Earnings Call: Q1 2018

May 2, 2018

Good morning. My name is Jamie, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2018 Mastercard Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Warren Nisha, Head of Investor Relations, you may begin your conference. Thank you, Jamie, and good morning, everyone. Thank you for joining us for our Q1 2018 earnings call. With me today are Ajay Banga, our President and Chief Executive Officer and Martina Hund Mejean, our Chief Financial Officer. Following comments from Ajay and Martina, the operator will announce your opportunity to get into the queue for the Q and A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a currency neutral basis and exclude special items unless otherwise noted. Both the release and the slide deck include reconciliations of non GAAP measures to their GAAP equivalents. Please note that due to our decision to deconsolidate our Venezuelan entity starting this year, we are providing additional information regarding our switched transaction and card growth rates. The adjusted growth rates eliminate Venezuelan switched transactions and card counts from prior periods so that you can better understand the underlying growth rates of our business. Our comments on the call today will be on the basis of these adjusted growth rates. These are the only supplemental operational metrics which are significantly impacted by the deconsolidation. Finally, as set forth in more detail on our earnings release, I would like to remind everyone that today's call will 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 at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our President and Chief Executive Officer, Ajay Banga. Thank you, Warren. Good morning, everybody. We're off to a very strong start this year. Our first quarter net revenue growth of 27% and EPS growth of 43% versus a year ago on a currency neutral basis and excluding those special items. But even if you exclude the impacts of the accounting changes, the acquisitions and a couple of other items that affect year over year growth comparisons, all of which Martina will explain to you in some more detail later, our underlying net revenue growth was up 20% and operating income was up 27%. I think these results are driven by the focus of our folks, of our employees on execution and solid business fundamentals as we continue to invest for the long term future of our company. Now on the macroeconomic front, we are continuing to see growth overall growth. We are, however, keeping a very close watch as central banks around the globe evaluate normalizing their monetary policies by reducing fiscal stimulus. The U. S. Continues to perform well, low unemployment, healthy consumer confidence, retail spending remains strong and our spending pulse estimates are increasing to 5.3% for the quarter versus a year ago. Now remember that estimate is ex auto, ex gas and we believe that's the best way to look at the underlying trends in retail spending. Now looking at the rest of the world, we kind of see generally favorable conditions. Europe remains positive overall with retail sales growth in the UK that picked up in the Q1, although it showed some deceleration in March, again according to SpendingPulse in the UK. We do remain concerned about the potential impacts of Brexit. Latin America continues its recovery, lower unemployment, improved consumer confidence and there we will continue to monitor for potential impacts in the elections, particularly in Brazil and in Mexico and of course the whole NAFTA renegotiation. Most of the economies in Asia continued trending positively and most stable oil prices and I think a number of government initiatives have been driven some improvement in the Middle East and Africa region. So you put that together, we expect the global economy to remain positive absent any significant impact from geopolitics or trade risks. Meanwhile, we are driving healthy double digit volume and transaction growth for Mastercard across most of our markets. We're growing share and we're executing on our strategy as we move into 2018. And let me give you a few examples. In the U. S, we continue to see good progress in consumer credit. The Barclays Arrival Premier World Elite Mastercard, that's a mouthful, was just launched and includes premium benefits designed to attract and retain the traveling consumer such as an annual loyalty bonus and airport lounge access. This builds on the momentum from other recent U. S. Affluent product wins like the Capital One Savor Card, the Bank of America Cash Rewards Card, for which by the way Mastercard issuance has now begun and Bass Pro and Cabela's, which we announced last quarter. So now turning to co brands, we're making real progress this quarter again, including with Crate and Barrel, which is launching a new Mastercard consumer credit product and will be migrating some of their existing private label cards over time. We've also renewed a number of co brand relationships, including with Shell. And now Kroger has begun converting cards to Mastercard following the win that we announced last year. In addition, we're really pleased to be the exclusive network for PayPal's 1st consumer debit card in the U. S, which lets consumers and customers of theirs access funds in their PayPal accounts to shop online or in stores and to make withdrawals from ATMs worldwide. And that's consistent with our broader PayPal partnership, which currently includes all PayPal Credit and Debit co brands around the world. In Europe, we continue to gain share in key markets and I'm very pleased to say we're expanding our relationship with the Southern Bear Group. In the UK, Southern Bear was issued Mastercard debit cards for its more than 9,000,000 consumer and commercial bank accounts, making this our largest debit flip in the UK to date. This extends Mastercard's existing relationship with Santander UK on consumer and commercial credit and leverages our capabilities in digital fraud solutions and some of our exclusive sponsorship assets. And that's in addition to a credit and debit renewal, again, both consumer and commercial that we just signed with Banco Santander in Spain. We're also pleased to announce a new deal for the U. K. Post Office Travel Money Program, one of the largest consumer prepaid programs in the U. K. To be exclusively Mastercard branded. In Latin America, building on our strong underlying momentum, we added the American Airlines co brand in Brazil this quarter. We launched a new cash back consumer credit card with HSBC in Mexico. And we're driving innovative consumer and commercial solutions with the largest digital bank in Brazil, Banco Inter and providing differentiated loyalty services for a number of customers in the region, including Banco Santander