Mastercard. Linda joined Mastercard in 1997 and rose through the ranks and held a variety of leadership roles at the company during her tenure. She taught me a lot about Mastercard in her investor relations role. She taught me almost everything I know about Mastercard at the early stages. So, thank you, Linda. I really appreciate you doing that. She now leads Mastercard's Value-Added Services business, which is the business of the hour, I think, at Mastercard. So, congratulations on that. There's a number of different businesses inside of Value-Added Services that I'll let her get into. So, maybe, Linda, before we get into the Value-Added Services discussion, maybe you could just start with your background. I didn't do it enough justice. You've worked quite extensively through Mastercard.
Just talk about the experiences that shaped your perspective about Mastercard and what you're going to bring to the VASS business.
Sure. Sanjay, first of all, thank you for having me.
Yeah.
It's been many years since we first met, 20 years ago, since our IPO, and you were one of the first analysts covering our stock and did such a terrific job and continue to do such a terrific job. We appreciate the partnership. Let me start off by saying, yes, 30 years is a long time. I've had the privilege of working with our company across multiple business models and across multiple disciplines. The first half of my tenure very much focused on corporate roles in finance, compliance, communications, of course, the IPO, starting our IR function. Second half of my career very much focused on our customer relationship management, first with merchants and acquirers, and next with issuers and fintechs, digital partners, governments.
And so, I have a very good appreciation for both how the business operates as well as what drives our customers' decision to use our services, and how they ingest them and what they value. And so, for me, the opportunity to combine my experience with product and innovation and embedding what I know customers like about our services into our product and innovation is a really unique and exciting opportunity.
Mm-hmm. So, VASS has obviously been an impressive grower for quite some time. Maybe you could just talk about why it has been so successful and what the strategies are for it to continue to grow as fast as it has.
Yeah. VASS, or Value-Added Services and Solutions, is, as many of you know, it is now 40% of our company's revenue, growing in the high teens. Our strategy for services is really focused around delivering value and differentiation for our customers. It's the part of our business where we help our customers solve complex problems. We call it the value differentiator, the value multiplier for the organization. And for us, we really think about services across three different dimensions. The first is our insights and capabilities, and the consulting, guidance, and insights we provide to customers. The second is across security, and this is as much as identity, fraud management, as well as cybersecurity. And the third is really around cardholder engagement, marketing services, rewards, loyalty. And of course, all of that is powered by our data, our transaction data, our open finance data, real-time payments data.
And they all are unique and differentiated because they help customers grow not only their payments businesses, but their business beyond payments. So, end-to-end sort of enterprise growth for firms that we work with. And it' s the combination of those assets that work together that make them unique and differentiated. Being able to use a fraud signal to help drive personalization strategy or being able to leverage a data insight in the space of consulting. That interoperability across products and solutions is what really makes us unique and what gives us the opportunity to continue to grow and innovate as payments grows as well. So, it' s something that we put a lot of emphasis and focus on, and we use services to help us win net new business on the core side.
Yeah, we're going to talk about that. Maybe first you could talk about the competitive dynamics there. Like, who do you compete with in services? What's your competitive advantage that other players in the ecosystem don't have?
From a competitive perspective, our competition is pretty vast. So, you think about it in the context of there's traditional network competition for services, but we also compete with the likes of media companies, consulting companies, cybersecurity companies. Because the depth and breadth of our services is so vast, so is our competitive set. What makes us unique, though, is a few things. One is our data, which of course is proprietary, it's vast, it is constantly refreshed, extensive, and global. And so very few companies have the depth and breadth of the data that we capture. The vast relationships we have, the thousands of partners on the issuing bank side, the merchant side, the digital space, all of whom have connectivity to the network. These are relationships that very few companies can replicate. We' ve built them over the past 60 years.
And then, of course, the way in which we innovate on net new capabilities across different rails, whether that's RTP, whether that's open finance. The opportunity to work again, or work across and have these three levels of differentiation is not easily replicable. And so, that's how we compete across the industry and across the wide variety of solutions that we offer.
Got it. And maybe we could talk about the growth algorithm for Value-Added Services. Maybe you could give us the building blocks to sustain this growth that we've seen.
