Welcome. Thanks for everyone for joining us, our 9:00 A.M. session on Wednesday. I am delighted to be joined by Sachin Mehra, the CFO of Mastercard. Sachin, thank you for joining us.
Thanks for having me here, Lisa.
Excellent. I would note I feel like Sachin got to get a late start this year, because if I recall, my last four conferences in a row, I believe Mastercard has had the 8:00 A.M. session. Warren and Devin are letting you sleep in.
Thanks for being welcoming guys.
All right. Why don't you just start by giving us an update as we always want one, 'cause we know Mastercard gets the real-time data down to the second of what we're seeing in the macro environment and consumer spending right now.
Sure. Great. First, thank you, Lisa for having me here. To your question on what's going on in the macro environment, I gotta tell you that what we saw in Q1 was what would be a remarkably resilient consumer. Consumer spending has been strong in Q1. We talked about this as part of our first quarter earnings call. Obviously, there are puts and takes as it relates to how the health of the consumer is gonna shape up on a going forward basis. There are several factors which we view will be positive, and then there'll be others which we're keeping a close eye on.
On the positive side, you've got continued strong employment, which is something which obviously lends to when people have jobs, they get paychecks, hopefully they feel good about spending, which should lend to what I would call a tailwind from a spending standpoint. The other thing is, you know, savings levels are still at historically high levels, so that would be something which we kinda think in the, in the tailwind bucket. On the headwind side, something to keep an eye on certainly is things that are going on from an inflation standpoint, right? We've all seen inflation be something which has been, you know, impacting how the Fed's been acting and what's been happening from an interest rate standpoint. We certainly watch that.
On the other side is what's going on from a macro environment on the geopolitical side, and what are the implications of that. We certainly keep a close eye on it. I will tell you from what we have seen in our data through the first two weeks of May, the drivers are very much in line with our expectations. It's you know, they're generally very much in line with what we shared with you as to our thoughts for Q2. Again, we'll keep a close eye on this. I'll give you a little bit of regional color as to what we're seeing as well.
When you take something like the U.S. market, which obviously is a big market from a spend standpoint, we had talked about how through the last couple of weeks of March and into early April, we had seen a slight slowdown in spending driven by lower tax refunds primarily and lower gas prices. You know, but otherwise, I would say the consumer remains remarkably resilient. Again, think about taxes as being time-bound as we see it, and the reason I say it's time-bound is because tax refunds tend to be concentrated during a window, and once that window lapses, you know, the impact of that should start to wane. At least that's kinda how we're seeing this kind of play out. The, the other thing I'd say is Europe, remarkably resilient. It continues to hum, Things are going well in Europe.
LAC, likewise. What we're seeing in EMEA is also pretty strong kind of consumer spending patterns. Asia Pacific's been kind of interesting for us only because certainly on the domestic front, you're starting to see a little bit of recovery come through. Markets like, you know, Hong Kong and yeah, South Korea, you're seeing some of that come through. In India, for us as a company, as you know, we were in this period of an embargo about a year and a half ago. We're starting to obviously see the ride back from that because we're out of embargo and things are moving along. Spending generally is healthy in Asia Pacific as well. The last point I'll make is around cross-border. Cross-border holds up pretty nicely. In Asia Pacific, it's showing the recovery we had expected.
I feel generally speaking that from a macro standpoint, very much in line with where we were expecting things to shake out. You know, there are a few other things which have gone on since earnings, which, you know, we are keeping a close eye on. Certainly, you know, the banking crisis is something which had kinda started actually even prior to earnings. Keeping a close eye on that. Not entirely sure as to what the long-term implications of that might be from a regulatory standpoint, i.e., increased regulation, and along with increased regulation, what that really means for, you know, how customers go out from a lending standpoint. So far, we're not seeing credit get impacted for the consumer as it relates to the impacts from the banking crisis.
Last point I'll make is we're closely tracking, as you are probably, the current dialogues going on in Washington from a U.S. debt ceiling standpoint. Something to keep an eye on. You know, hard to tell how that all kinda plays out, but that's something to certainly stay close to.
Just to remind everyone, can you remind us what macroeconomic outlook you're assuming in your 2023 guidance and outlook?
Sure. What we are assuming in our base case is that, you know, that the consumer remains resilient through the course of this year. That is very much part and parcel of what we've got from a thought standpoint when we gave you our thoughts around from a guidance standpoint, as also continued recovery in cross-border. That's kinda in our base case. We closely watch the top line. We stand ready to act if we start to see any sort of slowdown take place on the top line to be able to actually pull the levers we need to pull from an expense standpoint to moderate expenses without impacting the long-term growth prospects of the company. We will do things which actually make sense as opposed to just being reactive to the top line.
Okay. Then maybe just a quick double click on the banking crisis turmoil. I don't know if it rises to the level of crisis. Turmoil over these last few months, realizing it's just a handful of banks and it's more maybe affecting the small business and commercial lending market, maybe perhaps more than the consumer, just from a Mastercard perspective, just talk about.
Yeah.
Yeah, how that's affected you at all.
