All right. Good morning, everyone. Welcome to day two of the UBS Global Technology and AI Conference. As far as the payments companies go, we're happy to kick off the second day here with Mastercard. Joining us on stage, we have Craig Vosburg. You're probably very familiar with Craig at this point. He's been at the company now for 20 years, been at many investor conferences. I think the investment community has gotten to know Craig. His role currently is Chief Services Officer. As I mentioned, 20 years at the company, previously as Chief Product Officer. Also has been President of North America, amongst many other leadership roles. Currently overseeing the value-added services business.
For context, for those of you maybe less familiar with Mastercard, that business makes up approaching 40% of revenue, is growing in the high teens, meaning the business is contributing roughly 700 basis points to revenue growth for Mastercard. With that, Craig, we want to thank you and also Head of Investor Relations, Devin Corr, for being here with us in Arizona.
Thank you. Great to be here.
Excellent. All right. We gave a little bit about your role and time at Mastercard. If you don't mind, just maybe elaborating a little bit more around that role, and then we'll get into macro.
Sure. Our services organization, as you mentioned, it's an important part of the company structure. Our strategy for growth really revolves around three core areas: growing consumer payments, growing our business in commercial and new payments flows, and then value-added services and solutions, which complement both of those areas and are important drivers for growth. We have a wide array of services that sit within that portfolio, and the services are very much aligned with that strategic objective of driving growth in payments and enabling some diversification in our revenue through capturing new revenue opportunities. The services business is really built on the back of data. That data originated initially with our payments transaction data, but has expanded quite significantly over the years to include lots of other forms of data.
We use that to build out a curated suite of services in a number of key areas near in adjacencies to payments, things like security solutions, where we help our customers manage fraud and mitigate the impact of fraud, identity management, cybersecurity solutions, and resiliency solutions. We do work around consumer acquisition and engagement to help our customers acquire new customers and maximize the lifetime value of those customers with marketing services, loyalty solutions, personalization capabilities. We have a range of business and market insights helping our customers manage their operations more effectively, maximize their portfolio value more effectively, undertaking custom analytics, credit risk analytics, consulting. There is a range of things related to processing, our gateway solutions, authentication, and digital solutions. This is where our tokenization capabilities sit, for example. Finally, there is a second S to this: value-added services and solutions based on how we report.
That includes a range of other solutions related to real-time payments, open banking, bill payments, cross-border payment services. That is sort of the full 30,000-foot view of what is in there, and look forward to going deeper on some parts of that.
All right. Great. We'll definitely do that this morning. Before we get into more on the business, we'll talk a little bit about macro. Obviously, Mastercard has a great view of what's going on in the economy. As we close out the year here, it would be helpful to understand how Mastercard is viewing and/or seeing the economy, and maybe you can talk a little bit about the health of the consumer.
Yeah. Generally, we continue to see sort of the headline news is consistent with what we've reported in our last earnings call and in some subsequent updates with healthy spending across consumers and businesses. Interestingly, there's sort of a divergence, I think, between the soft and the hard data. We all read the headlines, and some of the survey results around consumer sentiment seem increasingly gloomy. What we see in the hard data continues to be very supportive of consistent spend metrics. We see balanced labor markets. We see hourly wage growth. It continues to outpace inflation. With that, we see healthy spending metrics across both mass and affluent segments in our portfolio. We've seen that continue, as we've shared previously, through October and into the first two weeks of November, where we've seen spending metrics across all of our key drivers remain generally in line.
We're encouraged by that. We see recent updates just over the weekend of what appears to be a pretty strong start to the holiday shopping season. Our own Mastercard Economics Institute has released some early figures on that. That is not, I need to emphasize, not based on Mastercard's portfolio data. That's based on estimates across all tender types, but showing a healthy start with Black Friday spending up roughly 4% year over year. Hopefully that continues, and we see a strong holiday season. One thing I do want to note just related to the macro is that based on our most recent estimates for FX and business mix, we are now estimating a net revenue tailwind of approximately 3 percentage points for Q4, which is below previous estimates.