in Brazil. And we are strengthening our position in other markets as well. This quarter, we extended our Commonwealth Bank of Australia credit and debit deal, which includes a portfolio flip. In India, we signed a comprehensive debit agreement with Bank of Baroda that includes advisors, consulting, data analytics and managed services. As you know, our focus in India is on growing both the issuing side and merchant acceptance in a number of different ways, including with digital technology such as QR codes. And we've talked about this in the past. Shifting to account based faster payments, we're making progress with VocaLink and we're in the RFP response phase for a number of potential opportunities around the world. But the PromptPay mobile payment system in Thailand is a good example of an international payment system powered by VocaLink gaining scale quickly. What Prompt Pay does is it enables bank transfers using a mobile number or a citizen ID. And as of April, 40,000,000 users in Thailand have signed up generating more than 170,000,000 transactions since its launch in January 2017 and the equivalent of about 16,000,000,000 dollars in consumer, business and government payments in the last 6 months alone. On digital, you heard us recently announce our support of the EMV Go standards for simple and unified payments. When people shop online and in app, they expect the same convenience and security that they have in store. And just like the single acceptance terminal in a physical store, we believe there should be one common checkout button in the digital world. That will deliver tremendous benefits for consumers, for merchants and for issuers. A common checkout button would give consumers a consistent, secure, low friction checkout flow, making it far easier for merchants to implement secure digital payments and provide issuers with improved fraud detection and prevention capability. And that should result in lower abandonment rates and more sales, good for everybody in the ecosystem. Since these standards also build on our tokenization services and authentication services, I think that brings us closer to a secure token based world. 75% of all our cars are already enabled to be tokenized and we see demand from merchants like Netflix and now Flipkart in India as well. Now when you tokenize payment details at a merchant site, they essentially become useless if a fraudster steals them and tries to use them somewhere else. More importantly, it eliminates the need to manually update account numbers when cards are replaced. That happens automatically. It helps merchants and consumers by reducing declined transactions. Again, good for everybody in the ecosystem. So what's the bottom line? The bottom line is the EMV framework will bring the benefits of standardization, openness and interoperability to consumers, to merchants, to acquirers, to issuers in the digital space. Of course, we at Mastercard will continue to innovate and offer differentiated services for consumers and merchants in a whole range of ways from loyalty and user experience to analytics, the new kinds of security and authentication tools that we can provide, including with our recent acquisitions of new data and Brightcivit. So on staying on our digital strategy, we are developing new ways for consumers to pay and for merchants to get paid through QR codes and particularly in emerging markets. And a recent example is the partnership we announced with M Copa in East Africa to make it easier for people to access reliable energy sources to power their homes and businesses and the idea is to move productivity and prosperity. MasterPath QR enables people to finance solar power through small daily payments by scanning a QR code with their smartphones or entering the merchant ID into their older feature phones. Distribution partnerships on social platforms like Facebook and mobile financial services platforms like Pippo Pesa in Tanzania further extend the availability of QR codes to millions of users at a time. And finally, we continue to expand our suite of differentiated services. As many of you know, the General Data Protection Regulation in Europe known as GDPR establishes new rules for the use of personal data and it puts consumers in greater control over how their data is used. And we've always been committed to strong protections for consumer privacy. And you know, for example, that we only work with data in our analytics business on a fully anonymized and aggregated basis. We're very well positioned therefore for compliance with GDPR by the late May deadline across the full scope of the new requirements of this regulation. Having said that, one part of GDPR is related to how data must be anonymized for later use. And in this area, we've taken what I think is a politically innovative approach. We have designed a compliance solution for this, founded an independent trust called Truata to offer this service commercially. Essentially, customers of Truadza will remove personal identifiers from their data before sending that information to Truadza, which further anonymizes it to protect an individual's identity. Customers may then receive analytics and aggregated insights back to use in their products and solutions. That way you ensure that the data and the resulting in our analytical capability and output can never be linked back to an individual. That's a service that Truanna's customers, including Mastercard, will use to further scale data and analytics services in a secure and compliant way. So with that, I'm going to turn the call over to Martina for an update on our financial results and operational metrics. Martina? Thanks, Ajay, and good morning, everyone. We're very pleased to deliver a strong start to the year, even when you exclude the 4 ppt tailwind from foreign exchange to net revenue and the 6 ppt to net income, which was primarily driven by the appreciation of the euro since last year. Here on Page 3, I will now highlight the numbers on a currency neutral basis and also I will exclude special items related to litigation commissions. Net revenue grew 27%, driven by strong underlying performance and it includes a 4 ppt benefit from the new revenue recognition rules and a 2.5 ppt benefit from acquisitions. Excluding these items, underlying revenue growth was 20%. Operating expenses increased by 32%, which includes 20 ppt of growth due to acquisitions, our charitable contribution to the Center For Inclusive Growth and the impact of the new revenue recognition rules. Underlying expense growth was 12%. Operating income grew by 23% or 27% on an underlying basis based on the adjustments to revenue and operating expense I just noted. Net income was up 39%, reflecting strong operating results and the impact of the U. S. Tax