Status Update

Feb 25, 2020

Ladies and gentlemen, thank you for standing by, and welcome to the Mastercard Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to one of your speakers for today, Warren Nishaw, Executive Vice President, Investor Relations. Please go ahead, sir. Thank you, Carol, and good morning, everyone, and thank for joining us on short notice to discuss the recently announced organizational changes. With me today are Rick Heitronthwaite, the Chairman of the Board of Mastercard Ajei Banda, our President and Chief Executive Officer and Michael Diebach, our Chief Product Officer. Following comments from Rick, Ajei and Michael, the operator will announce your opportunity to get into the queue for the Q and A session. We ask that you limit your questions to matters related to the organizational announcement as we will not be taking questions related to our business performance on this call. This call is being webcast and is available in the Investor Relations section of our website, mastercard.com. A replay of this call will be posted on our website for 30 days. I'd like to remind everyone that today's call may include forward looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward looking statements. Information about the factors that could affect future performance are summarized in our recent SEC filings. With that, I'll now turn the call over to Rick. Good morning, everyone, and thank you for joining today's call. This is an exciting moment for Mastercard as we announce a leadership transition. Michael Mieback, our current Chief Product Officer, has been selected as Mastercard's next Chief Executive Officer. Michael will transition to his role on January 1, 2021, at which time he will join the Board of Directors. As part of this transition, he will become President of Mastercard effective March 1, 2020. At the end of the year, Ajay Banga will step down as CEO and I will retire. Ajay will then become Executive Chairman of the Board, and Merit Janow will become Lead Independent Director. Ajay has been an outstanding leader of Mastercard. Since becoming CEO, he's led the strategic and cultural transformation of the company that has enabled Mastercard to thrive. And as his leadership, Mastercard has diversified his business and expanded its addressable market. He's built a growth oriented mindset and operated with a real sense of urgency, fueling the company's 13% compound annual revenue growth from 2,009 through 2019 and a 16x increase in our stock price during his tenure with the company. We're fortunate that he will continue to benefit from his experience and expertise when he becomes Executive Chairman. The Board is confident that Michael has the leadership, experience and capabilities to build on the extraordinary platform developed under Ajay and his predecessors. Michael shares the values Ajay fostered and has played an instrumental role in the company's transformation. We're very pleased that Michael will succeed Ajay and continue to drive and evolve our successful strategy. The Board's decision was the result of a comprehensive process looking at diverse slate of both internal and external candidates. And as part of the search process, the Board retained a leading global leadership assessment and executive search firm to provide an independent view and complement our well established internal processes. Michael was elected as Mastercard's next Chief Executive Officer unanimously, and I'm very excited about the vision and experience that he will bring to leading the company. And with that, let me now turn it over to Ajay. Thank you, Rick. Thank you, everyone, for being here today. I just want to let you know, 1st of all, that having Rick as my Chairman, mentor and friend over the last decade has been an outstanding privilege because he has been the most supportive and yet the willingness to question and push management at the right time demonstrates his skill and capacity as a Chairman. And Rick, thank you very much for your leadership over the last decade for me personally. It's been a privilege to be a part of Mastercard's transformation as a company, and I believe the company today is stronger than ever. We have developed a deep venture leader. We have a management team that I have deep faith in that I believe is second to none. We are well positioned for the future. We have the right assets in space and now is the right time to pass the bet on to Michael. I think Mastercard will continue to benefit from Michael's deep expertise in digital innovation, his knowledge of payment technologies, his experience around the world in dealing with regulation and his capacity to integrate and work with FinTech and Financial Services to forge partnerships right across the whole payments ecosystem. Over his career, Michael has held leadership positions in Europe, in the Middle East and Africa and in the U. S. Across payments, data, banking services and technology. And he's passionate about creating trusted products with the highest levels of safety and security for our customers. And frankly, during our time working together, Michael has been a key driver and developing and executing the strategy that has come in place to evolve and diversify the Mastercard you see today. He's a global citizen, the vision he brought to his role in Middle East Africa and just in South Africa, which is one of the first trips I made with him, for example, kick started much of the work that has led to the financial inclusion journey that our company has been on over the past number of years, leading to now are reaching 500,000,000 people on that journey