Earnings Call: Q3 2014

Oct 30, 2014

Welcome to the Mastercard Third Quarter 2014 Earnings Conference Call. My name is Christine, and I will be your operator for today's call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Barbara Casper, Head of Investor Relations. You may begin. Thank you, Christine, and good morning, everyone. Thank you for joining us for discussion about our Q3 2014 financial results. With me on the call today are Ajay Banga, our President and Chief and Martina Hun Mejean, our Chief Financial Officer. Following comments from Ajay and Martina, the operator will announce your opportunity to This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website, mastercard.com. We've added a new table in the slide appendix to the deck that breaks out the impact of acquisitions as an easy reference for those of you who track that detail. These documents have also been attached to an 8 ks that we filed with the SEC earlier this morning. A replay of this call will be posted on our website for 1 week through November 6. Finally, Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance are summarized at the end of our press release as well as contained in our recent SEC filings. With that, I will now turn the call over to Ajay. Thank you, Baba. Good morning, everybody. We had a good Q3. We saw net revenue growth of 13%, along with net income and EPS growth rates of 15% 19%, respectively. So we delivered another quarter of strong results and we've continued the momentum You've seen from us over the course of this year, as we're navigating through I think what everybody would agree is a mixed global economic environment. So let's take a look at the underlying global economic trends for the quarter and let's start with the U. S. And there the recovery continues. Our Pendingpulse data showed sustained growth over the course of 2014. U. S. Retail sales ex automobiles In the Q3, we're up 4.2% and that was a higher number than the 2nd quarter growth of 3.8%. However, the monthly growth trend showed some deceleration with several sectors lodging, furniture, furnishings, grocery, experiencing Some noticeable slowdowns in September. So these are mixed trends in the U. S. But overall, the underlying indications appear positive and October's Consumer Confidence Index is up over September as well. Excluding the impact of the Chase Z conversion in both the second and third quarters, our core U. S. GDP growth rate was roughly the same. Europe's recovery slowed in the 3rd quarter. Annual PCE growth projections have been revised down from 3 point 5% to 3.1 percent and our spending pulse data for the U. K. Also showed 3rd quarter retail sales ex auto growth slowed to 2.9%, down from the 4.8% growth that we saw in the Q2. Consumer confidence economic sentiment also down slightly, But unemployment levels continue to show improvement across the region. Mastercard's total European volume growth for the 3rd including Russia, Turkey and Sweden. In Latin America, our 3rd quarter spending post data for Brazil showed retail sales growth of 2.4%, Down from 4.1 in the 2nd quarter. Across the region, annual GDP growth expectations were also revised down from 2 Exposed to the U. S. And our business in the region remains solid. 3rd quarter GDV and process transaction growth is in the mid teens, again about the same as last quarter. In Asia Pacific, there is a decline in business sentiment in the 3rd quarter, Mostly because of everybody being concerned about the economic slowdown of China, but consumer confidence held steady and our business in the region continues To do well, GDV growth in the mid teens, process transaction growth in the mid-20s in the 3rd quarter, down slightly from last quarter. So in summary, the economic environment is mixed. The U. S. Is in relatively decent shape. We've got some challenges in Europe and Brazil that we will keep our eye on, but we're not seeing anything to cause a synergies concern and you will hear that from Martina when she updates you on our October trend volumes. So So before we go to our business highlights, a couple of legal and regulatory matters. First of all, nothing to report new on the European legislation. The Council ministers continue their discussions regarding the proposed legislation. We remain actively engaged with all parties. We still believe that the proposed Legislation is most likely to be adopted sometime in the first half of twenty fifteen. Now Russia, as you know, there's some new amendments to the National Payments Law. These have just recently been signed into law. What those amendments do is principally 2 things. And the first is that the deadline for compliance has now been Further to March 31, 2015 and the second is related to local processing. As you know, the original law required us to find a local processing partner for domestic transactions And we had begun to do that through an RFP process. The new amendments clarify that the local branded cards for use in the Russian market or for that matter the potential financial impact of this new law for us. If you recall in the last quarter earnings call, we had given some idea of the dimensions of that financial impact and our best estimate continues to be news stories about the Chinese government announcing that it will allow qualified domestic and foreign companies to apply for domestic Bank card switching in China. This is the first of many steps. We don't yet know what it will take to become a institution nor do we know what the broader regulatory framework will look like. And of course there is no right now no indication of timing. So while we're awaiting all these details, the fact is we're pleased with the announcement. We see it as a good step in the right direction. So with that, let me move on to some of our recent business activity. You've kind of heard from us during the recent Investor Days in September and you've had an opportunity to see firsthand a number of the product and service innovations we're rolling out. So rather than Back over the deals and the innovations, I'm only going to pick a few items that we may not have talked about in those Investor Days. A year ago on this call, we talked about tokenization, the development that everybody was focused on in the area of payment safety and security. We talked about how we were working with a broader group that included technology companies and merchants and trying to create better consumer and merchant experiences, while ensuring safer and more secure transactions. And for the recent launch of Apple Pay, we'll only help With the convergence of the physical and digital worlds and we are actually very pleased to be working in partnership with Apple as that they're using our digital technology and our security protocol to