you could give some color on that effort, your thoughts on, I mean, you know, buy now, Pay Later kind of has had mixed reviews, and, you know, what, you know, what's maybe the product that Mastercard's delivered, and then your thoughts around, you know, the buy now, Pay Later space over the long term?
It's an interesting space. We saw, of course, during the pandemic, consumers really embracing buy now, Pay Later optionality. Again, Mastercard's strategy is all around providing choice and optionality and meeting consumers where they are in their journey. As we saw consumers, you know, merchants increasingly offer the capability and consumers opting into the capability, we saw the opportunity to leverage Mastercard's network to provide installments at scale. What do I mean by that? You know, we launched our own product called Mastercard Installments, whereby merchants could have access to consumers looking to make installment-based payments, and our network could be leveraged for that.
Any merchant who accepts Mastercard payments could actually offer installments, and any lender who has access to our ecosystem could benefit from consumers who are interested in installments. It really supports and benefits every stakeholder in the ecosystem. The best part about it is it applies all of the goodness that Mastercard transactions bring, with Zero Liability, fraud protection, really responsible lending practices, you know, to a buy now, Pay Later transaction, which many of the offerings that emerged over the pandemic did not offer.
Mm.
Again, we see this as a, another way to provide choice and optionality to consumers, another way to expand in payments beyond traditional payments. To the extent that consumers want to continue to leverage this form of payment, just really providing that scale that the Mastercard network brings with all the protections that sit on top of it in a very responsible lending ecosystem.
Mm.
You know, we'll see. The consumer will decide.
Right
How they want to pay and be paid. If it continues to be installments, we're ready with that solution. The first bank to launch this capability in the U.S. is SoFi. They launched earlier this year, and you know, that's been a great success for them. We have a very robust pipeline of buy now, Pay Laters, both, you know, merchants as well as lenders who are interested in this capability.
Right. Thank you.
Mm-hmm.
The, I guess, at your Investor Day, in 2021, you outlined new payment flows.
Mm-hmm
As another key strategy. B2B payments.
Mm-hmm
Which is an area that we've been very excited about now for a number of years, but it really seems to have gotten momentum.
Mm.
Just what you're seeing in the B2B payment space for commercial and small business, and what you think the potential for that business is for Mastercard.
We believe the B2B space is largely untapped.
Yeah.
The challenges around B2B payments with respect to, you know, identifying, first of all, digitizing, protecting against fraud, providing transparency, ease of use, and efficiency, these are very well-known challenges. You know, digitization in B2B payments provides an opportunity for businesses to streamline their operations. Again, here, during the pandemic, when largely people weren't in the office, the opportunity to use digital payments in B2B, in a B2B environment and context, really took off.
Mm.
We're continuing to see great growth in this space. Last quarter, we reported 21% growth in commercial. This is, you know, again, terrific runway for continued growth and improvement. In the VCN space, we are largely the VCN leader. We've been working with many of our customers on VCN for quite some time. You know, again, here, the opportunity to take a carded, you know, an account and turn it into a virtual card number that can be leveraged between businesses.
Mm
Just unlocks so much potential. In the VCN space, we've worked with, you know, we've made announcements with the likes of Coupa and SAP. We have relationships with partners like Extend and Marqeta in the space, and we see this as an area of continued growth for Mastercard. On the small business front, you know, equally, we see this as a terrific opportunity for growth, both in the traditional sense, from a co-brand perspective, the opportunity to reach consumers who are also small businesses and provide them with unique benefits and capabilities that meet their needs. This is something that Mastercard's been at the forefront of for many, many years.
Mm.
I see it as a way to provide, big company rewards and benefits in a way that's digestible to smaller organizations. Again, leveraging the power.
Mm, mm
Of our scale with a different audience.
Yeah.
We've been, you know, we've been making terrific progress here, helping small businesses to digitize.
Mm
Helping them to accept payments, helping them to get access to these rewards and benefits. We have programs that we've launched with the likes of, First National Bank of Omaha and Hello Alice, which is a company that has a directory of over 1 million minority-owned businesses.
