Earnings Call: Q3 2012

Oct 31, 2012

Welcome to the Mastercard's Third Quarter 2012 Earnings Conference Call. My name is John, and I'll 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 It is being recorded. I will now turn the call over to Ms. Barbara Gasper, Head of Investor Relations. Barbara, you may begin. Thank you, John. Good morning, and thank all of you for joining us today either by phone or webcast for a discussion about our Q3 2012 financial results. Hopefully, by Postponing the call by an hour, we made it a little bit easier for folks on the East Coast to be able to access the call. With me on the call today are Ajay Banga, our President and Chief Executive Officer and Martina Hunmejian, our Chief Financial Officer. Following comments from Ajay and Martina, the operator will announce your opportunity to get into the queue for our question and answer 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, the earnings release includes reconciliations of non GAAP measures to their GAAP equivalents. The release and the slide deck were also 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 7. Finally, As set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward looking statements about Mastercard's future performance. 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 Press release as well as contained in our recent SEC filings. With that, I'll now turn the call over to our President and CEO, Ajay Banga. Ajay? Thank you, Barbara. Good morning, everybody. Just some high level comments first. In the Q3, We saw net revenue grow 5% as reported or 10% after adjusting for currency. Volume and transaction growth are behind that increase As well as the increase of our net income growth of 8% and our EPS growth of 10%. It is a solid quarter despite the tough comparison to our exceptional performance in the Q3 of last year when we delivered 24% net revenue growth at constant currency. Our actual performance in fact was right in line with the expectations we spoke about at last month's investor meeting, Which took into consideration both this Q3 of last year performance, but also the world's somewhat mixed economic picture. In the U. S, We saw an improvement in consumer confidence, which resulted in an increase in consumer spending growth. Although that growth Is slower than 2011 or the numbers we saw in the first half of twenty twelve. And according to our own spending pulse Data, 8 of the 11 secondtors we track showed positive results in September and retail sales ex auto Gas grew 4.1% in September, although that's lower than the growth in July August. And as we've been saying for the last few quarters now, housing related categories of retail spending continue to perform well, Which I think points to the underlying improvement in the housing markets that we are all beginning to see. U. S. Consumers however appear to be Holding to their budgets with pretty tight and close controls on what they're spending on, we are seeing a rotation in their spending from sector to sector based mostly on their seasonal needs. So for example, during the recent back to school season, we saw a temporary increase in growth For the apparel sector that is in August, but other sectors such as electronics did not fare that well that month. In September, Consumer shifted their spend towards electronics and housing related sectors at the expense of apparel. So they're kind of moving back and forth. We will be watching consumer spending closely for the remainder of this year and going into 2013. And as you all know, a lot will depend And how our government responds to fiscal policy issues once the current elections are over. In Europe, Our process volume and transaction growth continues, albeit with some deceleration in the Q3. Softness in countries such Spain and Greece continued to be more than offset by volume growth in the Northern and Eastern European markets. However, a couple of those markets like the U. K. And Russia did slow down in growth. Business sentiment continued to weaken in the Q3, but the trend in Europe and consumer confidence Has been somewhat more inconsistent. It was up in the 2nd quarter, began to turn down in the 3rd quarter and just recently has seen a very slight uptick. Therefore, as it has been for some quarters, Europe remains a complicated economic scenario. We're watching those signals. We're continuing to grow our business and we're doing pretty well under the current circumstances. Asia Pacific and Latin America sustained Double digit process volume growth in the 3rd quarter despite several major economies in these regions showing the early signs of deceleration. There is no doubt that economic uncertainty in the U. S. And Europe is impacting the rest of the world. You all read the news about China and India. We see some of that in our data too. Brazil, however, seems to be showing signs of improvement in both sentiment And spending probably helped by tax cuts and other government stimulus programs. So overall, With us continuing to maintain a cautious outlook for the rest of this year and into 2013, we will continue to watch Global macroeconomic indicators, in particular the outcome of the U. S. Election, the fiscal cliff debate that will no doubt follow As well as the ongoing problems affecting the European economy. So while this economic climate remains complicated, we are Navigating through these challenges by focusing on what we can influence and what we can control, which is really to remain focused on our business strategy. So let's discuss some of the business highlights starting with several deals from around the globe. Building on the momentum we created with Swedbank, We recently signed an exclusive partnership with Nordea Bank for their consumer credit and co brand products In the Nordics, I've extended this new partnership to debit and credit in the Baltics. This deal doubles Mastercard share of cards with Nordea And along with other recent wins, we think we can double our market share in the Nordic and Baltic regions for the next 3 years, just further strengthening our presence In these markets that are actually doing relatively well. In France, we recently renewed our agreement with Credit Agricole, Mastercard's largest customer in that country. And with that behind us, we have no other major contracts up globally For renewal until 2014, in the Czech Republic, we signed a strategic cooperation agreement with CSOB Bank, Which is the 2nd largest card issuer in that market and we think that that deal will generate an incremental 20% share of cards And most importantly will enable the largest ever PayPal issuance in the Czech market to date. Moving to the Middle East. We have just won a significant opportunity with the Commercial Bank of Qatar's Private Banking and Mass Affluent Portfolios. We gained significant share in the credit book and now we have exclusivity for debit. With this deal in place, Qatar is showing The most significant acceleration in share growth of any of our markets in the Middle East Africa. In China, Mastercard was selected as the exclusive Foreign payments brand for Citibank's Premier Miles program. This is Citibank's flagship product. They're targeting it at affluent frequent flyers. Each cardholder will be given a U. S. Dollar denominated Mastercard card that can be used when traveling outside of