reform, which contributed approximately 8 ppt to this net income growth. EPS was $1.50 per share, up by 43% year over year, with share repurchases contributing $0.03 per share. During the quarter, we repurchased about $1,400,000,000 worth of stock and an additional $608,000,000 through April 27, 2018. So let me turn to Page 4 and here you can see the operational metrics for the Q1. Worldwide gross dollar volume or GDV growth was 14% on a local currency basis and that's up 1 ppt from last quarter. We saw solid double digit growth across most regions. U. S. GDP grew 10%, up 1 ppt from last quarter and was made up of credit and debit growth of 9% 12%, respectively. And outside of the U. S, volume growth was 16%, up 2 ppt from last quarter, primarily due to Europe and Asia Pacific. Cross border volume grew at a healthy 21% on a local currency basis, driven by growth in all regions with the strongest growth contribution coming from Europe. Turning to Page 5, switch transactions continue to show strong growth at 17% globally, normalized to exclude Venezuelan transactions as we no longer consolidate that entity. We saw healthy double digit growth in switch transactions across all regions and transaction growth was also up sequentially led by Europe and the U. S. In addition, lower card growth was 6%, again normalized for Venezuela. Globally, there are 2,400,000,000 Mastercard and Maestro branded cards issued. Now let me turn to Page 6 for highlights on a few of the revenue line items, again described on a currency neutral basis unless otherwise noted. The 27% net revenue increase was primarily driven by strong volume and transaction growth, as well as by growth in services. The new revenue recognition rules contributed 4 ppt to the growth rate higher than what we anticipated for higher than what we anticipate for the total year. Excluding this impact and acquisitions, underlying net revenue growth was 20%. This growth was stronger than expected due to the delay of new deals resulting in lower rebates and incentives for the quarter and higher growth in services and cross border. Looking quickly at the individual revenue line items. Domestic assessments grew 20%, while worldwide GDP grew 14% and the difference is primarily due to the impact the new revenue recognition rules. Cross border volume fees grew 19%, while cross border volume was up 21%. The 2 ppt gap is mostly due to the higher intra Europe growth. Transaction processing fees grew 22%, primarily driven by the 17% normalized growth in switch transactions as well as revenues from our various service offerings and from VocaLink. Finally, other revenues grew 33% driven by increases in our advisors and safety and security services. As a reminder, most of the WocaLink revenues show up in this line, which accounts for 10 ppt of this growth. Moving on to Page 7, You can see that total operating expenses increased 32% excluding special items on a currency neutral basis. As I referenced earlier, this includes an 8 ppt impact from acquisitions, an 8 ppt from our shareholder contribution of $100,000,000 and a 3 ppt impact related to the new revenue recognition rules. Excluding these items, underlying expense growth was 12%. This reflects our investments in strategic initiatives such as digital infrastructure, safety and security platforms, data analytics and geographic expansion as well as higher costs related to our increased revenues in certain areas such as loyalty. Turning to Slide 8, let's discuss what we have seen in April through 28, where all of our drivers are similar or a bit lower than our Q1 drivers, but in line with our expectations and comprehended the outlook that I will talk about in a moment. The numbers through April 28 are as follows. Starting with switched volume, we saw global growth of 14%. That's down 2 ppt from what we saw in the Q1 with solid growth in all regions. In the U. S, our switched volume grew 8%, down 3 ppt from the Q1 with lower growth in both credit and debit programs. Switched volume outside of the U. S. Grew 18%, down 2 ppt from the 1st quarter. And globally switched transaction growth was 17%, the same as what we saw in the Q1 with healthy growth in each region. And with respect to cross border, our volumes grew 19% globally, down Turning to Slide 9 and our thoughts for the full year 2018, which I will describe on a currency neutral basis and excluding special items. Our business fundamentals remain strong as we continue to grow share across our core products and expand our service offerings. We continue to forecast a healthy economic environment and with a solid first quarter, we now expect year over year revenue growth to be in the high teens percentage wise, up from our previous expectations of mid teens. As a reminder, this growth includes the impact of the new revenue recognition rules in 2018 and the full year effect of acquisitions, which we continue to estimate will contribute about 3 points to growth on a combined basis. As you can see on the orange bar at the bottom of the chart, our organic growth excluding these items would be in the mid teens range, up from our prior expectations of the high end of low double digits. I would like to call out a few items related to the revenue profile for the year. First, we do expect deal closings and implementations to pick up from Q1 levels, which will increase rebates and incentives in the following quarters. 2nd, we expect cross border growth to moderate somewhat. This is due to the recent drop off in crypto wallet funding and in addition cross border will also face tougher comps for the balance of the year given the strengthening of the euro during 2017. You can see this a bit already in our April metrics. Thirdly, we do not expect to see as much revenue uplift in the next three quarters from the new revenue recognition rules as we saw in Q1. And finally, just a reminder that we have lapped the Vulcan Inc. Acquisition at the end of April. On expenses, we're accelerating our investments in strategic areas such as safety and security, digital and our B2B products. We're also seeing some increased operating costs related to our higher revenues, in particular related to some of our services such as loyalty. As a result of these factors, we now expect year over year expense growth to be in the mid teens, up from our previous expectations of low double digits. This growth includes the impact of the new revenue recognition growth, the full year effect of acquisitions and the impact of the contribution to our Center For Inclusive Growth. When combined, we continue to estimate that these three items will contribute about 8 points to growth. Again, as you can see on the orange bar at the bottom of the chart, expense growth on an organic basis excluding these items would