Good day, and thank you for standing by. Welcome to the Mastercard third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Warren Kneeshaw, head of investor relations. Please go ahead.
Thank you, Jamaria. Good morning, everyone, and thank you for joining us for our third quarter 2021 earnings call. With me today are Michael Miebach, our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It's 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 non-GAAP currency neutral basis, unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to their GAAP reported amounts.
Finally, as set forth in more detail in 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 thirty days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach.
Thank you, Warren. Good morning, everyone. Let me start by giving you the highlights of the quarter. Strong revenue and earnings growth continued. With net revenue up 29% and EPS up 48% versus a year ago, as always, on a non-GAAP currency neutral basis. On the same basis, quarter three net revenues are now 11% above pre-COVID levels in 2019. We're seeing continued strength in domestic spending and overall cross-border volumes are now back at 2019 levels. Though there still remain significant room for growth in cross-border travel. We're continuing to execute against our strategic priorities with good progress on the product and deal fronts this quarter, and we're excited about our acquisition of CipherTrace in the crypto services area and our planned acquisition of Aiia in open banking. Those are the highlights.
Looking at the broader economy, domestic spending levels continue to improve, even though economies are facing supply chain constraints, rising energy prices, and some other inflationary pressures. According to our quarter three SpendingPulse report, which is based on all payment types, including cash and check, U.S. retail sales, ex auto, ex gas, were up 5% versus a year ago and 12% versus 2019, reflecting the return to in-person shopping and the ongoing e-commerce strength. SpendingPulse also indicated that overall European retail sales in quarter three were up 5% and 6% versus 2019. As it relates to COVID specifically, the outlook continues to get better. The case numbers generally improving, new therapeutics in the pipeline, progress on vaccinations, and businesses becoming more agile in the face of remaining restrictions.
We're also seeing a general trend towards the opening of travel corridors, notably inbound into the U.S. and some easing of restrictions in Asia. Now turning to our business. While the pandemic is not fully behind us, we're now in the growth phase in most markets domestically, and in many markets in cross-border spending as well. We will therefore turn the page and move beyond the four-phase framework that guided us through the last nineteen months and focus on managing the business for the growth opportunity ahead of us. Looking at Mastercard spending trends, switch volumes improved quarter-over-quarter. We saw particular strength in consumer and commercial credit. Debit spend remains elevated, although it has moderated in recent weeks, in part due to waning stimulus benefits.
In terms of how people are spending, card present volumes continue to improve as people are getting out and shopping more, while we're still seeing sustained strength in card not present spend. Regardless of whether people wanna shop online or in person, our solutions support that choice and position us well to participate in both trends. Now let's take a look at cross-border. Overall cross-border returned to 2019 levels in August, driven by improvements in consumer and commercial travel, as well as the ongoing strength of cross-border card not present spending ex travel. Now cross-border travel improved from 48% of 2019 levels in the second quarter to 72% this quarter, with substantial upside potential still remaining as and when borders open.
Against this backdrop, we're investing in the growth for our business, including the enhancement of our leading technology capabilities, like expanding our network edge to connect directly with our customers through the cloud, providing faster and easier access to our products and services. Of course, we remain focused on our strategic priorities. Number one, growing our core products while driving the shift to digital. Two, differentiating and diversifying with our services. Three, leveraging our multi-rail capabilities to offer choice across payment applications. Now let's take them one by one and turn to how we're growing our core products and driving the shift through digital. Through Mastercard Installments, by winning core deals, and by continuing our momentum in the fintech space. First, let me tell you about our recently announced Mastercard Installments. Our scalable open loop buy now, pay later solution.
Mastercard Installments is differentiated in that it enables banks, lenders, fintechs, and wallets to seamlessly bring buy now, pay later solutions to consumers and merchants at scale and in a secure tokenized manner. With little to no integration for merchants, our solution avoids the need for lenders to engage merchants one by one to roll this out, enables them to deliver more payment options to more consumers faster. Our solution brings choice at scale delivered through the Mastercard network. Our consumers will be able to access buy now, pay later offers through their bank's mobile banking app at the point of checkout and soon directly through Click to Pay. The embedded power of Finicity will help lenders with credit decisioning and enable consumers to easily choose different repayment options.
Mastercard Installments will power our core payments, enable us to provide additional value through services such as data analytics, loyalty, and fraud tools. We've seen strong interest from players on all sides of the ecosystem and look forward to growing our partnerships in this area. As always, we remain focused on continuing to grow share, and we've won deals across the globe this quarter. In the U.K., we're partnering with Chase as the preferred debit partner of their new digital retail bank. In Canada, we've extended our exclusive co-brand with Costco Canada. In Brazil, we signed a deal with Autopass to issue more than 10 million cards to mass transit users in the São Paulo area. Along with that, open contactless acceptance across their subways, trains, and city buses. We're also building our leading position with fintechs and mobile money providers. Here are a few recent examples.
PayPal has extended its PayPal business debit card into our four markets in Europe. PayPal will also directly leverage Mastercard Send for domestic wallet cash outs and P2P transactions in the U.S. We're partnering with Vodafone in Egypt across all of their mobile money use cases, including cash outs, P2P, and bill payment. Expanded our strategic partnership with Yandex in Russia, and will be their preferred international partner for all of their fintech initiatives. Synctera, an innovative market leader that connects U.S. banks and fintechs to get cards and financial products into the market will leverage our digital-first Finicity, Mastercard Send, and cybersecurity assets. Now shifting to services. Our services support and differentiate our core products and have played a critical role in enabling many of the wins I just mentioned. They, of course, also diversify our business. We've had many wins in this area in this quarter.