and making further commitments for the next 5 years. And Michael has been a key architect of our multi rail strategy to address a broader set of payment flows, including leading the VocaLink acquisition and our pending transaction with Metz. And his appointment as President and then CEO reaffirms our commitment to advancing customer focused innovation. And in the months ahead, my priority, my North Star is to ensure a seamless transition for our company and to continue our great relationships with our customers, regulators, partners and of course investors. I'm very excited about working with Michael and supporting Mastercard's success when I become Executive Chairman. And with that said, let me turn it over to Michael. Thank you, RJ. Our company has outstanding people, industry leading technology and an admired brand and with that tremendous potential. I'm honored to have the opportunity to lead Mastercard and with Rick on the floor, I want to thank the entire Board of Directors for their confidence and trust. I've dedicated the last decade of my career to payment innovation and I'm fortunate to have worked closely with RJ. Throughout all of this and evolve and execute Mastercard's strategy. Now I'm excited to continue this partnership. And look forward to working with our colleagues and the leadership team to build and deliver solutions that address ever changing needs of our customers, partners and consumers. As I look at what lies ahead, I see tremendous opportunity for our company. During the next 5 years, we will see significant advancements in areas such as the rollout of 5 gs or broad application of data analytics and AI, proliferation of the Internet of Things. This will require state of the art cyber solutions and data capabilities as well as flexible options to affect digital payments. We will build on strong platform that we've created in these spaces to capitalize on this opportunity. I think we will do this by putting the customer first, the consumer experience at the forefront of everything that we do, by leveraging new technologies to continue to diversify our products and services and by providing choice to our customers to allow them to deliver the best outcomes for their unique business needs. And we will capitalize on this opportunity by expanding into new areas adjacent to payments, such as open banking and digital identity, where we can leverage our core competencies. And we will keep doing this in a disciplined way. We focus on execution, evolve our strategy and continue to lead the industry forward. I'm incredibly excited about what lies ahead for Mastercard and I look forward to getting out there in my new role, spending time with our customers, employees and shareholders. Thank you again, Ajay, The Board, our leadership team and all of our people, I'm deeply honored to be the next President and CEO of Mastercard. Thanks, Michael. Carol, we're now ready to take questions. Thank you. Your first question this morning comes from Ramsey El Assal from Barclays. Please go ahead. Thanks for taking my question this morning and congratulations to you all for an important series of transitions. I was just wondering if you contemplate any other organizational changes with you taking on the CEO role, obviously, there would need to be a succession plan and product. But how do you see the general sort of structure of the organization in the context of you taking the reins? Yes. Thank you for that question. Our plan initially will be as I step into the role of President that all the business functions will report to me. But that includes sales, marketing, O and T and then of organization. I will continue to lead it and see how we need to transition that over time. And then of course, RG isn't going anywhere. Your next question comes from Craig Maurer from Autonomous. Please go ahead. Good morning. And again, congratulations, Ajay. It's been an absolute pleasure over the last decade. Michael, quick question for you. Looking out over the next 5 to 10 years, where do you see the biggest risks for Mastercard's business? Thanks. Thank you, Craig. When I look out the next 5 years and I reflect on the last couple of years, I think one thing is to show that there's going to be more change and the speed of change is going to increase. We'll see more change in technology, faster change in technology. So as I look ahead, just look at some of the key trends in our industry, be it what I was talking about earlier, 5 gs, there's going to be more data around The Internet of Things, the more every device is going to be a connected device, there'd be more data, more payments. So people will have a clear desire for cyber solutions and safety in that kind of environment. And I think here is risks involved in that that we can help address. But for us, I think that's broadly speaking a significant opportunity. When you look around what is happening in the industry, you see governments getting engaged in electronic payments and they see the benefit of payments, governments get engaged in different ways around payments. So there's engagement that pushes electronic payments, there's also trend of nationalistic solutions. So here, again, I see a mix between opportunity for us. We've been navigating this for years as people see more of it. I think we've learned a lot over the years, and I think we can position ourselves well to be an established local partner in all of these markets. Those will be the top things that I would say to you. Craig, one thing I would add is that one of the benefits of having Michael step into this role is his enormous on the ground