be in the range of high single digits, up from our prior expectations of mid single digits. With respect to our quarterly expense profile, as usual, Q2 and Q3 will grow significantly more versus year ago than the 4th quarter. A few other items of note. Foreign exchange is now expected to be a 2 ppt benefit to the top line and a 3 ppt benefit to net income for the year with the biggest uplift having already occurred in the 4th quarter in the Q1, given the profile of the year ago exchange rates. And the estimated tax rate of approximately 19% to 20% for the year based on our current expectations of regional mix of earnings. Of note, the Q1 effective tax rate of 17.7% is lower than the expected full year tax rate as Q1 included discrete benefits of 2.3 percentage points. With that, let me turn the call back to Warren to begin the Q and A session. Warren? Thanks, Martina. Operator, we're now ready for the questions. And your first question comes from Bryan Keane with Deutsche Bank. Your line is open. Hi, guys. Congrats on the solid results. I want to ask about the strength you're seeing in Europe and Asia in particular. Are those share gains versus the competitors? Or is that just the overall growth in the market? It's probably a little bit of both, I'm guessing. Yes, we're seeing both, Brian. We are seeing actually in Europe, we're seeing domestic growth really showing up very nicely. Cross border growth has actually improved from what the statistics that we have seen before, including what we're seeing by the way in the UK. So we are seeing very solid spend in the UK. Domestically. We see solid double digit cross border growth outbound of the UK as well as inbound into the U. K. So we're seeing at the moment no clouds on the horizon even though we are obviously worried about Brexit. We see very solid growth in Eastern Europe showing up. In Asia Pacific, what we're really seeing is that Australia is coming back a little bit and we're also seeing some healthy growth, it's like in the high single digit rate from a cross border perspective in China. Okay. And just as a quick follow-up, on the rebates and incentive side, the pickup you expect, is there any way to think about the cadence throughout the rest of the year? Will it pick up each quarter going through? Or is it just a little bit of a pick up here in the Q2 as some of the deal closes? Thanks so much. Yes. You're asking me the $100 question here, right, because that is always what I'm asking our people in the business. It really depends in terms of when we are signing agreements and when we're implementing the agreement. The best outlook that I have at this point in time is that probably Q3 is the high watermark in terms of rebates and incentives. But again, once we close off Q2, we will let you know. Okay, great. Thanks. Your next question comes from David Togut with Evercore ISI. Your line is open. Thank you. Good morning. Could you comment on the pace of fees you're seeing in Europe for ACH related offerings? Specifically, I'm asking about VocaLink's positioning on Continental Europe ahead of PSD2. So there's a number of the RFPs out there, not just in Europe, but around the world. We're participating in all of them. I don't think there's any change in the pace of RFPs based on the implementation dates of PSD2. A lot of the RFPs have to do with countries and locations trying to upgrade their clearinghouse systems over the years from what was built many years ago to what's more state of the art in terms of fast ACH with better messaging and better data transmission capabilities connecting to directories and the like. That's what we are participating in. Understood. And then as a follow-up, could you comment on any update with respect to your B2B hub? Yes. So that work progresses and we are in the process of rolling out with the first client early in the second half of this year. Meanwhile, we already had a number of our clients who had relationships with Avid Exchange, which is the partner we've used to build the B2B Hub with. And those volumes are doing really well. In fact, one of those, for example, is KeyBank, and we've seen not just great volumes coming through, we've seen an increased share shift from check to card. So we've got good momentum on that commercial business beyond the B2B Hub as well with growth across Bank of America, Merrill Lynch, Capital One, Citibank and a bunch of other partners in commercial. Understood. Congrats on the strong results. Your next question comes from James Friedman with Susquehanna. Your line is open. Hi, it's Jamie at Susquehanna. Martina, I wanted a clarification if I could, you were going kind of quick there. But when you were talking about other revenue growth and then you had called out advisors and safety and security, I think and I apologize if I wrote this down wrong, but you said there was 10 ppt of growth contribution from VocaLink. Is that like what's the antecedent there mean like is that are you referring to other revenue or services revenue or total revenue? So the other revenues as you know has mostly our services businesses included and it grew for the quarter by 33% and 10 percentage points of that was related to the acquisition that we did on VocaLink. So the underlying growth actually was 23%. And after 23%, the line items that drove it most was advisors as well as safety and security. The VocaLink Inc. Acquisition, I just called it out because we still had not lapped the acquisition. Remember, we made the acquisition only in April on April 28, 2017. So it wasn't in there for the 4th quarter. So that's why we're calling it out for you. Of course, the impact in the second quarter will be much lower because you only have 1 month's worth of the VocaLink revenues coming in year over year. Got it. Thank you for the clarification. And then I guess like moth to the flame, I got to ask about the crypto. How I mean let's see how to ask this one. I mean that was that's a bigger call out than we had anticipated on the crypto. I guess what corridors are you seeing that come through and where is it deteriorating from? And do you think it will ever come back? Yes. So the issue with this, first of all, in terms of the steps on the cross border volume growth, the cryptocurrency funding or the crypto wallet funding really was one PPT, okay? It was one PPT that we saw in the Q4 and it was one PPT that we saw in the Q1. What the issue is that a number of the banks have decided, in particular in the United States, that they would not allow the usage of cards for this particular funding vehicle. And that's why we have already seen a relatively significant decrease of the volume related to that event. In terms of where the funding is coming from by country, we've seen quite a bit coming out of the