Yeah. Look, I mean, the card operations side of what our customers have experienced, and this includes customers who may have been impacted as part of the banking turmoil, as you called it. Card operations have continued as is whereas. No impact. Card business carries on. Those portfolios continue to perform, which kind of logically makes sense because at the end of the day, that's a very valuable asset for whoever would be interested in the bank in question, right? I mean, those card assets tend to perform well, and so that business carries on. We'll stay very close and vigilant to understanding what, you know. Obviously we take, you know, risk from a settlement exposure standpoint to the banks, so we've got to stay close to that. So far we've not seen any impact come through on the card operations side.
Okay.
Yeah.
Okay. Good. All right. Well, Mastercard recently changed the way you do your revenue disclosures. Always, yeah, a big kind of change from an investor perspective when that type of thing happens. Can you just walk us through what motivated you to make the changes, you know, and what sort of the impact we should expect the changes to have?
Yeah. Look, we always look at our disclosures. We wanna make sure we're presenting disclosures which provide the best possible transparency to our investor base. Transparency is kinda the first thing we think about in terms of how best to represent what our business looks like, which is why we disaggregated our revenues to show them across payment networks and value-added services and solutions. It also aligns with our strategic priorities, and it also aligns with recent interpretive guidance, which is put out by the SEC on a regular basis. We think about all of those things when we kinda go down this path. The bottom line I'd like to actually leave you with on that disaggregation of revenues is fundamentally nothing changes with the business. This is a presentation and greater transparency as to what the revenues are. Our revenues are exactly.
In totality, are exactly the same as we had previously presented. They'll be exactly the same on a going forward basis. Because now you will have greater transparency into value-added services and solutions, which is something a lot of our investors were asking for greater transparency on, we thought that this was the appropriate thing to do, which is what we've done as part of this process. I'm happy to talk through, if you're interested, to explain what is in payment networks and what's in value-added service and solutions, but that's kind of the motivation behind what we've done.
Maybe in, yeah, in the value-added services side it might be helpful to give a little. I mean, I know we've always thought of that as like there's other revenues and then there was some other stuff sprinkled around in other segments. Because value-added services is such a key strategic priority, maybe just remind everyone kinda now with the new disclosures and it fully broken out, how big is that? How fast is it growing and what the major pieces are of value-added services.
Sure. Look, I mean, first let's define what's in value-added service and solutions, right? We used to historically talk about services. Everything we talked about historically in the context of services sits in value-added services and solutions. In addition to that, what we've got in there is things like our real-time ACH related revenues, like our digital identity related revenues, open banking related revenues. Which is why we call it value-added services and solutions, which is the add-on to what's there from a services standpoint. To double-click on services, which is the vast majority of what sits in value-added services and solutions, it's primarily our Cyber and Intelligence capabilities. This is our fraud management capabilities and our cyber threat management capabilities. It's data and analytics, it's loyalty, it's our consulting related stuff, it's our processing assets. That's everything which sits in services.
Look, that part of what we are doing from a capability standpoint continues to be in very good demand. We see tremendous opportunity down that path. We are growing it at a healthy clip. You can see that now in our numbers. You can see it historically. You can see it even in the most recent quarter that we've had, you know, good performance down that path. You know, it's a key enabler of what drives the business in totality. The most important thing which I kinda want to leave you with is even though we've shown you this disaggregated revenues between payment networks and value-added service and solutions, you've got to think about this as a virtuous cycle. That's how we run the business. Value-added service and solutions are a key enabler of payments.
Payments are a key enabler of value-added service and solutions. They're very tightly integrated, notwithstanding the fact that we're giving you this disclosure which is there from a segregation of revenue standpoint.
Maybe just staying on services for a minute because we got into it there. Can you talk about, so, you know, Mastercard's been talking about value-added services for many years, the last 10 years I've been covering the company you have, but now you've broken it out separately. What are the opportunities you see in services going forward? Maybe in light of that comment on Baffin Bay, one of your recent acquisitions.
Mm-hmm.
In the cybersecurity.
Sure. look, I mean on services, the reason we're doing what we do from a services standpoint kinda has got four key criteria. One, it helps drive revenue growth of the company as a whole. Number two, it helps us differentiate our proposition across payments and new networks. Number three, it's a great source of diversification of revenues, and you saw that play out in space during the COVID environment when payment-related revenues got impacted. Services revenues held up pretty nicely. Four, it's a fantastic source of talent. a lot of the talent we hire in that space tends to start up there, but then actually we get to move them around the company. that's kind of the broader thinking behind why we do what we do from a value-added services and solutions standpoint.
As it relates to the opportunity, if we were to just step back and you think about the primary areas within services are cyber intelligence and data analytics, insights and loyalty. On cyber intelligence, I take you back to the more macro environment. As the world has gone more digital, there's greater amounts of fraud which has migrated to that digital environment, and we believe that that's a trend which is only going to persist and continue to grow as time goes along. We are investing heavily in capabilities to enable our partners to be able to tackle that fraud. It's a fascinating discussion to have with your partners when you go in and you have a discussion with them about let me help solve a big cost item for you, which happens to be fraud.
