Right outside of COVID, when you started to see people come back, but not completely, so.
It's like back.
Yeah.
I think we're like-
All right, we're live.
Good afternoon, everyone. I'm Harshita Rawat, Bernstein Senior Analyst covering payments, and I'm delighted to be joined today by Sachin Mehra, Mastercard CFO. Sachin, thank you so much for joining us today.
Thank you for having me here, Harshita.
So, just to kick off our conversation, can we start with your views on the consumer spending trends you're seeing in the market?
Sure. Well, good afternoon, everyone, and thanks for being here. It's great to see so many people here. I was just making a comment to Harshita that, you know, coming out of COVID, you'd come for these conferences, and you'd probably see some semblance of people there. But this is a full house, and we appreciate you taking the time to come and hear the Mastercard story. So specifically to your question on consumer spending trends, I think most of you have probably heard as part of our Q1 earnings call, we shared our views around how we see consumer spending trending. The consumer still continues to be healthy. They're spending in a healthy manner.
We talked about how when you adjust for the idiosyncrasies associated with the timing of Easter and the leap year effects, we've generally seen stable trends from a consumer spending standpoint, and that was certainly true of what we shared with you at the time of the first quarter earnings call. And fast-forward to where we are through the third week of May, we're still seeing fairly stable trends from a consumer spending standpoint. So all in all, we continue to see, you know, the consumer be healthy. Obviously, we are monitoring both headwinds and tailwinds as part of this process. None of this will be new news to you. On the tailwind side, you've got very strong employment markets, which are there across the globe. You've got strong wage growth, which is taking place.
In several markets, wage growth is running at paces ahead of the rate of inflation. Then on the headwind side, you know, in some markets, inflation is proving to be sticky. Even though it's moderated some, it's proving to be sticky, so something to keep a close eye on as we kinda go through the rest of the year. So I feel generally positive about where the consumer is and in terms of the broader trends. And I'm speaking more from a global standpoint. We can get into geographies if that's of interest as well.
Fantastic. And Sachin, I know a question which is kind of top of mind for many investors, is how much opportunity kind of remains for this shift, you know, away from cash and check to electronic forms of payments? We've done a tremendous amount of work on this. Can you talk about, from what you're seeing, the runway that remains in this person-commercial space?
Sure. So specifically, as it relates to the person and merchant space, as you kinda called out, we continue to see significant opportunity, and we see it across multiple vectors. We see it across the amount of, or the volume of, spend, which remains still to be carded. We see obviously, in different markets, there's different sets of opportunities which exist, but there's significant opportunity from a volume standpoint. There's an even greater opportunity from a number of transactions standpoint. So said differently, the penetration rate of electronic payments in terms of the total transactions which take place is still weighted heavily towards cash, from a transaction standpoint.
So, as you know, our revenue model is we make basis points on the volume of spend, and we make cents per transaction on the number of transactions, and so we see the opportunity across both the volume side as well as the transaction side in a very meaningful manner. There's a third vector, which we are very keenly actually following from a secular opportunity standpoint, is around the changing business models and changing consumer behaviors. And that, historically, when we thought about what the secular opportunity, which contributes to the growth of a company like Mastercard, has not been an area of emphasis or focus. But coming out of COVID, that certainly has been something which has started to actually play itself out in creating more opportunity, which we put into that secular bucket.
Specifically, what I'm talking about is, you know, if you think about the gig economy, if you think about subscription services, if you think about, you know, delivery services which are taking place, very often what happens is, what used to historically be a $8 of spend with one transaction, has now got a multiplier effect, where it's emanating into multiple transactions with significantly more volume. So just as an example, if you go back to the pre-COVID days, it's not like the likes of Uber Eats didn't exist. They existed, but there's been an acceleration in terms of the utilization of the platforms like Uber Eats.
What that does effectively do is, where in the past you'd go and do one transaction to buy your lunch at the, at the store for a certain dollar value, now you're doing that same transaction on the Uber Eats platform, which is then being followed up by a payment by Uber Eats to the merchant in question, which is a second transaction with incremental volume coming out of the system. So we view that as an important place for Mastercard. We spend a lot of time thinking about how these business models are evolving and how we want to embed ourselves at that point of inflection, so that we are the preferred payment mechanism as part of driving that.