experience in not just Europe and Eastern Europe, but also in the Middle East Africa. So he kind of operated even before coming to the U. S. In the developed world as well as in the emerging world. And he understands that what it takes to be required as an MNC to be welcomed to a country in a industry like payments is to be doing things that add value to their economy that makes them feel that they are grateful for the fact that we can be a part of that development in that economy. Michael knows how to operate and navigate that with respect for those local institutions and those local leaders. And I think that's a differentiation in our company that Michael can build on enormously. Thank you. Your next question comes from Tien Tsin Huang from JPMorgan. Please go ahead. Got to say the 16x return on the stock and your leadership and release just seeing that in print is pretty amazing. So congrats to you and I guess we learned a lot from you. So thanks to you on that as well. Just for Mike, I wanted to ask on the leadership style, how would you describe yourself there? Just this concept of, if I put a spectrum out there of decisiveness versus consensus building? How would you put yourself on that spectrum? So important given where Mastercard sits in the food chain. Chenxin, good to hear you. I love Michael over Mike. I just have to say that right at the beginning. I apologize. I apologize. I got you casual right at first. Michael, Michael. So there is your answer on leadership style as well. I'm right out But broadly speaking, my approach is and I've lived it over the last 10 years. We have a very strong leadership team. I've been part of it. And it's pretty clear that the success of this company is a function of our leadership, but also it's a function of the team. So it is a team sport. Success is a team sport and that's how I look at it. It's kind of enabled the team. But of course, I have a view where things should be going. So mix of both. Got it. And then you mentioned, if you don't mind a quick follow-up, you mentioned sort of consumer and product orientation. Is that an area that we should expect Mastercard to invest a little bit more heavily to be a little bit more consumer oriented in the product side? Our approach has been participate in as many payment flows as we can, address needs on either side of the payment. Lately, stepping into the labor transactions data, but these underlying principles are putting the customer first. I don't think there's a change there. We're just going to do more of that and make sure that in the end we have deep understanding of what an end user of our product is actually trying to do. You'll see more of that, the hiring of a CXO that we started last year, we're going down that road. And just simply becoming that multi rail company, that one stop shop, I think that is just in itself a statement about how we're going to put customer needs at the forefront to help them with more of their needs. So those priorities that we've put out, participating in more flows, B2B, P2P, you heard us talk about it, that is not going to change and I see that as still as a huge opportunity. And I will see where open banking takes us, that's still early days, but here we put our products set out there last year and we continue to see that as well. Great. Congrats again. Your next question comes from Moshe Orenbuch from Credit Suisse. Please go ahead. Great, thanks. So congratulations to everyone and I would say the question for Mike is, Anjay kind of mentioned your most impressive resume and things you've done. What are the things that you'd like to focus on over the next year, areas to build up as you kind of getting ready for that position? And maybe for Ajei, if you could just tell us what you're going to do with all your free time in 2021 and beyond? I'll take that one first while Michael takes through what he wants to say, but I'm pretty clear. I'm not going to hang out with you, Moshe. So listen, I first of all, I've got till the end of the year, I'm very much committed to everything I'm doing, both as being the CEO of the company, but even more importantly, I told you my North Star is to make this transition as seamless and as, in fact, beneficial as possible. And then as an Executive Chairman, I probably would spend much more of my time looking outside of the company with the influences that the company could spend more time with. And while Michael runs the company, which is what he should be doing. I think that's how our equation will work. And then after that, if you've got some ideas to me, I'll give you my cell phone number, call me. I'm always looking for things, right? Okay. Moshe, for the next 9 months, stepping into the role of President, very clearly, we have commitments out to the market, we want to deliver on those. So making sure that we don't miss a beat, that's number 1. Number 2 is really being out there in a different role and hearing what our partners and our markets are saying, understanding where government agendas are going. So a lot of travel, a lot of listening, at the same time, just keep not missing a beat. That is the next 9 months, and then we'll see there will be ample time to talk about whatever is thereafter. Great. Thanks. We look forward to it. Your next question comes from Darrin Pellerin from Wolfe Research. Please go ahead. Hey, thanks guys and congrats again. Michael, I just you mentioned you're going to put your own perspective on things. I'd really love to hear, I mean, over the past few years, is there any examples of things you would have done a little bit differently despite the success of