Mastercard Incorporated

Good morning. My name is Audra and I will be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Inc. Q4 and full year 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Please only press star one once to queue up for a question. as pressing star 1 multiple times may affect your position in the queue. If you would like to withdraw your question, press star 1 again. Mr. Warren Nisha, Head of Investor Relations, you may begin your conference.

Thank you, Audra. Good morning, everyone, and thank you for joining us for our fourth quarter 2022 earnings call. With me today are Michael Niebach, our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer. Following comments from Michael and Sachin, we'll open up the call for the Q&A session. 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 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 30 days. With that, I'll now turn the call over to our Chief Executive Officer, Michael Meva. Thank you, Warren. Good morning, everyone.

Let's get right into it. So starting with the big picture, consumer spending has remained resilient and we are very well positioned to capitalize on the growth opportunities ahead. We closed out the year with strong financial results and several notable wins. Quarter four net revenues were up 17% and adjusted operating income up 19%, both versus a year ago, as always on a non-GAAP currency neutral basis, excluding special items. While the macroeconomic and geopolitical environment remains uncertain, we are keeping a close eye on a variety of positive and negative factors. The broadly resilient labor market, with low unemployment and rising wages, coupled with elevated consumer savings levels, are key drivers of consumer spending. We're also tracking efforts by the central banks to curb inflation, along with moderating energy prices and the reopening of China. So, still lots of moving pieces. From an overall consumer spending standpoint, we expect the consumer to be relatively resilient. Spending patterns have largely normalized relative to the effects of the pandemic, with the notable exception of China. In terms of switched volumes, domestic volumes in the fourth quarter remained steady relative to 2019 levels, with some slight moderation in the US related to lower gas prices recently. Cross-border travel continued to recover in quarter four, with inbound travel either flat or up in every region sequentially relative to 2019 levels. As of the first three weeks of January, inbound cross-border travel to all regions is now above 2019 levels. We will continue to monitor the economic environment closely, and should the outlook change, we're prepared to move quickly to adjust our spending levels as we have done in the past. In the meantime, we continue to focus on the things we can control. This starts with our three strategic priorities, expanding in payments, extending our services, and embracing new networks. And here are some examples of how we're progressing against each of these. Starting with payments, we want substantial new business this quarter. Our innovative products, differentiated services, and partnership approach enabled us to secure major portfolio flips, extend relationships, and launch new programs with banks, co-brand partners, and transit systems around the world. I am very excited about our expanded partnership with Citizens to become their exclusive payments provider across all product portfolios in the United States. We will shift their debit portfolio to MasterCard, and we will maintain exclusivity on credit and commercial. Citizens selected MasterCard based on our digital assets, open banking capabilities, and safety and security tools. We have also extended and enhanced our long-term partnership with Citi. It solidifies MasterCard to Citi's exclusive global partner for Citi-branded consumer credit debit and small business cards. We look forward to continuing to partner to deliver digital initiatives, new technologies, and innovative payment solutions together. We've extended our longstanding relationship with Bank of America across their consumer and small business debit and credit lines of business. They're great partners. We're especially proud to continue as the lead brand for all newly issued small business cards. And our positive momentum with Chase continued this quarter as well. Building up on our recent co-brand commercial and paper bank partnership announcements, we are excited to announce that we have renewed the Chase Freedom Flex portfolio. Turning to the UK, we recently extended our credit deal with NetWest Group for consumer and commercials. We're partnering with Belvin and Istanbul Transportation to convert over 17 million closed-loop cards to MasterCards and add 24,000 new acceptance locations across the city. We've partnered with Q&B Finance Bank and Trendyol, a large e-commerce marketplace in Turkey, over 30 million customers to launch a new MasterCard co-brand credit product. Now, an important driver of our success in core payments is our ability to deliver innovation and thought leadership. We are designing and deploying innovation solutions at scale. As a result, are the clear partner of choice for our customers. Three recent examples include our work in installments, tokenization, and click-to-pay. Starting off with installments, SoFi launched PayIn4, becoming the first bank in the U.S. to launch within the MasterCard installments program. So far, I valued the broad acceptance, strong consumer protections, and permission-based open banking capabilities that all make MasterCard installments unique. We've got a strong pipeline for MasterCard installments and plan to add several additional programs across multiple regions throughout the year. Turning to tokenization, we surpassed 2 billion tokenized transactions per month, and for the year, we are up 38%. We're currently enabling digital transactions in over 110 countries. Tokenization helps keep the ecosystem safe and secure across a wide range of use cases. One example that I think is particularly cool is the work we are doing with in-car payments. We're working with car manufacturers and fintechs to integrate payments using our tokenization platform and biometric authentication capabilities. Think about the simplicity it brings for paying for gas, tolls, charging, or entertainment right from your car. This is a great example of MasterCard working with partners to drive the convergence of the Internet of Things, 5G, and addressing consumer demand for cool digital experiences. It also highlights how we're expanding the reach and the value of our acceptance network