We settle in. If everyone could start taking their seats, we're going to kick it off with Mastercard now. I was kidding around with Craig how we've had him for a number of years, but I really love having you here with us. Craig, who's the Chief Product Officer of the company, is really a great and insightful executive for Mastercard to help us understand what's really happening underneath the hood, what's really driving growth for the business. So thank you for joining us.
I appreciate that. Happy to be back.
Devin from IR, happy to have you too. Thank you for coming, guys. I know you have huge demand from investors to see you guys while you're here. So hopefully you get to see as many as possible. But maybe just start off, Craig, with what you're seeing. I mean, again, as the Chief Product Head, running strategy for different products you're investing in, where are you spending most of your time? What are you most excited about?
Well, a lot of things. Let me just start off by sort of framing that in the context of the corporate strategy, which is all around extending our participation in payments, extending our services, embracing new networks, the three pillars that are sort of driving the business going forward. I got one thing. Within the payments areas, primarily what I'm responsible for, all the various payments products and open banking as an important enabler of a number of different things, which we'll touch on later.
But the things I'm spending time on that we collectively are spending time on and importantly investing in as things to drive future growth of the business revolve first and foremost around continuing to invest in the core cards business, the core consumer-to-merchant payments business with debit credit or prepaid solutions, where we have and continue to see and continue to feel very optimistic about the potential for growth in that part of the business. It's nuanced and becoming increasingly digitized, as you would expect. A lot of the investment and the focus is around continuing to ensure that part of our business is fit for purpose in an increasingly digital world. That's one major area of focus.
There's a second big block of activity that revolves around enabling the part of our strategy that's grounded in choice and providing choice for consumers and how they pay, for merchants and how they get paid, for financial institutions in being able to offer a broader array of payments solutions to their customers. And that is very much at the heart of our diversification strategy around payments capabilities, which is then ultimately the enabler of the new flows element of our strategy and enabling us to participate in and intermediate payments that aren't necessarily fit for purpose for a card transaction, but take us into new areas, new flows related to B2B, related to disbursements and remittances, et cetera.
There's a broad swath of capabilities that are underpinning that with real-time payments, with push payments, account-to-account payments, blockchain-enabled payments, et cetera, a wide range of things that are maybe a little bit farther out on the horizon but important for us to stay engaged with today and, one, learn about and, two, help shape and influence how they may evolve, things like digital currencies, things like the account-to-account payments opportunity, of course, remaining very engaged with and connected to the fintech community as an enabler of innovation in our space.
And then broadly, open banking, which is another area that we're excited about as an enabler of innovation, where we think we've got an important role to play in how open banking capabilities are brought to market, how they can support payments-related use case, as well as non-payments-related use cases that can be value drivers to our business going forward. So that's kind of a quick run-through of the lay of the land in terms of the things that our product and engineering team that I'm responsible for is focusing our attention on.
OK, that's a lot. Maybe we start with the core of the business. I mean, the secular shift of just pure cash and checks over the years was always a big driver for, obviously, the whole industry and Mastercard in particular. So maybe if we look now at core person-to-merchant payments, how much do you think is actually left of the secular shift we're used to seeing being a big driving force, especially in developed markets? There's been questions from investors that post-pandemic, a lot's already on cards. What's left to come, and what can you guys benefit from? Help us understand where we are now.
Yeah, I think, well, to answer the question directly, I think there's a lot left in terms of what the secular shift can drive. It's important to place that in context too as being an important but not the only driver of our growth algorithm. But certainly, the secular migration around the cash-to-digital conversion has been an important theme for us for some time. And we're confident it will continue to be for some time. And there's a couple of reasons for that. One is just looking at geographies around the world. There are vastly different degrees of penetration of carded payments today. Yes, some major markets like the U.S. have steadily increased, but there's still plenty of room to go in a market, even where cards are as embedded in our lives as they are in the U.S. There are other markets that are even more greatly penetrated.