We'll certainly talk about switching related costs while we're talking to you about that. If I can help you really maximize your P&L, part of which is your fraud cost, it really resonates. It resonates nicely. Similarly, when we talk about insights and analytics, it's about helping our customers optimize their portfolios, which helps them grow their top line. The dialogue is actually a fairly strategic dialogue with our customers to say, "Look, we're here to help you grow your top line. We're here to help you manage major items of your expense base." As it relates to the opportunity set, look, we started up going down the path of taking our services to our issuing base initially. We still continue to see tremendous opportunity down that path. Deeper penetration with our existing issuing base.
We moved to the acquiring side of the equation. We're actually working more closely with the merchant community on some of our so-solutions, and this is not just in the U.S., this is on a global basis. While we're doing all of that, we're also adding to the portfolio, which takes me to your question around Baffin Bay, which is another element of expanding that portfolio to go after the customer. Let me talk a little bit about what Baffin Bay is all about. Two years ago, we acquired a company called RiskRecon. What RiskRecon does is it does an outside-in scan of the digital footprint of any corporation. What you do is you effectively look into the IP address of a company, and they help through the IP address to identify where the vulnerabilities are there from a cyber standpoint.
We identify those vulnerabilities. As we've gone down that path and scaled RiskRecon, our customers have been talking to us and saying, "That's great. You're telling us where my vulnerability is. Can you help me solve the problem?" This is where Baffin Bay comes into play. What Baffin Bay is that add-on where you go back to not only those customers, but others as well, to help them now prevent those cyber vulnerabilities from really materializing, such as DDoS attacks, malware, you know, things of that sort, which are really important aspects. We see tremendous potential as we keep doing this to keep meeting needs which are emerging in these areas. Baffin Bay is just one more extension on that path.
The competitive dynamics in value-added services are a bit different. It's sort of a little bit of a different set of competitors, potentially. How does Mastercard differentiate yourself in that space?
Yeah. I think to be successful in this space, obviously it all starts with, you know, is there a problem to be solved? Which we're identifying and which we've just spoken about as being a problem. There is a problem to be solved. Then it's about making sure you've got fantastic data, well organized in a manner which allows you to provide high-quality confidence scores to reduce the fraud related issues which we're talking about. I'm talking about fraud, and I'll come to data insights and analytics. You not only need the data, you need the data to be organized in a manner where you can tap into it. You need great AI models to be able to get, you know, high-quality scores with high confidence.
You've got to be able to then deliver that in a seamless manner to your customer. 'Cause a customer might say, "You can give me a great score, but you know what? If you have to do a bespoke implementation, that's a long process. I have a big tech queue, so stand in line, come to me later." We have the ability to embed a lot of these capabilities into our network, and when you embed it into the network, you basically give the customer the option to turn on or off the switch without them having to do a heavy lift from an implementation standpoint. From a competitive landscape standpoint, when you have great data, you organize it well, you've got great AI logic to be able to clean it and can deliver it well, it puts you in a pretty good place.
That doesn't mean we win always. Let's just be clear about that, right? The reality is that it improves our chances in terms of being able to really deliver quality product to our customers, so.
All right. Well, I had one from the audience. Remember, folks, the QR codes if you wanna lob in any hot seat questions for Sachin while we have him up here. Specifically on value-added services, can you give any color around how investors should think about the margin profile and also the recurring revenue profile of value-added services relative to the networks ?
Sure. A couple of thoughts. One, at Investor Day in 2021, we had shared with you a little bit more color around value-added services. Specifically, we had kinda talked about how across value-added services and solutions or actually value-added services at that point in time, roughly 50% of value-added services revenue was tied to transaction growth. I wanna kinda put that out there because people oftentimes wonder what's the tie back to the growth in transactions, which is there. That's important to keep in mind. A meaningful portion of value-added services, particularly on the C&I side, are recurring in nature. Back to your question. You know, people oftentimes ask this question around margin. I like to think about this in the context of incremental costs associated with delivering an incremental dollar of revenue.
The reason we like to do that is for every new solution we put out there, we kind of think about this and we say, "How much incremental cost do I have to incur in order to generate that revenue?" That revenue is not only the revenue we generate from the value-added service, but it's also the revenue you generate from winning a brand deal. At the end of the day, remember, this helps us differentiate on the brand. The reality is for us, as we think about the spectrum of opportunities here, things on the C&I side come with lower incremental cost for every incremental dollar of revenue. On the D&S side, which is data and services, what we call data and services, if it's something like consulting, there's a little bit higher incremental cost.
If there's something like data insights and analytics, which is more platform-based, there's lower incremental cost. It's a portfolio approach. At the end of the day, what we are trying to do is we're trying to optimize the mix of all of the solutions to drive that ultimate objective, which is how do we stay relevant with our customers across both payments, services, and across new networks while we're delivering this. And it's that mix piece which is gonna help us manage where is the amount of incremental cost gonna go between things like C&I and D&S.
All right, let's turn back to the core payments business. In focusing on your core consumer-to-merchant business, what are the types of things you're doing to continue to drive growth in that business? Maybe highlight specifically traction on your buy now, pay later offering that you launched last year.