Mastercard? And then maybe any examples of some things you'd want to do differently going forward? Darren, I agree all the time sorry, disagree all the time. There you go. I was almost a Freudian slip. No, but if you look at my role, the current role until next Monday, as a Chief Product Officer, so that put me at the heart of all of the pivotal points in our strategy. So I'll give you example on financial inclusion. That was a little time back, but that carried us forward and we're making a huge difference as a company out there. More lately, the multi rail, that was not the most obvious thing to do for a card company to go and go into account to account payments and so forth. So most of those changes I've been very closely involved with and therefore I wholeheartedly endorse the strategy that we have. As I said before, there's more change coming out there at a greater speed and we'll need to continue to evolve and just keep that agility that we've had. All right. Congrats, guys. Thanks. Your next question comes from Brian Keane from Deutsche Bank. Please go ahead. Hi, guys. Congratulations. Ajay, the question I'm getting is just why now? Obviously, you're still a relatively young man. Why is the timing right now to make this transition? So do I have to buy you a drink because you called me relatively young, if I do. Ryan, there's never a right time for anything. But remember from my point of view, I've spent this is my 11th year in the company, my 10th year as the CEO. As I said, when I started Rick was the guy who brought me in as the Chair of the Board. But I feel that we've had a great run and I've had an amazing run with everybody else. It's been a cool journey. And along the journey, we've got all these wonderful people in this company. And a CEO's job is to build leadership bench and build culture and build clarity of vision. And I think I've tried my best to do that with the leadership team. But one of the biggest jobs you have is knowing when it's time for a fresh sort of way of looking at what the company could do for the next decade. We've built tremendous assets and Michael knows the company well and knows the industry well, but he's a fresh pair of eyes to the role of the CEO next year. And I just think that will serve the company really well after a decade in my role. And I believe that he's got the right attributes, the right assets. So when you have the right person and it's the right time, it's a really good thing to do as a step aside. Okay. Thanks so much. Congrats. Your next question comes from James Faucette from Morgan Stanley. Please go ahead. Good morning. I just wanted to follow-up with you, Ajay, as you make your comments about fresh set eyes. Can you just give us a quick bit of color on how you reflect on the challenges that you saw as you were first coming into the role in 2,008, 2,009 and compare and contrast that with what you think the challenges Michael is likely to face as he comes into the role? Thanks. Yes. So I would say, when I entered the company, we had a much smaller company, which was focused principally on card rails and within that principally just the nature of the way the revenue came, a large part of it came from associated revenue around credit transactions. A smaller proportion came from debit transactions, prepaid as a category did not exist. Commercial categories were much smaller. In fact, at that time, if I remember my math roughly correctly, close to 80% of this company's revenue came from transactions associated with credit principally then debit and a little bit from commercial was another 4%, 5%. And then some stuff came from things like warning bulletins. If you remember 9, 10 years ago, that is part of the industry's construct. And now when you kind of look forward, if you move on to where we've gone, our revenue profile is much more diversified. We've built many more stools or legs to the stool. And I felt that was really critical for us, because at the end of the day, what we've now got is the ability to say we get 27%, 28% of our revenue from these services, data, analytics, cybersecurity with a very good operating margin profile and that keeps the company on a healthy growth trajectory. We've got ourselves in a good position on loyalty as a premier provider in that space. We've built out a real position in real time payments, which I think will enable Michael and his team to offer choice to banks, to merchants and to consumers. So they can choose to pay with a instant payment transaction or a card rail transaction. Now we're building out capacities in B2B, account to account, digital identity. I just I think of the future of Mastercard as having even more legs to that stool. So that as the different dynamics of those legs change, we have a stable operating and earning environment for the next decade to come. Now, obviously, it's all about winning. You've got to have the right culture and the right winning approach to doing business. And you've also got to be seen as a constructive player in society, which I think we've also managed to move the needle on both of those items. We've invested organically and inorganically in lots of new technologies as well as frankly innovation. It's not a coincidence that we are good players in the blockchain space and we are good players in the digital space and that comes from hard work from a lot of people. So we've done all this with what I'm very proud of, which is our DQR, our decency quotient. I'm firmly convinced that this company, which is now many times the size of what it was, is even more than earlier committed to the idea of being seen as a