United States. We saw quite a bit coming out of Australia and some other select countries in Asia and then a number of countries in Europe. The lot of governments around the world, I was out from Asia recently and Korea, for example, has pulled back on a line some of these exchanges as well to operate. But there's a lot of concerns even in Japan, because one of their biggest exchanges got hacked into and has now been bought out by another company in an effort to bring that back to and even Kiel. In general, the in and out of buying currency to a novel Fiat currency to put into a crypto wallet, which is what we were involved using our cards with, it depends a little bit on the interest in cryptocurrency. And you can see right now, there's a little less interest than there was in the latter part of Q4 and Q1. So when we did our earnings call last time, we actually said that this is not something we count on because we just don't know how to predict it or we don't even want to count it. Next question please. Thank you. Your next question comes from Dan Perlin with RBC Capital Markets. Your line is open. Thanks. Good morning. I had a question on the kind of the commentary around organic operating expense growth. So in the quarter, it was 12. I think you're guiding to kind of high single digits for the remainder of the year. So that to me would imply a step down, but then there's the commentary about the significant ramp in investments or discontinued advancement in investments. And so I'm just trying to reconcile that statement a bit. It's really year over year comps, so you're going to have to look at where the operating expense numbers were in the second and the third and the fourth quarter of 2017. So it's just a reality of that. There's nothing really more to it then. Okay. I can maybe add one more thing. So in the Q4, often enough, we go for lower A and M expenses and you might see some of that too because we are trying to move some of that into the earlier quarters. But that's really it's not going to be very different than what you saw last year. Okay. Then can you just provide some commentary around the step down in these April statistics? You already mentioned obviously cross border, but switching globally U. S, outside U. S, they all kind of step down. So thanks. So first of all, I just want to remind you this is completely in line with our comprehended it totally in the thoughts of 2018 from a net revenue point of view. But when you look at the U. S. Where the switch volume is down, really predominantly it's because of the debit programs and there is a seasonality adjustment. You might remember that we are powering the Social Security benefits with Comerica for the United States. And depending when they get paid, you have a little bit of an uptick in the Q1. Secondly, we are also the provider for H and R Block in terms of tax reimbursements. Of course, in the Q1, especially at the end of the quarter, there's actually quite a bit of an uptick, which you don't expect to continue in the second quarter. So that's for the United States. In terms of the volume outside of the U. S, 18% down to PPT. Look, I mean, this is like if it's 1 or 2 PPT or even 3 PPT here or there, it's little upticks and downticks country by country. I'm not going to go through all of this, but it's just what we see from time to time, quarter over quarter. Thank you. Your next question comes from Don Fandetti with Wells Fargo. Your line is open. Ajay, on the common checkout button, can you talk a little bit about sort of a realistic timeline when you think this could be up and running? And I guess my question is, do you think that this will approach will be a little more successful in terms of merchant penetration? I think my sense is over the years that it's been a little bit of a struggle for the networks on their digital wallets? And then secondly, how important strategically is success here? Clearly, if you look at where volumes are going, e commerce is the future. And can you talk a little bit about that? Sure, Doug. I mean, look, e commerce is definitely growing. And but remember, we participate in e commerce as well through the funding of lots of different wallets and methods of paying over the Internet, whether you pay from a phone or you pay from your computer. So e commerce growing, which typically takes out cash as well and also does take out retail brick and mortar in some ways. It's a good thing as far as we're concerned, it's all about digital payments. So I'm not fussed about that. I remember this, that e commerce at the end of the day is if that's what the consumer wants to do and that's how they want to interact, our job is to make sure the consumer can do that in a safe, safe, in a simple way, in a convenient way, in a way that meets their needs and gives them rewards and incentives and the like to do it. So I'm actually quite sort of inclined to think that that's where a lot of effort will go. And then think about the Internet of Things and digital physical commerce coming together. So all that's important. Therefore, finding a way to also grow in the digital space, not only by relying on other wallet providers, but also giving our issuers a chance to be able to be present on merchants' checkout locations in an appropriate way, in a brand friendly way, in a simple way for consumers is also important. And for merchants, which is to me where this all started from as well, if you go to them with each network or each wallet attempting to create its own way to connect with the merchant, think through what that means, forget big merchants, it's a nuisance for them. Think of the medium and smaller sized ones. It's a nightmare for them. So the right way to do this is the way we did the physical card business, take away the issues of multiple terminals in merchant locations, it becomes impossible, difficult, expensive and inconvenient and make it simple for them with 1 terminal. That's what this is about. It's 1 checkout button and then after that it flows the way it would normally flow with all the offers that we can provide from rewards and incentives and loyalty and security and all those things. So do I believe this is important? I absolutely do, not just for the networks of the banks. I actually think it's really important for merchants and consumers. That's what I'm really focused on and why I'm a big supporter of the single checkout button. I think it's transformative for the industry as a whole, for the ecosystem. I think our job is to execute it well. Now your first question is about timing. I'm sort of my belief is that you've got to do this well. Somewhere over the course of the latter part of this year, you'll begin to see the first aspects of this coming out into the marketplace. You'll probably