Sure. Look, at the outset, I'm gonna say the consumer to merchant opportunity is still a very sizable opportunity. I know there's been a fair amount of discussion in the recent past, particularly after COVID, as to what the runway which is available from a secular trend standpoint is. We continue to believe this is not a three, four, five-year opportunity from a secular opportunity standpoint. It is much longer than that. A lot of the work we've done in terms of different markets, et cetera, et cetera, suggests that we're in the right place. What are we doing to go after that opportunity? Number one, baseline Process keep winning issuer deals. Let's stop there. You've been seeing us execute on that. We're winning issuer deals. You need to have cards in circulation. You need to have more credentials in circulation.
Number two, keep growing your acceptance footprint, which is what we're doing. We just talked about it in the last earnings call that our acceptance footprint is now north of 100 million merchant locations. It's effectively doubled over the last five years. We've got to keep doing that because the more the acceptance that's there, the greater the amount of ability for you to actually tap into that secular opportunity I was just talking about. Number three, continue to leverage the digitization capabilities we put out into the market. These are the likes of our tokenization capabilities, Click to Pay. Number four, I would say contactless. Contactless is a key enabler of tapping into that secular opportunity.
At the last earnings call, I'd shared about how contactless now represents, in the first quarter, represented approximately 58% of all in-person switch purchase transactions. Anyone who's been tracking Mastercard has seen that only grow over a period of time, which is... Why is that important? It's important because when you use contactless, you tend to tap into smaller ticket payments. When you tap into smaller ticket payments, they've historically been in cash, so you're driving that secular opportunity. That would be the other area. You know, another area would be, like you say, coming up with new and creative solutions to meet what consumers want, such as installments. Mastercard Installments is our version of getting installments made available across our entire merchant footprint and made available to our issuing community.
Really what it is it's not a bespoke installment capability between one merchant and one issuer. It's more about let's enable all our merchants to be enabled for buy now, pay later and let our issuing base and our lending base be tapping into that. We announced in Q4 of last year about how, you know, a customer like SoFi has launched our Mastercard Installments. They're seeing very good success come through. It's all been done with the right principles around consumer lending, which is really, really important to us because we have learned over the past five decades the importance of actually making sure we're putting products out there with the right principles from a consumer lending standpoint. The other one which we announced was with Apple Pay, Apple Pay Later.
As I go overseas, you know, we've done a bunch of work on installments with the likes of, you know, Commonwealth Bank of Australia, National Australia Bank, Westpac. There's a lot of good traction taking place. We don't believe personally that kinda it's the silver bullet which is gonna be the future of payments, but it's certainly scratching an itch for consumers, and we should be present to make it available for our customers, which is what we're doing with the likes of installments.
Well, beyond person to merchant or consumer to merchant payments, Mastercard has focused for a long time on the commercial and B2B space as one of the new flows that you've been targeting. Can you just give us an update on where we are with new flows and specifically, commercial and B2B?
Sure. What we define as new flows is across four areas. Just to recap for everybody. It's remittances and disbursements. It's commercial point of sale. In commercial point of sale, you've got the small business proposition we've got. You've got the likes of T&E. You've got the P-card. These are all on card rails. Let's just to be clear that the commercial point of sale. In B2B accounts payable, we've got virtual cards, and then we've got other solutions which we're building to tackle the accounts payable universe. The fourth pillar is around bill payments. To your specific question around commercial, I would say very interesting area, large, unaddressed market. We continue to grow at a healthy clip. We talked about this in our 1st quarter earnings call about how our commercial volumes grew at approximately 21%.
We continue to see tremendous promise, that's across the virtual card side of the business as well as across small business. I'll talk about those two in particular on commercial. On virtual cards, we continue to be the market leaders in virtual cards. This is a capability which we continue to grow, see a lot of demand for. We are embedding this capability with various other technology providers, the likes of Coupa, the likes of SAP Taulia, the likes of Sabre and Conferma Pay. The more you do this, where you create embedded finance capabilities into payment mechanisms, the more seamless you can get your card-based payments out from a virtual card standpoint. We're seeing very good traction on that. In addition to that, we're seeing good traction on the small business side.
There is still a very significant portion of spend which takes place in B2B, which happens to be in cash and check. Believe it or not, that is the case. This is where the likes of SMEs who are using cash today, the likes of SMEs who are using check today, we've got to go after them with. This is not about reinventing the wheel. It's about making sure you come up with fit-for-purpose value props on card rails to go after SMEs, along with your Mastercard's platform capabilities. The platform capabilities, Lisa, are the likes of our Easy Savings platform. The Easy Savings platform is our loyalty platform where we offer merchant-funded rewards to all Mastercard SME cardholders who are on that platform.
We have north of 40 million cardholders who are on that platform, small business cardholders who are on that platform, where if you're a small business cardholder, you have a Mastercard card, you're enrolled on that platform, you go and you conduct your business wherever you conduct. You tend to go to, say, a rental car company, you will get an always-on offer as part of that process. That's how you create affinity. It's about creating a two-sided marketplace, which is merchant. Merchants love it because they're basically getting an affinity from a small business universe, which they never had an audience with in the past. The issuers like it because they're creating affinity for their cardholders to the proposition. We've been rolling that out. That's just but one example, right?