Another example I'd give you from that new business model and new consumer behavior standpoint is historically, you know, when we subscribe for cable services, you'd do a cable package with your cable provider, and you'd pay your monthly charge on your credit card, debit card, or direct from bank account. More and more people are actually moving away from that cable model and going into subscription services and saying, "I'll do a subscription with Netflix. I'll do a Paramount+. I'll do a..." You know, there are these discrete services which they're signing up for. As a result of which, you're getting more spend and more transactions which come out of the system. And so the operative thing out here, just so that we can kind of level set on this, is we don't necessarily control the evolution of these business models. We view our job as being-...
important to stay relevant and be the preferred payment choice when these new business models are evolving and new consumer behaviors are coming into play. So we see all across all of these vectors, this opportunity from a secular opportunity standpoint.
That's fantastic. And, Sachin, I know one area that Mastercard has done extremely well is in its international, growing its international business, which has been growing at a solid double-digit rate. Payments is such a local market, right? You know, you're navigating different markets, consumer preferences, local payment methods. What's driving that success internationally?
Yeah, you know, look, I mean, I think our success in various markets across the globe, I know you're talking about the international markets, but I would argue that's true for the U.S. as well, is it's multifaceted, kind of, in many ways. It's making sure we are approaching our customers with a deep understanding of what is the problem we're trying to solve for them. It starts there. In order to win preference with customers, you've got to first understand what is the objective that you're trying to solve there.
This is not about us going in and saying, "Hey, by the way, you do business with the competition, and you switch volumes with a competing network." It's about going in and understanding and saying, "What are your needs, and how can I help you grow your revenues and manage your cost base?" This is where we bring our services capabilities to bear, which actually are a key enabler for a lot of the wins we've had over the recent past in terms of how we've been winning more and more preference with our customers. That's certainly one piece of it. It's what we call the solution selling approach, as opposed to selling widgets. Selling widgets is important, but if you only sell widgets, that's what you'll be relegated to, which is being a vendor for a particular widget.
When you actually sell solutions, you tend to gain preference with customers. So examples, I mean, real-life examples where we've kind of done this is, we've had significant wins in Europe, as you alluded to. I mean, whether it's the NatWest debit portfolio, Santander, UniCredit, which we've talked about, Deutsche Bank. There have been several wins in Europe in particular. But Europe is not the only place where we've seen those wins. In the U.S., for example, let's take Citizens Bank. Citizens Bank was always a Mastercard customer for their commercial portfolio and their credit portfolio. We never had their debit business. It's a regulated debit institution in the U.S. We went with the solution-selling mindset to actually see what is it that's important to them. They really cared for our digital assets.
They cared for our open banking facilities, the fact that we could leverage those open banking facilities to help them with what they were trying to do, which is grow their deposit base. They felt like Mastercard could be a real strategic partner, so they chose to move their debit business over to Mastercard. So that would just be a few examples, but you can and there are different services which work for different customers, and Citizens, I've just outlined what it was. You can take BOK and their debit flip over to Mastercard or Webster Bank. They're all different reasons, but kind of the broader approach, I would argue, is around we're doing a solution-selling approach. We're leveraging our services and our new networks capabilities, as well as our digital assets, to try and drive preference towards Mastercard.
You talked about some of your wins there. I guess just taking a step back, how you're seeing the competitive environment more broadly, and also, how should we think about these wins from kind of this rebates and incentives perspective?
Sure. So look, I mean, the competitive environment is as it's always been. We operate in a very competitive environment. Let's start there, right? I mean, we have formidable competitors who we are out in the market competing against on a regular basis. So that hasn't really changed. Whether you ask me today, you would ask me six months ago, you would ask me two years ago, that competitive intensity has always been there. And I expect that given the nature of competition in the market, that would continue to be the case. Our view of the world is, you know, look, at the end of the day, we've got to drive differentiation and got to drive revenue growth while we're doing that. And that's got to come through in the nature of trying to optimize our, what we call, net revenue yield.
Net revenue yield is basically taking the total net revenue of the company, which is a combination of the net revenues from our payment network and the net revenues from our value-added services and solutions, and dividing that by the GDV, which we actually run through the system. When we think about the competitive environment and when we approach a customer, we go with the mindset of: What is the need we're looking to solve? How can we win with this customer to the extent we want to win with this customer, such that we can drive accretion in our net revenue yield, right?
So you asked a question about rebates and incentives, and I think that's an important question, but it's one facet of what we look at when we're actually going after the business we're going after, which is we don't want to lose the plot of saying we're trying to optimize for rebates and incentives. Because remember, what rebates and... onto the Mastercard system. For us to be able to deliver our services and to generate and maximize our net revenue yield, you've got to be in the flow. To be in the flow, you've got to win the payments volume. When you win the payments volume, it gives you an opportunity to deliver services, which allows you to optimize that net revenue yield, which I was talking about.
