Mastercard Incorporated

Good morning, my name is Julianne and I will be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Incorporated Q2 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers are marked, 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. We've only pressed star 1 once to queue up for a question. As pressing star 1 multiple times, they have pressed their position in the queue. If you would like to withdraw your question, press star 1.

Thank you.

Richard Devin Corr, Head of Investor Relations, you may now begin your conference.

Thank you, Julianne. Good morning, everyone, and thank you for joining us for our second quarter 2026 earnings call. With me today are Michael Miebach, our Chief Executive Officer, Sachin Mehra, our Chief Financial Officer, and Ling Hai. are president of Asia Pacific, Europe, Middle East, and Africa, and incoming CFO effective August 3rd. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data, and the slide deck that accompanied this call in the investor relations section of our website, MasterCard.com. Additionally, the release was furnished with the SEC earlier this morning. are summarized at the end of our earnings release and our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach.

Thank you, Devin. Good morning, everyone. This is Sachin's last earnings call as CFO and he's sitting right across the table. So before turning to our quarterly results, I'd like to take this moment to thank him and recognize him for the significant impact he's had in the role. Sachin, thank you. and we're excited to see you carry the same focus, discipline and drive into your new role as Chief Business Officer. Same time as you heard from Devin, Ling Hai is in the room today. He will assume the role of CFO bringing his deep knowledge of our business, our product and our industry. You've seen that play out in the company's strong track record of supporting and growing with customers across Asia Pacific, Europe, Middle East and Africa. These changes as well as those across the entire leadership team reflect the strengths and depths of our team Operating as one team brings complementary experience and perspectives that sharpen focus, strengthen execution, and create greater value for our customers and shareholders. From a position of strength, this evolution will help us capture the opportunities ahead and continue realizing MasterCard's full potential. And that's priceless, of course. With that, let's drive into this quarter's results. The second quarter of 2026 was another strong quarter for MasterCard. Net revenues were above our expectations, up 12%, adjusted net income up 16%, and value-added services net revenue up 18% all year over year on a non-GAAP currency neutral basis. The macro environment remains supportive. Consumers and businesses are healthy and continue to spend, supported by positive job growth, low unemployment, and real purchasing power in many major economies. At the same time, we continue to monitor geopolitical uncertainty and its potential economic impacts. But macro is the only one part of our growth story. Our performance is driven by a clear strategy, disciplined execution, and differentiated value for our customers. We remain focused on consumer payments, commercial and new payment flows, and value-added services and solutions, each with significant runway and together reinforcing MasterCard's virtual cycle. That's a good roadmap for today's call, so let's dive in. Starting with the secular opportunity, there is significant runway to digitize consumer and commercial flows for many years to come. As a reminder, our last Investor Day, we shared that only a third of consumer transactions were carded. And the secular opportunity is even larger in commercial flows. We're targeting the secular opportunity in a way that drives outsized growth to MasterCard. For example, We continue to work with governments around the world to digitize disbursements and benefits programs, making it easier for consumers to access and use benefits and driving more volume to MasterCard. This includes food assistance programs in the United States, which represent $100 billion of spend each year. Through our exclusive partnership with Evermore, we are now rolling out a new program for beneficiaries to have a simple, more secure solution. And we're also capturing incremental transactions through our exclusive partnership with Alipay+, embedding MasterCard credentials into their network of e-wallets. This quarter, we're expanding this partnership in Mexico with Clip, a leading fintech with a small and micro-business network approaching 1 million merchants. Combining Clip's merchant network, Alipay+, wallet capabilities, and MasterCard's global payment capabilities is a powerful solution to digitized payments in Mexico. and that's a country where more than 70% of consumer payments are cash-based. MasterCard is exclusively tokenizing the stored wallet balances, enabling users to transact across MasterCard's global acceptance network. Complementing our efforts to drive outside secular worlds, we are finding new ways to power payments. Switching is critical to our virtuous cycle. More switch transactions lead to more data to fuel our services, increase our ability to distribute services over our networks. We've steadily increased our switching penetration, now reaching 72%, the reason, MasterCard's rich value proposition, especially compared to local networks. So our global acceptance reach, consumer protections, digital capabilities, and security overlays. We're also expanding our role in switching by flexing our network architecture. We're adapting to best meet the needs of the markets that we serve while ensuring we meet our long-term growth objectives and drive the virtual cycle. That's exactly what we're doing in the United Arab Emirates. The Central Bank of the UAE, through its subsidiary Al Etihad Payments, is partnering with Mastercard to build the switching technology in the UAE for the next phase of the country's domestic payments infrastructure. And we will serve as the prime international scheme for co-batch credit cards with a domestic scheme named Jawan. As part of this partnership, Mastercard will provide switching services behind domestic debit and Jaiwan Mastercard co-batch credit transactions in the UAE. These transactions are incremental to what we process through our global switch. Mastercard will also provide value-add services to the domestic switch, including fraud prevention and cyber security. Our direct relationships with ecosystem customers in the UAE continue as they do today. And that's our best-in-class technology at work locally, powering the UAE's digital economy, facilitating more transactions, and further scaling our services. That is another example of how we partner locally to drive collective value. And we continue