You got the likes of things like Smart Data, which is an expense management tool, also made available to small and mid-sized companies. While it is on card rails, the success in that space is also a function of what you do from an investment standpoint to bring in platforms and capabilities to meet the unique needs of small business hold-owners and mid-sized companies. That's what's been the focus, and that's where we're generating more and more growth from.
How should investors think about the TAM expansion that comes with new flows?
Look, I mean, I think the TAM expansion has to be thought about in multiple buckets, and I'll talk about the stuff which is more here and now, as opposed to things which will happen over, call it, the next decade. Talked about commercial already, which we think is a very sizable opportunity. We had shared with you what the TAM is at the Investor Day in 2021, so I won't, you know, rehash that. What I did not talk about was remittances and disbursements, which is the other area where we see tremendous opportunity, and we're growing at a very healthy clip, not only in the U.S., but internationally. In remittance and disbursements, these are domestic flows, and these are cross-border flows, both of which actually sit in there.
This is about leveraging not only our card rails, but our multi-rail capabilities to be able to originate payments from a bank account or from a card and terminate payments onto a card or into a bank account. The use cases are the likes of P2P payments. You've got disbursements in the insurance vertical. You've got early wage access. You've got payouts, which are I mean, you know the general gist. The TAM is huge. You've got to go about that in an organized manner, and you've got to go and tap, depending on the market in question, different use cases. Not all use cases are applicable in every market, and that's where the focus for us has been. We see good runway there.
What we particularly like about this is when you do remittances and disbursements, which is what we're doing, leveraging the likes of Mastercard Send, to the extent you do it in markets in which Mastercard has got a sizable debit share, and to the extent those payments are terminated into bank accounts which are attached with Mastercard credentials, you get the second lift as well. The second lift being people tend to use your Mastercard card for the money which just came into the bank account to be spending. You get the card economics for the spend they do there, as well as you get the economics for the push payment which is going to the bank account. That's kind of part of what the rollout strategy has been for us.
Got it. Okay. Well, speaking of Mastercard Send and remittances and disbursements, let's go to a hot topic of the day, which is FedNow, scheduled to be launched in the U.S. relatively soon. How do you think about the opportunities and the risks associated with FedNow?
Yeah. Again, FedNow is for us not really a new idea or concept, right? We have been supporting The Clearing House actually in the U.S. with real-time payments through our Vocalink asset for some years now. Success and utilization of FedNow has got to be very use case specific in our view. First, you have to think about FedNow in the context of the comparative point being a debit product. Let's start there. You've got to ask, at least we've got to ask ourselves the question: What part of that debit proposition doesn't work today, either for the merchant or for the consumer, where someone will want to shift to say, "I'm gonna use FedNow as the payment settlement engine," right? Where debit doesn't work.
The reality is, we have seen time and again in several markets, I'll give you the U.K., for example. Real-time payments in the U.K. are, for the most part, run by Vocalink. We own Vocalink, and debit is live and healthy and works, and works really well in a market like the U.K. The reason it does is the consumer is like, there's no problem you're solving with building an application on top of a real-time payment rail which debit doesn't already deal with, particularly in regulated interchange environments, and likewise for the merchant. Our view on FedNow is let's keep doing everything we're doing in terms of delivering value through our debit proposition, and consumers will make the right choice as it relates to the value props that debit brings. One is the user experience is tremendous. Number two, great fraud management capabilities.
Number three, all the various bells and whistles that we bring in by virtue of our franchise rules, such as zero liability, the ability to return your goods, et cetera, et cetera, all of which have to be replicated by whoever builds an application on FedNow. Let's start there. You might say, "Well, then are you saying that FedNow has no future?" That's not what I'm saying. What I'm saying is the use case specificity of it is gonna matter. In other words, I could see great applicability for FedNow in bill payments. In fact, let's talk about, we recently announced leveraging our open banking assets to partner with J.P. Morgan Chase to do Pay by Bank. Really what we're doing there is we're improving the bill payment experience there.
Could the settlement out there be done through the likes of real-time payments on FedNow? Absolutely. The value prop we're delivering out there is creating that connectivity to solve for a big pain point in bill payments, which is not sufficient funds. When people actually do a bill payment, there's oftentimes no funds available in the bank account of the person who set up the recurring payment, and we're looking to solve that with what we call a Payment Success Indicator. When you bring that asset together with FedNow, we see good utility. Likewise in B2B. We see the opportunity there. I really think about this as saying you've got to sort through where the opportunity is.
Mm-hmm.
Look, at the end of the day, if we don't do what we're supposed to do, which is keep growing our relevance with our debit and credit proposition, sure, there'll be things which will come around, but we stay very focused on delivering on that.
Do you anticipate that Mastercard might incorporate FedNow into your network of network strategies, so you're actually leveraging those rails at some point?
