Okay.
Here we go.
Good morning. My name is Carol, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Fourth Quarter Full Year 2016 earnings conference 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. If you would like to ask a question at that time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the pound key. I would now like to turn the call over to Warren Kneeshaw, Head of Investor Relations. Sir, you may begin.
Thank you, Carol. Good morning, everyone, and thank you for joining us for our fourth quarter 2016 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&A session. It is only then that the queue will open to accept registrations. You can access our earnings release and the slide deck that accompany this call in the investor relations section of our website, mastercard.com. Additionally, the release was filed 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.
As a reminder, as we initiated last quarter, we've also added a table at the end of both documents, which provide additional information about the impact of Article 8 of the EU's recent payment regulation on our GDV and purchase volume growth rates. Our comments on the call will be on the basis of rates adjusted for these impacts. In addition, we are introducing a new name for what we previously referred to as processed transactions. Going forward, we will now refer to these as switched transactions. Our methodology for calculating this metric has not changed. We're simply changing the name to more explicitly align with the information provided, that is transaction counts that Mastercard has authorized, cleared, or settled, or in other words, switched. This is distinct from transactions where we provided value-added processing services such as issuer or acquiring solutions which extend our capabilities beyond switching.
There is no change to our nomenclature for transaction processing fees as these include switching fees, connectivity fees, as well as other processing fees. Finally, as set forth in more detail in today's earnings release, I'd 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 press release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I'll now turn the call over to our President and Chief Executive Officer, Ajay Banga. Ajay.
Thank you, Warren, good morning, everybody. This is Warren's first call, as you noticed in his first call, he's made the first change of changing nomenclature from process to switch. Welcome to the list. Our business continues to perform well. We're very pleased to have delivered a strong result for the year, driven by solid execution of our strategy. For the quarter, our net revenue growth was 10%, EPS growth 7% or 31% EPS when you normalize for taxes. What those numbers mean for the full year of 2016 is we saw net revenue growth of 13% and EPS growth of 11% or 19% when normalized for taxes. We continue to see bright spots as well as some areas of concern in the global economy. In the U.S., post-election optimism remains relatively high. Consumer confidence, unemployment, wages, all seem to be holding steady.
It's still too early to tell what impact any new policy proposals might have on the U.S. or other economies. Like all of you, we're expecting to see initiatives around taxation, regulation, infrastructure spending, and trade. In fact, on regulation, you've all seen the recent executive order talking about taking out two regulations for every one proposed. Turning to Europe, the economic recovery has persisted in many markets throughout the prior year, throughout 2016, led by Germany. The prospects for this coming year of 2017 seem encouraging as economic sentiment and unemployment continue to improve. The U.K. appears to be stable. We're seeing continued growth in travel to the country as a result of the weaker pound, and it's going to take a few years, obviously, to work through the specifics of how Brexit is implemented.
We remain watchful of the implications of that on the U.K. and broadly on the EU. In Asia, we remain cautious, largely as a result of the prolonged slowdown in China. In India, the government has recently implemented a plan to address its parallel economy and to help drive the shift from cash to electronic forms of payment. Given the heavy reliance on cash in that economy, this is expected to soften consumer spending in the short term, but could well fuel economic growth and modernize the payment system in the long term. In Australia, both consumer and business confidence remain weak. While Brazil's economy appears to be emerging slowly from a deeper recession, the road to recovery for Brazil is expected to be long as there is still political uncertainty.
With that as the backdrop, what are we doing is to continue to focus on executing our strategy and growing our business. We are seeing double-digit volume and transaction growth across most of our markets. We're continuing to win deals by leveraging our service offerings. On the legal front, we received positive news yesterday regarding the judgment on our case with 10 retailers in the U.K., representing approximately 40% of our existing damages exposure. We're delighted that the U.K. court found that Mastercard's interchange fees do not restrict competition and actually are necessary for the functioning of the payment system. Finally, on the legal side still, let me provide you with a brief update about our planned acquisition of VocaLink. We've been working with the U.K. competition regulator to secure approval of the transaction.
What we're really pleased is that they have accepted, in principle, our proposed solution to address their one concern regarding the LINK ATM scheme. We're now looking forward to working with the regulator for final approval of that solution. We expect to close the transaction sometime in the spring of 2017. Now, let's move on to a few highlights from 2016 and some of our recent business activity. Overall, 2016 was a year that had its economic and regulatory challenges, but I think we've navigated those successfully while putting significant points on the board as a result of our investments in digital, in safety and security, in data analytics, loyalty, and processing. This last quarter, we've continued our momentum in the U.S.
Pleased to have renewed a number of deals, including SunTrust Bank for their credit, debit, and commercial business, which by the way includes the labs as a service to help drive their innovation agenda, as well as the First National Bank of Omaha, one of the largest private banks in the U.S., for their credit and commercial portfolios. In addition, we've given you several examples in the past as to how we've been extending our capabilities beyond switching into processing, back to Warren's clarification, enabling us to drive more deals and touch more transactions. This quarter, we have renewed agreements with USAA for debit card processing services and with Jack Henry & Associates to provide processing solutions for credit, debit, and commercial to their more than 10,000 clients. Outside of the U.S., we're continuing to make significant progress as well.