China. In Hong Kong, along with the Bank of China, we launched a Mastercard exclusive youth card program Call the iCard. This new program focuses on the most important spend categories for youth in Hong Kong, which are basically e commerce, entertainment and travel, probably no different from other countries in the world. Previously, This youth card program was divided between 2 global networks. Now all these cards will be converted to Mastercard by 2014. On governments, we continue to work with them to highlight the positive aspects of electronic payments. And so this quarter, let me give you 2 One from the U. S, one from Mexico. In the U. S, as I've mentioned over the past few quarters, we've won a number of public sector programs and we can now add the New Jersey and New Mexico to that list. A number of municipalities are coming on to this as well. Columbus Ohio, Hamilton County, Ohio other municipalities in Virginia. Additionally, we have won programs with several Federal agencies such as FEMA, OCC, the Department of Alcohol, Tobacco and Firearms and the District of Columbia Courts System. So moving to Mexico, Mastercard recently announced a partnership with a Mexican government owned institution that provides To government and private sector employees, currently this institution has 700,000 closed loop credit cards that can be used at 30,000 affiliated merchant locations. By entering into the partnership with us, all of these closed loop cards We'll be reissued as Mastercard branded credit cards and expand their use to include all Mastercard accepting locations across Mexico. We're also continuing to work with merchants and I'm just going to highlight one that's really interesting. Mastercard and Nakumut Holdings, The largest supermarket chain in East Africa has partnered with 2 banks, Diamond Trust Bank and Kenya Commercial Bank To convert over 1,000,000 proprietary loyalty cards to multi currency EMV PayPass enabled prepaid cards. Nakumash has a presence in Kenya, Uganda, Rwanda and Tanzania. They We serve about 80,000,000 shoppers every year and this deal basically gives Mastercard very strong brand association At the local level in these countries as well as preference at the point of sale, it's the largest prepaid merchant agreement for Mastercard In the Middle East and Africa region to date. While on prepaid, let's just move on to India and what we're doing there with Thomas Cook And Western Union. So let me start with Thomas Cook. They're launching a Mastercard exclusive multi currency foreign exchange travel card. We're calling it the borderless prepaid card. Thomas Cook is India's largest travel and travel related financial services company and they will become the 1st non banking entity in India to launch a prepaid foreign exchange travel card. They will also be using Access Prepaid as the program manager. This borderless prepaid card will allow travelers to load as many as 8 currencies on one card. It's got a ton of other consumer friendly fun features. Western Union and ICICI Bank in India have just launched a Mastercard prepaid card with a focus on people Don't have a bank account and want to avoid carrying cash. So this new prepaid card offers the under banked a way to store and access the money. And the idea is Eventually, we will add remote top ups and card to card transfers to this card. On the debit front, we're continuing to see robust momentum in the U. S. Independent banks and credit unions adding to the more than 200 deals we completed this year, we've had a number of wins and renewals with customers such as C1 Credit Union, Gulf Coast Bank, Home Federal Bank, Midland State Bank, Wintrust Financial. At our Investor Meeting last month, one of the things we touched on was our focus on And our confidence in our ability to gain momentum and share in the U. S. Market for consumer credit and co brands. Over the past month, we've begun to hit some of the singles and doubles that Chris McCoolton talked about during that meeting. We have renewed our sales co brand program. We won the co brand portfolio of RCI, the world's largest timeshare company. And additionally, we have secured 4 Significant consumer co brand deals with one of our larger issuers. I'm just not at liberty to announce that to you yet, but we will as soon as we can. Just to let you know, these co brand deals span several merchant verticals. We have a lot of work to do in this segment, but we've begun moving in the right direction. Moving on to innovation and our activities around innovation and around mobile payments in particular, Let me just bring across a couple of new partnerships. We recently announced our partnership with NTT DOCOMO, Japan's leading mobile operator, where basically we're aiming to expand contactless payment options for Japanese consumers. The collaboration will connect DOCOMO's domestic payment network to the rest of the world, enabling consumers using their smartphones to make contactless payments outside of Japan Anywhere that Mastercard PayPass is accepted. We'll also launched an exclusive 5 year partnership With Everything Everywhere, the U. K. Largest mobile operator to develop mobile and digital payment solutions for their customers. In Poland, T Mobile and Mastercard announced that PTC, the local operator of T Mobile Network will begin offering mobile payments based on our PayPass technology. The offer which will be made available at 5 major banks in Poland As part of a service called My Wallet, it's one of the first advanced solutions commercially implemented in Europe. It's an expansion of the global cooperation between Deutsche Telekom, which owns T Mobile and us. And if you remember, we announced this collaboration a little earlier this And also in Poland, Mastercard, Orange and M Bank are launching a service called Mastercard Orange Cash, which is really a PayPass prepaid card on a mobile phone kind of giving them a SIM access to their prepaid card that will support Contactless payments. Finally, over the last two quarters, I've talked about the progress we've made in our Data Cash business. This quarter, Let me give you a few new highlights. In Brazil, DataCash and RediCard recently signed a deal to provide payment processing in Fraud and Risk Management Services. The deal which is our first e commerce gateway offering in Latin America We'll be rolled out in the first half of twenty thirteen. Latin America as you know does not have a great deal of offerings in this space. So we think this is actually Quite a breakthrough. In Europe, DataCash's home territory, we are continuing to make progress signing agreements with Various clients as different as the National Bank of Greece on the one hand, Foxtons in the U. K. Where almost 80% that payments are now being made online and a contract renewal with Domino's Pizza, which is delightful for their U. K, Ireland and Germany operations. So now let me turn the call over to Martina for a detailed update on our financial results. Martina? Thanks, Ajay, and good morning, everyone. Let me begin on Page 3 of our slide deck. So for the Q3, we saw good performance considering the very tough comps we were up against As Ajay already said, this performance is in line with the expectations that we spoke about at our Investor Meeting in September. Net revenue grew 5% or 10% after adjusting for currency, driven by