So our mindset is very much around, let's go after the right portfolios, let's work with those customers who value the partnership approach, and drive that accretion on net revenue yield. And that's the way I kind of see the competitive environment.
Yeah, that, that makes sense. And, Sachin, I want to switch gears a little bit and talk about China.
Okay.
You had recently an approval for the joint venture in China for your domestic bank card clearing business. What does it mean from both a long-term as well as a short-term perspective for Mastercard?
So look, I mean, China is a very interesting market. It's one we're very excited about. And, you know, we're also, at the same time, fairly measured about the pace of how we see the ramp of China coming on for us as it relates to the domestic volume. So we've been participating in China, in cross-border, for the longest time. I think you're aware about that. We do both inbound and outbound cross-border in China. What we have more recently got is the license to operate and switch transactions and volumes for domestic transactions in China. In fact, we went live in the early part of May with our first transaction and the domestic environment being enabled for that. I continue to remain very, very excited about that opportunity.
And the reason I do is because I think the approach we've taken to the China market sets us up for success over the long term there. It is a partnership-based approach. It is a joint venture with NUCC. We like that, because in a market like China, when you go with a partnership-based approach, you tend to actually do better than if you try and go as a 100% owned subsidiary. That's point number one. The tech stack which we've built out there is unique and localized to the Chinese market, which is a requirement to operate in China, and we're well on our way as it relates to the tech presence in that market. We are currently on the journey of building out the issuance agreements we've got with our customers.
So we had pre-existing issuance agreements with our issuers in that market. They were primarily border flows. The relevant for both cross and domestic. At the same time, we're building out the acceptance footprint. And so while we're doing all of this, we think it'll take time. Look, this is not gonna happen overnight, but by the time we build this out, the opportunity and the size of the opportunity which exists in terms of total spend out there is fairly meaningful. One could ask the question, is a little bit too little, too late, as in the China market has been carded for the longest time?
Our view of the world is, look, we have if we do this right, and we can gain consumer preference with a set of our services assets, in particular our loyalty assets, where you can drive consumer preference, there's a real opportunity for us because we are one of the few networks which will have ubiquitous acceptance, both in the domestic market for domestic flows, as well as ubiquitous acceptance in the international market. If I think about the competing landscape, if you take your non-Chinese competitors, to the best of our knowledge, in the four-party network model, we're probably the only ones who've right now got the license to operate in China in the domestic environment. So we've got a leg up in terms of being able to gain access to those domestic volumes.
When I think about the Chinese networks, they've obviously been operating in the domestic environment, but they do have a gap from a acceptance standpoint in the cross-border environment. So I like where we are positioned to be able to actually capitalize on the fact that we'll have ubiquitous acceptance, both in domestic markets as well as in the international market. The opportunity and the challenge for us now is to gain consumer preference. And when you gain consumer preference for your proposition being top of wallet, I think we ultimately end up winning. I don't think this happens overnight, just to be clear. I think you've got to work it. You've got to get to that space. And I think about this as less of a secular opportunity, but more of a share opportunity. There are already carded flows which are taking place in China.
How do we gain preference with those consumers to now drive top-of-wallet behavior in favor of Mastercard, and set ourselves up for that?
No, I think that opens up a big addressable market for you over time. And Sachin, you kind of alluded to China also being important for your cross-border business. So I want to ask about cross-border a little bit more. I know this is an area where Mastercard has been quite strategic from very early on in terms of your portfolio, investment, client relationships. Can you talk about some of the structural trends that you're seeing in the cross-border business, just more broadly?
Sure. So, you know, it's the cross-border environment is, in our view... You know, I kind of think about the pre-COVID world, and I think about the post-COVID world. There was this period in between when everybody was of the view that maybe, you know, the whole cross-border market has gotten dislocated because what happened in COVID would be permanent. Our view of the world was, when people can travel, they will travel again, and that's played itself out pretty nicely. So the way I think about cross-border is there are two big components to it. There's the travel component of cross-border, and then there is what we call card-not-present ex travel. This is the cross-border volumes which take place across borders, just in the nature of enabling commerce.
So this is a small business owner who is acquiring goods from a supplier overseas, and they're making card-based payments to make that come to life, right? We're seeing very good growth. For example, in the first quarter, our overall cross-border volumes grew at about 18% on a currency neutral basis, so healthy growth from a cross-border standpoint. I would give you two pieces on cross-border. One is, as it relates to travel, you saw the spike take place as we came out of COVID in terms of easier comps, in terms of growth rates. You have seen most of that normalize. The one exception to that is there's still some room to grow on cross-border travel as we see it, in Asia Pacific, specifically as it relates to China.