In Europe, I'm just giving you a few examples by the way. In Europe, we signed Amazon for their credit co-brand business in the U.K., renewed our debit agreement with ABN AMRO, one of the largest banks in the Netherlands. In Latin America, we signed a new deal with Caixa in Brazil for credit and debit, which also includes advisor services. Additionally, we renewed agreements with Bancolombia for credit and debit with a focus on affluent, as well as with Santander in Mexico for credit, debit, and commercial, and a flip of their commercial business in Brazil. While in Asia, we renewed our agreement with the Commonwealth Bank of Australia, the largest bank in that country. Finally, while discussing these, let me touch on the domestic opportunity for China.
We're continuing to speak with the regulators there to better understand the entry requirements and to clarify our options on how best to approach that market. In the meanwhile, what we're doing is focusing on driving single-branded card issuance. We're pleased to add Bank of China this quarter, bringing the total number of programs for single-branded card issuance launched in 2016 to 44, with more than 10 banks. All of these are aimed at driving cross-border spend with the country's growing affluent segment. Let me move on to digital. We've often said that this is a marathon, not a sprint. I believe we are executing well against our strategy and have made some good progress in 2016. Starting with Masterpass, where we continue to focus on driving both user adoption and acceptance.
We've talked to you about our digital-by-default strategy, which basically enables issuers to auto-enroll cardholders through their online banking app and helps to drive scale, but at the same time keeps the issuer at the center of their consumer relationship. We're pleased to have achieved our stated goal of enabling 80 million accounts by the end of 2016. The services are being rolled out globally with several banks, including Bank of America, Capital One, Citi, Nordea, and the Commonwealth Bank of Australia, with a healthy pipeline to build on this momentum in 2017. We've also added five new Masterpass markets in 2016, bringing the total to 34. Last year, Masterpass became the first digital payment service to work across all devices and channels, which helped drive acceptance and enabled consumers to shop online, in-store, or in-app using a bank-branded offering from the issuer of their choice.
From an acceptance standpoint, we've added roughly 80,000 new merchants, bringing the total to about 340,000 for online and in-app purchases, as well as more than 6 million locations in about 80 countries that allow contactless payments. This quarter, we're pleased to announce partnerships with Dunkin' Donuts, Walgreens, Gulf Oil, Wyndham Hotels, and so on. Last quarter, we highlighted our agreement with the Ecobank Group to roll out Masterpass QR as the mobile person-to-merchant service across 33 African countries. This quarter, we're building on that momentum. We've partnered with SnapScan, a mobile QR-based payment solution backed by Standard Bank in South Africa, as well as with the government of India and RBL Bank to add a combined 40,000 merchants who will now be able to accept secure digital payments quickly and without the expense of a traditional POS terminal. Let me move on to Mastercard Send.
This past year, we highlighted our partnership with Green Dot and Uber, Stripe and Lyft, as well as Allstate, and how they are using the platform to make convenient and secure payments to drivers, delivery people, and claimants, among others. This quarter, we added Wells Fargo Bank, who will leverage Mastercard Send for their treasury and merchant services customers. Let's keep going a little bit with partnerships in digital. This past year, we helped Apple Pay, Android Pay, Samsung Pay, and Microsoft Wallet to expand to several new countries. We've added Spain, Ireland, Poland, Russia, and Hong Kong, bringing the total to 17 markets around the globe where consumers can use one or more of these services.
We've also enabled several of them to allow their consumers to shop online, in-app, and check out using their same MDES tokenized login credentials at the hundreds of thousands of merchants around the world where Masterpass is accepted. By doing that, obviously, this also benefited our merchant partners as they did not have to do any additional development work to support these services. Finally, as part of the innovation agenda, we've been looking at ways to combine digital payments with artificial intelligence to create better and more personalized experiences for consumers. To give you an example, this past year, we launched an AI bot platform which simulates a human interaction and enables consumers to buy products via messaging platforms like Facebook Messenger and check out using Masterpass.
Building on that theme of AI, we've also launched Decision Intelligence, one of our safety and security products, which uses machine learning to score transactions based on an individualized risk profile in order to reduce false declines, while at the same time mitigating potential fraud. That brings me to services. Remember, our focus on services is on delivering capabilities that connect right back to our core business, providing great value and competitive differentiation to our clients while giving us an incremental revenue stream. I think we've made significant progress in this area in the prior year, let me quickly run through a few examples. Starting with safety and security, which has been a key area of focus for us this past year.
We've continued the rollout of our leading biometric authentication product, Identity Check, fondly known as Selfie Pay, to 16 markets around the world, in addition to the launch of Decision Intelligence, which I just mentioned. On the data analytics front, since the acquisition of APT, we've integrated the sales and product organizations at APT with advisors to drive significant benefits. We've added more than 60 organizations who have subscribed to the APT platform in recurring subscription-based contracts. In addition to McDonald's, which we mentioned in the past, we got JCPenney and Duracell in the U.S., Asahi Breweries in Japan, Thomas Cook in the U.K. In fact, there were 28 deals in total that were additive to APT's business-as-usual efforts. With assets like these, we not only deliver great insights, we're actually building even stronger relationships with our merchant partners as well.