Starting with the cybersecurity space, Ethoca is helping multiple players, including AT&T and Mercado Libre, reduce chargebacks through collaboration, thereby creating purchase transparency. Banco de Bogotá is using our artificial intelligence capabilities to improve consumer experiences, increase profitability, and identify new opportunities. In Europe, NuData is leveraging behavioral biometrics to help thousands of new banks authenticate online transactions. Data analytics. The tourism agencies in Greece, Hungary, and elsewhere are using services like Tourism Insights and Managed Services to gather greater visibility of trends and drive deeper insights to support their tourism campaigns. In the UAE, HSBC is leveraging our Test & Learn capabilities to innovate, experiment, and roll out new products for better customer engagement. We're having success in the loyalty space with our innovative digital solutions driving wins with players like the global fitness chain Barry's, and BofA and Saudi National Bank.
Now, let's turn to the progress we've made in offering choice to consumers across payment applications with our multi-rail capabilities, including open banking, B2B, and crypto. In open banking, we're happy about our planned acquisition of Aiia. Aiia is a leading European open banking player, whose platform, expertise, strong API connectivity, and payment capabilities complement our existing open banking assets. We will combine Aiia's European footprint with Finicity's connectivity in the U.S. and our expansion into other markets like Australia. This will allow us to extend each organization's best-in-class capabilities such as credit decisioning, credit scoring, account information services, and payment applications across markets. Talking about markets, we continue to make progress with our open banking product in Europe. Players like EnterCard, one of Scandinavia's leading credit card companies.
In the US, Finicity is working with Usio to enable account opening verifications along with future plans to expand into payments. In B2B, we continue to expand the Track Business Payment Service network with key partners like JPMorgan Chase, as well as merchant acquirers such as Moneris, the largest acquirer and leading processor of B2B transactions in Canada, and Priority Commercial Payments, a leading payments technology company in commercial payment solutions in the US. We're also adding new functionality to Track BPS and are partnering with Demica to launch a supply chain finance capability. This functionality empowers payment agents to provide their business customers with access to affordable working capital directly through the Mastercard Track BPS platform.
In the UK, HSBC will be the first to issue a Mastercard Track card-to-account transfer product. An innovative B2B payment solution that allows businesses to use their commercial card program to make payments to any supplier, even if that supplier does not accept card payments. Again, a true multi-rail offering. Finally, in the crypto space, we're making it easier for crypto players to connect to our network. We signed up a number of new crypto wallet providers and exchanges this quarter, including Bit2Me, Novopago UK, Tango by ZEN.COM , Coinmotion, and CoinJar. Our crypto program, which is based on three principles of engagement, allows consumers to easily buy crypto assets with their Mastercard, spend their crypto balances wherever Mastercard's accepted, cash out their proceeds with Mastercard Send, and earn rewards in the form of crypto or even NFTs. We're also seeing a growing services opportunity in this space.
Earlier this month, we acquired CipherTrace, a security and fraud monitoring company with expertise, technology, and insights into more than 900 cryptocurrencies. Our recently announced agreement with Bakkt will also add to our expanding crypto services portfolio. Let me sum this up one more time. We delivered strong revenue earnings growth this quarter. We are seeing continued strength in domestic spending in most markets. While overall cross-border volumes are back at 2019 levels, there remains significant room for growth in cross-border travel. We're executing against our strategic priorities with good progress on the product and deal fronts, as you heard, and we're doing all of that while carefully managing our expenses. That's it for me. Sachin, over to you.
Thanks, Michael, and good morning, everyone. Turning to page three, which shows our financial performance for the quarter on a currency-neutral basis, excluding special items and the impact of gains and losses on our equity investments. Net revenue was up 29%, reflecting the continued execution of our strategy and the ongoing recovery in spending. Acquisitions contributed 3 PPT to this growth. Operating expenses increased 23%, including an 8 PPT increase from acquisitions. Operating income was up 34%, and net income was up 45%, both of which include a 1 PPT decrease related to acquisitions. Further, net income growth was also positively impacted by 6 PPT due to the recognition of higher one-time discrete U.S. tax benefits versus year-ago.
EPS was up 48% year-over-year to $2.37, which includes 2 cents of dilution related to our recent acquisitions, offset by a 4-cent contribution from share repurchases. During the quarter, we repurchased $1.6 billion worth of stock and an additional $361 million through October 25, 2021. Now let's turn to page 4, where you can see the operational metrics for the third quarter. Worldwide gross dollar volume or GDV increased by 20% year-over-year on a local currency basis. We are seeing continued strength in both debit and credit. U.S. GDV increased by 20%, with debit growth of 9% and credit growth of 36%. Outside of the U.S., volume increased 20%, with debit growth of 23% and credit growth of 16%.
To put this in perspective, at a percentage of 2019 levels, GDV is at 121%, up 2 PPT sequentially, with credit at 111%, up 4 PPT sequentially, and debit at 131%, flat quarter-over-quarter. Cross-border volume was up 52% globally for the quarter, with intra-Europe cross-border volumes up 47% and other cross-border volumes up 60%, reflecting continued improvement and the lapping of the pandemic last year. In the third quarter, cross-border volume was at 97% of 2019 levels, with intra-Europe at 112% and other cross-border volume at 83% of 2019 levels. Notably, cross-border volumes averaged at or above 100% of 2019 levels in the months of August and September. Turning now to page five.