I think it's conceivable. I think it's totally conceivable, which is the end of the day. Let's take something like Mastercard Send, right? First of all, Mastercard Send provides immediacy of payments today. What is the problem statement being solved with FedNow, which Mastercard Send doesn't take care of? If there is a use case in which it's not a 30-minute settlement required, but it's an immediate settlement, FedNow does that, there's no reason why we shouldn't build the application on top of FedNow to deliver to the use case in question. At this point in time, we see it as being complementary in those kind of instances. I don't see it necessarily being applicable on every use case.
Said differently, if I'm a consumer, if I'm happy enough getting those funds in 30 minutes as opposed to within the next three seconds, well, I've got Mastercard Send, and it works fine, right? It's gonna be very specific to what the use case in question is.
Looking globally outside the U.S. as well, there's a lot of focus on Pix in Brazil and UPI in India. How does Mastercard interact or sort of coexist with those domestic networks?
Yeah. I mean, look, I mean, this is the reality, and it's, you know, you talk about Pix and UPI. There's several such, you know, instances of what we call alternative payment methods, which are there even in Europe, for example, right? Let's take Pix, for example. Pix, just for the benefit of everybody, it is an account-to-account payment system which was established in Brazil, right? First, let's start. Brazil is primarily a credit market. There is some element of debit there. Our presence in Brazil is certainly there in debit, but mostly there in credit. The competing factor which you got to think about is what Pix means for debit in that market. Today, as we see it, Pix is primarily going after P2P payments, which are not catered to by our debit card proposition in any case.
It's going after what they call boleto payments, and wire transfers. There are use cases where Pix works. We have not seen major proliferation of the likes of Pix into P2M payments in Brazil. Part of the reason is it goes back to your question around FedNow, Lisa, where in addition to making sure the payment is available, you've got to have everything else which comes along with the P2M payments, such as our chargeback rules, such as our zero liability, such as fraud management capabilities. That has not quite been developed yet. Not to say it can't be, but that's not been developed. Again, you've got to go back and ask the question: does debit meet the use case? It does. Is that an investment worth making?
I think there's peaceful coexistence, which is gonna happen with a lot of these cases. Likewise for UPI, by the way. Our card capabilities and our card volumes in India continue to grow at a very healthy clip, and so does UPI. What we are most focused on is not only delivering on the payment, but to the extent that there are flows taking place outside of our rails, can we deliver services? That's what we will do in certain markets, whether it's UPI, Pix or otherwise, to try and also generate revenue as part of that process.
Good, because that was exactly the audience question I was about to ask you, which is connecting the dots back to the value-added services discussion up front. Have you seen any traction yet with selling value-added services into some of these account-to-account schemes in Europe, India, Brazil, et cetera, as you said, which are more like bare rails, so they lack some of those fraud protection capabilities.
Yeah.
Chargeback protection?
I'd say early days, but we are seeing traction, and let me tell you where we are seeing traction. Let's start with our consulting capabilities. We are generating revenue in the year end now with our consulting capabilities on these alternative payment flows, whether it's on CBDCs, whether it's on, you know, real-time payments, to bring our thought leadership and our technology through sandboxes and making them available for those who want to launch this. That creates a revenue generating opportunity. We've talked historically about, and that continues to be a revenue source for us today, our ability to do something called anti-money laundering related capabilities, which we do. That's another area where we're generating services related revenues on flows which are unrelated to our card payments. The other area would be the acquisition we made, called CipherTrace.
CipherTrace is around ensuring compliance in the crypto universe, and you know that's fraught with all sorts of issues. We're seeing really good traction in that space. You will see bespoke places where we can leverage our services on flows, payment flows, which happen outside of card rails, and we stand ready to actually tap into that. The last point I'll make is success in this space at scale is going to be a function on getting data rights. We stay very focused on being able to generate those data rights. To the extent the customers are not willing to hand them over to us and give us, it's hard to deliver those capabilities, but to the extent they are, the products and solutions are available to them.
All right. One other newer service I wanted to highlight has to do in the cross-border space, your Cross-Border Services Express, which is a relatively new cross-border solution that you offer. Cross-border is a lucrative part of Mastercard's business. Can you just talk a little bit about the traction you're seeing there, exactly what use cases you're going after and how that sort of differs from Mastercard Send, for example?
Sure. First, the Cross-Border Services Express is an account-to-account cross-border service that we're offering our customers. It is targeted at small and mid-size banks and financial institutions, that's the target market. What is it? It's essentially a turnkey white-label capability to allow small and mid-sized banks to be able to offer cross-border services to their client base without having to go through, you know, the laborious process of what it takes to actually be present in the space. It's everything from, you know, pre-certified compliance, KYC, pricing, marketing, registration, reporting, all of that. Think about it as cross-border account-to-account payments in a box. Your ability to deliver that. The underlying assets are no different than what we would offer to a larger bank for cross-border payments.
The Express Service is about saying there are gonna be smaller banks who do not want to go through a bespoke implementation. Can you put this in a box, and can you get it out to them to drive scale down that path? We're seeing good initial feedback. It's early days. It's very early days. We're seeing good initial feedback, but think about it more as a go-to-market capability to drive scale as opposed to it's a brand-new solution.
Mm-hmm.
It's very different from what you think about in the nature of Mastercard Send, which is more around domestic flows. This is around going after those cross-border flows.
Mm-hmm.