volume and transaction growth as well as new deals. Total operating expenses increased 5 But 8% after adjusting for currency. So bottom line, we delivered net income of $772,000,000 up 8% 13% after adjusting for currency and diluted earnings per share of $6.17 Up 10% or 15% after adjusting for currency. As I mentioned last quarter, we continue to work on our tax planning strategies We were able to realize some benefits from these strategies in the Q3. These benefits are primarily due to certain tax initiatives, some of which are discrete items in the period. Cash flow from operations was $1,000,000,000 and we ended the quarter with cash, Cash equivalent and other liquid investments of about $5,600,000,000 While not shown on this slide, During the Q3, we repurchased about 500,000 shares at a cost of approximately 2 $16,000,000 And through October 25, we repurchased an additional 255,000 shares At a cost of $119,000,000 and we now have $1,100,000,000 remaining under the current authorization. And we will continue to look to repurchase shares on an opportunistic basis. So let's turn To Page 4, where you can see the operational metrics for the Q3 of 2012. In general, the Q3 performance of our business drivers was in line with what we presented on a quarter to date basis at our Investor Meeting in September. So let's turn to our volume metrics. First, worldwide gross dollar volume or GDV was up 14 U. S. GDV grew 7%. Debit growth in the U. S. Remains healthy at 14%. Credit volumes in the U. S. Grew about 1%. Commercial credit growth remained strong in the mid teens. And as you know, we are still having work to do in U. S. Consumer credit. Outside of the U. S, volume growth was 17% The growth rates outside of the U. S. Were driven by the strength in both Mastercard credit and debit volumes, which were up 13% and 23 growth in Latin America and Europe and high teens growth in Asia Pacific, Middle East, Africa. So turning to Slide 5. Here you can see process transactions were up 24%, slightly lower than the growth rates that in the Netherlands, which will fully lap by the end of this year. Drilling down further, about half of the 24% growth comes from the new PIN debit transactions in the U. S. Leaving about 12% as the underlying growth rate. Globally, the number of cards grew 8% to 1,900,000,000 Mastercard and Maestro branded cards. Now let's turn to Page 6 and here we can discuss our revenue growth in a bit more detail. Domestic Assessment and Cross Border fees grew both 8% on an as reported basis and 12% after adjusting for currency. Transaction processing fees grew 10%, driven mainly by the 24% growth in processed Transaction. The gap between these two growth rates continues to be in the 13 to 14 percentage point range. As we've mentioned previously, the majority of this gap is caused by U. S. Pinned debit transactions and non U. S. Transactions that both come with a lower than average revenue yield. The remainder of the gap is primarily explained by FX. Other revenues grew 11%. And finally, rebates and incentives increased 20%, driven by the impact of new and renewed deals as well as volume growth. Moving to Page 7 for some Tail on expenses and here you can see total operating expenses and within that general and administrative expenses increased 10% Due to higher personnel costs in support of our strategic growth initiatives. So very similar to last quarter, these include on the ground resources For prepaid, commercial and mobile as well as supporting the growth in various markets and expansion into additional countries. Advertising and marketing expense was 12% lower than last year's Q3 on an as reported basis and 8% lower on an FX adjusted basis. This increase was mainly due to the non recurrence of expenses related to last year's Rugby World Cup as well as the timing of certain initiatives this year. Depreciation and amortization increased 14%, due primarily to increased capitalized software associated with our strategic projects. So turning to slide 8, let me discuss 2012 with and really starting with an update of what we have That's pretty similar to our growth in the Q3. Process volume growth outside of the U. S. Grew to about 15%, which is Just a bit higher than the 13% growth we saw in the 3rd quarter. And in Europe, process volume growth through October 28 2% down from the 24% we saw in the Q3 and that's primarily due to the lapping of the pin processing wins in the U. S. And in the Netherlands. So now I'd like to share with you our thoughts for the rest of 2012, which remains fairly consistent with what we shared with you at our recent Investor Day meeting on September 20. We continue to expect second half revenue growth to be somewhat lower than the 13% FX adjusted growth rate we saw in the 2nd quarter due to timing of new deals, tougher comps We remain committed to achieving a minimum 50% annual operating margin And we continue to expect only a small operating margin expansion in 2012 relative to 2011. For the Q4, G and A expense growth will be about the same as the growth rate we saw in the second and in the third quarter on an FX We continue to invest in our strategic growth initiatives including the expansion of our Access Prepaid and data cash acquisitions, which have now fully lapped. As we have said before, our 20 12 A and M spend is expected to be lower than 2011 on an FX adjusted and on an as reported basis. In addition, the quarterly And as a percentage of the full year will be very similar to 2011. So regarding FX rates, If you assume the euro continues to trade around $1.30 and the Brazilian real Continues to trade around the $2 level for the rest of the year, we would expect about a 2 to 3 percentage point headwind to net revenue, Net income and EPS in the 4th quarter. Based on some additional tax benefits, We were able to record that we were able to record in the Q3. We now expect our full year 2012 tax rate to be about 30%. Going forward, as we said at Investor Day, in order to calculate our 20.13 Objective CAGR, you will need to use a starting tax rate of 32% not 30%. So finally, as we outlined at our Investor Day meeting last month, our new performance objective for the 20 13 to 20 15 period are a net revenue CAGR of 11% to 14% A minimum annual operating margin of 50% and an earnings per share CAGR of at least 20%. As you know, these objectives are all on a constant currency basis and exclude any new acquisitions. Our assumptions also do not contemplate At this point, a more pronounced deterioration in the U. S. Economy or more significant problems within the eurozone than what we are already seeing. And as I said at last month's investor meeting, while we have a 3 year CAGR objective, in Based on our current expectations of the economic environment, we expect that net revenue and EPS growth And the early part of this year might be slightly below the range. In later years, assuming the world returns to a more stable environment, we We believe net revenue growth could be at the higher end of the range and that could also benefit EPS growth in that particular period. 