All right. That's very helpful.
Yeah.
Thank you, Craig. All right. All right. We've got macro out of the way. Let's move on to, you mentioned a little bit earlier, kind of alluded to this relationship between payments and services. Maybe talk a little bit about that virtuous cycle and how it works in practice.
Yeah. It's a really important part of the business and the model. The three areas that I mentioned before: consumer payments, commercial new payments, flows, and services are all incredibly interdependent and tightly linked. Our business obviously starts with payments. It started with payments now almost 60 years ago, and the business continues to be anchored around payments as a whole. We recognized two decades or more ago that one of the interesting aspects of being a scale payments player is that payments generate massive amounts of data.
With that, we began investing that long ago, really, in curating the data, in cleansing the data, in categorizing data, in using that data to train algorithms and models to help strengthen the quality and caliber of the payments products themselves, whether that was to understand consumer propensities for spending, propensities around life cycle events, potential for attrition, et cetera, insights around fraud and risk management, et cetera. The payments transaction data becomes the fuel, really, for deriving greater insights around where and how the payments propositions can be made more valuable. We, in turn, use those to engage with our partners to win more market share, to drive increased payments volume, and not just win portfolios, but increase the value of those by driving deeper engagement, higher spending, lower losses related to fraud, et cetera, so that the value of those portfolios increases.
You can see how that becomes a self-reinforcing cycle that has been advantageous for us in helping us grow our business. We have gained market share in all of our payments products globally over the last handful of years. I would add, too, it is not just that. Over the years, we have identified opportunities to inject new data elements into that cycle. For example, injecting data related to identity management or device identities or compromised data credentials or payment credentials that you might see on the dark web. That is an input that is not directly from the payments data, but we use that to strengthen the quality of the payments insights in our payments products.
Similarly, there are some areas where we can take offshoots of that and extend it into new adjacencies, for example, taking payments-related behaviors and using them to help advertisers create audiences they can target with advertising content. It all really starts with the payment transaction data and that cycle that helps us continue to drive growth.
All right. Great. That is a nice segue into the next topic, which is the growth. In our research, and I think investors, when we think about the growth of the value-added services business, it is at massive scale. Again, high teens guide over the three-year for the medium-term guide. We break it down into the transaction-related component and the non-transaction-related component. I think investors have maybe an easier time, and we have an easier time, getting our heads around the transaction component, where we think about it growing with your transactions, a little bit of incremental attach, maybe a little bit of pricing, and then a little bit more challenging on the non-transaction-related components. Overall, if you could just help us think more about the forward growth of value-added services.
Sure. I think it starts, even pulling back a little bit from the transaction versus non-transaction, it starts with the fact that the areas that our services are anchored in are areas that we think benefit from long-term macro tailwinds. It is digitization. It is the growth in e-commerce. It is the opportunities that technology presents to increasingly personalized interactions with consumers and businesses. It is the risks that technology presents with respect to increased levels of fraud or cybersecurity threats. There are sort of long-term runways for growth that are the areas that we have targeted.
A number of those, as you pointed out, are directly linked to the growth in payments volume, coming back to that virtuous cycle, the extent to which we can attach services to payments transactions, or if it's not attached directly to a payments transaction distributed through our network, where we're able to make these services available to our customers at scale on a global basis relatively quickly, gives us a really solid foundation. As we've shared previously, 60% of our services revenue is linked to the network. We would expect to see that grow with growth in the network itself. Beyond that, though, there is a range of other areas where we have opportunities for growth.