Yeah. So growth algorithm for services, we are very optimistic about it. We believe it is quite durable. We have the results to show it. But a couple of stats. 60% of our services business is driven from network drivers, connected to the network. And so, we talk about it as the virtuous cycle. The more data we have, the greater insights we can derive. The more insights we derive, the more our customers want to work with us and bring us new business. More new business comes into the network, the more data, and around it goes. That virtuous cycle of benefit is something that we feel is quite durable, as the network has been growing quite healthily. So, 60% driven by the network, and then 85% of overall VASS is repeatable, is sustainable, is something that is recurring.
So, there is a level of predictability around it as well. Now, as we think about the growth algorithm, we also think about a few different dimensions within it. So, the first is where we have a right to play, and where we are currently playing with our customers. We have the opportunity to sell our customers more services, reach new buying centers within their organization, and as we innovate, continue to scale those businesses with the customers that we already have in different use cases, different markets, as I said, different buying centers. We also think about it in the context of scaling beyond our reach. We work with processors, acquirers, aggregators, associations that represent large, small, and mid-sized companies where we do not necessarily have direct reach today, but these organizations help.
Well, they consume our services directly, but they also help in a one-to-many way scale our services to long-tail merchants, banks, and processors. So that is extending even beyond our reach. And the third area, again, with respect to net new innovation, we look both organically and inorganically to extend our services growth beyond what is in our reach and what is not in our reach. The combination of these three things together helps sustain that growth algorithm. We've had a long track record of sustaining, and we believe again for the future, we believe it is quite durable.
Great. A lot of investors ask about the cyclicality of this business just because macroeconomic uncertainty, geopolitical uncertainty. Maybe you could just talk about how VASS performs through different economic environments.
Sure. So, we've had a lot of practice here too, working across different macroeconomic environments. When you think about, just again, to step back and think about the diversity of our business, we are diverse across multiple dimensions. One, geographic. We're in 210 countries and territories, and it's rare that 210 countries and territories are experiencing the same macroeconomic conditions. COVID might be the only example of that. Very diverse geographically. Very diverse from a customer perspective. I mentioned we work with banks, merchants, fintechs, digital partners, governments. Very diverse across segment. From a product perspective, our products range from debit and prepaid all the way through to affluent products. So, the types of cardholders that we're serving are also quite diverse.
As we think about different cycles of economic upturns and downturns, when the economy is doing well and everything is moving in an upward trajectory, that of course powers the network-linked part of our business. That's 60%, and it bodes well for services. When the economy is more challenging, our products and services continue to have relevance. Use cases may shift in that our customers may ask us to help them stimulate a portfolio or help protect them against fraud or help develop a new marketing campaign that's relevant to the times that we're in. But the reality is that the solutions that we have stay relevant, and we're able to pivot. And I think a really good example of this is the conflict in the Middle East.
Last year and into this year, our Mastercard Economics Institute was able to bring insights to our customers, both within the region and outside the region, to help them pivot, to help them to deliver insights, to deliver consulting capabilities, and opportunities to navigate the waters. And so, as we think about our own consulting capabilities and economic insights, they become even more valuable during times of economic downturn. This is what we believe will keep our services durable and resilient through economic cycles.
Got it. So, w e think about AI, from a services perspective, how should we think about it? Is it an opportunity or is it a risk? How are you evolving with AI?
From our perspective, AI is a tailwind for both Mastercard and for services. We' ve talked a bit about AI as an accelerant of card payments. We think about it in a few different ways. AI for our employees, of course. Almost 100% of our developers and coders are leveraging AI tools to make their code more relevant, to get products to market faster, and to ensure that what they are innovating is relevant to customers. That has proven quite successful within Mastercard's walls. And then as we embed AI into our products and solutions, what we're seeing is more than a third of our capabilities in services have AI embedded already, and the revenue that we generate from AI-enabled services is growing faster than the revenue we generate from non-AI-enabled services.