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 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. John? Thank you. We will now begin the question and answer session. And our first question comes from Sanjay Sakhrani, please go ahead. Thank you. Good morning. I was hoping to get some clarification on On the European wins with Nordea and CSOB, could you just clarify the specifics on the expansion of those relationships? For example, does debit now move exclusively to you? And also could you just touch on the timing of those of when those Wins ramp into your numbers. And then just secondarily on the rebates line, if Martina you could just clarify what you guys are expecting for the Q4? Thank you. Hey Sanjay. So on Nordea, we have signed in the Nordics, we have signed Swedbank some time ago, right? And What Nordea really is, first is the signing of their consumer credit and the co brand portfolios, which are primarily driven off credit in the Nordics. What we've also done is that they have expanded into the Baltics as a bank. And in the Baltics, we've got both debit and credit with them. So in the Nordics, we don't have debit with them. We have Credit and Co Brands. In the Baltics, we have debit and Credit. And when you put all that together that I said we'll kind of double our market share across credit and debit in the Nordic and Baltic regions over the next 3 years. Now why 3 years? Because these are phased in. We're not doing a master flip on one day. It's kind of a phased in reissuance when the cards come up for reissuing Over there. In the Czech Republic with CSOV that one is actually what we're doing there is To flip them into getting more cards with us, we think that because it's such a large player there, we could get a 20% increase in our share of cards In the Czech Republic, this will kind of take between 8 months 2 years to complete. It's not an overnight flip either. So Sanjay with respect to your second question on the rebate line, so what I was just saying is that we did actually expect to have a little bit rebates and incentive line in the Q3 than what we had and that's simply what happened is that a number of the deals that we expected to sign in the Q3 Slipping into the 4th quarter and as you know from a seasonal perspective, our 4th quarter is typically the highest This quarter from a rebates and incentive point of view is simply because at that point in time you have the holiday season going on, We have a number of merchant initiatives and incentives going on. So I just want to make sure that everybody captures that. And we've got a pretty full deal pipeline. So that's kind of why she's so careful about this point. Next question, operator? Our next question comes from Craig Maurer from CLSA. Please go ahead. Yes. Good morning. Thanks for taking my question. I actually had two questions. One is, have you heard any rumblings out of Brazil in terms of the regulatory environment, potential changes down there? And secondly, in terms of U. S. Credit, you said you continue to look at initiatives. My only question there is, is there really anything to do other than continue to support your existing partners and wait for deals to come up for Possible renewal or wins? Thanks. Hi, Chris. So Brazil nothing new that I've heard In the rumblings other than what's been there for a while with imposing taxes and foreign purchases and the like, but I haven't picked up anything new. The part about credit in the U. S, commercial credit in the U. S, we're actually doing really well, strong growth mid teens. It's consumer credit that we were talking about. And there are 2 parts to it. One part is clearly the part about working with existing issuers. We've got a mix of issuers and you know who Those are and you know who our competitive brands have got has a mix of issuers and you also know which banks are coming out of the cycle faster in some cases than the others. There's only so much you can do on that other than work with the existing portfolios as you said to see if there's opportunity for those banks That could exist to work their portfolio harder. But the other part of it has got a lot to do with kind of getting small wins going, whether it be Independent banks and credit unions, which we've been doing consistently for the last year and a half, 2 years, but Focusing on that. And the other part is co brands and co brands keep coming up and as they come up we work with them, but there's also geographic Expansions on new products. So a number of the regional banks are going into different kinds of new products in the credit space. Their balance sheet as you know was somewhat better than those of some of the larger banks and those all come up for being available For a discussion, almost all these banks are in dialogue with us at some stage or the other. So it's a slow fix. It doesn't happen overnight unless you get some big change in the portfolio. But if you do it systematically and we're doing it systematically with the independent banks And credit unions and working with our current customers and looking at all the core brands then I'm convinced that over the period of a couple of years, We can make a really big difference to this number. Our next question comes from Don Fendetti from TD Group, please go ahead. Hi, good morning. Ajay, it looks like the cross border started to accelerate nicely in October, Particularly around Europe, can you just talk a little bit more on what you're seeing on the ground in Europe? It seems like maybe the worst is behind you. Yes. John, I don't know that I'd go that far about being the worst behind. I honestly I'm as surprised as you are By the 1st 4 weeks of this quarter. Mind you, it was there in the 1st 3 weeks too. So if you'd looked at this data as of October 21, It's kind of a similar trend. So it feels like the 4th week is similar to the 1st 3. Now I don't know if that makes a trend, But in another month or so, I'll feel a little differently. Right now, I just see a complicated economic environment out there. I see As I said this openly, I think of the U. S. As being in actually a relatively better shape as an economy that a lot of people give it credit for both between Individual and corporate balance sheets. I think if the government was able to show some degree of clarity and leadership around solving For the cliff, I suspect the U. S. Economy could provide a surprise on the upside to almost every But that has to happen before you can say that. And nobody knows what will actually come out of that over the next month or 2. Then we go to Europe and like it's been we are fortunate as a company. The mix of our business is biased towards Northern Europe And towards the emerging economies of Europe and that has really seen us in good stead. While Russia has slowed in growth a little bit, boy, when you slow in growth from a Large double digit number to a slightly less large double digit number. I'll take that every day of the weekend. And so that's helped us. We are less exposed to Portugal and Ireland and Greece and Spain, we've kind of said in the past that only 5% of our revenue as a company Comes from the big economies and that's kind of helped us. So I think that's part of what you're seeing in our numbers is our relatively high exposure To the economies that seem to be doing better in the last 2 or 3 months, I've been in the Nordics, I've been in Germany. So I've actually seen a couple of these economies firsthand. And yes, They do look different from what you see in Southern Europe. When we come to Asia and Latin America, in Asia, China is showing some impact when you read