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. Good morning, everyone. Starting on page three, you will see we have delivered another strong quarter. Overall, the results were in line with our expectations. However, as reported, net revenues were impacted by the stronger U.S. dollar versus our assumptions when we talked last to you in November. The figures on this chart exclude the impact of a special item. Here are a few highlights. Unless otherwise stated, the growth numbers I call out will be on a currency-neutral basis. Net revenue growth was 10%, and operating expenses declined by 1%. This resulted in strong operating income growth of 23%. EPS was $0.86, up 7% year-over-year, driven primarily by our strong operating performance. Share repurchases contributed $0.03 per share. As a reminder, the tax rate was much lower in the year-ago quarter, primarily due to discrete tax benefits in 2015.
When you normalize for that in both periods, Ajay already told you that the EPS growth was 31% for the quarter. Lastly, cash flow from operations was $1 billion. Let me turn to page four, where you can see the operational metrics for the fourth quarter. Worldwide gross dollar volume or GDV growth was 9% on a local currency basis, down 2 PPT from last quarter, primarily driven by the roll-off of one agreement in the U.S. and lower cash volume in India. As a result of the government's initiatives in India that Ajay already mentioned, ATM cash withdrawals in the short term have declined more than the growth that we saw in purchase volumes. However, purchase volumes in India was up significantly, 75% year-over-year. Over time, these volumes are expected to continue to ramp as acceptance grows.
U.S. GDV grew 3%, made up of credit and debit growth of 4% and 1%, respectively. Outside of the U.S., volume growth was 11%. Cross-border volume grew 13% on a local currency basis, up one PPT from the 12% we saw in the third quarter. Turning to page five, switched transactions grew 17% globally to 15.2 billion, with double-digit growth in all regions other than the U.S. Globally, there are 2.3 billion Mastercard and Maestro branded cards issued. Let me turn to page six for highlights on a few of the revenue line items, again described on a currency-neutral basis unless otherwise noted. Net revenue growth was 10%, driven by an increase in switched transactions, domestic and cross-border volume, as well as the utilization of our services offerings. Rebates and incentives grew 21%, reflecting higher volumes and increased incentives for new and renewed deals.
Looking quickly at the individual line items for revenue. Domestic assessments grew 7%, while worldwide GDV grew 9%, the difference being primarily due to unfavorable mix. Cross-border volume fees grew 10%, while cross-border volume grew 13%. The three PPT gap is mostly due to higher intra-Europe growth. Transaction processing fees grew 17%, in line with the 17% growth we saw in switched transactions. Finally, other revenue grew 20%, driven primarily by advisors in our safety and security services. On page seven, you can see that expenses remained generally steady in each subcategory. Excluding the special item, total operating expenses declined 1% on a currency-neutral basis, with ongoing cost management activities offsetting our continued investments in strategic initiatives.
I'm going to turn now to slide eight, let's discuss what we have seen in January through the 28th, where most of our drivers are slightly better when compared to Q4. The numbers through January 28 are as follows. Starting with switched volume, we saw a global growth of 10%. That's similar to the 10% growth we saw in the fourth quarter, with double-digit growth in each region outside the U.S. In the U.S., switched volume grew 3%, down less than one PPT from the fourth quarter, with higher growth in credit programs but lower growth in debit programs. GAS had slightly less than a one PPT positive impact to our January growth. Switched volume outside the U.S. grew 18%, up one PPT from the fourth quarter, with higher growth in each region.
Globally, switched transactions growth was 19%, up two PPT from what we saw in the fourth quarter, primarily due to growth in India, Brazil, Venezuela, and Russia. Switched transaction growth outside the U.S. was up three PPT, while the U.S. growth was similar to Q4. With respect to cross-border, volumes grew 14% globally, slightly higher than the fourth quarter. Turning to our performance objectives for 2016 to 2018, we continue to expect to grow net revenue CAGR at a low double-digit rate, deliver an operating margin of at least 50% in each year, and drive an EPS CAGR in the mid-teens. As a reminder, these objectives are on a currency-neutral basis, exclude special items and M&A, and are normalized for tax.
We are off to a solid start in 2016 as we delivered net revenue growth of 13%, exceeded our minimum operating margin target, and grew EPS by 19%, using normalized tax rates for 2015 and 2016. As is our historical practice, we will update you on our longer-term expectations at our annual investor community meeting. Turning to 2017, we expect the global economic outlook to be similar to what we saw last year, we expect foreign exchange to remain a headwind to our business. However, our underlying business fundamentals remain strong, with a number of factors driving revenue, including growth in our core business, driven by a mix of new deals, renewed agreements, and the expansion of our differentiated service offerings. We expect net revenue to grow at a low double-digit rate on a currency-neutral basis, consistent with our three-year performance objective.
When you model on an as-reported basis, adjusting for the FX impact of all currencies, we estimate there would be a headwind of a little more than two PPT to net revenue growth and three PPT to the bottom line, given the current strength in the dollar relative to the euro and the British pound in particular. Our plans assume continued strengthening of the U.S. dollar to about $1.05 to the euro. From a sensitivity standpoint, a one-cent change in the value of the U.S. dollar relative to the euro is expected to have just a $30 million annual impact to revenue, considering both transactional and translational foreign exchange effects. We expect net revenue growth in the first half of the year to be lower than the second half of the year due to higher incentives for new and renewed agreements and the roll-off of one agreement.