Switch transactions grew 25% year-over-year in Q3 and were at 131% of 2019 levels. Card not present growth rates remained strong, and card-present growth continued to improve. Card-present growth was aided in part by increases in contactless penetration in several regions. In Q3, contactless transactions represented 48% of in-person purchase transactions globally, up from 45% last quarter. In addition, card growth was 8%. Globally, there are 2.9 billion Mastercard and Maestro-branded cards issued. Now let's 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 increase in net revenue of 29% was primarily driven by domestic and cross-border transaction and volume growth, as well as strong growth in services, partially offset by higher rebates and incentives.
As previously mentioned, acquisitions contributed approximately 3 PPT to net revenue growth. Looking quickly at the individual revenue line items. Domestic assessments were up 21%, while worldwide GDV grew 20%. Cross-border volume fees increased 59%, while cross-border volumes increased 52%. The 7 PPT difference is primarily due to favorable mix, as higher-yielding ex intra-Europe cross-border volumes grew faster than intra-Europe cross-border volumes this quarter. Transaction processing fees were up 26%, generally in line with switch transaction growth of 25%. Other revenues were up 35%, including a 10 PPT contribution from acquisitions. The remaining growth was mostly driven by our cyber and intelligence and data and services solutions. Finally, rebates and incentives were up 34%, reflecting the strong growth in volume and transactions and new and renewed deal activity.
Moving on to page seven, you can see that on a currency neutral basis, total operating expenses increased 23%, including an 8 PPT impact from acquisitions. Excluding acquisitions, operating expenses grew 16%, primarily due to higher personnel costs as we invest in our strategic initiatives, including, sorry, increased spending on advertising and marketing and increased data processing costs. Turning to page eight, let's discuss the specific metrics for the first three weeks of October. We are seeing continued strength in growth rates across our operating metrics versus 2020, in part due to the lapping effects related to the pandemic that began last year. To provide you better visibility into current spending levels, we are once again showing 2021 volumes and transactions as a percentage of the 2019 amounts when we are not experiencing the impact of the pandemic.
If you look at spending levels as a percentage of 2019 for switched volumes through the first 3 weeks of October, the recent trends have continued with overall switched volumes at 134% of 2019 levels, up 3 PPT versus Q3. The U.S. has held steady with some moderation in growth from earlier levels due to the roll-off of stimulus. Outside the U.S., we are seeing continued improvement. Trends in switched transactions remain steady and are generally tracking the trends we are seeing in switched volumes. In terms of cross-border, as I noted earlier, spending levels as a percentage of 2019 were back to pre-pandemic levels starting in August. That improving trend has continued through the first 3 weeks of October, and we are now at 105% of 2019 levels.
This improvement is driven by increases in both travel and non-travel cross-border volumes. As it relates to travel, we have seen it picking up in all regions, notably within and to Europe and recently into Canada as well. Turning to page nine, I wanted to share our current thoughts looking forward. First off, our deal momentum and service lines continue to position us well for growth and diversify our revenues, and we continue to make strong progress against our strategic objectives. Domestic spending levels remain healthy, and we are encouraged by the recent resurgence in international travel. We are optimistic about the announced relaxation of border restrictions in places like the U.S. and the U.K., given that we have seen travel pick up when borders have opened in the past. Further, the airlines have recently reported increased travel bookings, including long-haul travel.
With this as context, assuming domestic and cross-border spending trends relative to 2019 continue to improve, we would expect Q4 net revenues to grow at a low 20s% rate year-over-year on a currency-neutral basis, excluding acquisitions. As a reminder, spending recovered progressively in 2020, so we will be facing a more difficult comp of approximately 7 PPT in the fourth quarter relative to the third quarter. It is also important to point out that this is just one potential scenario as the level of uncertainty remains related to the pandemic, and therefore the pace of recovery may not be linear. In terms of operating expenses for the fourth quarter, we expect operating expenses to grow at the low end of low double-digit percentage versus a year ago on a currency-neutral basis, excluding acquisitions.
This reflects our disciplined approach to expense management while advancing our innovation agenda across payments, services, and promising new adjacencies and continued investment in brand and product marketing. With respect to acquisitions, we are pleased to now have closed on the CipherTrace transaction, and we expect acquisitions will contribute about 2-3 PPT to revenue and 8 PPT to operating expense growth in Q4. This reflects the integration of several acquisitions in the open banking, digital identity, and real-time payment areas. Other items to keep in mind. Foreign exchange is expected to be about 0.5 PPT headwind to both net revenues and operating expenses in Q4. On the other income and expense line, we are at an expense run rate of approximately $120 million per quarter given the prevailing interest rates.
This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect a tax rate of approximately 18%-19% for the fourth quarter. Thanks, I hope you will be able to participate in our virtual Investment Community Meeting on November tenth. We look forward to discussing our future plans with you at that time. With that, I will turn the call back over to Warren.
Thanks, Sachin. Jumaria, we're now ready for questions.
As a reminder to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question will come from the line of Lisa Ellis from MoffettNathanson. Please proceed with your question.