about it. But remember, we don't do domestic processing in China. We do cross border. Cross border is just fine. Thank you. And that's been helpful. And then you look at India. And India, yes, the economy is slowing, but it's 66% driven by domestic consumption, We're just still doing pretty well. And so our mix of business is what is allowing us to weather this storm In the way we are doing it and that's what's factored into all our thinking when we spoke to you at Investor Day about how we think about the next 3 years. We think of 2013 as being probably more complicated than 2014 2015 and 2013 may well bring As Martina said, our revenue and our EPS somewhere lower than the range we gave you. But remember, it's a cumulative average growth rate we're talking about. We'll probably end up somewhere better In the next 2 years and that's how we look at our business and its mix. It's a long answer to a simple question, But actually that ain't a simple question Don. Our next question comes from Chris Brendler from Stifel Nicholas, please go ahead. Hi, thanks. Good morning. Can you comment on the U. S. Domestic debit market? You've provided some helpful There was about half of the growth rate of 24% coming from the pin debit side. Just wondering are we completely through the portfolio conversions? Do you have any insight into your Pipeline, you've had some nice U. S. Wins in the debit side, it seems to have slowed over the last year. I think we're almost full lapping of that. Is it a I guess my question is 12% through the core growth rate absent those portfolio conversions? And also where is the track and the Had any impact on your debit wins in the pin side? Any color would be helpful. Thanks. So Chris, let me take this. First of all, For the quarter, yes, the 12% was the underlying growth rate when you strip out and most of the differential to the 24% was really related To the new debit business in the United States, I think I want to differentiate between the PIN business and the Signature debit business. On the PIN business, As you know because of the regulatory changes that had to happen in the U. S, there was a big push in the first in the second really in the second and the third And that is what we saw into the numbers. Having said that, we're going to continue to work on the pin business, but I don't think you should be expecting going forward to have a similar Push to what had to happen leading up to April 15 this year. On the Signature debit side, again, you should be expecting that we're working Those portfolios in a fairly significant way, so we have deal pipelines and you should just expect That you will see these kind of more normal cadence that we enjoyed during time. So whether the 12% underlying growth rate is going to persist, that depends. We had it now for a number of As you know, it really depends on how consumers are using their debit cards going forward. I think the one other question that you had was In terms of are we seeing any particular losses on the pin business, again, as you know, it's a complicated business. So far, we've been Able to get a nice share on this. We have not seen any material deterioration on that versus the last quarter and We'll be continuing to work this space as we see fit. Chris, the only thing I'd add to that is that you asked specifically about Visa's pricing strategy. And Yes, they've got that pricing strategy rolled out over there. We are not playing the game the way they are. This is my own understanding. I think they're impacting the regional networks more right now With that pricing strategy than the wins that we've got, but that could change. So we're very carefully watching it. We've got great MIS now. We've got Great ability to track this stuff by merchant, by geography and our team is very conscious of keeping Acquiring side there was a licensing fee. I think Martina you actually characterized it as a pricing change in the U. S. Your last public comments, I just wanted to confirm that that was fully impacting this quarter. My understanding was it kicked in July 1, but I didn't see it. Yes. There was a full impact this quarter. I didn't see any sequential change in your growth rates in domestic assessments or rebates It's not in domestic assessment, it's in other revenues. And so your comments that it was relatively It is relatively small. I had only 5 questions Chris. That was 1, 2, 3, 4, 5. But yes, it is I was expecting you to cut me off. All right. Thanks. We try not to cut people off. Next but operator next question please. Our next question comes from David Togut from Evercore Partners. Please go ahead. Thank you. Could you update us on your appeal Of the European Commission pricing structure on cross border debit and credit within the EU? And then Just in connection with that, we're hearing that the EC wants to regulate domestic interchange in the EU. Do you have any reaction to that? And What might be any impact on your own pricing strategy? I've got Noah sitting next to me right here. And so Noah is going to chat with you about that. Go ahead Noah. Yes. So As you know, we filed our appeal as to the General Court's decision Against the European Commission, that's going to play out over some time. So we have nothing else to add on that other than the fact that the appeal It is pending. And as to the question about the European Commission and domestic interchange, I think it remains to be seen as The position they're going to take, I mean, that also is in play, but time will tell as to whether ultimately they seek to regulate in And if the EC does regulate domestic interchange, do you expect to maintain your own network pricing within the EU? Well, who knows, right? But I mean at the end of the day, you got to remember, we don't make money out of the interchange. And so we've got this is what exactly what we've discussed in many countries around the world. Pricing our ability to price our Work with issuers, our work with merchants, yes, the entire market moves around with interchange in terms of economics between merchants and banks. But the impact on us comes more from what happens to total payment volumes and the interest that issuers have in expanding the payments business And the interest that merchants have in accepting electronic payments and that's the way we look at it rather than, oh, if interchange changes what happens to my It hasn't proven to work that way for many years now. So we keep getting the same question. I keep getting the same answer. So hopefully, I'm consistent with that one, buddy. Okay. Well, thank you. Thank you, Please go ahead. Yes. Thank you for taking my question. I wanted to ask about what impact you expect from the new retailer joint venture that they refer to as MCX, they've tried legislating against you, Durbin end up being a net positive, litigating you seem to on pretty decent terms. So now they're trying to compete with you. Do you think they have the resources and the will to build An alternative payment network. And in the shorter term, do you think that the fact that they'll capture a lot of aggregate data Means that they'll have less demand for the data you sell from Mastercard Advisors? So you've got 2 or 3 questions in there. And the first part is this whole MCX has got very little detail on what they are doing, what they intend to do. It's very difficult