As much as we're engaging with these partners, tens of thousands of partners we work with across the globe, financial institutions, acquirers, big tech companies, big merchants, et cetera, who have a need for the kinds of services we offer. The relationship around payments is an entry point, but an entry point from which we can expand to engage with those partners in new buying centers. Not just their cards team, but the broader payments team, not just the payments team, but the consumer banking team, not just consumer banking, but wholesale banking around commercial opportunities and commercial payments transactions, and not just payments, engaging with the marketing team around digital channel management, customer acquisition, loyalty solutions, engaging with the risk and fraud team or the CISO around cybersecurity solutions.
There is a wide range of opportunities to expand those relationships within the accounts where we have managed relationships. Then for a number of these services, there are SaaS platforms that are network agnostic. They are relevant in applications that go beyond the Mastercard transaction, and we are actively selling those directly in the marketplace to customers of all shapes and sizes across industry sectors, again, with the benefit of, we think, a nice tailwind related to the ongoing digitization of commerce.
Great. That is another perfect segue into the go-to-market approach for these services. Maybe you could talk a little bit about that strategy and approach.
Sure. There's a couple of components to that. As you would imagine, it sort of starts with the network, given the reach that we have with the network and the scale at which the network operates. 160 billion transactions last year running across our network. That gives us an opportunity to attach services to a number of those transactions. We continually look for opportunities to attach more and more services across the transaction flow, as well as, as I mentioned earlier, just use it as a channel for distribution of services, whether it is directly connected to a transaction or not. We do that not just with our cards network, but with the other tech platforms that we operate at Mastercard. We have real-time payments capabilities. We have a payments gateway. We have Mastercard Move. We have created a blockchain-enabled vehicle for transmission of value with the Multi-Token Network.
All of these represent opportunities to embed services in those tech platforms that are operating with significant scale. That is one important means of going to market. Secondly, we have a sales force. Our account teams that are based in our regions around the world engage with our managed accounts. Each of those managed account teams is supported by a services sales specialist who can represent our entire portfolio of services in engaging with that customer. Those sales specialists are supported by product specialists for those areas that have a deeper level of technical knowledge required in order to engage with the buyer. A CISO, for example, a head of fraud, where our capabilities are very deep, but the conversations get pretty deep. Therefore, we need both a deep level of domain knowledge, as well as, in many cases, technical sales support in order to sell those.
We have that sales force engaged in one-to-one selling with our managed accounts. We have, for the SaaS platforms I mentioned, a number of quota-carrying salespeople who are out in the market knocking on doors, signing up new customers and new logos across a range of capabilities: cyber, personalization, dispute resolution capabilities, et cetera. Finally, given, as I mentioned earlier, a number of these services are network agnostic and not dependent upon being connected to a Mastercard transaction, we're distributing them through B2B channel partners who can incorporate our services and make them available through their own tech platforms to their customer base and making our APIs available to the developer community through our Mastercard Developers site so that they can ingest our services into solutions they may be building.
All right. Thank you, Craig. All right. We are going to move on to innovation. So many new recent announcements from Mastercard in terms of new product launches, innovation. Maybe talk about some of those recent announcements and then more holistically how Mastercard thinks about its innovation.
Sure. Innovation, obviously, an important part of making sure we can continue to grow. Some of our growth is fueled by acquisitions, but organic innovation is a really important element of the growth algorithm. I'll start with the second part of your question first. How do we think about it? It's grounded first in demand we see in the marketplace. We have the benefit of having engagement with tens of thousands of customers in every market around the globe in a diverse set of segments and categories. We use that to generate ideas and opportunities around where and how there's demand, demand that we qualify as being potentially sizable and high growth, and areas where we think we have assets, technology, data, capabilities, expertise, something that gives us a proprietary positioning and advantage and a right to win in the space.
You've seen that translate into a number of announcements around new product releases over the course of the last handful of months. I'll mention a few. On-demand decisioning, something we released. This is very much incorporated into our network capability and functionality, where we're empowering our customers to develop and implement their own decisioning criteria and their own decisioning rules for transactions, their transactions that are running on our network, including the ability to turn a decline into an approve, which you might imagine for a VIP portfolio, an ultra-high net worth portfolio. You never want one of those customers getting a decline.