Mm.
You know, we have relationships in the small business space with traditional banking customers, you know, like Bank of America as well. This is an area of the ecosystem that's growing. It's thriving. We, again, we sit at the forefront of the innovation in this space. Our brand has become very much synonymous with inclusion. Of course, inclusion is important as small businesses continue to grow and expand. We see this as, you know.
Mm
In the commercial space, we see this as, an area that is gonna, from an investment perspective, we're gonna continue to place a lot of focus and emphasis on it.
Great.
Mm.
Thank you. Real-time payments. You know, FedNow is something that we get I think we get asked about that more than anything right now. Personally, I think it's overhyped, but it launches soon here in the U.S. Just your thoughts, as to, you know, the risks or the opportunities for Mastercard in, that's, present by the launch of FedNow?
Yeah. Well, certainly, you know, if we kind of step back and think about the problem that FedNow is solving. You know, we have our debit product today that works highly efficiently. It is widely used. There's zero barrier to entry. There's protections like Zero Liability and chargeback protection and consumer protection that comes along with it. There's zero friction in use. It's low cost. The reality is the debit product that so many consumers avail themselves of today, works quite well. You kind of ask yourself: What's the problem FedNow is actually solving? There's an announcement that they, you know, will go live later this year, but availability of a service is very different from scaling of a service.
Mm-hmm.
Right now, there's no consumer interface with FedNow. There's no protections. All those protections that I referenced from a debit perspective, those don't exist. As we think about what needs to happen, we're still a long way away from FedNow being able to scale in a ubiquitous way that consumers really want and need. If you think about consumers want ubiquitous, safe, and secure ways to pay. Merchants want access to consumers broadly. Again, debit provides that. While we welcome the competition, and while this is something we'll continue to watch and observe, and certainly we're in the space.
Sure.
We have our own real-time payments assets that we've acquired over the years, there's a long way for FedNow.
Right.
To go to really scale and provide that ubiquity and safety and security that consumers need and require.
Thank you. Regulation, always, you know, one of the risk factors or —what are you seeing today in the regulatory front? What's new?
Well, you know, look, I think the attention that The payments space continues to receive from regulators is a reflection of the critical role that we play in the ecosystem.
Mm-hmm.
Payment sits at the center of so much.
Mm
You know, naturally that's gonna draw attention. What I see is, you know, we continue to work with regulators to educate them on the value of payments, and to advocate for their benefit. You know, most recently, we saw the Fed clarify its rules around Reg II. Of course, just to ground everyone in what that is, the Fed is requiring two unaffiliated debit networks for all card-not-present transactions. Again, here, I think, you know, this goes live July 1. Our network will be ready.
Mm.
To enable banks to comply with this new clarification for Reg II. It's early days. We'll see how this plays out, and we'll see what the adoption drives. You know, from our perspective, what's paramount is the safety and security that we drive to the ecosystem and the innovation that we bring and the investment that we've placed in safety and security remains.
Mm.
You know, whether it's other networks or whether it's FedNow.
Mm
Or whether it's, you know, any other regulatory, you know, or government-backed system, safety and security is paramount, and that's what we believe we bring to the table. That's a core asset of ours, and we're gonna continue to place investment and focus there.
Thank you. I think we have time for one last question. What are you most excited about? What's for Mastercard in North America? You know, what would get you.
You know, you mentioned I've been in the business for a long time. I've never been more excited about the growth opportunities in the payments space. The continued opportunity to digitize core payments, the opportunity to extend into services and new capabilities.
Mm
Fraud and cyber intelligence, and the opportunity to expand into new areas, like open banking, present great opportunity. It's really, you know, to be in this space and to lock arms with our customer partners in the customer-based approach that I mentioned, it's very exciting for us.
Mm, mm.
We look forward to, you know, continuing to see where the market takes us.
Great. Thank you. Thank you very much.
Thank you, Bob.
Appreciate it.
Thank you so much.