for me to give you much A commentary on that. Do they have the resources and the will to do something about MCS? Yes. Does that add up to a real payments network? Not really. If you think of what a payments network brings if you look at the totality of it. So I think there are 2 very different angles in there. We are look a number of them are already business partners of ours and those are important retailers and we're always talking with them about what we could do with them And for them, so that dialogue is ongoing. I think the aspect of data, yes, some of them will be collecting more data. But remember this that the data we have cuts across millions of merchants in lots of geographies. The ability for our data to be somewhat Therefore, more predictive than that of any group of retailers is still very strong. What we do not do, which we don't do even today, We do not collect SKU level data and we do not collect individual names. One of the best parts about our data is that we are not collecting your name. In fact, your name doesn't come to us in the Your name, in fact your name doesn't come to us in the transaction. What comes to us is a card number, a merchant code, a dollar value At the time of the transaction. And I think that still remains in our benefit that we aren't actually crossing the line into an individual's name. So our way of using our data is different. And I think there's enough space in this growing big data market For us and some others to be competing, some less concerned about that aspect of it. Thank you. Next question please. Our next question comes from Jason Kupferberg from Jefferies. Please go ahead. Hey, thanks guys. Any way to get a sense of potential impacts from Hurricane Sandy on your U. S, your Quest border volumes? I'm sure International trips probably got canceled or postponed by the storm. Anything that you would suggest could end up being material, understanding you wouldn't Have any kind of specific numbers at this point? So Jason, when we did the analysis on other of such Storms in other parts of the country or in the world, net net, in the end of the day, you see very little impact. So we might be when we see our Weekly data for this week, we might be we definitely will be seeing some impact, but usually over time That evens out. And so what you have to understand, if you were in New York City on Saturday Sunday, first of all, everybody went to the shops and I'm surprised that the shops have Any type of food still on the shelves because everybody was buying like crazy and stocking up. Right. This is obviously a benefit because I saw a lot of MasterCard Coming out of the wallets to be used for that. Then you probably have a little bit of a down period and of course people were not dining. Of course, you had tourists probably laying low in the hotels. Hopefully, they did some good spending there. And then after the storm, You have people starting to come out again and unless I mean I hope some of the food was void, so they're going to have to Back up again and they have some pent up demand, I believe this weekend you will see some of that coming in. So in the end, when we look at these kind of storms and this was a 2, 3 day kind of event. So it was actually a relatively defined event. We believe that over the quarter you're not going to see some impact. And Obviously, we're wishing well for everybody who had to go through this terrible storm. Yes. The other angle Jason is that a lot of Foreign tourists were also stuck here. Others may not have been able to come in. So it kind of works both ways. It's tough to predict, but There's no doubt that it creates a whole new element of uncertainty in so many people's lives with all they've been through it. Right. Okay. Now all that color makes sense. And just for a follow-up, on the merchant litigation since you guys have Noah there, Any concerns on the opt outs getting to 25% of total or any other circumstances you can As you go through this multi step process towards finalizing or truly finalizing the settlement, anything that could potentially derail it or is your level of Confidence in having it go forward with essentially the same terms that we first heard about in July. Is that level of confidence intact? So Noah actually ran out of the room as soon as you started your question. No, he's here right now. Go ahead Noah. Thanks for the opportunity to Let me say that as you know Judge Gleeson issued his order As far as preliminary approval is concerned, we're pleased that he indicated that despite requests for a protracted Briefing efforts and so far as the approval is concerned, he set a short date for a hearing and indicated that preliminary approval is appropriate Where we have a situation where the proposal is the result of serious negotiation between the parties. So we feel pretty good about that moving forward in a rapid manner. At this point, there have been some merchants Majority of those merchants actually signed the settlement agreement and that's in addition to the 22 individual merchants There were plaintiffs that also agreed to the terms. So at the end of the day, we think the prospects are good, but really it's up to the judge We'll ultimately determine the fairness of the settlement. At the end of the day, there can be opt outs. And if even that 25% number It's reached. It's still up to the defendants to decide whether to go forward with the settlement. So we believe but we feel good about And again, it's up to the judge to determine the ultimate fairness of the settlement. I think you feel pretty good about the appeal process assuming that that occurs post Judge Gleeson's ruling? Absolutely. Okay. Thank you guys. Our next question comes from Rod Bourgeois from Bernstein. Please go ahead. Yes, guys. I wanted to inquire about the SEPA situation, I mean you've had some pretty good SEPA wins in recent years. Can you give us an update on the latest process for additional Domestic processing wins in Europe recognizing that the EU is pushing pretty aggressively for regulation in Europe. Does that regulatory push in Europe at all maybe in the next 6 months alter your ability to win SEPA deals in Europe? And does it make it more likely that future SEPA wins are further down the road rather than over the next 2 or 3 quarters? So Rob, no, not really. There's actually many different parts in Europe like everything else in Europe, right? And the fact is that if you looked at the 3rd Our domestic transactions now that we are lapping all those humongous wins in the Netherlands still grew 26%. We're still growing pretty handsomely in the Netherlands per se. We grew by an enormous number in Belgium. We're beginning to grow in We're growing domestic transactions in Germany. We've been able to implement a Maestro fraud shield in Germany to help reduce fraud and protect all our International Maestro acceptance. And in fact, we think that by the end of the year 80% of all German Maestro cars, Which is a number well in the excess of tens of millions of cars will be on this tool, which is a derivative of in control. We are sort of we are working at ING to be issuing PayPass enabled cars in the Netherlands starting January. I talked to you about the Nordea win. I talked to you about Swedbank. We've got a pipeline of deals across SEPA in this space both in terms of traditional wins as