We've introduced Mastercard Threat Intelligence, which is a nice example of leveraging the capability we acquired through Recorded Future, taking data that we see on the dark web that's circulating around stolen identities, stolen credentials, fraudulent merchant websites that we see being established to test the use of stolen credentials, and are incorporating that back into our network insights to help our issuers and merchants understand and identify situations where compromised credentials may be at use and use that to reduce incidents of fraud. We've introduced the Merchant Cloud recently to help our merchant partners gain quicker access to things like our gateway, our fraud solutions, to position them to participate in agentic commerce.
We'll introduce, actually, this week, later this week, a little bit of a spoiler alert, a new suite of capabilities around helping lenders underwrite more effectively using a variety of data inputs to improve underwriting decisions, both for consumers and small businesses. We launched Mastercard Commerce Media in October, which we're excited about building, again, on an existing capability we had around offers, card-linked offers, a business that we've owned and operated for more than a decade, and have proven the ability to generate high levels of conversion for merchants who are extending offers through those cards. We're extending that across a couple of dimensions to enable more content beyond offers, but also digital ads to be served up to consumers who opt in.
We're starting with a base of 500 million consumers who have opted in to this service and 25,000 merchants who are using it to advertise and promote offers. Expand the content, expand the publishing channels to go beyond cards into other bank-owned channels, digital wallet, merchant-owned channels to leverage, again, the data and insights around consumer behavior and ability to attribute an advertisement or an offer to an actual sale to enhance the returns that advertisers get on their ad spend. That's just a few. There's more coming, but we're pretty excited about the innovation pipeline. Again, it all kind of comes back to these capabilities we have to build on: the data, the tech platforms, the global reach, the expertise of our people, the breadth of customer relationships we have around the world.
Thank you, Craig. That is a good long list. Thank you for that preview there.
Sure.
New release there.
The one minor follow-up, and you kind of hit on it a little bit, but on agentic commerce, often the question we get from investors is, is there a greater opportunity to attach value-added services within an agentic commerce world?
The short answer, we think, is yes. We're excited about agentic commerce, and we think we have a very important role to play in enabling agentic commerce. I would draw some parallels, I think, to what you can maybe think of as eras in the evolution of commerce. We moved from a predominantly face-to-face environment many years ago, which had a certain set of characteristics and growth opportunities. There's obviously still lots of face-to-face commerce that takes place with a certain portfolio of services that are relevant to that. We moved into an era of e-commerce, which brought on a new era of growth in commerce, the evolution of new business models, the creation of new opportunities, but with that, some new risks.
That created an opportunity for more services, particularly things around identity management, fraud solutions, cybersecurity, and the ability to engage with consumers on a more personalized basis through the technology. Agentic, we view as another era that's coming that will create similar kinds of opportunities. Our starting point in agentic is Mastercard Agent Pay, which is really built around establishing a level of trust and confidence for consumers and businesses alike in a fast-moving world of agentic commerce. That's all about establishing, really extends our token requester framework to be able to establish a relationship with agents and distinguish known from unknown agents. For known agents who register with us, they'll get access to our network tools with things like tokenization. There's increased capability around consumer authentication. As much as we need to understand, did a consumer actually authorize an agent to act on their behalf?
Was it that consumer who is connected to those credentials? There is an authentication challenge there. There is an information requirement, data requirements that need to accompany a transaction so that we can establish an audit trail that aligns consumer intent with what the agent was instructed to do, with what the agent then carried out with the merchant, and how the merchant actually fulfilled those instructions. In the event of a dispute, there is a means of resolving that dispute. Just that baseline of establishing Mastercard Agent Pay, I talked about tokenization, I talked about authentication, I talked about fraud management and fraud solutions, dispute resolution. Those are all services that will be incorporated into that framework.