So when I think about cross-border travel, inbound and outbound from China, that is roughly at approximately 80% of 2019 levels, right, in Q1. So in other words, we've still not got back to pre-COVID levels for inbound and outbound cross-border travel from China, so we see a little bit of an opportunity there. But beyond that, I would say there's a general state of normalization, which we've seen take place across other travel corridors. There might be puts and takes in certain markets. Then there's the non-travel component. And the non-travel component is where I think we've seen a structural shift, which happened going into COVID and coming out of COVID. And what you've seen is very healthy growth in cross-border, Card-Not-Present ex travel.
In particular, this has been driven by the fact that when COVID came around, lots of merchants went omni-channel. So there were merchants in the past who were only accepting cards in the offline environment, so in the physical interaction model. They were not enabled for e-commerce. When COVID hit, it was a matter of survival, and they needed to enable themselves for accepting cards in the online environment, and that's what we call omni-channel acceptance. And when they did that, they opened themselves up to a new universe of consumers who previously were only shopping in the domestic environment, who now were able to shop cross-border in a card-not-present manner. And that has sustained even coming out of COVID.
So structurally, I would tell you, that's been the one change which has taken place, which is lending to the growth we are seeing in overall cross-border volumes. From a Mastercard standpoint, we continue to invest in the space. We do it in multiple ways, obviously, making sure we're aligning ourselves with the right partners, winning the right portfolios. In particular, I would tell you, there would be co-brand portfolios, which are travel-heavy. It'll be in the commercial space, which is typically cross-border heavy in the online travel agency space, which again, is very cross-border heavy. So it's about winning the right kinds of portfolios, partnering with the right people, with the right solutions. The second piece which we bring to drive this, this emphasis and focus on cross-border is our loyalty assets.
A lot of the times, you've got to bring some of your loyalty assets to bear in order to enrich the proposition, which our issuers can offer to their consumers. That's how we distinguish and win share as part of what we're doing here.
Sachin, I want to stay on the topic of consumer payments just for a little bit longer. And just talk about account-to-account, or A2A payments. That's an area where I know you've made investments over the years, but it's also kind of a topic where I think is on investors' mind with regards to being a risk to core card payments. I know you've looked at this for a while. Where do you see account-to-account or A2A gaining traction versus not, and how is Mastercard participating in this space?
Sure. So you're right, we have made investments in the account-to-account space. We've done in the context of some of the investments we've done in the real-time assets we've purchased, as well as through our open banking capabilities, actually. And we've demonstrated that as being an area in which we're opening up new pieces of TAM right there. So the way we think about this is we're in the business of providing choice to consumers. Consumers should get to choose what their preferred method of payment is at the end of the day, which is why we've made the advent into account-to-account payments to complement what we offer from a card standpoint. Where we are seeing adoption of account-to-account payments is primarily in areas which are related to things like bill payments or B2B payments, if you would say.
But those have traditionally been account-based payments historically as well. So what you're seeing is, with the advent of real-time payments, you know, other applications which are being added to that to actually enrich the B2B proposition, something we ourselves participate in. We've seen modest uptake, if any, in the P2M space from an account-to-account standpoint. There are select markets where you've seen that come through, the likes of India. You're seeing it come through a little bit in Brazil. But for the most part, the competing proposition, which Mastercard offers, which is our debit card proposition. Because, remember, account-to-account payments are pay now solutions. They're not credit-oriented. It's a debit-like solution without all the bells and whistles of a debit proposition. So they do not have the consumer protections which come with a debit card. They don't get the chargeback rights.
They don't get zero liability, things of that sort. And so the way we think about it is, for account-to-account payments to displace and be the risk to P2M payments, you either have left wide, wide-open spaces which have not been served in the past by debit cards, in which case they could come in there, right? Or they're actually targeting B2B flows. On the P2M side, we've seen very modest uptake, if any, eating into our debit share, just because the value prop from a consumer standpoint works pretty well.
So, Sachin, we talked a bunch about core consumer payments and the trends, secular growth opportunity, account-to-account payments, cross-border. I want to now shift to new flows.
Sure.
Very exciting addressable market for you, a growth opportunity. Can you maybe talk about the opportunity that you're seeing in Commercial Cards? What are the areas where you've seen the most positive momentum?