Enabling our small and mid-sized banks to do that.
This is those small and mid-sized banks who either didn't offer international services previously.
Correct.
Or would've had to use, like.
Far superior.
Wire correspondent banking.
Correct.
Yeah. Yeah.
Yeah.
All right, let's go to. I'm conscious of the time, so I'm jumping around, but I can't leave off without one of my favorites, which is digital identity.
Mm.
A third pillar of Mastercard's strategy has to do with new networks.
Right.
You talk about open banking. Digital identity is another one of those. Talk a little bit about that digital identity opportunity in particular, because I find it intriguing 'cause it has the potential to take Mastercard beyond your traditional customer base, even into different industries, for example.
Yeah. It's your and my favorite space. Let's put it that way. It's an exciting space to be in. The reason I like and I'm particularly excited about it is because, again, I go back to what the macro trends are. As the world is going more digital, there is a greater need to identify individuals in that digital environment. Historically, I could go into a bank, and I opened a bank account. You could see me. I came with my passport. You open a bank account. Now bank accounts are opened by you just getting onto an app. You put in your name, your address, your email, blah, blah, and then you have a bank account. Then you fund the bank account utilizing Mastercard's open banking capabilities, for example.
In digital identity, really what we're trying to do is we're trying to authenticate people. This is not necessarily in the payment transaction. This is before the payment transaction and after the payment transaction. Really, the way we're going about doing this is there's multiple facets to this. This is about identity in the nature of name, ID, address, et cetera, to say, is Lisa indeed who she says she is when she opens a bank account, for example. That's a use case. It's also combining other assets we've got, such as our new data asset, which is around, you know, think leveraging our biometric capabilities, our behavioral capabilities, which we've got to identify whether Lisa is indeed who Lisa is.
That we think is a tremendous opportunity because as the world goes more digital, you get the opportunity to generate revenue outside the payment flow across establishing that identity. The other side of the equation, which goes beyond payments, is let's think about a merchant marketplace. When you go and load, a basket of goods and services in your merchant marketplace, unbeknownst to you as a consumer, behind the scenes, there are API calls going through to Mastercard's digital identity database to say, this person has loaded X amount of goods and services into their basket, on the marketplace. They're asking to ship it not to their traditional address, to a new address. What kind of confidence score should I attribute to this, or is this a fraudulent transaction?
That, these kind of use cases are not something which historically Mastercard has delivered in the nature of what we do from a services standpoint, but we think there's a tremendous opportunity. The revenue model, and I know that's the logical question people are gonna ask, is we are charging on a per API call basis. Every time that ping takes place behind the scenes, right? That API call to say, is Lisa indeed who Lisa says she is, we generate revenue on a per transaction revenue stream. We think there's a good opportunity in this space. It's very early days, Lisa, I'll tell you. There's the potential and the network effect and the scalability of it certainly is something we're excited about.
All right, well, we could talk about digital identity all day, but you are the CFO, so I have to ask you a couple of more pedantic questions.
Okay.
How about the regulatory environment? There's been some recent regulatory activity in the U.S. Can you just give us a quick update?
Sure.
The regulatory?
Yeah, look, I mean, there are a few things which have gone on from a regulatory standpoint, right? I think, everybody knows about the clarification which was put in place for the Durbin Amendment, which is about having two unaffiliated networks on debit card transactions in the card-not-present environment. That goes into effect on July 1st of this year. We'll be ready to make sure our issuers are ready to enable and make that happen. Absolutely will. We actually feel good about the value prop we deliver there, and the goodness comes from the fact that it goes back to in the digital environment, when you think about what's going on right now from a fraud management standpoint, it is not just about the cost to incur as a merchant to route the transaction through the cheapest source, it's about your overall cost of ownership.
The overall cost of ownership is what the merchant needs to take into consideration. So long as we can deliver the best-in-class, safest, and secure experience, we feel like we're well positioned to participate in that. Also recognize that we are not the largest debit player, so we have an opportunity in that space as well. That's what's going on there. It will be implemented. We'll be ready to do that. The other thing which had come up, I think it was a few quarters ago, was CCCA. Really no new developments on that. We continue to believe that from a consumer standpoint, you know, we've got a great proposition which is out in the market, but really no new developments on that.
All right. Let's talk a little bit about capital allocation. On one hand, private market valuations are coming down, which I'm sure means Mastercard is sort of salivating over some assets that are out there. At the same time, we've got the kind of current macro environment and uncertainty going on. How are you thinking about acquisitions and M&A in the current context?
Yeah. Our view around acquisitions and M&A is no different now than it was during COVID and pre-COVID. It will start and will always start with strategy. What is it we're trying to achieve from a strategic standpoint? Do we have the toolkit necessary? If we don't have the toolkit, are we gonna build it? Are we gonna buy it? Are we gonna partner? If we decide that buying is the right way to go, we'll go and do exactly what you said, which is acquisitions. People oftentimes say, "Well, theoretically, can't you always build everything which is out there?" The answer is, yeah, theoretically you can, but you need to be fast to market on certain capabilities, which is why we've been acquisitive in the past. We'll continue to be acquisitive in the future.