As the framework evolves, there are even greater opportunities to personalize the experience for consumers, to add insights, to inform the agent, provide more insights into an individual consumer's preferences, behaviors, patterns that can help deliver a better result back to the consumer that the agent is executing on their behalf, both through the use of anonymized data that is aligned with all of our data usage rules, and in some instances based on consented data where the consumer is asking for more of their data to be shared in order to get a better result back. All those things around personalization, engagement, loyalty, as well as a huge opportunity, we think, just on the consulting front, where banks, merchants, everyone across the ecosystem is working to figure out what this means for them.
We have a lot of insights to offer and tools and technology to help take advantage of the opportunities it presents.
Excellent. Thank you, Craig. Let's see if we can squeeze in one, maybe two more. This last one here, second to last one, is around differentiation. The services landscape, it's pretty broad. The list of competitors is ever-growing. Can you talk a little bit about how Mastercard stands out and is differentiated?
Yeah. I think it comes down to a couple of things. One, the data. Again, I keep harping on the data, but the data is a differentiator for us, both in terms of its size and scale, as well as the breadth and the extent to which we've invested in curating that data over now a period of two decades. It is not just payments data. It is device data. It is identity data. It is open banking data. It is gateway transaction data. It is data from the dark web. It is data from Mastercard Move transactions. It is a wide range of data. That is a really important foundation, combined with the synergies that that data has with our payments products, where we can use that to create real economic value across the ecosystem more effectively on the back of those payments products and the synergies that exist across different services.
That, we think, gives us a very differentiated position regardless of who the competition is, whether that's another payments network. Other payments networks have lots of data. We have, we think, a broader array of data and a longer history of working with and using that data to the benefit of our customers. When we look at different specialist players in certain areas, in cyber and loyalty and consulting, they do not have the breadth of capabilities that we have, nor the ability typically to attach a payments product with that that delivers measurable economic value. We feel pretty strong about the differentiation there. Sometimes the question comes up, "Gee, are there other players in the payments ecosystem that you're competing with on this?" The interesting thing about a services business that's so data-driven as ours is the data, it's not an all-or-nothing proposition, right?
It's about finding where and how the capabilities we have, the data that we have, the expertise we have is complementary to something that someone else in the ecosystem has. We work, for example, with lots of acquirers. Acquirers develop services of their own. They have a certain lens through which they see the ecosystem. We have a slightly different lens. The combinatory power of those things brings value to them as well as to us. We're not competing with them. Typically, we're finding opportunities where we can cooperate and collaborate.
Excellent. In the little bit of time we have left, maybe this is a great way just to close things out. At the investor day, I think the company did a great job of breaking down the various components of the value-added services business. In any business, there's always portions that are growing faster, slower. Can you just talk a little bit about anything that just jumps off the page at you in terms of growth going forward or opportunities within the broader value-added services business?
Yeah. I think we like the lanes that we're in in the services business. As we shared at investor day, they're all large addressable market opportunities. They're all areas that we have an ability to service a significant amount of that TAM today. The serviceable part of that is $165 billion, roughly, based on capabilities we have today. Our penetration of that is low single digits. There's a lot of opportunity for us to continue to grow into the spaces that we're in. For me, the exciting part is it's about the innovation that will help us develop new capabilities to migrate more of that TAM into SAM and sell effectively into that. It's about opportunities to do some fill-in acquisitions here and there to build out our capabilities and, importantly, to really scale our distribution.
I think there is a real growth opportunity to scale distribution in ways that go beyond leveraging our own network and working more with other tech platforms, other B2B channel partners to be able to continue growing at the rate that we are growing. Excited about what the future holds.
That's a great way to close it out. I want to thank you again, Craig. I want to thank you, Devin, for making the trip here to Arizona. On behalf of our whole team and UBS, we really appreciate you being a big part of our conference.
Thank you. Appreciate it.