enable Mastercard credit and debit cardholders to use Apple Pay, it is the simplicity of Apple Pay that makes it attractive, The ability to make a payment with as little as your fingerprint. We've worked closely with Apple over the last 2 years and helped them deliver a user friendly Safe payment experience. It provided the most secure combination of payment technologies available and more insured continue to sign up. I The most current number is something like 500 and it's growing. Now of course Apple Pay has garnered a lot of attention. However, there are many other elements of mobile payments and we're working on all of them. And our strategy has been to work with all players to ensure that we have the capabilities to meet the needs of different market models and make choices available to consumers. So while most consumers have a phone, A number of them have a PC, a tablet, a game system, a connected appliance and increasingly connected cars. So our innovations using Masterpass are all designed to work across all of those devices. As many of you saw last month at our Investor Days, You saw a number of those devices actually in operation. So remember, the tokenization used by all of these digital payment options is based on an industry open standard that the networks have developed together. As a result, others will be able to leverage this technology to enable secure digital transactions across any device, think of it like EMV, an open industry standard that allowed all issuers to issue cards with chips that conform to that open industry standard. That's what this tokenization is all about. Now all these new mobile payment options are putting more focus on contactless and we continue to drive contactless technology, which is a key Our cash displacement efforts. Momentum is building globally. Old terminals are being replaced with new ones that are contact enabled while being installed. Australia is leading in the adoption of contactless payments. More than half of all face to face transactions Under A100 dollars are now contactless. We're also seeing progress in countries such as Canada, In Turkey, in Poland and just recently in the U. K, we worked with Transport for London to expand contactless payments to the underground, enabling commuters to use their credit, debit and prepaid cards across London's entire transit system. In the 1st 2 weeks alone, over 1,000,000 contactless journeys were taken. And this just adds the list of Transit agencies around the world whom we are collaborating with, we're trying to use our thought leadership in the transit space to migrate their riders from cash Examples of how we are creating better shopping experiences for our cardholders using contactless technology. As you know, we just opened our new technology in New York City earlier this month and we're just continuing to invest in innovation designed to make payments easier and So now a couple of examples that demonstrate how we are creating a better cross border shopping experience. In this quarter, we announced a partnership with Trans Forex. This is a company that is working with 7 leading tax groups in China to launch the largest Tax refund platform in China. Chinese travelers leave as much as €3,000,000,000 worth of tax refunds unclaimed. The idea is this new platform will make the tax refund process much easier for the Chinese traveler by enabling them to receive their refund back to their Mastercard and do it all from the comfort of their own home when they return from their trip. In South Africa, our prepaid program manager, Access Prepaid Worldwide is working with the VAT administrator of the South African Revenue Service to migrate that single currency refund card to a Full currency Mastercard prepaid program allowing tourists to reclaim their VAT as they leave the country. So that's just two examples in that tax refund space. Finally, our work with governments continues to grow. We have talked about this a few times In the context of developing markets and financial inclusion, we will actually do a lot of work with governments in the developed markets as well. So For example, the U. K. Government has awarded the Royal Bank of Scotland the contract for their e purchasing card. Over the next 2 years, all 17 central government departments, the Ministry of Defense and some regional governments will migrate their existing government purchasing cards to Mastercard's Purchase and Pay solution kind of combines our multi card, smart data and in control technologies. And of course, we're continuing to add programs focused on financial inclusion in the developing markets. And I'll give you a couple of examples. In Mexico, Bancifi is converting their entire $6,500,000 social benefits card portfolio to Mastercard debit and that's going to be enabled with the EMV chip Technology. And in Africa, EcoCash, which is a mobile money provider in Zimbabwe launched a Mastercard companion debit card that's linked Their mobile money wallet, the first in Africa by the way, the card will be issued to more than 3,000,000 EcoCash customers making it the largest rollout of EMV Cards in Zimbabwe to date. So with that, let me turn the call over to Martina for an update on our financial results and operational metrics. Martina? Thanks, Ajay, and good morning, everyone. Let me begin on page 3 of our slide performance again this quarter. Net revenue growth was 13%. This combined with operating expense growth of 12% and a lower tax rate resulted in a 15% increase in net income. EPS growth was 19 And share repurchases contributed $0.04 per share. During the Q3, we repurchased 5,300,000 shares at a cost of approximately $400,000,000 which reflects the slower pace of buybacks we expected. Through October 23, we repurchased an additional 1,700,000 shares at a cost of approximately 100 and We now have $310,000,000 remaining under the current authorization. We continue to look to repurchase shares on an opportunistic basis. Cash flow from operations was 1 point $4,000,000,000 We ended the quarter with cash, cash equivalent and other liquid investments of about $6,300,000,000 So let me turn to page 4, where you can see the operational metrics for the 3rd quarter. Our worldwide gross dollar volume or GDV was up 12% on a local currency basis, down slightly from last quarter. Overall, our U. S. GDV grew 7%, which was down from last quarter. On the credit side, volume growth was 7%, down from last quarter primarily due to the Chase deconversion. Similar to last quarter, our U. S. Debit growth was 8%. Outside of the U. S, Volume growth was 14% on a local currency basis and continues to be driven by APMEA. Cross border volume grew 15% on a local currency basis and that's just slightly lower than the 16% we saw in the 2nd quarter. Growth