For 2017, let me call out several things that you should also consider. For rebates and incentives on an as-reported basis, we currently expect to see about the same 20% growth that we saw in 2016, reflecting the impact of volume growth and deal activity. On expenses, let me just give you a couple of comments there. In 2017, we're continuing to invest in key long-term growth areas such as digital, including Masterpass and MDES, safety and security, and investing in geographic expansion. Through our ongoing cost management efforts, we expect year-over-year operating expenses to grow in the high single-digit range on a currency-neutral basis. We expect for an exchange, we'll have about a one PPT benefit to as-reported operating expenses for the year.
Also of note, we are accelerating our advertising and marketing spend into the first half of the year to support the rollout of Masterpass. In particular, first quarter A&M spend will be up by about $40 million versus the year-ago quarter. In the other income and expense line, interest expense related to the additional debt we issued in November adds approximately $15 million to our normal underlying run rate of roughly $25 million per quarter. Finally, you should assume a tax rate of 28%-29%. Let me turn to Bryan to begin the Q&A session.
Thanks, Martina. We are now ready to begin the question and answer session. In order to get to as many people as possible, we ask that you limit yourself to a single question. Operator?
Thank you. Our first question this morning comes from Bryan Keane from Deutsche Bank. Please go ahead, your line is open.
Hi, it's Bryan Keane. Just wanted to talk about rebates and incentives. It looks like it's going to be up 20% again for the second year in a row. It seems like we have a more consistent pattern. Can you just talk a little bit about that line item versus incentives and renewals and pricing? We always get a lot of questions about the growth there. Thanks.
Sure, Bryan, and good morning. Really no change from 2016. As you know, back in late 2014 and early 2015, we actually had renewed a couple of agreements that were for a very long term. One was 10 years, and one was actually 20 years. At that point in time, you actually saw the rebates and incentive growth coming up a little bit more because a number of the items that we had in the incentive line had to be amortized in the early part of the term of the agreement rather than in the later part of the agreement. At that point in time, I said that that would be with us for a number of years. 2017 happens to be still a year where we're seeing that.
In addition, when you put the volume growth that we are actually expecting for the year, when you put all of that together, that will drive the roughly 20% growth in rebates incentives versus 2016.
Okay, thanks so much.
Next question, please.
Your next question comes from Jim Schneider from Goldman Sachs. Please go ahead, your line is open.
Good morning. Thanks for taking my question. I was wondering if you could maybe talk a little bit about the impact of any potential pricing actions you've already taken that are going to impact the 2017 revenue guidance and anything you might be contemplating that's going to roll in and affect the full year.
Jim, actually there's fairly little impact from pricing actions in our 2017 numbers. As you know, we really look at pricing from a long-term perspective. It has to be strategic. We are doing that every year, depending where the market environments are. For 2017, there's relatively little comprehended.
Next question, please.
Our next question comes from Don Fandetti from Citigroup. Please go ahead, your line is open.
Yes, good morning. Ajay, your guidance for 2017 still has pretty attractive low double-digits net revenue growth. As we look around the world and we see a lot more direct-out-of-bank-account-type payments from Alipay and we see what's going on in the U.S., are you still as constructive on a secular growth opportunity as you have been?
Yes, I absolutely am. Remember that in the retail business alone, the consumer-to-retail payments, 85% of the world's retail payments are still cash and check. There's a lot of opportunity there, first. Second, there's the whole commercial space that's got a great deal of opportunity that we've been assiduously building on. Third, we've got our services revenue. Fourth, we're actually beginning to participate in the direct-to-bank account payments once the VocaLink acquisition is complete. To me, we're building the right portfolio to take on the opportunities that this secular growth represents over the next decade, not just one or two years.
Yes, thank you.
Next question, please.
Your next question comes from Jason Kupferberg from Jefferies. Please go ahead, your line is open.
Good morning. Thanks, guys. Just thinking about the three-year performance objectives, we're still talking about the mid-teens kind of EPS growth in constant currency. You did 19% on this as adjusted basis in 2016, I guess there's some implied deceleration in 2017 and 2018, unless the guidance proves to be a little bit conservative. Can you just remind us what would potentially drive that? Is it just expense timing or other factors?
Look, Jason Kupferberg, we are only one year into our three-year performance period. At this point in time, we are not yet refreshing our performance objectives. Typically, as you know, we're doing that in September at our investor meeting. We believe it's too early. You see that we're thinking that we are going to put really good points on the board for 2017, and I don't think you should be reading into anything for 2018.
Thank you.
Your next question comes from Tien-tsin Huang from JP Morgan. Please go ahead. Your line is open.
Thanks. Good morning, Ajay. I want to put you on the spot and ask for your thoughts on how some of Trump's initiatives might impact Mastercard's business, like cross-border activity or thoughts on deregulation in Durbin and whatnot. Thanks.
Who allowed you to ask that question, Tien-tsin?
I don't know. I figured just for giggles and fun. Everything looked clean. Let's ask you a tough one.
It's nice to hear from you. I think that it's early days to talk in great depth about what all could happen. I'll tell you my views that are on the positive side of this. You can see, obviously, through the news that there are people who are concerned as well about the negative side of it. The positive side of it to me, his regulatory announcement, the fact that he seems genuinely concerned about the manner in which regulations enacted are creating millstones for business, both small and large, to grow in the U.S. I think that's pretty clear. He is definitely committed to helping make it easier for businesses to open, operate, and run profitably in the system.