Sure. So we think about new flows across, you know, a couple of areas. One is commercial, like you said, and the way I think about commercial, and commercial is enabled by our card rails for the most part, right? So you've got SME propositions, which we've got out in the market. You've got T&E, which is our travel and entertainment propositions. This would be the equivalent of corporate cards, fleet cards, virtual cards. These are all on card rails, they're on card-based economics, and they're serving a need which is being well met and growing at a healthy clip. So just a couple of data points for you. Commercial, from Mastercard-branded commercial, debit and credit combined, in 2023, represented about 13% of our GDV and grew at about 13%. That same commercial number was 11% of our GDV in 2019.
So you are seeing this uptick take place in terms of share of commercial payments growing over our overall base as a company. We see tremendous further opportunity in that, and the places we see opportunity in are everything from what we're doing from an SME proposition standpoint. We're seeing wins take place in markets like the U.S., and these are more in the nature of share wins, but there's displacement of cash taking place as well, but certainly in international markets as well. On the virtual card front, we're seeing very good traction come through. We've taken a vertical-based approach on virtual cards. We have certainly tapped into the travel vertical, but we've actually gone well beyond that into education payments, into commercial real estate, into a whole slew of other verticals where there's applicability of virtual cards, which is there.
So lots of traction, but lots of remaining opportunity as well. Honestly, I'm. I, I. In my mind, I'm in a space where I say. I would like to see us do much more at a faster pace there. But the reality is, it's what Mastercard can do, and then it's what the ecosystem partners need to do along with us to get after that. So we're going to stay on it. There's a whole bunch of work we're doing around that. There's a second element of new payment flows, which we call receipts and disbursements. And receipts and disbursements are also enabled, for the most part, there's a component of it, which is account to account, but for the most part, they're enabled also on card-based rails. And these are push payments, different from card-based payments as we think about it at the point-of-sale, push or pull payments.
So here we've got something called Mastercard Move, which is effectively allowing us to enable push payments in the domestic environment, as well as in the cross-border environment. It's what we've historically called Mastercard Send and Cross-Border Services. We brought that now together under Mastercard Move. It's one entry point for our, for our customer. They sign up for Mastercard Move, they've got access to both domestic push payments as well as cross-border push payments. We've seen tremendous traction in that space. In the first quarter, we talked about this at the earnings call. In the first quarter, we grew transactions at north of 40%, in across our Mastercard Move capabilities, which are there.
And there are several use cases we're going after, several geographies we're going after, but I think we're just scratching, scratching the surface as far as we're concerned, on both the commercial side as well as on receipts and disbursements. Lots of opportunity. Company remains focused on driving hard on that. And while we're driving the, the payment flows, we're also looking at opportunities to build services which we can deliver on these flows. Because if you think about what we do from a business model standpoint, it's about enabling consumer payments, delivering services around that. You're going to do the same on commercial payments and on receipts and disbursements.
I guess one of the key, I guess, differentiators versus kind of, you know, Mastercard rails are, or if you compared that to something like an RTP for some of these flows, is, you know, you're kind-- you can layer those value-added services, right? And you also have the global reach, versus a lot of these RTP systems, which are local, and you can also provide a lot of fraud solutions, et cetera, on top of it.
Right. Can you hear me? Yeah. I look, I mean, I think that you, you've kind of touched upon something which is important here. Clearly, we want to deliver our services on Mastercard-branded volume, which we've been doing and will continue to do on a going-forward basis. But we've also built the capability to deliver those same services on a brand-agnostic basis. So as far as we're concerned, the way we think about the addressable market is it's not just the universe of payment flows that we're involved in. That certainly gives you a leg up because you're in the flow, you get to actually build the services out on those flows and actually deliver them. But that doesn't preclude us from doing that across competing brand network flows, private label flows, all on the card network, right?
Could be on, like you said, receipts and disbursements, but it could also be on account-to-account payments. So I think that whole gamut of opportunity exists. It's for us to actually go after it in a surgical manner to meet the needs of our customers, to actually deliver what, exactly what you're talking about.
Sachin, I want to ask about value-added services. It's becoming an increasingly important growth driver for you. For the audience, can you just remind us about the big components in your value-added services business and their underlying characteristics? I'm thinking transaction-based, services-based, people-based services.