Hi, good morning. Thanks for taking my question. Since you launched Mastercard Installments now a few weeks ago, can you give some color on what kind of reaction you're seeing from your fintech and bank partners? Are you expecting that some of the specialized BNPL providers may use elements of Mastercard Installments? Why or why not? Like what would be the trade-off that they would be making there? Thank you.
Thank you, Lisa. Let me take that question first. Buy now, pay later, exciting space. We talked about it for years, invested with our own installment proposition, facing off to banks, you know, five, six years ago. The partnerships and now as of late, Mastercard Installments, as you said. You saw a strong lineup of initial partners, bank partners initially. I mean, the thought just to remind everybody again, here is a proposition that we have built into our network. This is really delivered with no hassle for merchants or for lenders, at the point of sale. The reaction from banks are strong. Here in the U.S., that's where our lineup of U.S. partners, lending partners was.
I've spent time on the roads over the last 3 weeks in Europe, and similar conversation, you know, emerged there. It was just a couple days after the announcement over in Italy and banks were saying, "Wow, this makes a lot of sense. It's really, you know, avoiding a significant headache for us and get into a space that we all believe is important from a consumer perspective." On the fintech side, you know, fintech lenders, novel lenders, you know, we lean in with fintechs. You know, some call them disruptors. We feel these are partnerships. We should enable anybody who wants to come on our network. We're certainly marketing this to ensure that we have the full breadth of what the market has in terms of lending offering. That's gonna be good for consumers and merchants.
You know, watch this space, more to come, but I think it's a very compelling proposition.
Thank you.
Our next question will come from the line of Donald Fandetti from Wells Fargo. Please proceed with your question.
Hi, good morning. Michael, I was wondering if you could talk a little bit about disintermediation. It seems like investors are more focused on it after the Square, Afterpay deal. Can you talk about that and your thoughts on more direct payments out of consumer accounts in the U.S.?
Right. Don, great question. You know, choice in payments has been a theme for Mastercard now for, I think basically always, but specifically with our investments in the account-to-account space over the last six years. We see the demand from merchants and from consumers. For the consumer, it makes sense because all your spend into, you know, you can see it all on one bank account. That would be one aspect to, you know, why consumers might like that. Merchants liked it, likes it for choice and, you know, higher baskets, of more sales. The interest is clearly there. We've been on this journey for a while, and we don't necessarily see this as, a disintermediation opportunity.
I mean, that's certainly something to watch, but we look at it as an opportunity where we say this could be additional volumes that we've not been involved with. You know, this could be what was historically the consumer finance business. This would be something that was, you know, just a direct debit business that we've seen in some European countries and so forth. That's broadly how we look at it. We build a full stack around this that helps to get you money from A to B. That's just half of the story. Probably not even half of the story because it's the whole experience that really matters. You gotta have the security. What happens if you do a push payment and you want your money back?
You know, some of those best practices that we've learned over the last decades in cards is what we're intending to build here. You know, it's interesting to see blogs out there on how account to account might look like. We have, you know, 4 years now in pay by account in the U.K. We've got those learnings. We're ahead of the market here, very clearly knowing what works, what the economic model should look like, what the proposition is that will really make a difference for merchants, for acquirers who will be all playing in this space. I don't see a disintermediation risk. I see an opportunity for us to extend our partnerships and gain new flows.
I'll just add, Don, to what Michael just said, as it relates to your question around specifically the threat of closed loops. Look, we're big believers in the benefits of the open loop system, which we believe is very powerful. I mean, for the reasons Michael just mentioned, we bring consumers at scale, we bring global acceptance. I mean, we have north of 80 million merchant acceptance points, and this is growing rapidly. The cost of acceptance is very competitive. When you take that along with what Michael talked about around the various technologies and the expertise we bring, everything from digital-first solutions, fraud solutions, merchant support, processing assets, now most recently, Mastercard Installments.
Our next question comes from the line of Bryan Keane from Deutsche Bank. Please proceed with your question.
Not getting to 100% on the two-year until summer of calendar year 2023. Just wanna get your thoughts on, you know, when do you think, you know, we'll get to reach back to 100% on cross-border travel? And then secondly, it looks like you guys are running a little bit faster, a little bit ahead of Visa's number for cross-border travel, and just wondering if, you know, what might be, some of the factors that are driving a little stronger demand for you guys so far. Thanks.
Sure. Bryan, I'll go ahead and take that. First, I know you're asking specifically about cross-border travel, but I just wanna kinda put the headline out there, which is for cross-border as a whole, we have seen very strong growth in Q3, as you've seen. You know, yes, travel has been a big component of that. Specifically, travel between Q2 and Q3 has gone from what was 48% of 2019 levels to 72% in Q3. Now in the first 3 weeks of October is tracking more like at 77%. Look, what this signals to us very clearly is if people can travel, they will travel. I think that's really, really important to recognize.
When you overlay that with what's going on in the nature of announcements around opening of borders, more specifically, the U.S. has recently talked about inbound travel into the U.S. In fact, I think just a couple of days ago, they laid out the actual details around how people can come into the U.S. I mean, you combine that with the fact that Europe has opened up, the U.K. is showing good signals of opening up. Even in Asia, we're starting to see, you know, corridors between Singapore and Australia, Singapore and India. These corridors are all starting to open up. These are all encouraging signs for us from a cross-border travel standpoint.