in Europe and APMEA was in the mid to high teens. Key contributors to this growth included the U. K, Germany, Italy and The deceleration of cross border volume growth in markets like Canada, China and Russia continued into the Q3. Turning to Page 5, you see process transactions grew 10% globally to almost $11,000,000,000 We continued to see double digit growth in most regions. Growth was down from the 12% we saw in the 2nd quarter, primarily due to the U. S. And Latin America. Now globally, the number of cards grew 8% with 2,100,000,000 Mastercard and Maestro branded cards. Let's turn to Page 6 for some highlights on a few of our revenue line items. Overall net revenue growth was 13%. In total, acquisitions contributed 3 ppt to our net Domestic assessments grew 7%, while worldwide GDV grew 12%. This 5 PBT GAAP is primarily due to the lower than average revenue yields in many markets outside of the U. S. Due to market structure, domestic payment schemes or higher proportional cash volumes. This is similar to what we've seen in prior quarters. Cross border volume fees grew 13%, while cross border volume grew 15%. The gap between revenue and volume growth continues to be due for the most part to the higher mix of intra European activity, But the gap is narrower this quarter versus what we saw in recent quarters due to better mix with an increase in the portion of Europeans traveling outside of Europe versus within Europe. Transaction processing Fees grew 13%, primarily driven by the 10% growth in process transactions and other revenues grew 38%, driven largely by contributions from our PinPoint acquisition as well as our Advisors business. Moving on to Page 7, you can see that total operating expenses was up 12% in the quarter, in line with our expectations. Of this growth, 9 ppt was due to expenses related to along with our majority owned Homeset investment and were primarily in the G and A line. Now when looking just at the 14% growth in G and A, our acquisitions contributed 11% to the total growth and the balance was driven mainly by the organic investments we're making in strategic initiatives. And finally, the $19,000,000 increase in D and A versus the same period last year continues to be the result of our growing level of capital expenditures, principally due to the additional investments in Technology to support our strategic initiatives, but also includes the impact of the amortization of intangible assets related to our recent acquisitions. Turning to Slide 8, let's discuss what we've seen in October through the 21st. Most of our business drivers are up compared to the 3rd quarter. All of this has been factored into our full year outlook. The numbers through October 21 are as follows. Starting with process volume, we saw global growth of 11%, up 1 percentage point from the 3rd quarter. In the U. S, our processed volume grew 7%, that's very similar to what we saw last quarter. Process volume outside the U. S. Grew 16%, about 2 ppt higher than the 3rd Globally, process transaction growth was 11%, 1 ppt higher than what we saw in the 3rd quarter, also driven by improvements in Europe and Latin America. And with respect to cross border, our volumes grew at 17 percent globally, about 2 ppt higher than the 3rd quarter, driven by improvements in Europe. And we saw strong growth across most major markets, including contributions from online travel programs. Looking forward, Let's start with our long term performance objectives for the 2013 to 2015 period, which remain unchanged. We continue to believe that our business can deliver an 11% to 14% net revenue CAGR and at least 20 We are also committed to our annual operating margin target of at least 50%. Remember, these objectives are on a constant currency basis and exclude new M and A activities. Moving on, let me offer some commentary about full year 2014, which is mostly unchanged from my comments last month at our Investor Day. Our expectation for full year net revenue growth before any contribution from acquisition is now slightly better than the low end of our 3 year range we previously thought Due to our better than expected 3rd quarter revenue performance, primarily due to higher underlying volume and transactions. Additionally, while the pace of the Chase card attrition year to date has been essentially in line with our internal projections, The volume shift has been a bit slower than we initially anticipated. Therefore, we now estimate less contribution to our 2014 as reported net revenue growth from our M and A transactions. Overall, we haven't changed our view about total operating expense growth for full year 20 14 to be in the low teens after considering the impact from M and A activities. And This does include high teens growth in G and A and D and A growth in the 25% range, Again, totally in keeping with what we discussed previously. Our view of potential EPS dilution from the 5 M and A deals which we also previously discussed continues to be about $0.05 annually for each of 2014 and 2015. You should now assume a full year tax rate of slightly below 32%. The change in outlook is primarily due to our 3rd quarter tax rate coming in lower than we expected due to some discrete benefits that only became known as we finalized the quarter. And as I've said before, although the exact timing is uncertain, There may be some potential to lower our tax rate further as we continue to work on several initiatives Finally, with respect to FX in 2014, if the rates for our functional currencies remain Similar to where they are today, so that's the euro trading at the 127 level and the Brazilian real at the 2.44 level for the rest of the year, the net impact of the euro and the real would be a slight headwind for the full year. Further, beyond the functional currency impact of the euro and the real, We have already seen a 1 ppt headwind to net revenue growth year to date from other currencies depreciating against the U. S. Dollar and the euro. As I have said before, we carefully manage those exposures, but we have also assumed some impact for the rest of this year, which will likely continue into 2015. So now let me turn the call back to Barbara to begin the Q and A session. Thank you, Martina. We're now ready to begin the question and answer period. And in order to get to as many people as possible, we ask that you limit yourself to a single question and then queue back in for additional questions. Christine? Thank you. Ladies and gentlemen, we will now begin the question and answer You may need to pick up the handset first before pressing the numbers. And our first question is from Bill Carcache of Nomura Securities. Please go ahead. Thanks. Good morning. It looks like your revenues per dollar of volume reached an all time high this