see a real push in the early part of next year. Remember, merchants have got to gear up for getting into this. Banks have got to gear up for getting into this. Not only the banks have already signed up to network digital wallets, but also how they then offer it seamlessly their customers for online enrollment. There's a whole set of things to be done here if they're going to do it well for the merchant, the consumer and the issuer. That's what we're focused on. And I just want to add one stat to what Ajay has been saying on how important the e commerce business is to us. In this quarter, the e commerce business grew 25%, okay? So it's a very, very large growth. And by the way, these kinds of stats, we have been seeing quarter after quarter, it's either in the lower 20s, mid-20s or high 20s, depending on which quarter you are looking at. So it's obviously a huge focus for us. Your next question comes from Brett Huff with Stephens. Your line is open. Good morning. Thanks for the time and congrats on a nice quarter. Can I dig in a little bit more to on the B2B strategy that you have? It sounds like the incentives are going to be or the investments are going to be accelerated there. Can you just be a little more specific on what specific strands of investment that you're going to accelerate there? Is it more partnerships? Is it more organic building of technology? Can you just be a little more detailed for us? Sure. So that's part of Martina's expense commentary that she was talking about, right? I mean, look, we're taking advantage of 2 things. I want to put it in context. 1 is better revenue growth and 2 is the tax reforms that have allowed us to think in terms of accelerating some of our investments in strategic areas. Commercial B2B is one of them, but there's safety and security, there's everything we're doing at digital and contactless, there's all the work we're doing on expanding acceptance with QR codes and the like. There's the matters of loyalty and rewards. And so there's a bunch of places the money is going into. Commercial and B2B is a very important part of that. Why we called it out in a prior Investor Day. What are we doing? It's not just what we've got already, which is commercial cars, which by the way are going well. And that's somebody asked me a question a little while back and I talked about good commercial growth in the U. S. With Bank of America and Capital One and Citi and elsewhere as well. That's typically inside the traditional card based business, whether it's physical cards or virtual cards. And that basically aims at corporate T and E, at fleet cards, at purchasing cards, at B2B payments with Amadeus and the like. That's one part. That uses things like smart data, it uses and controls those are all. I would say assets of ours that we are continually investing in to keep them state of the art, but they're there. We own them. We have them. What's interesting is we're also seeing interest beyond the typical bank card issuers. So technology providers who embed commercial payment solutions into their software, into their platforms are getting interested in our ability to provide them with a full service suite when they go and sell to small and medium merchants, as well as payment aggregators in verticals like construction and insurance where we haven't had great penetration over the years. Then there's the 3rd aspect, which again somebody asked me about it for the B2B hub and all the work in the accounts payable place. The idea there is to streamline accounts payable, which otherwise has over the years become more and more of a nightmare to most people. There's lots of people you're buying from, lots of people you're paying to, trying to reconcile those 2 together and find a way to ensure that complicated payments are reconciled appropriately and don't leave you with enormous issues at the end of the cycle, as well as providing access to easy credit. That kind of stuff is what the Mastercard B2B Hub can help with. We don't provide the credit, but we can help enable the efficiency of the accounts payable space. And then the last one, which we're actually quite focused on and which shouldn't be the last, but it's just the way I'm talking about it, is actually capturing cross border B2B payments. That's why Mastercard Send and Hold Send on the one hand combined with VocaLink on the other, it's to me the killer app. So today I can go to a bank and go to them and say, I can meet your B2B needs. You want them through ACH and Direct Direct, talk to me. You want them through virtual cards, talk to me. You want them through commercial cards, talk to me. You want them through any aspect, I can help you. And I can help you Mr. Bank and Mr. Medium and Small Merchant by making life easier for you, quicker for you, more efficient, easier to reconcile and streamline. That is our B2B side. That's helpful. And then just any update on the economics of how you see the VocaLink business kind of being deployed, be it more network effects or network economics versus kind of being an arms dealer or a mix? I know that was something you talked about at your last Analyst Day. Thanks. How's dealer? I don't know if I lose that. That's an interesting topic. So here's the deal. I'll shut off and I'll give it to Martina. My view is that VocaLink will go in the marketplace, as I said, once through RFPs where they are actually creating or participating in the infrastructure of fast payments in a country. The U. K. Is where we not only participate in helping the infrastructure, we run it. In other countries, like in the United States, it's our software that's powering the clearinghouse, which is in the process of rolling out its instant ACX systems. Like that, we are the participants that sell in Thailand, that's the example I gave you about that. One where we are more than just software, we're also helping them actually manage their capabilities. We do that in Sweden, we do that in Singapore, we do that in a number of countries. We are participating in RFPs for that kind of work in a number of markets around the world from Latin America to Asia. There's a second aspect, which is to be able to bring our knowledge and capabilities of this to banks as they attempt to make ACH become a bigger part of their payments, but do it in a way that takes it from being a relatively blunt instrument where reconciliation and settlement is happening sometimes one day later, sometimes 2 days later to on time, real time instant. What that changes in terms of the value added services they can provide and therefore find a way to build loyalty with their customer base. That work is another space. We call that fondly the scheme kind of thinking. Then there's a third, which is more application built, which you read about