Now, what that means specifically for a company like ours or for merchants or for banks who are in our ecosystem, I don't yet know, because you will only get to know that over a period of time. My general belief is that certainly it'll help both of the other parties, the merchants and the banks in the ecosystem in different ways. They'll end up winning on some and losing on some. I just don't know which ones will go where. I do know that in an environment which talks about regulation being something you need to watch carefully so that you enact the right kind of regulation, but you don't stifle innovation and growth, that could lead to definitely a constructive view. That's kind of where I'm coming from. I don't yet know specifically how it'll impact our company or those in our immediate ecosystem.
I do believe that in the space of infrastructure, there will be some form of investment or the other, funded in some form or the other into infrastructure, both physical and digital in our country. I believe that'll only increase the velocity of money in the country. That'll be helpful for a company like ours, both in retail and commercial payments. I look forward actually to that, both as a direct impact on our company, but also frankly, traveling the way I do and the way most of you do, the infrastructure in our country could do with the benefit of a sustained investment program, both in physical and digital. I think that's important. The aspects of taxes. There's all kinds of discussions floating around about what kind of tax rate. I'm talking corporate taxes right now.
What kind of corporate tax rates could come to if it comes down from the current level that we are paying, which is, as Martina told you, 28%, 29%. If it comes down to anything below that, you should expect us as a company to benefit from it directly to the bottom line. There's rumors that it'll go to 20% or 25%. You can put your own probability factor on which one. I think there's lots of things to be worked out about how you pay for that reduction in taxes and what impact that has. Border taxes, adjustments of import and export circumstances, all of these have implications for us as a company.
Mostly, we are a net exporter of service rather than a net importer of service as a company because of the fact that so much of our back office and our technology and our product development has historically been developed in the U.S. with U.S. IP. We do have a lot overseas. We do have stuff in Asia, we do have stuff in Dublin and Europe, but net, I think you would find us to be a net exporter rather than a net importer. I guess on all those aspects, from taxes to regulatory to infrastructure, I can find ourselves finding this to be net positive for our company over the next four to five years.
Great. I appreciate that.
The aspects of trade, Tien-tsin. As you know, my normal approach to trade is that I continue to believe that the U.S. is way too large a marketplace for companies and businesses to feel that they shouldn't be involved with having on-soil presence and on-soil activity and frequent travel in and out by business executives alike. I consider the U.S. to be too attractive for that to change dramatically. I do believe, like everybody else, that in the corporate world, that a lot of us have built our business on the freer flow of cross-border trade, data, and people. If that were to change over time, that would be a problem. I don't believe that that's what the administration wants to do, they want to grow the economy. The economy is not going to grow without the right inputs in the right places.
It may change specifics of the way trade gets enacted, but I continue to be relatively bullish on where this economy could go over the next four to five years.
Good. Thank you.
You're welcome.
Your next
Don't ask questions again, man.
Your next question comes from Sanjay Sakhrani from KBW. Please go ahead. Your line is open.
Thanks. Good morning. I guess, Ajay, I want to talk about the European market. I think I heard you say you guys won the Amazon co-brand relationship. Just maybe you could talk broadly about the competitive environment with Visa in that market in a broader way, as well as PSD2, and then lapping the interchange changes as well. Thanks.
Sure. The interchange changes have already gone in, as you know, some time back, and so have all the other rules that went with it, including the co-badging, and that is why there is Article 8 and Article 7 implications that are all baked into our earnings calls for the last two, three quarters. First of all, actually, we are beginning to see an expansion and acceptance for sure across the EU, probably facilitated by the lower interchange rates that merchants who earlier were reluctant to accept electronic payments are now willing to do so. That is for sure. That is a good thing. There is obviously an impact on bank P&Ls caused by the lower interchange rates. Every bank, as you know, is working on other ways to find ways to get to their P&L again.
That includes fees, that includes services, that includes alternative products, that includes an emphasis on commercial in some cases. There is a whole series of actions that banks in different countries across Europe have been taking to try and find a way to put some energy back into their P&L. My sense on the other aspects, PSD2, as you know, it is still two or three years away from fully being implemented. 2018 is when it starts hitting the road, but there is a lot of energy and a lot of passion going into preparing for it.
I actually believe that VocaLink could play a very instrumental role for banks in the EU to help them actually find a way to navigate through PSD2 and to maintain scheme-like look and feel to the ability to create payments in a way that they can manage through their customer relationships and their chargebacks and their fraud management and the like. I believe that to be an essential part of our strategy for Europe. On the Visa Europe competitive environment, honestly, it is still very early days. They have just about closed. As you know, they are going through their own adjustments across the world on catering for that acquisition.
We are in the marketplace looking at what anything happens in the market on either pricing, in which case we may have some opportunity or on volume growth and share growth, which we continue to pursue, and we are continuing to win some deals in Europe. It is kind of early days. We are in the game. We are looking at everything. We will see how it goes.