well as processing. So I would say to you there's different parts going on. There's all the day to day business where there is all the effect of SEPA and the payment systems directive that is Still flowing through. There is the issue of what's going to happen with the appeal as Noah said and what's going to happen with the green paper. But, Kennen, every bank is moving forward and we're all moving forward with that business. There's no doubt that continued Regulatory uncertainty always makes people uncomfortable. But Europe's been having some of this uncertainty for quite a while now. It's not a new event in Europe. So that's kind of where we are right now with all this. Having said that, winning domestic processing in Europe It's not something that happens in 3 months. Any one deal takes quite a while to happen. So I'm not Sitting and fretting about that issue right now in my numbers for the next few months or quarters. Great. And then just real quick as a follow-up on a related note. It's good to hear that you don't have any major renewals until 2014, on the deal that you the large client that you recently renewed, did the European push for regulation have any effect on your PN push for regulation have any effect on your sort of new contract With this bank in Europe? Credit Agricole you're talking about. No, nothing at all. I mean, listen every big bank in every part of the world negotiates Hard to protect their interests and negotiate hard to protect their growth as does every big merchant whom we talk to. So There's always that pressure with every institution each and every time. It's been that way since 25 years. So That's there. But I can tell you that there's no difference in our conversations with these institutions that's coming out of this. They all want to know What's going on with the green paper? They want to understand our strategy compared to that of our largest competitors. They want to comprehend what our approach is in terms of Affluent cards and non affluent cards, they want to make sure that they understand what we're doing. But beyond that, it's a pretty healthy dialogue. Great. So there's no terms in that contract that are contingent upon regulatory outcomes? You were able to get everything hedged in? No. And that's question number 3, Raul. No. Next question please. Our next question comes from Bill Karkik from Nomura. Please go ahead. Good morning. Thanks for taking my question. There's been a lot of focus and a lot of attention on mobile acceptance technologies in the U. S. Like Square And similar offerings, I wonder if you could talk a little bit about what you're seeing, I guess, in terms of mobile acceptance, similar types of Technologies in Emerging Markets and whether I guess just thinking about the potential for There would be kind of a step change in electronic payment penetration rates in the emerging markets as a result of not I mean to kind of add the traditional point of sale infrastructure laid out, anything that you're seeing there? And secondly as the follow-up, If you could also talk about from the standpoint of your conversations with other mobile network operators, whether sorting out or Asking through the economics of partnerships, it seems like it's something that take just taking place on a case by case basis. But I wonder if give any comment as to whether that's a sticking point or any color around that? Thanks. So I mean, let me answer the second one a little bit quickly and then we'll go to the first one. In the second one, it's absolutely correct that the there is a case by case approach right now. The reason for that is no one's clear how this will develop over a period of time. So the traditional role of an operator versus a hardware manufacturer So the bank versus the merchant versus the network is still moving around. And the one big difference is that everybody is there playing. A little while back we used to all talk about How the mobile networks would be able to do all this without the banks and the payment networks. And I think you've seen that dialogue completely change Through the efforts we've put in, we now have 30 of these partnerships around the world. I talked about a few a little while ago today, but if you add up what we've been doing Over a period of time, there are ton of these around the world. I remain convinced these will take time to come to fruition. I remain convinced that infrastructure has to be built that these economic terms have to be agreed to that consumer behavior has to adjust and adapt for it to come to fruition. One of the aspects of infrastructure that could help, which is not to do with mobile payments, it has to do with the other side of this, which is your first part, Next line infrastructure in countries like India and South Africa and different parts of the world. There's momentum. We've invested in a company like Zettle for example, which is out there trying to build this. We've got a great partnership with Square. We're actually talking to them about going to countries outside of the U. S. There's Other players, there's Rev, there's a couple of other players out there that are trying to think about how to use alternative methods To enhance the experience of using a mobile as a point of sale, we ourselves are doing stuff as well, which is in Mastercard Labs that Some of you have seen that also works with using tablets and mobility devices as a point of sale. If these are all they're happening, They're far out there. What I was talking about in India for example with the unique identification authority with fingerprinting that I've talked about Few quarters ago that relies on the mobile being having a fingerprint reader attached to it in a small village shop, which can then be used To enable transactions from the bank accounts into which the direct deposit of subsidies is made. So there's a lot of work going on. We have developed that technology. It is in our system because we have one release around the world. We don't have One part of the world is an association. We've got everything together. We've got one release around the world. We kind of have this done. And we are ready to Bring it into different countries as it rolls along. We're working very hard on it at the front end. But I'd say it's not going to happen tomorrow. It's going to be a Slow build over the course of a few years. Thank you. Next question please. Our next question comes from Andrew Jeffrey from SunTrust. Please go ahead. Martina, could you just clarify in terms of the rebates and incentive commentary with regard to the 4th quarter? Is a higher level specifically tied to current period Deal signings or is it related to also to the higher volume within existing contracts? First of all, as you know, Our Q4 has always enjoyed the highest level of rebates and incentives, right? You got to enjoy. Yes. It's a relative term. I love the CFO's words. So if you look at Our quarterly cadence over the last umpteen years, it always was higher in the Q4. And as we told you before, it was really higher In the Q4, primarily due to what's going on around the holidays and what we might be doing from a merchant initiative point So now secondly what you're having going on in the Q4 is that we have a very robust Deal pipeline as Ajay said. And some of the deals we did not sign in the Q3. I fully expect them to come