us launching in the UK, a Pay by Bank app, which is an ability for banks to pay at a merchant space and offer their consumer the choice of paying by card or by direct debit, all with some kind of economics and value added services that make sense for the consumer, the merchant and the bank. All that is part of what Voca brings up to. It's a different set of strategies for different markets. This is not going to be one sort of fit of the core for every country. Yes. From an economic point of view, typically when we go to the infrastructure layer, it's either a license fee, that is not a lot of money we always tell to our investors or there is a basic fee for people that are using the infrastructure. Where the money is really going to be made is what Aja referenced to when you run the scheme or when you have an app. And typically, transaction based by pricing, very similar to our core model comes in at that point in time and that's what we're already proving out in the UK with the Pay by Bank app. And then lastly, on top of that, with the services that we're building, and we showed a number of those kind of services in our last Investor Day in September, that is the normal pricing, if it's a data analytics service or if it's a loyalty purpose or if it's a fraud service, that's kind of the normal pricing that we have established already from a core perspective. So those are kind of the 3 layers in terms of what you should be watching out for us to develop. Having said all of this, this will take some time. This is not like returning the key and suddenly you're going to see this all coming in next year. It's going to take us a number of years to really prove the case. And the reason for that is you're dealing with the clearinghouses of different countries. These are not individual 1 on 1 bank to us deals. These are deals where you're going to get either the government or a set of banks that own the clearinghouse together to be able to migrate to fast ACH. There's lots of implications on this, but it makes us the player that can offer choice to a country, to an issuer, to a merchant and to a consumer. And choice is what we're focused on. Your next question comes from Jim Schneider with Goldman Sachs. Your line is open. Thanks for taking my question. Good morning. I was wondering if you can maybe address 2 items on debit. One is, do you think that the it seems like the trends are pretty strong globally. Anything to call out in terms of your debit share from an issuance perspective beyond the things that you noted in terms of Kroger and your confidence that that can improve from here? And then second one relates to the transactions processed on network or switch transactions that seem to step down a little bit. Was that purely an effect due to European mix or was there something else going on there? So first of all, our investment performance is very strong in the United States and in Europe, really in the rest of the world too, but that's kind of the two questions that you asked. In the U. S, as you can see, we're winning some share. When you look at transactions in the U. S, it really depends which quarter you're looking at because the routing of the pin transactions by the merchants can make a difference. And you might remember that we won quite a few of those routing RFPs quite some quarters ago and some of those are lapping, but also merchants make dynamic decisions from time to time. So I don't think you should be reading into that anything from a U. S. Point of view other than that we continue to make good progress. From a European We don't have the PayPal debit deal in the U. S, which will help us. Which will help us because they haven't rolled in, of course, right, at this point in time. And then in Europe, in Europe, I think we have very strong in debit in most countries in Europe. There's only one country where we had a little bit more of an issue, which is the U. K. And as you can see from a number of these announcements that we have been making over the last few quarters as well as what Ajay talked about this morning with Santander, we are really going back into that space and being able to compete effectively. You are not seeing some of those stats yet coming into our actual numbers. It will typically take a 6 to 12 month period for the implementations to happen and for those portfolios to flip over. Last time we talked about credit mutual in France, we got a debit flip there, we've got ING Bank in Italy, I just talked about Banco Baroda. In India, you'll find that our growth rate on debit in India is strong. And over the next couple of quarters, you'll see us talking about the India debit and our share there. With debit, you're aiming at millennials, you're aiming at everyday spend, you're aiming at contactless, which really attacks cash. So you're also obviously aiming at ATM and withdrawals and getting cash out of ATMs. Debit meets all those needs. And so debit is important to us and that's where we are focused on. We're also doing a lot of work on converting some Maestro cards to Mastercard debit because that gives banks and consumers a better capability of using those cards. So there are lots of building blocks to our strategy on debit. The one thing, Jim, I just want to point out because I'm not sure if you're getting confused because of that is, remember, we are excluding the results of Venezuela starting the Q1 of 2018, which in particular impacts transactions. It doesn't really impact volume. And so you're not seeing you're seeing the same kind of 17% growth or so that we had in transactions. But in fact, if you strip that out, okay, then the transaction growth in the 4th quarter was 15% ex Venezuela and in the Q1 that is 17%. So you actually saw an acceleration from a transaction point of view. Very helpful. Thank you. Your next question comes from Jason Kupferberg with Bank of America Merrill Lynch. Your line is open. Hey, thanks guys. I was just wondering if you could give us some rough sizing on your China outbound business as a percent of total cross border. I mean, we just continue to get some questions around the expanded acceptances. Alipay and WeChat Pay, I know we've talked about this a little bit in the past. But as the acceptance footprint in the U. S. And other Western countries expands and more Chinese citizens traveling in the West potentially use some of those services? I mean is this something that's significant enough to ultimately move the needle on those outbound China cross border volumes? Is it too small to really matter? Just any context there would be helpful. I'm going to start and then probably Ajay is going to add some comments on it. First of all, we are seeing from a cross border volume growth point of view, so out buying China high single