quarter. Can you remind us how You think about this metric and how sustainable it is at these levels? And then separately, I was hoping that there's been some evidence Competition becoming more intense in the co brand space as some contracts have come up for renewal. I was hoping you could just comment on you're seeing there? Thank you. Just talk about it. So I'm going to take your first question Bill. Look How we look at revenues is not every revenue is driven equally. We have Domestic assessment fees which are predominantly driven by the volumes on the volume growth that we have all around the world. And there you have to make significant differentiation between how much is driven domestically versus how much is driven cross border. So the mix is very important on that. Secondly, in a number of countries, we are actually processing most of the volume and that is when we get an additional transaction processing But there are a number of countries where we are not processing the volume. So that is also driving the mix in terms of how much we are processing in the country And where you see the growth in that versus where we are not processing and where you're seeing the growth in that. That is very much an impact. Further On this quarter's numbers, you did also see an impact on the recent from the recent acquisitions that we did And you see that in the other revenue line item which increased by 38% and that is mostly driven by the terrific Acquisition that we did down in Australia, the company is called PinPoint and it's a play in the loyalty space. Bill, it's Ajay. About the co brand space, actually the co brand space has been pretty competitive for quite a while. So I've talked about it a number of times in earnings calls about how we're going about trying to be players there and win there regularly. And We've been winning a number of deals there. In fact, I didn't mention it this time because over the Investor Day, Peter and then we've talked about this a little while. But for example, we won REI over the course This quarter, that's another one. I just it's every quarter there are deals that come and go in the U. S. And overseas. And that's a competitive space. There's nothing new in that space. I think the There's nothing new in that space. I think the one development that's interesting in that space that's happened over time is that more and more the merchant driven co And tend to be driven with an issuer and the network is being separately approached during the course of the co brand process. Years ago, it used to be that they were done together. That's kind of a trend that's pretty much changed, particularly in the U. S, not so much over So it's a competitive space and it's a space that you have to be very careful about both in terms of pricing, but also in terms of The value added features that you can bring to the party when you try and go win that co brand and you will kind of win some, you won't win all of them. So nothing new in that space. Thank you. Next question please. Thank you. The next question is from Smiti of Morgan Stanley. Please go ahead. Yes, thank you. Maybe just a follow-up on the other revenue line item. Can you just help us maybe rank order The various pieces of the businesses are in there, loyalty advisors, data analytics, prepaid, from maybe largest And also just wanted to get some additional perspective on how meaningful data analytics is to the Revenue contribution today given the progress that you've highlighted at the Analyst Day on this front? Look, Smriti, the other revenue line item is driven by a lot of different things. Certainly some of the items that you have been calling out I. E. Our loyalty business and it's not just the pinpoint business. We have actually Very thriving big loyalty business across the board in a number of our regions is one of the big drivers in there. Our advisors Which actually consists of 3 different pieces. Quite a few of the revenues that are related to those pieces Both in the consulting side as well as in the data side is actually related to that. And then we have a number of other businesses A little bit from the program management that we're doing out of excess prepaid etcetera that are actually driving that line item and I'm very pleased To say actually that all of those businesses are growing very nicely. Thank you. Our next question is from Bob Napoli of William Blair. Please go ahead. Thank you. Just on the Apple Pay, I was wondering if you could maybe give a little bit of color on What you've seen from your customers in uploading? And then how do you balance working with Apple Pay and with your Masterpass product and with Are there conflicts in there that you have? And so that would be helpful a little more color on that. Thank you. So Bob, it's Ajay. The people signing up for Apple Pay is actually pretty good. I'd say that 1st few weeks have been Very encouraging. You see us in if you've been to the Giants game and the Kansas City Royals game and the San Francisco stadium, Unfortunately, I didn't go to see even though I was hanging around in San Francisco, but I met a number of people who have been there. We were Using and demonstrating the work of Apple Pay for purchasing in the stadium with advertising, with Activities and promotions going on in there. So there's a lot going on in the Apple Pay space right now. I don't know that I would Sort of agree that it conflicts with the stuff that we're doing in anywhere else in mobile. I think you have to think of mobile and digital As a very wide space, one of those spaces I mean, look there are many different aspects to it. One aspect to it is, Are you going to put your credentials on the phone like in Apple? Or are you going to do it through postcard emulation, which is what many others will do? Or are you going to do it through NFC like Apple? Or is it in app like Apple? Or is it browser based like others? There's so many elements to Mobile and digital commerce, I wouldn't call it conflicts. I rather think that there's a lot of opportunity, a lot of open space. The objective is Masterpass. Masterpass It's got wallets, yes, which is both wallet branded as Masterpass, but also a wallet service for our issuers and merchants. We do value added services with Masterpass. Loyalty programs will be in there. In the future, there will be new additive ideas in that. Private label cards could be in there, in store checkout is coming in there, online is already there with Masterpass. So it's got a bunch of things in it. And those full element of the MasterPath strategy is what we are rolling out around the world. We're now in 11 countries, The U. S. Plus 10 others Australia, Canada, China, Italy, New Zealand, Poland, Romania, Singapore, South Africa, YACAC, U. K. Others. They're