through in the Q4. And then you would see a little bit of an up there too. Lastly, you have just seen for October that our volumes are After Ted, hi, I'm not in the United States, but outside of the United States as well as cross border. So depending on whether that will persist For the remaining 2 months of the quarter, you might see a little bit of an uptick there too. Okay. And that's helpful. Thank you. And as a follow-up, It sounds like you're being very disciplined in your PIN debit share strategy. Is there anything, Ajay, that you've seen Trinsically change with regard to PIN debit profitability. I know you've always mentioned that the revenue yield is lower, but there's still very profitable transactions. Is there anything that's at all been altered by the pricing environment with regard to the ROI on pin debit or just the incremental No, Andrew. Nothing's changed on that front. In fact, as time goes by, as we see more of these transactions, I'm kind of hoping that I'll be able to do something with that data to help my advisers business. But typically you need to see Some years of real data to make that predictability improve even further. So that's not a 2013 event, but seeing more data It's really important to our company. It makes a big difference to the values of what we sell in addition to just being a network. And so It's important and we are working very hard whether it be to the SEPA question that Rod is asking or your question right now. It really matters. Okay. Thank you. Operator, I think we have time for one last question please. We have a question from Tien Tsin Huang from JPMorgan. Please go ahead. Ingen, we got your name right. That's terrific. And I appreciate that Barbara and everybody. Not an easy one obviously. So You can say John the operator. Yes. Don't thank me for anything with that data to help my advisors business. But typically you need to see some years of real data To make that predictability improve even further. So that's not a 2013 event, but seeing more data is really important to our company. It makes a big difference to the values of what we sell in addition to just being a network. And so it's important and we are working very hard Whether it be to the SEPA question that Rod is asking or your question right now, it really matters. Okay. Thank you. Operator, I think we have time for one last question please. We have a question from Tien Tsin Huang from JPMorgan. Please go ahead. In June, we got your name, nothing with that data to help my advisors business. But typically you need to see some years of real data To make that predictability improve even further. So that's not a 2013 event, but seeing more data is really important to our company. It makes a big difference to the values of what we sell in addition to just being a network. And so it's important and we are working very hard Whether it be to the SEFA question that Rod is asking or your question right now, it really matters. Okay. Thank you. Operator, I think we have time for one last question please. We have a question from Tien Tsin Huang from JPMorgan. Please go Ingen, we got your name right. That's terrific. And I appreciate that Barbara and everybody. Not an easy one obviously. So You can say John the operator. Yes, don't thank me. Hey, name is a small thing. I'd walk to work today. So I'm just trying to get through today. You want to hear what they do to my name? I'll have fun with you. I'll hear that one. No. I'll one day I'll share the sad stories I get. Just a quick clarifications, just a small operating benefit expected for the year. In the past you said that you could spend, I guess, some more incremental growth investments, didn't hear that this quarter. I'm curious if that's changed and to the extent that there are incremental growth investments, would they be organic In the form of hiring people or inorganic like buying tech assets? Just trying to assess where G and A could shake out as we get through the end of the year. So you're My closing comments. But that is kind of every intention to keep using opportunities to put money back in. Frankly, one of the things I'm trying to do very clearly and concisely is truly look at the company's tax profile. We used to pay a much higher tax rate. We are working very hard in the company to bring that tax rate down through 2 things. 1 is Consistent proper tax planning in terms of where our different assets are located and how the revenue reaches those assets compared to the tax And considering the tax rates across the United States in that geography. The second is all the clearing up of one timers Martina and Tim Berger have done an outstanding job on. So my attitude is to use those 2. In addition to business growth that I feel may give me better margins at different points of time and keep putting that back into short term opportunities, but I also want to put our cash back into longer term opportunities, whether it be the acquisitions of the type Tien Tsin that be it DataCash Access or True Access Or be it the purchasing of patent portfolios from VivoTech recently, which we also announced, I don't know Noah For a month or so ago, month and a half, 2 months ago? Yes. So I'm trying to do a bunch of things that are both short term and medium term in nature By using these opportunities and that's not changed at all. Okay. No, that makes sense. The other clarification, I'll let you go, just October trends for USA credit and debit, did you give that, Martina, or did I miss it? Yes. What I did is I basically talked about our Volume proxy for GDV in the U. S. And I said it grew up to October 28 at 7%, which is very similar to what we John, the Q3. Okay. Got it. Thanks. And thanks for your name, Brian. The improvement engine in the 4 quarters, 4 weeks of October Mostly outside of the U. S. And it's been in every region outside of the U. S. But in the U. S, it's been kind of the same number as we saw during the Q3. Got it. Amazing how resilient it is. Thank you. All right. Okay, Roger, you got some closing comments? Yes. Now that Tien Tsin has stolen them. So but guys thanks for all your questions. And we basically delivered a solid third And I want to make this point that it is right in line with the expectations that we had as we lapped that exceptional Q3 Of last year, we believe the markets are going to stay unpredictable for the next, I don't know, 12, 18 months. But barring any significant Deterioration in global economic conditions. We're very committed to our new performance objectives for the 2013 to 15 period. And as Martina indicated and we spoke of in our recent Investor Day and I just said so again in answer to one of the questions, Net revenue and EPS growth could be slightly below the range early in that 3 year period. My view is unchanged. The payment space is a great business To be in, 85% of the world's transactions are still being conducted using cash that provides us a strong driver for revenue even during It is the overall economic uncertainty that impacts per capita expenditure. We continue to look at targeted investment and partnership opportunities to help drive our strategic focus areas for short and long term growth. That's the Tien Tsin portion. And with that, thank you all for your time today and thank you for your faith in the company. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.