We remain optimistic on that front, especially given that if those borders open up and they come with what would be light burdens from a quarantining standpoint, which is what we're seeing right now, you know, people have said that they will travel, and they've demonstrated that through Q3. So net, here's what I tell you. I think travel is something which people want to do. They're showing that willingness to do it. Now it's a question of which are the other countries which will open up in addition to the borders I've just talked about. You're seeing this be reflected in the bookings which, you know, airlines are reporting as well. We remain optimistic on this front.
I can't really tell you specifically which day, which month, you know, it's gonna reach to a hundred percent of 2019 levels, but generally, the trend is moving in the right direction there.
Right. You know, coming back to being on the road for quite a few weeks, you start to see also the mix changing. While initially this was leisure travel, you start to see business travel really kicking in. That gives us another signal that really the pent-up demand is coming across all channels. People wanna see their customers. They wanted to see their family first, now they wanna see their customers. It's happening.
Just one final point I'll make. You remember over the last few quarters, we've talked about how in anticipation for the return of travel, we have been investing in bolstering our capabilities from a travel standpoint. We've been doing this actually for many years now. Like, even through the pandemic, we've been winning deals in travel, and also our teams have been very focused on the ground in terms of making sure we're optimizing our travel portfolios the best we can. We're ready to actually jump on this as soon as we start to see this trend come back, which we are seeing now.
Great. Thanks for taking the question.
Sure.
Our next question will come from the line of George Mihalos from Cowen. Please proceed with your question.
Great. Thanks for taking my question, guys. Maybe dovetailing a little bit onto Brian's question. I just wanted to focus a little bit on how we should be thinking maybe about rebates and incentives going forward. Sachin, should we be thinking this level is sort of similar for Q4, a similar level to Q3? Again, not asking for guidance for next year, obviously, but as you do have cross-border revenues coming back strongly and actually eclipsing 2019 in aggregate, should that sort of put a cap on rebates and incentives as a percentage of revenue? Meaning should it, you know, kind of be flat if not maybe even a little bit down from 2021? Thank you.
Sure. George, a couple of things I kind of just point out on rebates and incentives. I think you know all of this, but I'll just kind of state it here. Two things. Rebates and incentives is very dependent on the timing of deals and how volume and mix plays out. It goes to your point around what the mix is between domestic and cross-border and how you model that and bring that in there. In Q4, we expect rebates and incentives as a percentage of gross to be up sequentially due to increased deal activity. This is pretty normal for us in Q4, and that's what you should expect also going into Q4 of this year. Look, at the end of the day, a lot is gonna depend upon, like I said, what the mix is gonna look like.
We have said in the past that cross-border revenues are less indexed from a rebates and incentive standpoint. Again, depending on mix between domestic and cross-border, you know, that will inform our kind of views around where rebates, incentives will go on a going forward basis. Of course, new and renewed deals, which we remain very active in the market on, also are gonna be a contributing factor.
Great. Thank you.
Sure.
Our next question will come from the line of Tien-Tsin Huang from J.P. Morgan. Please proceed with your question.
Hey, thanks so much. Good morning, guys. Just wanted to ask on the Europe front with the discontinuance of the 400 million Maestro cards that's been in the press here. What are the implications there from a P&L perspective as you look to convert at a time when open banking is really heating up here. Just trying to better understand that. Thanks.
Right, Tien. Let me start on that and then Sachin can come in on the P&L side of things. You know, we've been on this journey of Maestro to Debit Mastercard conversion around the world. You heard us talk about this for a number of years. In Europe, we've really made substantial progress on that front over the years, and we felt it would be important to put a stake in the ground and give assurance to consumers as well as other ecosystem participants, banks, so forth, banking associations, on when we see the end of life for the Maestro product. Why are we doing that? We're doing it because here is the 450 million consumers who cannot use a Mastercard on a Maestro card online because it doesn't work online.
Debit Mastercard is now in its latest form, you know, available in a digital-first form. You don't even need a physical card any longer if that's what you want to do, or you want it with contactless. It gives you the full breadth of choice. That is why we're doing this. The timing is right. The reaction was essentially, okay. It had to do. In some of the leading European tabloids, we made it onto the front page with that news. It is big news in Europe, as you rightly said. You know, it's just the right thing to do. What we've seen from a performance perspective, it is a more engaging payment tool in your hands, and people use it across all channels, and that's what we want. We're very encouraged about that.
Sachin, if you can look at the P&L side of things.
Sure. Tien-Tsin Huang, first, this will not take effect until 2023, and Michael talked about approximately 400 million Maestro cards globally. Again, this is Europe-specific. This has been a trend which has currently been underway for some time now. And the reality is, it's about not issuing new Maestro cards. Existing Maestro cards will continue to be in operation. We've been on this migration path. It makes eminent sense. It just provides better utility for our products in an increasingly digital world. The reality is, I kind of view this as a step in the right direction and, you know, we've been on this journey, we'll continue down this path.
Right. One last aspect here is, you know, this what we've learned here over the last couple of years as we're moving the shift from Maestro debit Mastercard is how do we use this as an opportunity to not only retain our business that we have on the debit front, but also to expand our business on the debit front. So we don't have any concerns on that front.
Understood. Thanks for the thoughts.
Our next question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your question.
Thanks, guys. Nice job. Listen, when we look at a couple of quick lenses on first on inflation and what the impact to your business model would be, you know, thinking about it from a perspective of how much is obviously basis points, volume driven, but also where you see pricing power in your model to change. Then second question would be, when you think of the structural impacts on it from the pandemic and where you are now, and thinking ahead of the Investor Day a minute, I mean, is the long-term or medium-term growth potential, you know, similar, different, better, worse than it was last time, you know, we had an Investor Day, out of curiosity? Thanks, guys.