through new channels to support new use cases. This is just the beginning. Watch for more to come in this space. And on Click2Pay, we partner with Adyen to launch Click2Pay on their global payment platform, recognizing the value that it brings to guest checkouts for millions of online shoppers. Adyen joins more than 20 other payment service providers around the world, bringing Click2Pay to thousands of merchants globally. Now, this focus on innovation and partnership is also a critical part of our strategy to penetrate the prioritized set of new flows that we outlined at our 2021 Investor Day. We continue to make solid progress. Here are some of the examples of the driving growth in each area. First, disbursements and remittances. MasterCard Send and our cross-border services capabilities are solving for an expanding set of use cases across multiple geographies. For example, we partner with social marketplace platform Poshmark to enable seller payouts. And for cross-border payments, we've teamed up with PaySend to broaden our global reach. and expand the ability to send international payments across card brands. Second, we're deploying digital capabilities to displace cash and check-based commercial payments at the point of sale. Huge opportunity. In France, we signed an agreement with Societe Generale to develop their corporate card book. And in South Korea, we partnered with Kakao Bank and Samsung Cards to launch new debit and credit co-brand offerings for small businesses. The third flow is B2B accounts payable payments. Our virtual card capabilities provide an effective digital solution to address the working capital, process efficiency, and data challenges that are prevalent in B2B. We are the global leader in virtual card. We're seeing rapid growth in this space. We're bolstering our position through new partnerships and capabilities. For example, we announced plans to partner with Sabre and Confirma Pay to accelerate the use of virtual cards for B2B travel payments. We also signed an agreement with fintech partner Xtend to offer virtual mobile corporate cards in the U.S. and Canada. And finally, on the consumer bill payment front, we are focused on deploying market-specific solutions to meet unique needs of consumers and businesses. For example, in Norway, we are powering the eFactura service, which is used by the vast majority of citizens to pay their bills. In 2022, we hit a milestone as over 200 million digital invoices were sent using eFactura. As you can see, we're making significant progress, expanding in payments, and we are excited about the opportunity in front of us. Now, turning to the second of our three strategic priorities, services. Services provide differentiation and diversification for MasterCard. Our strategy is to leverage our services to drive growth at the core and to expand into new segments and use cases. We're making steady progress on both and have significant opportunity for future growth. Our services continue to drive growth in the core, as evidenced by our wins and extensions with Citizens, Citi, NetWest, and others, as I mentioned earlier. One example of a service that enhances the value of payments is Consumer Clarity. The service provides cardholders with merchant details and digital receipts to reduce disputes, lower chargeback costs, and improve the consumer experience. We recently partnered with Teasys, who will offer Consumer Clarity to over 25 million cardholders in the U.S. and the UK. In 2022, we signed up over 50 financial institutions and merchant partners for consumer clarity, including large issuers like Itaú in Brazil. We're also expanding our services to new segments and new use cases, including governments, retailers, digital partners, and financial institutions. This quarter, we partner with research and consulting firms, including IFO in CIMA in Germany, as well as the Barbados Ministry of Tourism and International Transport to provide governments with detailed insights into tourism and retail spending trends. We engage with retailers, like Lowe's, who are leveraging our test and learn capabilities to conduct analytics on their core business. We partner with large fintechs, like Monzo in the UK, to advise on product development strategies. And we are deploying our personalization solutions, which we acquire through Dynamic Yields, across a range of retail and financial institutions, including Carrefour Argentina, Hype, Cops, and Consuit, to enhance and scale their personalization efforts. I'm very encouraged by the continued momentum in our services growth strategy and the differentiation and diversification that these capabilities bring. I'll now move on to our third strategic priority, which is embracing new networks, namely open banking and digital identities. This quarter, I'd like to highlight an example of how our open banking capabilities have come together with our other strategic priorities to offer a new solution. As I mentioned earlier, in quarter four, JPMorgan Payments and MasterCard announced an innovative pay-by-bank solution. The solution utilizes the MasterCard open banking platform to modernize existing ACH payments and allow customers to pay bills from their bank account in a frictionless manner. Paverbank offers choice and provides a simple and secure experience for billers and merchants, as well as consumers, by enhancing existing ACH transactions. This deal is a manifestation of our multi-race strategy, expands our addressable market via open banking capabilities, and it deepens our relationship with JPMorgan Chase. We're actively working with them to take the solution to market this year. We also continue to make run progress with open banking in Europe. MasterCard is connected to more than 3,000 banks and financial institutions across 18 markets to power their open banking efforts. This quarter, we partner with Secure Trust Bank in the UK, who will leverage our open banking capabilities to provide safe and convenient ways for their customers to repay retail loans directly from their bank account. In summary, we delivered another strong quarter of revenue and earnings growth, aided by a resilient consumer and the continued recovery in cross-border travel. In payments, we want substantial new business this quarter, including citizens. We're extending our differentiated services and embracing new networks, including leveraging our open banking capabilities to power solutions like J.P. Morgan's Pay-by-Bank. With all that, we're well positioned for the opportunities ahead and will manage the business with agility should the macroeconomic outlook change. Sachin, over to you.