Oftentimes people will say, "Well, with valuations rightsizing, right, is there an opportunity?" Certainly, there's an opportunity. Remember, Mastercard gets into a lot of these acquisitions because we think there's long-term strategic benefit and significant synergy value. At the margin, I care deeply about the valuation, but what I really, really care about is what is our level of confidence in delivering on the synergies which we're gonna realize from that. A lot of the acquisitions we've done, you'll see have been in spaces around C&I. We've done them in DNS, in new and emerging areas where we feel like getting fast to market with the capability is really important, and that's gonna be the philosophy going forward as well.
All right. Well, up front, you commented when we were talking about the macro environment about some of the actions that you're prepared to take, if necessary, if we see a slowdown. Can you just recap for us again, on the OpEx side, what are the levers, you know, around which you've got some near-term flexibility, and then how do you think about that relative to maintaining longer-term investments?
Couple of principles. One, we continue to maintain the principle that over the long term, we wanna deliver positive operating leverage as a company, right? That's one we'll keep in mind. Number two is, in terms of flexibility on the expense side, keeping an eye on the top line. Yes, we have expense flexibility, but we will not mortgage the future as part of that process. By that, I mean, we will not do silly things to cut back on expenses to drive, you know, near-term lifts in EPS or earnings to jeopardize the long-term growth prospects of the company. With those two broad principles in mind, we have significant levers we can pull, and we have historically done them. Everything from our advertising and marketing spend, to our professional fee spend, to people.
Remember, a large component of our operating expense base is people. A large component of what growth you've seen in operating expenses has come from people. We have the ability to pulse the pace of hiring on people without jeopardizing the long-term prospects of the company. This will be tied very closely to what we're seeing in the nature of market trends and what customer demand is. We'll be able to pull the people lever to slow down pace of hiring, pause pace of hiring. Beyond that, also remember, with a reduction in top-line revenue to the extent that will take place, there is a natural effect from an expense standpoint on our cost of goods sold, which also takes place from an expense standpoint. You'll see the benefit of all of that come through.
We feel pretty good about the ability to actually be able to toggle through this. We demonstrated through COVID, and I think we feel like we're in good shape to do that going forward.
All right. Maybe just as we start to wrap up, we've been through a wild ride over the last three years, I'd say, with COVID and then coming out of COVID and the recovery in travel. Sitting where we are now, looking forward, what do you think of as the top, just pulling back from all the topics we've covered today, as the biggest both maybe start with challenges and then also opportunities for Mastercard looking forward?
From a challenges standpoint, I'd say there are not new challenges, but there are challenges which we continue to keep an eye on, particularly around evolving technologies and the potential threats and risks of disintermediation, right? We've tackled this, we've continued to tackle this over the past decade and some. We continue to see that being as something which will be there with us. We've just gotta have our A game on. We've gotta stay what we call cautiously paranoid about what's going on in the world outside and put our best foot forward. To not run away from the problem, to not dig our head in the sand, but rather go and figure out what's going on, what needs people are trying to meet, and how we can partner with them to get there. That's what we've done historically.
The second area I would say is around nationalism and regulation. I would tell you post the Russian invasion of Ukraine and our suspension of activities in Russia, there has been an increasing dialogue which has been taking place with several governments across the globe about their need to be self-sufficient from a payment and from an independent standpoint, from a payment services standpoint. We stand ready to help in that. We've done that historically, we will do that in the future, but that's one to keep an eye on. On the opportunity side, I think it's really important. And there was this period over the last few years where there was a lot of noise around the new and evolving technologies and what that's gonna do to potentially cause threat for disintermediation.
We need to be focused on that, but let's not forget, the core fundamental growth drivers for Mastercard are very sound, and they still remain around growing our core payments, card payment business. That is around grow your card business, keep driving issuing, keep driving acceptance, build that new payment flow capability, layer on the services you need to layer on to supplement that growth, and keep building out these new network capabilities which we've got. That's where we remain focused. We think there's tremendous potential around that.
Maybe just to close for you personally, how do you prioritize your time? Like for what are your personal top couple of priorities when it comes to Mastercard?
I would put execution as number one, two, and three. Really I would because the strategy is pretty well laid out. The strategic priorities we've laid out are well understood by our organization. A strategy is only as good as what it's written on, and if you don't execute on it doesn't really matter, right? We've got to stay focused on execution. This is why, you know, I mean, just by human nature, if you are doing too many things, you're not gonna do them right. Prioritize, focus, and execute, and that's what we're trying to drive our organization towards, right? Me personally, I spend a lot of time on that. That's everything from, you know, saying, well, you know, think about it.
At the end of the day, everybody in the business who's got a particular portfolio they're running thinks it's the most important thing. The question really is how do you then prioritize across those most important things to say, "Well, show me the proof points. Is the addressable market big? Are there structural tailwinds, and why do we have a right to play there and win there?" That's part of the execution dialogue, which I spend a fair amount of time on.
Excellent. All right. Well, terrific. Sachin, thank you so much. Sachin Mehra.
Thanks, Lisa. Thank you very much.
Mastercard. All right. Thanks, guys.
Really appreciate it.