Sure. Darrin, I'll take your question on inflation. Look, I mean, you know, there's been obviously a lot of talk recently about high inflation levels, whether it's permanent, whether it's long-term, whether it's just, you know, transitory. The reality is the structure of our business model is quite conducive because of the way we price, right? I mean, we've got basis points, we've got cents per transaction as it relates to how we kind of price. We kind of view the following, which is to the extent that inflation is moderate, right? You know, we think that to be a positive tailwind kind of flow through our business. Again, gradual and moderate inflation is gonna be helpful.
The reason I bring that up is any sort of shock to the economy, i.e., any sort of hyperinflationary event, oftentimes comes with drastic measures from an interest rate standpoint and comes in with cost pressures which come along with that. To the extent it's moderate, it's moderately kind of positive for our business. The other thing I would say is it's important to actually see in the basket of goods and services, what are the products and services which are subject to inflation and what is the amount of electronification of the flows which have taken place and relevance to our business. To the extent that inflation, general inflation taking place in categories which are unrelated to card payments, I mean, that kinda is a net non-event for us.
To the extent it's on things which relate to consumer spending which have been electronified, it goes back to my point around, you know, moderate inflation being a mild positive here.
All right. Now, Darrin, on your second question, structural changes, are they here to last? What makes a trend? Fascinating question. I don't wanna out front the Investor Day, but since you asked the question, I'll give you a couple of highlights on how we're thinking about that. You know, the first thing is, it helps to understand the psyche of the changing consumer, of the small business, so everybody who's kind of in the payment space as an end user. We now have 19 months of studies looking at this, and the numbers have really not changed. Somewhere around 70% of people and business are saying more digital banking will be what they will be doing going forward. More online shopping is what they will be doing going forward and more contactless.
The secular trend that was playing in our favor for years has clearly accelerated. If you just look at this quarter's numbers, we talked about sustained e-commerce strength while in-person shopping is coming back. Behavior is truly sticking. That is, I think that's the most fundamental point that we're seeing coming through. The race to this digital economy, it's on. What that also means is a lot of players wanna come in. There's structural changes in the sense of that the competitive playing field is, you know, opening up, more partners are coming in, which for a B2B to C player like us is a great opportunity to facilitate the entry of all of these partners. That's what we're doing.
You start to look around and say, "Well, who else is looking at this, these kind of trends and these kind of developments?" Most notably, governments. Governments are looking at this, and they have found that over the last 19 months that payments is indeed national critical infrastructure. That comes with, you know, government engagement, which is not always necessarily positive, but, what we're seeing is there's a real drive to modernize payment infrastructure. That is where we are invited to the table because we're a true multi-rail network. They're saying, "Hey, you're locally invested, you're a locally relevant partner. Let's talk about how do we make this better in our country." That is certainly the, a structural change, as in, you know, Tien-Tsin Huang asked earlier about new payment flows coming in, open banking, et cetera, in Europe.
We're playing on all of those trends going forward. I think that is what is happening. I could go on for a while longer. B2B, clearly digitizing supply chains is a drive that is in focus. We're seeing that. Data analytics and cybersecurity, that's the last point I want to make on this. With the race towards a more digital economy, there's gonna be more data that is available. More business will seek to use that data and run their business in a better way to find more customers. Our Test & Learn capabilities, our data analytics capabilities help on that. Again, that's a structural trend that's helpful, and the same applies for cyber and security. More digital transactions need to be made safe. More people need to be authenticated as they use these tools.
Again, that plays into our offering. Structural change is really driven by COVID accelerating the race to digital.
Our next question will come from the line of David Togut from Evercore ISI. Please proceed with your question.
Thank you. Good morning. What are your expectations over the next year for the pace of European adoption of account-to-account payments under open banking, especially given the shift online that you've really underscored, you know, during COVID? In particular, I'm wondering if you see Strong Customer Authentication, which is really a key to account-to-account payments in Europe being rolled out, you know, broadly enough to really affect, let's say, broader adoption of account-to-account payments throughout Europe.
David, let me start on that, and maybe Sachin wants to chime in. The journey towards account to account in Europe, I think it's still early days. If you look at how, you know, PSD2 has rolled out in Europe starting in September 2019, including the Strong Customer Authentication, it's been a long journey. Dates have been moved on multiple occasions to give time to the industry to get this right. Get right means that the transaction isn't so secure that nobody can use it any longer. The trade-off between consumer experience and security is actually found in a balanced way. What we are seeing in our engagements in Europe is that balance is starting to be struck.
We will reach a point where, you know, such Strong Customer Authentication in part is better than other forms of payments will be actually a reality in Europe. That's the first thing I want to say. When it comes to open banking specifically, it's been over the last two years, really a focus on driving connectivity in Europe, in terms of getting the open banking ecosystem stood up. That's exactly why we put out our connectivity product in June 2019. That was the first lead into the region, and we've been quite busy with that. Use cases emerging on the basis of that really started in 2020, the U.K. being ahead of continental Europe on that while this was still one Europe. You know, U.K. is still pushing ahead.