The Nordics, as an example, are well into the 90% in terms of penetration. But there's major markets that have very low levels of penetration: Mexico, Japan, Germany, sizable economies. China remains an opportunity that we'll get to a little bit. So geographically, there's a great dispersion in terms of the degree of penetration that provides opportunity for us to continue to ride that migration. There's also significant differences when you look at merchant categories. There are important categories that remain relatively unpenetrated, particularly things related to bill payments, rent, utilities, et cetera. There are transaction types, segments of transactions that are relatively unpenetrated, small-ticket transactions being a great example.
It's important to think about the opportunity in that secular shift as being not just driven by the dollar value of transactions that can migrate, but also the number of transactions that can migrate, because both ultimately support our revenue model and are important drivers of our revenue model. Broadly speaking, we feel good about the ongoing opportunity with respect to that secular shift. There's a number of things we're doing.
Yeah, I'd like to hear that.
To help us take advantage of that and where we can accelerate it. A lot of that has to do with really basic blocking and tackling around expanding acceptance. I say blocking and tackling. That's probably not the right description. Some of it is just working with the partners we've always worked with to expand acceptance and bring more merchants into our ecosystem. But some of it is also advancing technology that just helps broaden the addressable opportunity for merchants of all shapes and sizes to accept Mastercard. Contactless has been a really important enabler of that. That's not a new technology. It's been around a long time. But it has really reached a tipping point in terms of exponential growth with respect to the penetration of contactless payments. Why does that matter?
Because it helps us, importantly, capture more of those small-ticket transactions I was referring to, Tap on Phone capability that decouples the software from the hardware that any merchant, formal or casual merchant, needs to begin accepting payments and enables that capability to effectively be pulled down from the cloud and turn any smartphone into an acceptance terminal that is capable of accepting a contactless payment. That's important in extending the reach of the network with merchants for whom a traditional acceptance relationship might not make economic sense. It's important for engaging even very well-established and mature merchants to enable them to provide a different kind of in-store experience, where their staff may be roaming the aisles and helping customers pay for things and check out in the store rather than at the front. So acceptance is a really big part of that.
Acceptance, it's a critical strategic asset of ours. It's good for the network to grow. We've doubled the size of the acceptance reach over the course of the last five years and anticipate that continuing to grow at a healthy clip. Digital strategy is another part of that as well. And if you think about expansion of the network, it's increasing the number of places people can use a Mastercard. And we've seen really consistently over time, if you add more places where people can use their Mastercard, they will use the Mastercard because they like it as a way to pay. And then on the other side, it's about getting more cards, credentials, tokens into the ecosystem lodged in places where people can conveniently use them to spend.
And that's where the digital strategy on the issuing side of the business is so fundamental in enabling a digital-first experience, a tokenized experience that is secure, that enables a better consumer experience, better lifecycle management of the credential, digital-first issuance to enable instant access to a credential to start spending through a token that's been provisioned to a mobile device, et cetera. And so it's just pushing the network, the reach of the network outwards on both of those dimensions to continue to extend its reach and help us tap into those secular growth opportunities.
That gives you confidence that in developed markets, we can still see the consumer-to-merchant spending persist at a rate that we've seen?
We feel good about the opportunity there because of those there's still untapped pockets of spend, significant untapped pockets that we can go after. There's still new business formation. There's merchant verticals that aren't well-penetrated. And there's this phenomenon in even in more, I'd say, more mature digital economies, this phenomenon of things that used to be one transaction turning into multiple transactions because of marketplace structures, because of gig economy delivery businesses, the buy now, pay later phenomenon. Each of those kinds of transactions is taking what used to be one transaction that a consumer would make to a merchant and breaking it up into multiple transactions, each of which we can play a role in. And so you get this multiplier effect in the number of transactions, which is it's sort of a new vector of growth almost that's related to that secular migration.
So moving beyond person-to-merchant, you've obviously identified some very real new flow opportunities that have become a big part of your business already. I mean, these include B2B, commercial, disbursements, remittances, right? I mean, maybe just expand a little more on kind of progress you've been having in these areas.