entering Taiwan soon. So we're So we're in a number of countries with Masterpass. We're working with different banks of different sizes in these countries, Ranging from the Commonwealth Bank and Westpac in Australia and New Zealand to BMO in Canada, to Citibank Credit Unions in the U. S. To Standard Bank in South Africa. So it's not all that going on. There's 40,000 plus merchants signed up. I kind of see this as being a series of parallel activities, which are all aimed at providing choices to consumers. And once you do that, then They're going to work with their wallets and their feet on where they go and we want to be able to be the provider of that space. We're not in the consumer business directly. We are a B2B2C company and therefore we are trying to be that in every piece of what we do. Thank you. Thank you. Our next question is from Jason Kupferberg of Jefferies. Thank you. Please go ahead. Thanks guys. Just to start, can you just clarify what the cross border volume growth ex Western Europe would have been? And then can you separately clarify your And when you might implement tokenization pricing, we know that you've got the rate card out there, but your biggest competitors obviously said they're waiving those fees through 2015. So wondering if the same is true for Mastercard? Yes. On the latter question, it's exactly the same. And on the first Question from a cross border ex Europe. Typically, we don't give these numbers, but it's not too different if you're actually Including Europe for the Mastercard volume side. Okay. So you're waiving your pricing through 2015 as well? Yes. That's actually out in the market. We said we'd only put it in there starting at the end of 2015. We put out a rate card that said we'll do it early 2016. That's not new year Jason. Okay. Thanks. Thank you. Our next question is from Darrin Peller of Barclays. Please go ahead. Thanks guys. Just on the cross border growth rate, I think you mentioned Martina earlier that the spread had narrowed a bit more because of the mix in terms of intra Europe versus people traveling from Europe elsewhere, and so that's good to see. I guess just if you could touch on, were there still any lingering additional pricing changes And then maybe if you could just comment on the potential for a merchant assessment change on the horizon as well? Thanks. Yes. So, first of all, on the pricing side, there is no from pricing in that line item. And in fact when you look at our entire revenue growth, there is really no material impact at all from pricing. As most of you know, our main pricing actions that we took some time ago have been pretty much all lapping With the Q2 of 2014, so you're just not seeing that in this quarter at this point in time. In terms So future pricing actions, look, first of all, we are not going after pricing in order to make our top line. So when you actually look at the 2013 to 2014, 2015 long term performance objectives, we have Small mile pricing embedded in that. And if there were to be any changes, we'll be talking When there were to be evident in our financials, but we don't really see anything at this point in time. Just got to remember, we've got Thousands of lines of pricing in the system and there's some pricing work going on in every country while we speak. So Pricing is a part of the way we approach the entire marketplace. But I wouldn't tell you that there's some strategic plan to put in some new price starting on a particular date next year kind of stuff. Question is from Bryan Keane of Deutsche Bank. Please go ahead. Hi. Just want to ask on the Chase Card transition, are we a quarter of the way through that or just trying to get a sense of that through the Q3 'fourteen? And then secondly on FX, Martina, maybe you could just help us to make sure we got it right. Are we looking at 2 to 3 points in the 4th quarter for FX headwind? And then if Rates held today, I just want to start to set our models for next year. Is it about a similar 2 to 3 point FX headwind for next year as well? Thanks. Your first question was? Just on Chase migration, just want to make sure where we are so far. Okay. On the Chase migration, so what we said actually for when you look at all of 2014, we'll probably have less than half of the Chase volume rolling So you will still have some impact for 2015. And the way that it has been rolling off as we said before, we didn't See much in the first and the second quarter. We saw more in the third quarter and I think you should see more in the 4th quarter. This is all subject to our own estimation. We don't really have a schedule from the customer, but this is the best that we can at least get our hands around it based on what we From an FX point of view, for the Q4, we are going to see a little bit of an impact on 2 things. 1 from a functional currency point of view, you're going to see about a 2 to 3 ppt Excluded on that versus the U. S. Dollar and versus the euro, we think we're going to probably see another one ppt impact for the Q4 and that's very similar to what we saw in the first, second and third quarter. And then into 2015 if rates stayed the Yes. You should expect some headwind of course given the strength of the U. S. Thank you. Our next question is from Moshe Katri of Cowen and Company. Please go ahead. Thanks. Good morning. You've had quite an impressive success in gaining share in Europe, what's in Europe during the past Is there any way to kind of talk about this in the context of how Mastercard has been competing against Visa Europe? Have they been losing market share to Mastercard? Any color on that will be helpful. Thanks. Well, it's been going on for a few years. I think if you looked at The whatever public information that is available for Visa Europe you'll find and there is some available. You'll find that they themselves talk about losing share To us in the course of the last couple of years there. How are we competing? It's not just the Europe. We're competing around the world with A series of different things, but obviously everybody starts with a conversation around what's the financial impact for anyone at the other end of this deal. But we've tried to Talk about all the things we do with advisors, all the things we do with data, all the things that we can do with loyalty and rewards and that's processing. If you look at our strategic plan, it is to add all those value added services, so we can be a better service To the issuing community and Europe is reflective of that very approach. And if you look at the acquisitions we are doing, we've Success in acquiring stuff in Europe as well, both in the prepaid program space as well as in the space of loyalty and rewards. And that's what we're up So it's pretty much the same around the world. Thanks. Thank