Let me just add something. As you know, economic growth in Europe is generally much lower than what we're seeing here in the U.S. When you actually look at our numbers in terms of we are producing high double-digit growth both in volume and in transactions in Europe, right? Close to 20% for each of those numbers. There are really two factors that fuel that growth. One is secular trend. A lot of parts in Europe outside of the U.K. are still using a lot of cash. Secondly, the market share gains that Ajay has been referring to, that Javier, our President and his team, has been able to gain over many, many years. We don't really expect to see much changes to that. We think that we continue to grow in that way going forward for a number of years to come.
Thank you.
Next question, please.
Your next question comes from Andrew Jeffrey from SunTrust. Please go ahead. Your line is open.
Hi. Good morning. Thanks for taking the question. Martina, I think you mentioned that at least quarter to date in the U.S. you're seeing faster relative credit growth, volume growth. Can you just speak to whether or not you think that's cyclical or if there's a change in consumer behavior or if it's simply transitory?
Andrew, I think it would be hard on four weeks to be really figuring out what is going on. There we saw a little bit of a decline in the fourth quarter. Now we're seeing a little bit of a snapback. I can't really point that to a consumer story or to another story. I think it's just a typical trend at this point in time.
Okay, thanks.
Your next question comes from Jamie Friedman from Susquehanna. Please go ahead. Your line is open.
I wanted to ask again about the now famous commentary and slide from the September 7th investment community meeting, the one about services. Martina, in that one, you disclosed services as a percentage of total revenue and the margin trajectory. I know, Ajay, you called out some of the trends that you're seeing on the security side. What is your forward expectation on services? Do you think the future growth will parallel that we've seen in the recent past?
I continue to believe that the entire services space, remember, there's a set of different businesses inside it. There's team security, there's advisors in the consulting business. There's the information services and data analytical space. There's the space of loyalty and rewards. There's processing, which actually allows us to get a role to play in many of the other services we want to be participating in. They've all got different growth rates and trajectories. Safety and security happens to be one of the fastest-growing, along with information and data analytics. That's because they, one, they're intertwined, but two, that's a very important topic right now for consumers, merchants, and banks.
I believe we have cutting-edge products that are differentiated and are capable of helping institutions across the world plug in and help them manage potential fraud while work on declines, and so help them really maximize their P&L in attractive ways when they're looking for revenue. I continue to believe those two will be very attractive growth areas over the next five to 10 years. Processing grows when we win deals, but processing and when we get into more footprints. Processing tends to be a very local business. It has some global transferability, but it tends to be quite local. Therefore, it tends to have also a different margin profile than safety and security and information analytics because local means you're going to build locally, and that creates its own expense profile.
We also tend to make more money out of the transactions we see rather than in the processing business itself. It tends to be an input into deal-winning rather than part of the revenue cycle as much as the others. The loyalty business is actually very interesting. We started with a relatively good platform in Mastercard Rewards. We've added to it over the years with merchant-funded rewards by buying into Truaxis in California and then buying into Pinpoint in Australia. We're actually getting some nice wins in that space, and we continue to believe that the loyalty and rewards space will be a good growth area and a good sticky area with our customers. Do I see this as being a relatively attractive growth area, a faster percentage of growth than our core business? Probably, because it's off a smaller base as well.
Do I see this changing dramatically over the next couple of years? No. Beyond that, we'll see. This is a live area. We're investing in it both organically and inorganically. It's kind of a live growing segment for us.
Jamie, interesting that you're referring to the now-famous charts. I think I have not heard that term that way, just to leverage off Ajay's comments, we have really not changed our story on this. We are very encouraged in what we have seen in the rest part of the year since September. You know it's about 25% of our total revenues. That has not changed in a material manner. You know that excluding acquisitions, the growth was roughly 14% for those kind of services. We believe that these services can continue to deliver great growth. As we're scaling those services, we will be able to expand some of the margins on those services. Again, that was on the chart.
The story hasn't changed, we believe that in 2017, some of the thoughts that I put down for you, it does include exactly that kind of growth trajectory. By the way, I have to correct one number. It said 14% organic growth. It's 18% organic growth that we actually saw we talked in September.
Fascinating. Thank you.
Your next question comes from David Koning from Baird. Please go ahead. Your line is open.
Hey, guys. Thanks. I guess my main question, I guess transaction and other both grew about 20%, those two segments last year, you kind of answered that other will continue to grow pretty fast. Assessments and cross-border both grew more like 8%-11%. Is that sort of mix that those two faster growth segments will continue to be transaction, other, and then assessments and cross-border continue to be a little on the slower side of your total company growth?
I think that is a trend that we have been seeing now a number of times, there's a number of things happening. First of all, when you look outside of the U.S., we have been growing in a number of countries such as India, Brazil, and Russia, et cetera, where you're typically seeing a lower volume coming per transaction, but more transactions. In the U.S., as you might remember from last year, which also helped us in the fourth quarter, we saw more PIN transactions because of the number of deals that we have been doing. Again, that adds to the transactions. You don't really see that showing up in as big of a mover, needle mover on the volume side.
Those PIN transactions move up and down. As we've told you a few times, there's months and quarters when they're growing faster. That tends to be a more, it's almost a weekly and daily issue that we deal with. If you're talking about generally long-term trends, you should expect that the two will grow faster than the other two. The fact is that even at 8% or 10%, core payment transaction growth of 8% or 10% is attractive. That reflects the secular change as well as all the day-to-day activities that Martina just referred to.
Great. Thank you.