Yeah. So we have targeted those as really important opportunities for a couple of reasons. Obviously, they're large addressable markets. They're markets that have some real inefficiencies and needs that we think we can play a role in addressing. And we have products and services available to meet at least some of those needs today.
The TAMs are, I mean, materially larger in some cases than even consumer.
They are multiples of 3-4x the consumer TAM in some cases, so when you look at it in its totality. So it is a really significant opportunity in very early stages of penetration, still somewhat fragmented markets, still a lot of friction and inconvenience associated with them. We've started by targeting opportunities that are linked to products and services we already have available today. Some of that starts with card products that are targeted towards more commercial kinds of applications, T&E solutions, procurement cards, fleet cards, small business, an enormous segment that's generally underserved pretty much everywhere, each of which has the potential to incorporate cards and card-related services more directly into their business processes.
On the B2B accounts payable side, that's evolved more around virtual cards as a solution to enable more efficient payment of or facilitation of buyer-supplier payments, and one where we've just seen a real increase in the number of use cases where virtual cards become a relevant payment capability. Now, that has been enhanced to a large extent by investments we've made in improving the product experience with things like straight-through processing, targeting what was an area of friction for virtual card use, which was kind of a clunky experience in the past. Much smoother now with straight-through processing with things like the Mastercard Receivables Manager that we launched with Billtrust that enables automated reconciliation of the payments data with the invoice data. Economics were a friction point. And we've introduced the Variable Interchange Program to enable more of a bilateral sort of.
We've heard about that from some other panelists.
Clearance price. So these are important ways to ensure that where there's that underlying need and the product can actually serve the needs of the market more effectively, we're knocking down these barriers to adoption in the form of friction. And with that, we're seeing really nice growth, including some very important geographic expansion. These are businesses that, for us, that were historically pretty concentrated in the U.S. and parts of Western Europe.
We're now seeing a lot of global appetite to adopt these in a variety of use cases, in the travel segment, in marketplaces, in just any corporate buyer-supplier relationship, and partnering, importantly, with a number of not just financial institutions that are major players in this space, but ensuring the capability becomes integrated into the workflows that corporates are already using to process their payables by integrating with their ERP systems, the SAPs, Oracles, Coupa of the world, to enable a more streamlined and seamless experience, which is a really important way to overcome some of the inertia that exists in B2B accounts payable workflows, integrate with the existing workflow, and make it easy for people to use.
And I mean, just to add on to that, you've had new wins, new partnerships across fintech, and I think on the issuer side, too, right? Can you just help us understand what's enabled you to be successful in those?
Across all those various segments?
Well, maybe just start with fintech first, because I mean, it kind of dovetails with some of the new flows opportunities.
Yeah, I think well, with fintechs, first of all, fintechs are a really important segment of partners for us. And honestly, I think it just started with an early recognition that fintechs represented both a really rich source of ideas and innovation that was often leading to improved, enhanced consumer or business experiences. The user experience for their customers tends to be very strong. And with that reach and appeal that they were having with consumers and businesses, it created an opportunity to incorporate an entirely new channel of distribution for our products and services by partnering with them.
And so early on, we invested pretty actively in working closely with fintechs as partners, both on the deployment of products and services, on sort of shaping strategy, helping them understand ways that they could benefit from leveraging our scale and global reach and product capabilities and technology and the expertise of our people. And conversely, we learn a lot from them. They're nimble. They're innovative. They move fast. And they're building great products and services. So a lot of it just started with that, with a mindset and a mentality. We've worked to enable ourselves to be able to move and operate at the pace they expect, which is important. And they've really helped us penetrate a number of new segment opportunities, new use cases, new product opportunities that have been important drivers of growth for us over the years.
Just to move on a little bit in terms of extra and what you've reinvested in, we were talking about how Mastercard's an opportunity to really reinvest over the years, given strong margins, strong free cash, obviously, already. And so VAS, value-added services, maybe a little bit out of the scope of what you focus on day to day. But combining that with new flows, it's in the mid- to upper 40% of your revenue, I think, right, is coming from new flows and value-added services. And so if we shift to the VAS side for a moment, just give us a sense of what are the most impressive, most important, and in your mind, impressive results you've been seeing. What are the driving forces of such strength?