you. Our next question is from James Schneider of Goldman Sachs. Please go Good morning. Thanks for taking my question. Understanding that it's very early days with respect to China and there's still a lot of details to understand, can you maybe share with us Your approach to the overall Chinese market and how that might differ from other geographies, specifically the existence of UnionPay and new entrants like Alipay in that market and how you might plan to attack the market generally speaking from a top level perspective? So over the last couple of years, what we've done there 3, 4 years now is that before this whole announcement, What we were allowed to do was to do no domestic processing, but we were clearly the co branded card is what you could be with I think we were the winner in the overwhelming majority of them. I'm talking 90 plus percent of those deals for the last 2 years. And that helped us a great deal in terms of changing our market share on the ground on cards issued in China where the Flow of new cards issued was all coming our way when they were co brand. In the meanwhile, China and Union Pay both operates in China and also have begun to strike over the last many years bilateral deals for acceptance outside of China. The impact of those depends on the marketplace, whereas Hong They're obviously stronger there. If it's the United States, way weaker. And so, in addition to the fact that we have to compete on the ground in China, You have to be thoughtful about what was going on with these bilateral acceptance deals. And we went and struck partnerships with China Union Pay to help them with expanding Some acceptance in return for expanding our acceptance in China. So when someone like you went there, your Mastercard, which I hope you carry, Issued here was being used in China in as many places as possible. That's kind of the way we were working, kind of like a partner, but with the Clear acknowledgment that they were in a position that gave them a monopoly benefit inside of China and yet were an interesting partner to play with. That's the way we were approaching China. Meanwhile, we were also dealing with the Alibaba's and the Alipay's and the Tencent's of the world. And in fact, we signed work with Alibaba and Alipay where We were helping them think about cross border acceptance for their websites and helping them tackle fraud and counterfeit goods on their websites and so on. Now when that changes with this announcement, nothing's changed yet. The announcement just indicates the direction is there. But remember this announcement has been awaited now for quite a few months ever since the WTO ruling had its deadline set up. So What really is going to matter is how they propose the regulations, what's called a qualifying company, would we need to be constructed differently in China to be eligible to be a qualifying company or would we be allowed to participate there with a domestic processing capability. I don't know the answers to all that yet. But in general, we've already made a number of steps that I will not competitively disclose That allow me to be relatively confident that when they make the right moves, we will be able to respond. That's kind of where we are. That's helpful. Thank you. You had a question there about how does that differ from other markets? Well, there isn't a lot of other examples that Domestically mandated monopolistic switch exists. That's not been our experience. You could have Banks coming together to create domestic debit schemes like Europe used to have in many countries, which SEPA and the payment systems directive have actually That's one of the ways we're growing in Europe. We're seeing more and more domestic transactions in the developed European countries as well. But and then there are similar domestically handled domestic debit switches in Australia and Canada. So dealing with domestic debit switches And domestic debit systems is something we've had experience on for 30 years. It's just that China was uniquely different Because not only did you have a domestic switch for debit, it is for every card being processed there issued domestically was controlled in terms of who could handle that Action on the ground. Thank you. Our next question is from Chris Brendler of Stifel. Please go ahead. Hi. Thanks. I wanted to ask about the Asia Pacific market for a It looks like the growth rate there slowed down a little bit. It's now mid teens on an FX adjusted basis as slow as it's been basically Since the crisis, is that mostly the Russia impact? I know there's also some macro weakness in that area. But fundamentally, do you Expect the Asia Pacific market to return to just the historical stronger growth rates over the medium term? Or That markets are structurally getting more further along the secular shift to electronic The level of cash utilization in the Asian markets is the highest probably around the world other than a few Latin American markets. I China and India are still in the 95% to 99% plus percentage of transactions being in cash. And even Japan, which is a developed country in that part of the world has a 75% to 80% Cash percentage in its transactions in the country. So I'd be very careful to think That secular growth in Asia is beginning to slow. I think the real issue in Asia is by the way, when you start when you grow at 15%, 20%, You're not growing at 21% or 22% big deal. Just you should take that in its context. And it's still growing very rapidly. And ASEAN is probably growing faster Mainland China, just because Mainland China is genuinely facing a change not just in its GDP growth rate, But in the manner of spending on the ground in China with all the different efforts that the leadership of the Chinese government is putting into place On what's going on in the ground. So there's kind of 2 or 3 things going on there in China. India itself has slowed down Over the last few years, it's actually with the new government beginning to pick up again. So there's movement in economic growth Indicators around that, there isn't much impact from Russia into Asia. That's not what I would lay as the main cause of what we're discussing. It's both the macro growth factors of China and then of a lower level of India. ASEAN continuing to doing well. Australia slowed a little bit over time as the Commodity boom is slow. You know Japan is going through its own stresses and changes. But don't conclude, at least I wouldn't yet, that the secular growth rate of Cash converting to electronic in Asia is yesterday's story. I think that's tomorrow's story yet to come. Just on that topic since you mentioned it. I mean India with its sort of plans to leverage a national payment scheme like RuPay and It's not clear at this point how big of a role