Your next question comes from James Faucette from Morgan Stanley. Please go ahead. Your line is open.
Great. Thank you very much. I wanted to ask a question maybe for Ajay and Martina combined around the opportunity to support some of the other new payment schemes that are emerging in different countries around the world, including RuPay, et cetera. I know you've touched a little bit in the past about the opportunity to provide services to some of these new payment schemes. Can you just expound on that as to how you think about that opportunity set and how important those new partnerships could be to continuing to drive services growth? Thank you very much.
There have been for years in the industry, these alternative payment schemes to the global networks. In fact, I used to say that our competition is not just the global networks, and of course, it's not just cash that we've been talking about for a while, but it's also these local payment schemes country by country. Europe had a number of them. Mexico has them. Canada has them. Australia has them. Russia now has it post the sanctions and the Crimean circumstances. India has launched RuPay and UPI. China's always had one called China UnionPay, which most people know lots about. In every marketplace, there have been these schemes. These schemes are either owned by the local banks or by governments in some cases. So CUP is owned by the Chinese government, whereas a lot of the other schemes are owned by local banks associations.
Cartes Bancaires in France, for example, is owned by the French banks. They play different roles. They play roles where they will look at all the debit transactions locally. Others, like CUP, all domestic transactions are mandated to go through them, and so on. There's a whole range of these. What we've been trying to do is to go back into marketplaces where we believe that the existence of these schemes is, one, either creating an imbalance in the market or holding back growth and attempt to either work with the government or the banks to find ways to either partner with those schemes or find ways to change the laws around those schemes so that you can have a more open marketplace, which should benefit merchants and should benefit banks and should benefit consumers. We've had different degrees of success over the years.
The European Union, as you know, through its directives over the years on PSD2.
SEPA.
SEPA. I get mixed up between SEPA and SEPA. SEPA. Those have created opening up of these schemes for people like us to be able to play. I continue to believe that the model will be a mix of all of those. The one you're specifically getting at is more like the Russian model, where there is a domestic payment scheme generated and created, and we have helped them put their technology together and connect with them and provide services that are value-added from safety, security, cross-border approvals, transaction management to information and data, which are provided by our better capable systems than they have of their own. The fact that we see global transactions and they tend to see localized transactions adds a long-term value differentiator between what we can provide and what a local scheme can provide.
It's the same with the RuPays of the world or others. We're always looking for ways to cooperate with them, in some cases successfully, in others less so. I'm sorry it's not a clear answer because this is not a clear space. It's a space that evolves and breeds and lives every day and week depending on the circumstances of a marketplace. You should just know that our country managers on the ground have this as one of the major objectives in their evaluations and the decisions on how they get paid.
Your next question comes from Lisa Ellis from Bernstein. Please go ahead, your line is open.
Hi. Good morning. In keeping with the theme of putting Ajay on the hot seat this morning, do you mind commenting on how you see Mastercard's relationship with Alipay and Ant Financial evolving, like friend, foe, frenemy, both in the context of China, India, and expanding elsewhere in the world?
Well, in China right now, there's nothing to say because we're still waiting for clarity on how we could be partners domestically in China. Having said that, we have had a relationship with Alipay and Alibaba for the last couple of years on helping them think through how to use our technology to figure out different aspects of their own service, including the detection of fraud products on their website. Some of that relationship has worked well. Some of it depends on the energy on both sides of the partnership to implement that. I consider different forms of payment to all be competitive, but also conducive to the bigger challenge of fighting the 85% that is still cash and check in retail payments. That's always been my stance, and I haven't changed.
I've had the same view of PayPal, I have the same view of Alipay, I have the same view of all of these. That I think there's enough place in this market for all of us to play, and there's enough, let's say, challenges in the marketplace for all of us to put our shoulders to it. We've come at it differently. We'll win some deals, we'll lose some deals, but I kind of believe there's enough secular growth opportunity in this space for a lot of us to flourish.
Terrific. Thank you.
Your next question comes from George Mihalos from Cowen. Please go ahead. Your line is open.
Great. Thanks for taking my question, guys. Martina, I just had a quick question on the guidance as we look at 2017. Obviously in 2016, from a revenue perspective, you outperformed 13% constant currency top-line growth. As we look at 2017, it seems you're implying sort of 11-ish. Can you just maybe bucket for us what are some of the headwinds 2016 going into 2017 outside of obviously the USAA deconversion? Thank you.
Yeah. Look, it's a number of things that are impacting 2017 or that are driving growth for 2017. As I did say, low double digits. You can come to your own conclusion in terms of the specific number. The culmination of one of the agreements, USAA rolling off, as well as quite a few agreements actually rolling on, as well as the growth in our services offerings, are all making up the numbers. What I said in my script so that you guys are all having the right kind of modeling down is, we said that the growth rate will be lower in the first half of the year than the second half of the year. That is obviously impacted in terms of how agreements roll off and roll on.
Next question, please.
Your next question comes from the line of Chris Brendler from Stifel. Please go ahead, your line is open.
Hi. Thanks so much. Good morning. Can we just talk sort of a little more on the ground level of what's happening in India? Where do you stand from an issuing relationship with the major banks? Are you sort of spurring the adoption of electronic payments through terminalization and helping merchant acquirers get terminals out into the market? I think you noted in the prepared remarks, a very substantial increase in volume. I know it's off a low base. Maybe try to size that market for us a little bit over the next couple of years would be great. Thank you.