Sure. So I think you've seen in our financial statements, we break out what we call payment network net revenues and value-added services and solutions net revenues. Value-added services and solutions comprises of the following: It comprises of our fraud and security solutions, it comprises of our data insights and analytics, our marketing and our consulting capabilities, our loyalty assets, our payment gateway, right? And then in addition to that, it also includes our open banking capabilities, our digital ID capabilities, and our real-time assets which are there. So that's the composite of what you see in value-added services and solutions. It represents north of 35% in the most recent quarter of our net revenues as a company in the aggregate, and grows at a pretty fast clip. So what is that? What's our strategy? How do we go about doing this?
So the first thing to remember is our approach to value-added services is a combination of the following three or four things, which I'm about to talk about. Number one, a large component of our value-added services are attached to our payment network transactions. So at the end of the day, if you are a believer in the secular opportunity which exists in terms of transaction growth in the payment network, which we certainly are, we build out our value-added services to be attached to those payment transactions. So you write the secular trend up, along with the increase in payment transactions which take place. That's a decent component of what we do. In particular, that's true on our fraud and security solutions, but it's also true on data insights and analytics.
That is the nature of our revenue stream, which is, it's recurring in nature, and it's mostly on the basis of a per transaction kind of revenue opportunity, which exists. On occasion, you might do software as a service in our fraud and security solutions as well, but for the most part, that's what you'd see there. The second element of what we're trying to do from a growth standpoint to value-added services and solutions, is to drive a deeper penetration of our existing services across our existing customer base.
So when we first launched into the space of value-added services and solutions, we went after saying, "Let's offer these to our issuing base." And we've done that, and we've done that pretty successfully, but there's a lot of room still to grow in terms of taking our existing suite of services across our issuing base. More recently, what we've done is we've adapted our solutions to be able to offer them across the acquiring universe, which is what we do as well. So there's opportunity to be driving deeper penetration of existing services across our existing customer base. The third element of growth is to actually take those same services and move into new customer segments, i.e., move down to the merchant level, for example, and/or go into new payment flows. So for example, not carded flows, but ACH flows. And that's how we're driving there, right?
and then of course, while we're doing all of this, we remain hungry to know what is it that our customers need, which helps us think through what is the next value-added service we either need to build and/or acquire in order to keep growing that TAM and that opportunity which exists from a services standpoint. So there's a four-step process to driving growth around this. One is attach it to your existing payment transactions and ride it with the payment transaction growth. Second is drive deeper penetration with existing customers. Number three is tap into new customers and new flows. And number four is keep building out the suite of services. That's how we're driving growth across our value-added services and solutions.
Sachin, just to follow up on the four key things that you're trying to do to drive the services penetration up, what are the, I guess, most salient things you're doing? Maybe give some examples in terms of driving that penetration up across those four drivers.
Right.
Just to make it a little bit more real, I think.
Absolutely. So look, I mean, how did we even come across this whole idea of value-added service and solutions? It all started out from, you know, about a decade or so ago. We said, "We have a critical asset which we can deliver to our customers, which can help solve pain points for them," and that asset is called data. It's the data we generate from our transaction volumes, which we see. And so leveraging that data, what we are doing is we said, "Okay, what are the pain points we need to solve?" One of the big pain points we see across our customer base is the increasing levels of fraud, which is starting to take place or have taken place as the world has gone more digital.
And so we said, "These are the kinds of solutions we need to actually generate, which is fraud-related solutions to serve our customers." So I'll give you an example of a fraud-related solution. Let's take... It's a solution we call Decision Intelligence. Decision Intelligence happens to be basically our ability to take the data we've got, to build our AI models on that data, to provide various endpoints into that model, and give a score on a real-time basis on a per transaction, which is running across our network. So on a real-time basis, we can deliver to our customer a score for every transaction that they see. They get to then decision based on that score, whether they're going to approve the transaction or not approve the transaction.
What makes us win in this space is not just delivering the score, but being able to do this in a manner which has got a low lift from an implementation standpoint, point number one, and the efficacy of the AI model that you've got. Because at the end of the day, if you're going to give them scores which make them decline more transactions, and I've got a lot of false positives, that's a bad consumer experience, and that's something your customer is gonna reject at the end of the day. So that's how we actually drive. It's leveraging our data, it's leveraging the technology we've got from an AI standpoint, and then rolling it out where you go to market on it, is allowing for seamless implementation across our customer base. So that's just one example.
I could go through numerous other examples, but that's really what the focus and emphasis for us has been in terms of trying to drive differentiation, in terms of what we do from a services standpoint, which is mostly around, like I said, fraud and security, data insights and analytics and things of that sort.
And Sachin, you mentioned AI. You know, you're leveraging AI over there, and which is such a topical topic. Can you maybe just give us some more examples of where your services are using AI? I know you've been using machine learning for what? Like, you know, several years now, in your cybersecurity business.