responsible player, as a player that leads with their hand on your back and not in your face. And nothing could be more interesting than that last part. So I don't what might have been going to deal with, kudos. I don't know how things will change over the next 5 or 10 years. I do know 2 things. One is, they're going to have to be seen as even more local country by country than we ever were, not just in terms of the management team, which we are very good at, but also in terms of how we operate in each country. And I think Michael is well suited to that, as I said in response to an earlier question. And the second part is, we have put our commitment to data privacy out there in our principles. I think Michael has a chance to take those principles and implement them in the marketplace and show that we care deeply about our consumer and their privacy and their approach to managing their own data and the right that they have to benefit from their own data and the responsibility we have as a company to collect the least amount of data from them that we need to do our business and whatever we collect, keep it safe. Those data principles are going to be a key part of who we are in the future. So I think he's got lots of cool things to do. He will do things even better than we've done in the past that I'm very confident of. And I think these 2 are going to be foundational over the next few years. Years. Your next question comes from Jason Kupferberg from Bank of America. Please go ahead. Well, thanks guys. I want to add my congratulations. And Michael, I look forward to watching you and Sachin become the next version of Ajay and Martina for the next decade. So congrats on the opportunity. Just reverse the nationality. Fair enough. Fair enough. Exactly. I might have missed this, but has there been an announcement as to who's going to take your role as Chief Product Officer? No. I'm going to continue to lead the product team for the time being. Okay. Okay. Got it. And can you just talk a little bit about the extent that you've had experience over your time at Master Card, dealing with governments and or regulators? I know Ajay has spent a fair amount of his time over the past decade in that area. Very, very important stakeholder for us. So I'm happy that I had the opportunity in my regional role to deal with governments across the board. I referenced earlier to our financial inclusion strategy. Here, that was opening up a whole continent really by engaging with governments and trying to understand what they were trying to solve and then bring them an answer that nobody on the continent had done before. But if you think about our step into account to account payments, becoming a multi rail company, it is not an obvious thing for a country to partner with a card company when it comes to account to account payments. So our experience with VocaLink in the UK, our dialogue in the Nordics, when we won P27, there's a lot of government dialogue involved where because of the novelty of the set of solutions and people were modernizing the infrastructure of government entities and so forth. So in Chen's dialogue over the last couple of years with governments even in my current role. So I think it's a healthy mix. But in the team, with our regional leads, with our Head of Strategic Growth, we have strong, strong partnerships with governments all across. Very good. Thank you. One last question. Our next question comes from Joseph Foresi from Cantor Fitzgerald. Please go ahead. Hi, and congratulations as well. Michael, question for you. Given this is your first call, I guess, if we look back on this call 2, 3, 5 years from now, what specifically are you looking for to put your stamp on the organization? What maybe you could just give us your sort of early thoughts on that? And Ajay has done a great job on the cultural side. Maybe you could talk a little bit about how you're planning on maintaining that culture? Thanks. Yes. I actually want to take the second part of your question. I think values are our strongest foundation. You can have the greatest technology and everything. The value driven part of the company, I think is going to matter most going forward. The aspect of having all of the employees at Mastercard bring decency to work every day, that's fantastic. Our belief in inclusive growth is going to matter going forward. Both of that will matter going forward, but we are on a journey. If you look at the number of acquisitions that we've made over the last couple of years, our culture keeps evolving. So having core foundational values persist, but also adapt as we go through the journey with changes in the market around us, our culture is hugely important. That is the hedge for the future. In terms of what we're going to do, when I look back and say, if everybody calls me Michael 5 years from now, that would have been a great achievement. And for the rest of the I hope I talked about the changes that I see coming at us and I believe we're well positioned. So I think we have to lead up to that. The earlier point that I had on the focus on So we'll see where things are going. Great. Thanks, Michael. I think that's critical for now. And otherwise, that didn't come with a crystal ball yet. So we'll see where things are going. Great. Thanks, Michael, and thanks, everyone, for calling in on short notice. We'll call it a wrap there. If you have any follow-up questions, please just send me a note or give me a call and I have a good day. Thanks, everyone. Ladies and gentlemen, this concludes today's conference call. Thank you once more for participating. You may now disconnect.