Yeah, well, our value-added services portfolio consists of a couple of broad buckets. We have a suite of services related to Cyber & I ntelligence that focus on fraud solutions, on cybersecurity, consumer authentication, things of that sort. We have a Data & Services portfolio that's leveraging data and analytics to work with issuing banks, with merchants, with other partners to help identify insights and opportunities to optimize the performance of their business. There's marketing services. There's loyalty solutions, all part of that Data & Services portfolio. We have services related to processing and issuer processing in our gateway, and then some other services related to real-time payments, open banking, et cetera, identity solutions.
The areas, I think, that are particularly exciting are the ones that are driven directly off of data, either data that we're seeing as part of a payments transaction or data that we're able to access and obtain, in some cases acquire, and incorporate it into adding value to a payments transaction. And so this is where you've heard us talk about the positive flywheel effect, where our payments and services businesses reinforce each other in a very important way. We grow the payments business. We switch more transactions through the payments business. We see more data.
We use that data to create insightful products that can help reduce fraud, can help increase authorization and approval rates, can help understand how to best derive value from the relationship the bank or the merchant has with that consumer, which then helps us win more share with banks and merchants of their payments activity, which helps us increase the amount of switch volumes. That cycle continues.
Yeah, it's a great cycle.
Yeah. And so it's sort of lined up against, I'd say, vectors of needs in the marketplace that have really long runway, like fraud, particularly as commerce continues to digitize, cybersecurity, particularly as commerce continues to digitize, the need to have deeper, richer understanding about consumer behavior and how they're interacting with your products so you can improve on personalization, so you can engage in greater loyalty activities. So as a business partner of ours, you're getting more and more value out of every one of those relationships that you've invested in. Those are really long. They're not episodic. And they're not moment-in-time needs. They're kind of like forever needs. So that's, to me, what is particularly exciting about that part of our business. And you've seen the demand for it in terms of the growth, the revenue contribution it has to our business overall.
The rates of revenue growth in that part of our business are well in excess of the corporate average and in excess of the core payments revenue. And so lots of indicators of strong demand.
How about China? That was a pretty exciting announcement pretty recent, not too long ago.
Yeah, China is very exciting. The announcement Darrin's referring to was us being awarded a license to operate through the JV that we've invested in with NUCC in China, a long time in the making. And so we're excited to see that come to fruition. It's a step in the journey, though. And it's an important step because it was exceedingly difficult to get to this stage. But we're at this stage. We're unique, I think, uniquely positioned relative to other networks to be able to take advantage of that opportunity, in part by virtue of having the license, obviously, an important enabler to participate in the market, in part because we've had a business in China for some time. It's an important part of our business. But it's been very narrowly focused on the cross-border transaction component of issuers' portfolios.
We have an established network of partners in the market, of domestic banks, fintechs that are active in the sector, who we now have the opportunity to take an already strong relationship with and expand into their domestic payments activities as well, to be able to deliver what hopefully will be a best-in-class domestic and cross-border payments capability to their customers. Leveraging the reach, coming back again to acceptance, the reach of our global acceptance network, our roughly 60 years of experience in payments, technology, fraud solutions, all the things that we're touching on here and being able to apply them in the context of a new market opportunity, the size and scale of China is exciting.
I get questions about China because, I mean, in certain markets, where wallets, whether it's an Alipay or a WeChat Pay, have done very well and there's others in the world similar, I mean, what kind of opportunity is there, actually, for the carded opportunity from here?
Yeah, look, there's no question the wallets have done very well in that market. They've got great solutions. They have huge affinity with customers. Parts of that success may have also been attributable to some anomalies around the regulatory environment, which has leveled to an extent that will, I think, give banks ample opportunity to be able to provide the right kinds of capabilities and solutions to their customers. Now, it's stiff competition. But we work with those guys, too, with the Alipays and the Tencent of the world. And in fact, we're working with both of them on enabling acceptance. And so the opportunity is not limited to the banks. I think it's far from being a game over.