So, we definitely see an opportunity. The same way AI democratizes data for everyone, AI also democratizes fraud. And so, the way in which we work with customers to help protect them against fraud is also changing and evolving as a result of AI. So, overall, we see the benefit of ingesting AI tools for ourselves and ingesting AI capabilities within our own solutions. Decision Intelligence Pro is a good example of this. We call it DI Pro, is a risk scoring capability that we deliver to merchants and issuers to help them evaluate the propensity for a transaction to be fraudulent. And we embedded AI solutions into that product to make it even more effective to combat fraud. And so, that is but one example of where AI has been really a boon for us.
We view this as an absolute tailwind and look forward to continuing to embed AI in further services.
And obviously, agentic commerce is something I am going to get into in a minute, but I want to talk about cybersecurity.
Obviously, it's a big topic of discussion on everyone's mind. With this backdrop, is Mastercard seeing more demand from customers? Where is the demand coming from, and how are you capitalizing on it?
Yeah. Security is a hot topic for sure. It's definitely front and center in our customer conversations and in their boardrooms, for obvious reasons. Security, as you know, Sanjay, has long been a part of our services strategy, but we've evolved it and matured it over time. We started with basic frauds management solutions, which essentially legitimize transactions. Is a transaction fraudulent? What's the propensity for it to be fraudulent? What should our customers be approving? What should they be blocking? The partner that's going to win in the end is the one that has the ability to approve as many good transactions as possible and keep the bad transactions from entering their ecosystem. That sounds obvious. It's not. Even one percentage point of approval could mean very meaningful change to a partner's volume, a partner's sales, a partner's revenue.
So, our ability to get very prescriptive on transactions that can be approved or not approved is something that we continue to refine over time. That's in the space of fraud management. In the space of identity, which is the second dimension of our security value proposition, we are identifying whether a person, a business, or an agent, if you will, is legitimate. This is using biometrics and other tools to legitimize that this entity is who they say they are. There too, demand is growing. The ability to actually authenticate that someone is real.
Is a skill that we're getting more and more sophisticated with. And then in the space of cybersecurity, of course, again, as AI proliferates, cyberattacks also proliferate. And so, our ability to help our customers navigate, prevent cyberattacks from happening, but also help them understand what to do if they are the victim of one, is also something that's getting center stage. And again, cyber is in every conversation that we have with customers. It's part of why we believe the growth algorithm for services is so durable. We did very recently buy a company called Recorded Future. Recorded Future is the largest threat intelligence company in the world. And what we were able to do with their capabilities is take their threat intelligence business model and layer in our payments insights to make the output even more valuable to customers.
And so, for us, it is the combination of fraud, identity, and cyber that is so valuable, because there is no one-size-fits-all approach to managing fraud. And typically, customers require a multi-layered approach. So, our ability to, again, cut across all of those dimensions and to use now Recorded Future as another layer of defense is quite meaningful. We recently iterated on some of Recorded Future's capabilities as well. We have a third-party trust indicator that helps customers decide how much risk is being brought into their ecosystems from third parties, and again, help them prioritize decisions. We also have another tool that we've innovated that helps customers identify the risk of cyberattack to their ecosystem, and this is both for merchants and issuers.
So, we continue to iterate on the use cases as fraudsters get more sophisticated, and we continue to see security as front and center in our strategy and a big part of our growth algorithm.
And do you think there could be other consumers of this product from you outside of issuers and merchants? I mean, it would seem like a very powerful tool. Do you think you can broaden out its reach?
One of the reasons we liked Recorded Future is because they had a significant customer base in the government space. They work with over a dozen governments around the globe. And so, increasingly, governments are customers of ours because they too need support. They need a multi-layered approach. So, I see this as pie expanding for us, again, both within our reach and then as we extend beyond our reach and as we innovate net new products and capabilities.
That makes sense. Maybe switch gears and talk about agentic commerce.
Big topic of discussion. Maybe you could talk about the opportunities you see in agentic, and how the services businesses take advantage of this opportunity.
Mm-hmm. Yes.
How real is the opportunity?