Right. So certainly in the cybersecurity business, we've been using our AI capabilities. So back, I think it was in 2016, we acquired a company called Brighterion. It's a West Coast-based company. We acquired them because they brought a set of capabilities to us and a talent pool, which was really important, which we thought was not only gonna help us from scaling one product, but being able to utilize that talent pool to build out a whole a bunch of services from an AI standpoint. And that's played out pretty nicely. So certainly in the product security solution space. But we're also utilizing AI across our data insights and analytics, some of the work we're doing from a hyper-personalization space, so in our loyalty capabilities, for example.
I'm gonna actually draw a little bit of a distinction between predictive AI and generative AI here. A lot of what we were doing five, six, and seven years ago was focused around predictive AI. More recently, we've started to do a little bit more work around the generative AI space, in particular in the hyper-personalization space. So we launched a product called the Shopping Muse, and effectively, what that is, is basically allowing for consumers to actually get the same experience in an online environment, leveraging AI, as they would in a physical environment if they were interacting with somebody in a store for what they're looking to do, right? So there's lots of applicability across loyalty, fraud and security solutions, data insights, where we are utilizing AI. Now, this is all from a product standpoint.
We are also leveraging generative AI capabilities to help make ourselves more efficient as a company. So we, as a company, believe there's an opportunity for us to take generative AI and apply it across some of our call center operations in terms of code deployment, and bringing this much more personal to me in my finance organization, to help us be better at predicting what our volume, volumes and transaction forecasts are gonna look like, what our foreign exchange forecasts are gonna look like. So things which will help us get more efficient as a company. So we're looking at this as an opportunity, both from the revenue side as well as the expense side.
So, Sachin, we talked about the secular growth in consumer payments on... You know, with regards to both the cash that's out there, the number of transactions, the new business models. We talked about some of the opportunities in new flows and what you're doing also to drive penetration in value-added services across your client base. So then when we bring it all together, how should we think about Mastercard's evolving revenue growth algorithm, and how that's changing?
Yeah, look, I think that's. Think about our growth algorithm is across the following facets, and I'm gonna kinda just walk you through them, right? So let's just take payments first, and I'll kinda walk you through what the building blocks on payments are, right? Some of this is old news to a lot of you who've been involved with Mastercard for some time, but I think it's important to actually reiterate this, which is, first and foremost, there's PCE growth, personal consumption expenditure, and we derive the value of that by virtue of being part of that journey, right? We don't control it. It's what economies do across the globe. So that's building block number one on payments, which is personal consumption expenditure growth.
The second building block is what we call the secular opportunity, which is the conversion from cash and check to electronic forms of payment. The third building block is around winning market share in already carded flows, and which is something we talked about a little bit earlier, and that's what we continue to do there. And then still sticking with payments, the fourth opportunity is around what we call new payment flows, which is around commercial and around receipts and disbursements for the most part. And the fifth piece is around driving optimization across this entire universe of payments. And what do I mean by driving optimization? You know, it's very... it's always fun to talk about the new win which took place, but the real juice and the real magic is, after you win, what you do with the portfolio you win.
How do you drive faster growth of that portfolio? We spend a lot of time leveraging our services assets to drive that optimization, which we're talking about right here. When I think about payments from a growth algorithm standpoint, it's PCE growth, it's secular shift, it's market share, it's new payment flows, and it's driving optimization across that universe of payment flows. Then there's a separate bucket, which is around our services and new networks, and it's everything we spoke about from a services standpoint, which will help us drive even further revenue growth. That's the building blocks of how we think about the growth algorithm for Mastercard.
I guess, Sachin, if I then kind of switch gears then and maybe talk about just the regulatory environment. I know, there's been a bunch of news flow, right, like with regards to Reg II for debit. You have the CCCA bill proposed, some debit interchange caps being proposed. Just taking a step back, how do you see the regulatory environment evolving in the U.S.?
So look, I think the regulatory environment in the U.S. is as active as it's been in some time. It's always hard to predict, but we are going in assumption on this is, you know, we have a job to do. We have a job to demonstrate the value we deliver to the ecosystem, and the ecosystem means both to consumers and to merchants. And it is our job to make sure the regulators understand the value we bring. And if we do that well, we can hopefully be able to actually ride and tide that through as part of the journey. Are we always gonna be successful in terms of getting our point of view across? No. But that's our job. That's what we're supposed to do. It's an active environment. You talked about Reg II. Reg II is life.