You heard us talk about Lloyds on card repayments, about our partnership with Tesco. The payment capability part of open banking is really leading in the U.K., and here our proposition is very well positioned, so we start to see that. I see the wave coming over to continental Europe as you know, connectivity is now there. Our acquisition of Aiia is perfectly timed here. We expect to close this by the end of the year to only bring in additional connectivity, but also additional payment capabilities. Because as you see, this is not just a data capability, it's a big data, a kind of a data play, account aggregation, personal finance management, and so forth, but it's also a payment opportunity.
Thank you very much.
Our next question comes from the line of Harshita Rawat from Bernstein. Please proceed with your question.
Hi. Good morning. Thanks for taking my question. Michael, I want to follow up on your comments on crypto. This year you've made several announcements, including the recent one with Bakkt and the acquisition of CipherTrace. Can you talk about how you see the overall ecosystem evolving and what ways Mastercard can participate here, in the growth of crypto and potentially CBDC, when they become live? Thank you.
Yes, Harshita. Always an exciting topic. We could not have an earnings call without talking about crypto, so I'm happy you brought it up. Looking at this from a number of perspectives, other than that it's, you know, there's a lot going on in the space. We are pretty clear on how we want to play in this. The first is we see significant volumes in terms of people actually investing in crypto and, you know, selling crypto. As an asset class, there's a lot going on. You know, I think we have a role to play to facilitate consumers wanting to do that if that's what they choose to do.
These partnership programs on exchanges, crypto exchanges and, wallet partners and so forth, have been quite important for us, and that is good from a volume perspective. There's real activity. When it comes to, you know, crypto as a payment tool, then, we take a somewhat differentiated view on that, versus that, you know, we just step into that. We're saying, at this point in time, the most likely chance of, you know, this kind of technology to work for payments is if it's issued, through a government in the form of central bank digital currency.
We've said that on a couple of calls before, and we said we will make our network ready to do that as and when a government is ready to put out a central bank digital currency, and then it will, you know, exist alongside the US dollar or the euro as a settlement currency in our network. We've done that. You know, that's easily said. How will a government test that? How will a country figure out between the private sector banks and the governments how to do this? You know, that's where our sandbox comes in. We can provide a safe space for government and private sector banks to figure out how that would actually work. Questions like the last mile, how do you bring utility into the hand of your citizens if you put out a central bank digital currency?
Acceptance questions and so forth. Facilitating investments as an asset class, we do that, and we get ready for CBDC. Should there be a private sector stable coin, we might also do that, but we have very strict principles on when to do this and when not. Now, let me talk about CipherTrace for a moment because this space is a really interesting space in so many ways. Questions on data privacy, question on authentication, we just touched on that in the context of Europe and Strong Customer Authentication. You have to expect the Europeans will say, "Well, Strong Customer Authentication will of course play a role in crypto transactions as well," which is where we always lead with security and trust.
I mean, that is really, you know, synonymous with the name of Mastercard when it comes to payments, that we have to do the same role. It's massive services opportunity. CipherTrace, 900 cryptocurrencies. You know, what does CipherTrace actually do? They drive compliance and AML checks into crypto transactions. You know, we can't run fast enough right now to get into the space because a lot of other people are deep into crypto, and these questions are not resolved. Asset class, CBDCs, and a services opportunity, those are the three ways that we feel we want to play and we need to play, and we have the differentiated assets to do so.
Thanks, Michael.
Our next question comes from the line of Dan Dolev from Mizuho. Please proceed with your question.
Hey, thanks for taking my question, Michael.
Hello.
Hey, first pitch. you know, how does, you know, the new offering by Plaid with the acquirers or, you know, any of that sort of potential disruption they're impacting Mastercard and the networks in general? What is the kinda general strategy around it? We're getting a lot of calls on this topic. Thank you.
Right. Dan, I think I touched a little bit on an earlier question that we had on this topic. Yeah. Here's a blog post that describes account to account. We have account to account technology really since the acquisition of VocaLink. We've learned how that works. We like it because it's an additional choice that is provided to consumers and to merchants. We also have all the learnings, and the learnings go around like, how do you create acceptance into that? You know, how do you make it easy for a merchant? How do you actually convince a consumer that actually likes the card proposition? All of that, you know, it is about standing up an ecosystem.
You know, what we believe is, this should be something that is built into our network, into our multi-rail capabilities, and that's actually how we're approaching it. You know, we're leaning into this. I don't see it as a disruption. That's been our stated strategy. You know, we have five years of learnings, and I think that puts us ahead of the curve to make this a reality. I think this is an interesting alternative when it comes to consumer payments in store. We have it, we build it. You know, it's for us to really figure out whether the economics settle, what other capabilities that are currently built into our card franchise can we extend into, the world of account to account payments, for example, chargebacks, you know, those kind of, data protections and so forth.
That's the direction that we're taking. Not really a disintermediation question. An interesting blog. The good things we've done in reality.
Yeah. Dan, I'll just add to that. Just, we've got to remember, right? There's a sizable TAM out there, and a fair amount of that TAM is likely not gonna be able to be reached by card products. This is where our multi-rail philosophy and strategy, as well as our ability to provide choice across various rails, one of which would be an open banking rail used for payment services. It's very helpful because it helps open up the TAM, which is available to us from what used to be primarily card-focused to much more than card-focused. We do see that opportunity come through here in open banking as well.
Our next question comes from the line of Bob Napoli from William Blair. Please proceed with your question.