Yeah. Similar to AI, we see agentic commerce as a tailwind for Mastercard and for services. As we think about why, agentic commerce is just, we believe it's the next click on digital commerce. It is real. It is a matter of when and not if. And we've leaned into this space quite heavily. First off, from a payments perspective, we've launched Agent Pay, which of course, provides agents with access to our payment credentials in a very transparent way. The opportunity for consumers, for businesses, and even for machines to deputize another agent to both search and transact on their behalf, I think, is quite meaningful. It's also a boon for cards, carded payments, because these transactions are tokenized. And so, we will benefit that from a network perspective and from a services perspective, and that's what Agent Pay really does.
Now, beyond Agent Pay, which is an industry standard that will allow for these transactions to take place, we also have our services that will sit on top of agentic commerce to help differentiate them. From a services perspective, we've launched a number of solutions. One is Agent Connect, which gives merchants the ability to be more discoverable to agents. Another is the Agent Trust Indicator, which allows issuers and merchants to score the riskiness of an agentic transaction on their ecosystem. From a consulting perspective, we've launched Agent Suite, which provides our customers with access to Mastercard agents that are infused with our security capabilities, our insights capabilities, our engagement marketing capabilities, which is also unique and differentiated to Mastercard.
And we have a number of consulting engagements that we've struck with partners across the issuing space and the merchant space to help them solve their own complex problems using agentic solutions. So, really, across every dimension, security, insights, and engagement, as well as consulting, we are very much leaned into the agentic commerce opportunity, and we see it as a growth accelerator for the network.
What's the timetable on that? Do you think it's incremental? Does it happen in a year? Does it happen in a couple of years? I know it's on the come.
Yes.
Right? But just as we think about timing and sizing of the opportunity, is there any thoughts there?
Well, today, it is small.
Right.
As we look across previous evolutions in payments, they always took a little bit of time to take hold, and they were always driven not necessarily by the availability of the technology, but by consumer demand, by business demand. So, to the extent that consumers and businesses can trust the technology, that is typically when it takes off. And that is why Mastercard's role as an ecosystem player, to sit at the center of a network, to provide transparency, provide interoperability, provide rules, provide adjudication, these are all- they will help to provide the trust necessary to help accelerate agentic commerce.
And I think that brings me to my next question, because it speaks to the differentiated value you guys provide on above and beyond just the transaction in and of itself and the payment. So, how do you look at the revenue opportunity and the ability to exercise pricing adjustments in the near term?
Well, at a high level, we price for value. To the extent that we deliver value to our customers, we ensure that the pricing is commensurate with the value that we are delivering. Pricing is an ongoing evaluation and exercise. There is no one-size-fits-all. Again, I talked about the diversity of our customer base and the diversity of the both geography, as well as entity, as well as product, so pricing has multiple dimensions. But here again, we are constantly investing in our capabilities, billions of dollars in safety and security, and we look to extract value from the capabilities that we deliver. I mentioned Decision Intelligence Pro. That was one example of last year where we included a pricing increase because we improved fraud detection by 300%, and we recognized that that was a value in terms of being able to authenticate and authorize transactions.
So, it' s an ongoing exercise, and we will continue to look for opportunities.
Got it. M&A has been a contributor, as you mentioned to the growth story for Value-Added Services. Maybe you could just talk about what other types of acquisitions you would make. Is it bolt-on to add on to the services that you have, or would you add another leg to the stool? Maybe you could talk about that.
Sure. Our M&A strategy, we obviously take a very disciplined approach to looking at M&A opportunities. The criteria that we leverage when we evaluate an entity, the first is, of course, is it connected to our strategy? Do we have a right to play? Can we take a target's business model and scale it, leveraging our network? Is it solving for a customer demand or a customer need? Does it provide long-term sustainable growth commensurate with the growth expectations that we've provided? And of course, operating leverage. And when we look across those criterion, we do find many partners who meet one or more of those criteria. The latest acquisitions we've made in Recorded Future and BVNK met one or more of those criteria. They fit into our strategy. There's opportunity for scale, the opportunity to extend beyond our reach today. And we continue to look for others.
Now, our M&A activities complement commercial partnerships that we also create, which we also do quite well. And then, of course, that also complements the organic development and innovation that we do within Mastercard. So it's the combination of all three, M&A, innovation, and commercial partnerships that drive both our short-term growth expectations for the firm, as well as our long-term innovation expectations.