digits, okay? And that's what we saw in the last quarter and then kind of went around that for the last few quarters. The Alipay, the 10 ks, that's not a big impact at this point in time. What is much more of an impact, what happened in China last year in terms of that dual branded cards were actually not allowed to be issued or banks took the PBOC guidance not to issue dual banded cards. And that got changed some quarters ago where the banks were willing to again go into the dual brand card business. And dual branded cards, as you know, both have a cup logo, which the card is being used domestically as well as Mastercard logo on it where the card is being used cross border. And that actually did impact our growth when they were cut off and it does impact our growth positively as they're starting to come back into the market. In the meantime, we have issued quite a few what's called single branded cards. So these are just Mastercards. There is no domestic logo on it. And those single branded cards are used by customers only in the cross border context. As you can appreciate, those cards have to work the way up to top of wallet, right? Because the consumer is not a Chinese consumer, is not going to be able to use it daily in China, but we're going to have to make sure that they pull out that card overseas and there are lots of loyalty programs and other things that we're doing actually with our issuers. But those cards also carry less spend than the dual branded cards because they're less top of wallet. That was much more of an impact than what you saw from the case. The only thing I'd add to that is that you've got to realize that I think China is an interesting market going forward. But today, in our total numbers, it's a relatively small part what Mastercard is. So yes, some of the cross border from China goes one way or the other, one quarter is up, one quarter is down. It's interesting, but it doesn't transform our lives. Yes, out some period of time, some years, depending on how the strategy in China plays out, I believe there's a really interesting opportunity for our company there. And we are deeply thinking our way through that. And that's what our focus is. That by the way includes our ability to operate for domestic processing in China, which, as you know, we've got our own effort to apply to get the ability to get a domestic processing license. We went in there with a joint venture structure, constructed in a way that brings a lot of local expertise with us into the system, but enables us to offer value added services from our technology overseas as well. So it's a very nice balance of allowing local business people to be helpful to our company, while also helping us add value from our global construct and services. We're obviously waiting for clarity from the Chinese government and talking to them regularly. Clearly, the U. S.-China trade circumstances will help or impede some of that movement. But I don't measure this in 3 months 6 months. I've measured this over a few years. I've been here 9 years. I've been working on this topic for 9 years. So this is not going to change in a bit. Meanwhile, Alipay and Tenpia are actually partners of ours in a number of ways. So I have a lot of respect for them. I admire their capability. I think we can do a lot together with them as well. There is a change on the ground in China as well with the regulator and the government beginning to put a more constructive playing field around what banks are doing and what digital players are doing. And I think you should kind of go and study that a little bit to get a sense of this isn't going forward what it was looking back. It's just there's a whole new landscape working out in China. And we believe that there's opportunity for us as well as others in what's a very large marketplace. Operator, I think we have time for one last question. And your final question comes from the line of Tien Tsin Huang with JPMorgan. Your line is open. Thank you. Thank you. Good morning. Good morning. Hi. Good morning. Good stuff. I don't have a lot of stuff. Just want to ask on the regulation side because we've been getting this question. Just on the euro cross border and dynamic currency conversion proposals, any implications for Mastercard? Not really. I think the implication is always in the sense we're going to help get it implemented, But I actually think it's consumer friendly. And so if we do it the right way, it actually helps consumers understand what they're paying, when they're paying and how much they're paying. So I don't think it's implications there to get it done, but it's probably the right thing to do. Okay. Good there. Then just one quick one just on the services side, it sounds like very strong growth there. I'm curious given all the focus and sensitivity on data sharing, does this change in any way your thinking on monetizing analytics and info services and things of that nature? No. In fact, Tien Tsin, I believe that we can set a bar on how GDPR kind of rules get implemented in different parts of the world. We are very good with the GDPR work in Europe. We are not really ready with our work, we're creating a commercial opportunity or what most people think is a cost. And we believe if you do it the right way, you can still protect consumer privacy, you can still protect their interests as you and I want our interest provided, but still provide you with good value added services that include your ability to choose how your data is shared. I don't see that as conflicting. Remember that the majority of what we see as data today is essentially not consumer specific. The overwhelming majority is only your card number, the dollar value or the euro value, the time of the transaction and the merchant code. So I don't think that's changed. All right, great. Is there any final questions or any comments? Okay. So thank you all for your question. I'm going to wrap up with some closing thoughts. We are off to a very good start of the year with record revenue and earnings growth this quarter. Martina actually has willingly raised our expectations for the year as well, which is a first. We're pleased with our deal momentum with wins like Santander in Europe and that leverages our differentiated servicing service offerings. That's what Tingent is also getting at just now. And to advance our digital strategy, we are executing and delivering the best digital experience across all channels, all devices in both developed and emerging markets. So we believe that our investments in these and other key areas will continue to position us really well for long term growth. And so with that, thank you for your support of the company. Thank you for joining us today. This concludes today's conference call. You may now disconnect.