It is active. We talked about it in our first quarter earnings call. We're seeing no material impact as a result of Reg II come through on our debit volumes in the U.S. And, you know, there will be other such things which will come around, like you said, CCCA, et cetera, but it's our job just to stay active in terms of just demonstrating how we bring value to all sides of the ecosystem as part of that process. This is certainly true in the U.S., but it's also true in other markets across the globe. It just shows up in different ways in different markets, but that's part and parcel of being in the payments business. That's what we do. Payments are important to governments.
They wanna make sure that their citizens, whether they're merchants and/or consumers, are getting value, and it's on us to actually demonstrate that we are delivering that value to them.
Sachin, I want to touch upon a question that comes up quite often, just on the pricing environment more broadly in the market. Can you just share an update on as to how you're thinking about pricing? I know we talked about rebates and incentives a bit.
Yeah. Look, I mean, pricing is... Our philosophy around pricing is exactly what it's been for, you know, the historical past, which is around we will price for the value we deliver. We constantly look at opportunities. We look at places in which we're delivering value. Are we getting fairly compensated for it? And we price accordingly. We've done that across the payment network. We've done that across value-added services and solutions, and we will continue to do that, but it is very much tied and hinges on and relevant to the value we're gonna deliver. And that's very much been the philosophy historically, so I have nothing new to really add on that.
I know we only have a few minutes left, Sachin, so I also want to make sure that we talk about some of the innovation, you know, that Mastercard is doing, because I know the management team kind of spends a lot of time thinking about that. I guess we talked about AI, we talked about, you know, what you're doing in services. I guess just holistically, how is Mastercard driving innovation on how payments are being done? What are the things that you're most excited about?
So look, I mean, the way we think about innovation is the following, which is we've got our view from our strategy team as to what we see as emerging trends. So, for example, I mean, some of this is very obvious to all of you because Generative AI is kind of very topical, but it could be Generative AI. It could be Biometrics and authentication, right? It could be Hyper-personalization. It could be evolutions taking place in the cloud space. And so we kind of start at the topmost level, and we say: What are these trends which are informing how commerce is done around the globe? Then taking that piece of information and then working with our customers to understand what is relevant to them to serve their customers. And we marry those two to actually think about the innovation we're gonna deliver.
So let's talk a little bit about biometrics, for example, right? So biometrics is not something which is new, but it's been in place on your mobile devices for the longest time, right? I mean, we've been utilizing biometrics. We have an opportunity, and have been actually tapping into that opportunity, to now enable biometrics as creating a seamless experience to enable payments. We're spending a lot of time doing that, not only in the mobile in-app experience, but also in the web-based experience. And so that would be an example of how you can actually drive innovation at scale in the market.
You might say, "Why does it matter?" The reason it matters is it's a much better consumer experience, it improves the approval rates on the transactions, it reduces fraud, and all of those ultimately will result in incremental volume flowing over the Mastercard system, which results in incremental revenue. So that would be an example of innovation we're leaning into to drive a change in terms of at scale, how we'd like to do it. The other example would be in the hyper-personalization space. We acquired a company called Dynamic Yield. That company effectively leverages generative AI to deliver personalized offers to our customers. And you might say, "Who are your customers, and how do you deliver personalized offers to them?" So I'm gonna give you examples both on the merchant side and then on the issuing side. On the merchant side, we work with...
You name it, a whole bunch of merchants, and we work with them by embedding our personalization capabilities and making sure that they've got that available to offer to their end consumer as part of that process. On the issuer side, we help our issuers personalize their homepages. So you might have a bank who might actually wanna get its webpage actually personalized in a manner to say that if Sachin logs in, Sachin is searching for a new home, maybe we should offer him a mortgage because that's the right thing to do, because that's what's topical for Sachin at this point in time. It's our hyper-personalization capabilities, which we're working with our banks and financial institutions to drive that. So those are a couple of areas from an innovation standpoint. Look, a lot of these innovations is trial and error.
Some things will stay in pilot mode, some things will scale. I think what's very, very important for us is, while we continue to innovate, we don't forget what's really, really important to Mastercard, which is back to the growth algorithm. Execution across the various pillars of our growth algorithm is super, super, super important for us. 'Cause the opportunity set right there is so huge, we'd be remiss to try and chase the new bright, shiny object while not necessarily executing on what's up front and center for us from a growth algorithm standpoint.
That's a great note to conclude our chat on. Thank you so much, Sachin.
Thank you, Harshita. Thank you, everyone.