Do you think you could do more inside of Value-Added Services? Like, is there another function that you'd want to do? I mean, I'm just curious if there—
Well, if you look across our M&A history, most of our M&A has been to bolster our services capabilities.
Got it.
And very much so in the space of insights and safety and security. So, I'd say, historically, it has been a real success story for us.
Got it. So, I told you I would come back to this. You mentioned Mastercard Services has had a role in recent wins.
Yes.
Maybe you could just give us some examples of where it has been a deciding factor and why?
Most of Mastercard's customer relationships has services embedded in one way, shape, or form. As I said, it is a value multiplier for us. It's the way in which we differentiate. It's the way in which we grow beyond payments and in payments. We' re very proud of the fact that we can service our customers across the entirety of their enterprise, not just in payments. So, as I think about net new wins and appealing to new customers who might be with our competitors, we actually leverage services as a door opener for us, even when we don't have the core payments portfolio within our target's ecosystem.
And the way in which we do that is either working across insights, security, or engagement, and demonstrating the value that we could bring to their enterprise, so that not only can we work with these players from a cultural perspective, but they see the value of working with us from a partner perspective. A couple of wins I would note, last quarter, we talked about Pinnacle Bank. Here we had, in the U.S., Pinnacle was with Mastercard. They merged with a bank called Synovus, who was not with Mastercard, and they were very happy to work with us across services to both develop a value proposition, an affluent one in particular, for their cardholders, and to leverage services to help with the conversion of the portfolio. Services played a key role in that decision for sure.
Another partner I would highlight, evermore. evermore is in the health space. They are a health technology company that helps third parties distribute benefits to recipients, and they really appreciated our fraud capabilities, and what we could do to create fraud parameters around the distribution of benefits to help, again, protect authorizations and to mitigate losses. Another example in Latin America, Scotiabank. We recently extended our business with Scotiabank into new markets like Chile and Uruguay and Mexico. We had already been working with Scotia in Peru and the Caribbean, and they really appreciated our consulting capabilities and loyalty capabilities. That was a door opener with a customer we already had. In Turkey, Yapı Kredi, which is also a customer that we announced last quarter, they are flipping business to us, and they really appreciated the benefit of services.
Across all dimensions, existing customers that extend their business with us, net new customers that only have experience working with our competitors, and sort of, de novo programs that are coming to market all see the benefit of working with us because they can have one partner that services them across multiple lines of business, and that is really valuable for them.
My last question. 20 years ago, you guys were a payment network owned by banks, and you broadened out quite significantly over time and done a lot. I think it is a lot about how you guys have approached innovation. And so, maybe you could just talk about how that approach has evolved over time, right? And where we are today, just over your time at Mastercard.
Yeah. First of all, innovation for us, it is an always-on activity. It's something that is not the responsibility of any one group within Mastercard. It is embedded in really every group, a design thinking mentality and an opportunity to think about not just what is happening now, but where the puck is going with respect to commerce. And we think about that across a variety of different dimensions. One is where we have a right to play, of course, extending our reach with customers with whom might not even be in the works today. So, net new innovators or net new partners that will be emerging as a result of AI or agentic commerce. We're already working with them through a program that we call Start Path to help guide our existing customers on where partnerships should land, ingesting their technology, creating commercial partnerships with them.
And so, that has been an accelerant to our growth, both in services and for the company. We also look at opportunities to partner and to innovate. We have a group that we call the Foundry, which is working on net new use cases. So, this is the group that was thinking about agentic commerce before it became a thing or thinking about connected devices and commerce on connected devices before, when it was just a thought bubble. And so, the opportunity to really innovate and where the puck is going and where consumers and businesses are going with respect to commerce has always been something that we are prioritizing because obviously, we have short-term goals around growth, but we also have long-term goals around the sustainability of our model and that virtuous cycle that I talked about earlier.
You guys have done a really good job with it.
We're very proud of it.
Yeah, absolutely.
And we appreciate the opportunity to work with you to help explain the model to others and to continue to innovate. We have had multiple business models at Mastercard, not just in my tenure, but in general, and we benefit from that.
Yeah. Well, we have run out of time. Thank you, Linda. Appreciate your time.
Thank you, Sanjay.
All right.