you guys can play. How should we be thinking about the opportunity in India? I guess my question was more about Markets like Hong Kong and Australia that are very highly card penetrated, not thinking about India as a huge opportunity for Mastercard, but maybe that's not the correct way of thinking about it. Is India still a very much a greenfield for Mastercard? Yes. And we have some significant growth there and it's growing actually by quarter. It is. It absolutely is significant opportunity. I mean, RuPay is not a government mandated local monopoly unlike China UnionPay. RuPay is an effort by the government to create A national payment switch that operates in parallel and competitive with us and Visa and others. And Clearly, when you have a government switch, they get certain benefits. But guess what? I was saying, we're used to dealing with domestic switches in a number of countries. That's kind of been true for Europe for the last so many years. It's true for Mexico. It's true for Canada. It used to be the case in a number of Latin countries. It's around the world we do that. We can compete on a level playing field because of technology, superior fraud capability, data analytics, to do things with local banks. We can do that. So I still consider India to be an enormous growth opportunity. Just By the way, I consider China to be an enormous growth opportunity. And by the way, I consider Australia to be an enormous growth opportunity Even with the relative penetration of cards, because even now the percentage of retail transactions in Australia that are cash versus electronic are still in the majority. That's why contactless in Australia has been doing so well for the past 2 years. A large number of the retail transactions That's why I was telling you all the way up to AUSTR100 dollars more than half of those transactions in just 2 years I'd like to get you to contactless. That's almost all of it is fighting what used to be used for cash. So it's pretty interesting what's going on in that part of the world as it is in other parts of the world. I have risk of rules violation here, but since you mentioned it, one more question on that topic. Australia, Is there still a surcharging headwind there? Or is that abated at some point? Thinking about the small ticket transactions, I've seen that 30 percent potentially 40 percent of retailers potentially surcharge in Australia. Is that fair enough? No, no. That's not true. You get surcharging in a great deal from online transactions where people don't have much choice and that's always been an issue. Where people don't have much choice and that's always been an issue. But in the real world out there, yes, fair But it's a small number. It changes over the period of quarters and I don't consider that to be an issue. It's not what I would like to see, because I believe that consumers should be able to pay with whatever way they'd like to pay without having to face surcharges. And then by the way, the Australian Central Bank has come back and put in restrictions on the level of surcharge for that very reason. So there's a lot of stuff going on in the marketplace down there. And guess what? That's our life. It happens in different countries. I still consider Australia to be a growth market. Awesome. Thanks. Next question please. Thank you. Our next question is from Craig Maurer of Autonomous Research. Please go ahead. Good morning. Thanks. Two questions. Considering the slower deconversion at Chase, when do you now expect cobrand wins Start to offset that deconversion. And additionally, we saw the growth in Maestro cards continue to fall and drop to flat. Should we expect to see that turn negative in the coming quarters? Thanks. On the first one, Greg, we had always said that our wins in the co brand space will be offsetting the Chase de conversion over time. So that not talking quarters. We're talking over a couple of years. And you will see that coming in from a volume point of view already seeing some of the cobrand It's actually coming in and you will see that more coming in next year. In terms of the growth of the Maestro cards, look The Maestro business is very good and very live. But what we are doing around the globe is that from time to time we're giving We're working with our clients in terms of whether the Maestro product is appropriate or whether they would like to go with Mastercard debit card. And you will see a number of switches in terms And you will see a number of switches in terms of where portfolios are going simply because of the kind of product construct and services that our customers are demanding. So that's really what you're seeing going on that it's more And Craig, I'd like to just make sure that the Chase deconversion issue doesn't overtake what everybody is thinking. So just try to think through for a second. The co brand cars have a certain vintage buildup. All cars have that behavior. The Chase cards were already vintage. When they go off, they go off with a certain volume spend pattern. New cards take some time to build up to that pattern. You will see in the number of cards being issued that the U. S. Is continuing to do well. And frankly, despite losing the Chase conversion of the consumer business that you're seeing, you're seeing that our GDV is still doing okay. That's because they're growing with the other cards as well as in the commercial space. So our portfolio is a healthy mix of many clients across many types of cards. And what we are trying to do as Win and lose clients is still stay focused on growing the overall business in a tangible way. That's what you're seeing. We've got 13% revenue growth this quarter. We had good revenue growth for the past few quarters through this so called Chase Z conversion. In the meanwhile, by the way, Chase is still a really good partner on a number of other cards they're doing with us, co brands as well as large corporates. So Life moves on from there and there are other wins that keep coming and going and that's the context in which you should see our business portfolio. I know you understand because we've traveled together a couple of times and we've talked about this, but I just want to make sure everybody on the call gets that picture. Thank you. Thank you. Our next question is from Lisa Ellis of Sanford Bernstein. Please go ahead. Hey, good morning guys. I I had a question one quick follow-up question on China UnionPay. I'm wondering if you are seeing them at all in issuer negotiations outside of China. They've been making some noise and directly verified by us that they're starting to get some traction signing contracts outside of China? Let's start with that one. So first of all, glad to hear a woman's voice on the phone asking me a question. The I honestly, I