Sure. India has only 1.4 million terminals actually at the point of sale, and it tends to be a very cash-dominated market. I'd say 95%-plus of the transactions in retail are cash. When the demonetization happened, the two biggest currency notes that were taken out of circulation, the 100 rupee, the 500 rupee, and the 1,000 rupee notes constituted 86% of the currency notes in circulation. That's the shock that is referred to as what could lower consumer spending for a couple of quarters. We saw that because restrictions on cash withdrawal from banks and from ATMs were instituted as the government tried to catch up with the demand for cash with the new notes that they were printing. Those notes had to be put into the market. The ATMs had to be redesigned.
Their hoppers had to be redone, or you could just imagine the level of work in a country where the largest public sector bank has 18,000 branches and is spread across a relatively large country. That's what caused some of the dislocation. Now, 1.4 million merchant terminals where point-of-sale payments can take place, but behavior habits that used those terminals very infrequently. The 75% increase in purchase volume you're seeing is because people began to use their cards more frequently at those very same point-of-sales terminals. What's going on now is a concerted move to increase the number of point-of-sales terminals double-plus over the next, I'd say, three to six months. That work is being done by the acquirers, the banks, the networks, us, Visa, others, but also by the government actively pushing that logic. Second, there's a great deal of partnership with merchant organizations on the ground.
The Confederation of All India Traders estimates that there's as many as 60 million casual and regular merchants in India. Even if you were to go from 1.4 million terminals to 5 million acceptance points in the next two years, we're talking five out of 60. There's a long way to go before we get to a ubiquitous terminal acceptance model. There is a lot of work going on cheaper terminals. QR codes is an example of almost zero cost of a terminal for a merchant. We are actively rolling them out. You heard that in my prepared remarks with the Government of India and with RBL and others of that type. We're working actively with issuers, acquirers, and the government, in short, on this topic. Don't expect this to change in a quarter or a month.
It is a long fight, I think the Prime Minister is to be credited for his willingness to take it on, because in the medium to long term, this could be transformative for the way India's economy operates in the recognizable formal economy as compared to the informal economy, where it's denied taxation and denied credit and denied insurance. I think he's really trying to do something pretty brave here.
Operator, I think we have time for one final question.
Thank you. Our final question today comes from Darrin Peller from Barclays. Please go ahead. Your line is open.
Thanks, guys. Can you just touch on the, first of all, the cross-border volume trends and just bigger picture, what you are seeing regarding sort of the headwinds and tailwinds globally? I know you started touching on that before and saying that maybe there were some elements that might be a little bit slower on the volume side. I guess I also just want to understand the cross-border revenue growth rate during the quarter on a constant currency basis was, I think, 10% versus volume of 13%. Just anything going on pricing or anything else you can explain around that, we would appreciate it. Thanks.
First of all, Darrin, on our last question, the difference, the three PPT difference was really the relative higher intra-Europe growth, which you know comes at a lower yield, versus the inter-regional growth, which typically comes at a higher yield. That is all that is going on. We have seen that going on for quite a few quarters, eight quarters or nine quarters. There is really nothing else in there.
That is Europeans traveling within Europe.
Yeah.
That's basically what's going on. Europeans are staying close to home.
From an overall cross-border trend point of view, what we have been seeing lately in the fourth quarter was that actually more Chinese, Hong Kongese, Japanese have been traveling in Asia Pacific, as well in Latin America. We are starting to see Brazil coming back a little bit more. Some of that was offset by what's going on in Middle East Africa, in particular, those economies that are hurting because of the low oil price. You have a particular impact in Nigeria, in Qatar, in Kuwait, in Saudi Arabia based on that. When you take all of this together, we are still seeing a very significant cross-border volume growth, and you saw that in the first four weeks of the year, that has been going up a little bit more, mostly predominantly to Latin America. That is the Brazil phenomena.
That country is obviously working itself out of a very deep recession, and we're seeing some good signs there.
The U.K. is interesting. Inbound into the U.K. is up substantially. Outbound from the U.K. is negative, not just down, it's negative, substantially. That's because of what happened to the pound versus other currencies. It's kind of a mixed bag across the range.
Thanks, Ajay. Any final comments?
Sure. Thank you all for your questions, and Tien-tsin, special thanks to you, buddy. I'll leave you with a couple of closing thoughts. We had a strong year in 2016. Our financial performance was driven by the growth of our core business and our ability to continue to differentiate ourselves with services. That led to significant business wins this year. As I just said in some of the Q&A, the secular growth opportunity in our business remains very strong. India is just a great and recent example of this. The actions taken there have the potential to be transformative. We will continue to invest for that future. We're going to shape the payments landscape through innovation and expand into new payment flows, hence the interest in VocaLink and other such efforts to ensure that we are well-positioned for success for many more years to come.
Obviously, in terms of what this means for 2017, we're going to remain focused on growing our business by driving the shift from cash to electronic payment, by building new service offerings, by advancing our digital strategy, and hopefully closing in the spring on our acquisition of VocaLink. All this while Martina ensures that we all very carefully manage our expenses. We appreciate your continued support of the company, and thank you for joining us today.
This concludes today's conference. You may now disconnect.