The banks have huge customer bases and a lot to play, obviously a very significant role in the domestic economy, and I think will be well positioned to play in domestic payments for some time to come.
I mean, we're kind of on the topic of some risks when I brought up wallets in some markets. And obviously, you see opportunities there. But just sticking with that theme, we do get a lot of questions over places in Brazil where there's Pix or UPI or even FedNow, right, and other RTP, which you guys can address. But how do we think about you guys addressing that in terms of your place in the market versus those opportunities versus those companies and systems?
First, the three examples you mentioned are very different. The implications of their role and their potential impact as a result are unique. There's always a lot of focus on Brazil and Pix and India and UPI. I'll start maybe with just looking at the presence of domestic payment systems such as those that have a primary focus primary might not be the right word, but a significant focus on enabling financial inclusion, bringing financial services, digital financial services to more consumers in their market, in markets that have been traditionally underserved by mainstream financial institutions. That's actually something we look at as a good thing. More consumers coming into the financial mainstream, getting access to digital payments, creates opportunity for us in the form of potentially providing via a domestic payment system some products or services.
But some portion of those consumers who are new into those financial ecosystems will broaden their set of activities. It may be with a fintech, a digital bank. It might be with a mainstream bank. But there's the opportunity for progression there to embrace card products, to utilize more of the products and services that we have. So in that respect, I wouldn't view that as a zero-sum game. I'd view it as expanding, effectively, the addressable market of consumers with whom there's an opportunity to engage. Now, in some cases, it's fair to surmise that the activities of those domestic payment systems will extend beyond pure financial inclusion, much of which ultimately just displaces cash. They might move into other transaction types that could be more along the lines of commerce, things that we engage in. That is certainly a possibility.
It's one that we are very much attuned to. We obsess heavily over competition. For us, we feel like we've got a strong basis to compete. We've got ubiquitous acceptance. We have debit propositions that come with a range of consumer protections and Zero Liability and dispute resolution capabilities, chargebacks. We have fraud solutions. By the way, many of these domestic payment systems clearly have issues with fraud. And so we have a network that has a standard of security that is high, extensive partnerships across the ecosystem. And so for us, it creates the need to lean in and compete aggressively with capabilities we have that we view as differentiated. Will it be differentiated in meeting the needs of every consumer in that market? No.
But there are a lot of consumers in those markets where the proposition of a Mastercard debit versus a domestic RTP transaction that has no protections, limited fraud capabilities, maybe not a great user experience, where we think that proposition holds up and competes pretty well.
OK. I want to leave some time for the audience to ask a couple of questions. So maybe I'll wrap it up with a bigger picture question now and open it up to the audience. But looking out the next couple of years, I mean, maybe just big picture, what are you most excited about in terms of emerging products and technologies? And what are you most worried about from a risk standpoint? There's got to be some you mentioned competition. But specifically, what do you see as risks?
Well, I'll start with what I'm most excited about. I'm most excited about the opportunities that we have ahead of us for growth that, as I expounded on a bit, can very much be sustained within our core cards business. But these newer drivers of growth in the payment space, around new flows, around playing a role in things like account-to-account payments and we didn't get into it but the existence of an open banking capability combined with digital capabilities, combined with Click to Pay and things like that in the digital ecosystem, combined with fraud solutions, our franchise, that creates the potential for an interesting combination of assets to deploy in the context of account-to-account payments. Those are things that are all exciting to me. The risks are with some of those that we miss the opportunity or we don't get it right.
In none of those instances will the kind of winner be determined within the next couple of years, right? These are long-run markets. We're investing for the long run. It represents, we think, material upside to us that we want to make sure we capture and get our fair share of.
Right. Makes sense. All right, guys. Anybody have any questions for Craig? Nobody? Questions? Okay. Why don't we leave it there then? Craig, thank you very much for your time. Appreciate it. Guys, we have a break until 3:20 P.M. We'll have Western Union on next at 3:20 P.M.