haven't seen what you're seeing. I have heard noise about it in Russia for sure. When the whole The situation with the sanctions happened. Clearly, there was noise on the ground of issuers looking at the possibility. And I can understand that at that time. Although that didn't go very far, in the meanwhile the law changed and has amended and adapted. So I think it depends So I don't know. My general perspective, bigger perspective on this is that given that 85% of the world's retail transactions are I'm a little less fussed about every new effort being put into payments being a direct competitor as against being A part of the whole ecosystem that must fight cash. I've been talking about this for 5 years. Cash is the real opportunity for a company like And that's what we're focused on. Doesn't mean I'm not competitive. Trust me, I am very competitive on share and you would see they're growing share Quarter by quarter in markets around the world, but I don't really view each entry or exit as a direct competitive issue. I view that as I view that as something you've got to be careful of, but you've got to also realize that a few players that are aiming at cash is probably a good thing. Good. And then just a quick follow-up. In the emerging market programs you're doing like I think the one you mentioned in Nigeria where you're partnering on sort of these mobile prepaid or other types of kind of migrating the unbanked to bank via some sort of digital prepaid model. Can you give us some color on the economics to Mastercard of those types of programs? So Lisa, it's Martina. Let me start with that. So first of all, typically in all of these agreements our normal pricing applies. So If you do off clear and settlement, if you just do and see the volume from an assessment fee point of view, we have to apply schedules and there are really no changes What you're going to have to only think about is when we start those kind of undertakings. So for instance in South Africa, we're much further along. We have 10,000,000 Cards out there for the social program, people typically utilize those cards in such a way They go to the ATM and pull out cash and then they pay at the merchant. That is typically a lower yielding transaction And then over time as we are actually establishing the acceptance base and those merchants where they could be using the cards And we are having programs in place with people rather than going to the ATM go directly to the merchants, it's safer for them, They're not carrying cash around etcetera, etcetera then we're starting to go into the higher yielding transactions. So you have to look at this as an evolution. We first Develop the infrastructure. It's first being used in a lower yielding way. You see that coming through our numbers In a number of ways. And then as we are migrating people to be using the cards at POS, you're going to See, the higher yielding transactions coming through. And that is pretty much the experience that we have had so far on all of these programs. The other thing I'd add is they aren't all digital by the way. You were talking about digital programs. They're not actually. South Africa and Nigeria are Cards with a chip on them in both biometric enabled. In South Africa, it's even voice enabled to be recognized at the back office. But In Nigeria, it's a biometric card with a chip enabled card and the other side is the payment card. It is mobile based in some But it's also card based. So the World Food Program example in Syrian refugees in Lebanon and Jordan is also a card. It just depends on what's going on in that marketplace and its ecosystem. Building a mobile ecosystem for delivery of product to people at the Disadvantage level when it's not a remittance, which is what the M Pesa type of thing is, that's not easy because if that mobile payment isn't accepted at a shop, it's actions and lower yield on those. And then hopefully, hopefully over time those people will migrate towards being more in the system and using their At the point of sale, at which point of time you would see a bigger impact in our revenues. Operator, I think we have time for one last question. Thank you. Our last question is from Moshe Orenbuch of Credit Suisse. Please go ahead. Great. Thanks. Most of my questions actually have been Asked and answered, but I was hoping you could kind of give us a little more detail around the acquisition activity and how that shakes out. I mean Martina you had said that At least one of them was already contributing to revenue and that there still would be this EPS dilution. Can you talk about the kind of revenue path and the earnings path as you go forward? Look, we're making acquisitions for a number of reasons. Some of the reasons like the PinPoint as well as Provus, the processing entity that we bought in Turkey, truly because we are building and expanding our business And they will be contributing over time to our top line. And what you should be expecting from them in terms How the loyalty space is growing, this is how pinpoint will be growing. What we're doing in the processing space in order to take Provus, which are connecting to our Processor and Torica and Poland together, you should be expecting them to grow based on how the processing space and the expansion growth. However, we also made a couple of acquisitions which have basically built our skill set, such As a company called CSAM, we acquired a terrific workforce, software engineers mostly based in India who really have a significant skill set in the digital and in the mobile space. That Did not come with a lot of revenues, but it came with a capability that we are now using for a number of engagements in So clearly, you will see more expenses coming through on that and that when you put everything together As we are in the early stages of integration, you are seeing that $0.05 dilution in 2014, which we are expecting to be the same number in 20 But some of that would have been money you would have spent anyway, wouldn't it? Exactly. So you're kind of penalizing yourself a That's a good way to penalize Martina. I love doing that. All right. Thanks, Sheryl. And I'll buy you a beer for that. So guys, thank you all for your questions and Lisa thank you for yours. So I'll leave you with a few closing thoughts. Yes, the global economic environment But I think we are demonstrating that we can navigate through this pretty well. And to this last question, you will see us continue to invest in our business On products, on services, on technologies that are key to our strategy, not just organically, but also through acquisitions. I really appreciate your continued support of the company. Thank you for being on the call today. Thank you. And Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.