Thank you and good morning. To follow up on the cross-border business, I mean, obviously a very important business for Mastercard. As you look at that business and as we get to full recovery, do you think that the economics of that business will be similar to what they were prior to the pandemic? I mean, is the continued development of blockchain and other technologies, or account to account, is that going to pressure the economics of that business?
Sure, Bob. Why don't I take that? Look, I mean, the value prop we used to deliver through cross-border payments on our carded products pre-pandemic and post-pandemic is exactly the same. We don't expect that the economic returns which they will generate should be any different, given that the value we delivered previously, if anything, has only gotten better over a period of time with more electronification of flows taking place. To your point around, you know, several other account to account capabilities which are there in the cross-border space, the reality is we're participating in them today. They happen to be going after flows which are not carded flows. They're not point of sale flows. They happen to be more in the nature of business to business payments. We do that with our...
Do you remember we acquired a company called Transfast. In addition to the fact that we have our capabilities from HomeSend, the combined capability of that is our cross-border send capabilities, which is account to account cross-border payments.
You know, we'll participate in those flows, but those are separate and distinct from what goes on at the point of sale with our card products today. Net-net, I kind of view the whole cross-border space as a positive for us as and when travel comes back from a card standpoint. In the meantime, we continue to actually plant flags in different parts of the world with the reach we've established on our B2B flows from a cross-border standpoint.
Great. Thank you. Appreciate it.
Sure.
Our next question comes from the line of Jason Kupferberg from Bank of America. Please proceed with your question.
Yeah. Good morning, guys. Just to follow up on cross-border. I guess in the third quarter, the volume growth ex-intra Europe with 60%, it was again a very good proxy for the overall cross-border revenue growth in the quarter. Now if we just look at October month-to-date trends, if those hold hypothetically through the rest of Q4, it would seem like cross-border revenue growth could again be around 60% this quarter. And arguably that would be even before most of the potential benefits of the U.S. reopening kicks in. Is all that a fair characterization? Are there other moving parts which we should be aware of? And can you just comment on which cross-border corridors are the highest yielding in your system?
I think the answer to the first part of your question, I think you kind of touched upon in the second part of your question, which talked about how revenues are realized on cross-border is very much a function, even in that ex-intra Europe kind of, you know, category, will depend on every corridor. Every corridor's got, you know, different yields and, you know, depending on which ones come back first, which ones come back after, you know, the numbers from a cross-border revenue standpoint will kind of move around. As it relates to what we're seeing, Look, I mean, I'll tell you pre-pandemic, you know, important corridors for Mastercard included obviously, U.S. to Canada, the U.S. to the U.K., you know, the U.K. to various parts in continental Europe. These are all very important corridors.
We've seen intra-Europe come back pretty nicely. The U.S. inbound is still to happen. I mean, there's a little bit happening, but there's more to come as borders open. Canada has started to open up. As you know, Canada opened up in the third quarter. We've seen signs of recovery take place in terms of inbound into Canada as well. These are important corridors for our business. You know, the one area which I will say is still a little bit kinda yet to be seen is Asia-Pacific, right? In Asia-Pacific, recovery in cross-border has still been kinda somewhat muted. We'll see how borders open up there and what that kinda shapes up to be. Net-net, here's what I tell you from a yield standpoint, intra-Europe, lower yielding. Ex-intra Europe, high yielding.
In the ex-intra Europe bucket, the yields vary by corridors.
Jumaria, I think we have time for one last question.
Our next question will come from Sanjay Sakhrani from KBW. Please proceed with your question.
Thanks. Good morning. I think Michael mentioned the waning impact of U.S. stimulus. I mean, we've seen the U.S. volume sort of stabilize here in terms of the growth. I'm just curious how you guys feel about the other side, which is credit rebounding and just thinking through the economic impact as lending comes back, lending-related volumes come back. Thanks.
Yeah, Sanjay, let me just start on the rebound of credit. Back to, you know, changing in how people spend, start to see more in-person, and more in-person certainly includes T&E. Discretionary, those are all use cases that are very much oriented towards credit, so that is what is driving that. You know, the impact of stimulus on the debit side, we still see an elevated use of sustained use of debit going forward. So it's not a zero-sum game yet again. It's balancing out in a way that one is coming back and the other remains elevated. Really comes down to the size of the available wallet that consumers have. You know, Sanjay, do you have any other thoughts on that or?
You know, look, Sanjay, I think it's interesting. If you take us back to a couple of quarters ago, maybe three or four quarters ago, you know, we talked about the same question as to what our views around credit and debit mix is gonna look like. We had kinda maintained that we think that there will be a reversion to the mean as economies come back and as discretionary spending picks up. That's exactly what you're seeing right now, right? I mean, as people are spending more in discretionary categories, lodging, travel, restaurants, you know, credit is definitely coming right back to top of wallet. We expect that as the economy continues to recover in different parts of the globe, that reversion to the mean will continue.
That's kind of our view as it relates to how credit plays out over, you know, the near to medium term.
All righty, good. Thanks, everybody. Thank you for your questions. We are gonna close the call now. I hope to see you at the Investor Community Meeting. Generally on these calls, it's not only the analyst community listening, the investor community, it's also our staff. I wanna thank our staff for everything they have done through this quarter. Again, it feels like a bit of a marathon as we turn out of COVID. See you at the ICM. Please do tune in. Thank you very much, everybody. Bye-bye.
Thank you.
This concludes today's conference call. Thank you for participating. You may now disconnect.