to win and expand issuing relationships across our business. In the first half of 2026, we won several hundred flips and deal expansions, which are expected to drive trillions of dollars in incremental volume to our network over the next decades. This quarter, we renewed a key partnership with JPMorgan Chase on the Chase Freedom Flex portfolio in the U.S. And in Mexico, we renewed our partnership with Banamex, where we have exclusivity for nearly all portfolios representing almost 19 million cards. We've expanded our partnership with Revolut, now supporting their Apple and debit proposition Ultra across Singapore and Australia, plus their commercial portfolio in New Zealand, all building up on our growing partnership in the U.S. and long-standing relationship globally. We flipped to rely on federal credit unions, U.S. credit and debit portfolios, as well as Eurobanks, entire consumer and commercial portfolios in Greece. Once complete, there's over 1 million new MasterCards across the two. We launched new co-brands with Uber and Hilton in Mexico. And with a recent flip in Saudi National Bank's travel co-brand portfolio, we're now the exclusive partner across their credit, debit, prepaid and commercial portfolios. I shared some wins at Span Commercial already, but let's dig into that a bit more. MasterCard's commercial debit and credit volumes grew at 12% in the second quarter. We continue to build on this momentum as banks and large corporates turn to MasterCard for modernized commercial payment capabilities. We've added on average 6 million new MasterCard small business cards to the market each quarter for the past several quarters. And we see incremental issuance from this quarter's wins, including Intuit in the United States. Truist Bank, and the U.S. has chosen MasterCard's leading virtual card capabilities for their corporate cards' invoice-based payment needs. Also, we continue to support global money movement through MasterCard Move, most recently partnering with WeChat Pay Hong Kong and FlyRemit in India. And then in the travel space, we have an exclusive partnership with Riyadh Air, Saudi Arabia's new national airline. This is an exciting global first. As consumers can use their suite of branded prepaid and credit cards to purchase tickets and build brand loyalty, while travel agents benefit from seamless virtual card payments, and Real Air can streamline supplier payments. We're winning our geographic footprint. Differentiated proposition and innovation allow us to capture more of the market. We have added over 230 million new MasterCards into the market in the 12 months to quarter two of this year. As new issuers, Our services benefit from Masterclass proprietary transactional data, as well as open finance, loyalty and identity trends and insights. This also includes bespoke services like consulting, marketing, both key to winning targeted market share and optimizing our portfolios. For example, starting this quarter, we're managing the portfolio conversions for Westpac in Australia and Yuppie Credit in Turkey following our recent wins. We're working with Santander in the UK to accelerate cross-border spend through targeted marketing campaigns and I'll work with Pancolombia will have optimized their small business and commercial portfolios. The outcome? More payments volume. Moving to security solutions, a hot topic in today's environment. The proliferation of AI and new frontier models are amplifying new needs. We're seeing increased demand for MasterCard's robust and unique security solutions as clients navigate the ever-expanding threat landscape. Today, we have differentiated capabilities that span cybersecurity, Identity and Fraud. Our value suite is unmatched and we continue to build up on it. Let me share a few examples. We're identifying threats before they materialize. How? We're bringing recorded futures market-leading intelligence capabilities to our clients globally and seeing strong engagement across sectors. This quarter, we partnered with Wipro, a global information technology and consulting company, to further scale our capabilities. Building upon our acquisition of Recorded Future, we also launched MasterCard Threat Intelligence, specifically for payment fraud. In its first three quarters, Threat Intelligence has identified more than 7 million card testing transactions across 192 countries. Stopping that activity prevented an estimated $172 million in fraud linked to malicious domains. That's real value to us, our customers, and of course, our cardholders. And with strengthening security and customer experiences, MasterCard's identity solutions help customers authenticate identities for payment and non-payment use cases. The supporter Rogers Communications in Canada and Delivery Hero leverage MasterCard's identity capabilities to verify transaction authenticity, customer onboarding, and more. And we continue to make commerce safer through new innovations. MasterCard Merchant Trust Services is a new suite of AI-powered capabilities to help identify fraudulent merchants. Keeping the scammers from setting up shop will reduce fraud, cut out disputes, and provide greater security. The goal, real transactions for real purchases from real merchants. Our value-added services and solutions growth engine is strong and durable. You benefit from the underlying market tailwinds in security, data and AI, personalization, and more. There are also natural synergies between our value-add services and solutions and our payment network. That includes distribution. Today, about 60% of our value-add services and solutions net revenue is network-linked. We're attaching services to MasterCard switch transactions, as well as faster-growing drivers such as tokens or card-not-present transactions. and customers are using more Mastercard services, both existing and new products. We do so through direct engagement and through distribution partners. We recently launched Mastercard Advantage Partner Program and have more than 200 partners expanding our reach. All of this drives growth and expanding yields. More customers, more services adopted by each with higher contract value. That's the virtual cycle at work, again, and that's powerful. We play a central role in commerce today, and we are shaping the future of commerce, and we're helping our customers navigate that future. Agency commerce is the next evolution in payments, where the importance of security, transparency, and control only increase. Agency commerce creates a significant opportunity for MasterCard. It leads to incremental transactions and even more opportunity for our services. The MasterCard Agent Pay, we're helping power secure and trusted agentic transactions across our global acceptance network using tokenization, zero liability protection, and unique dispute resolution capabilities. These capabilities are just a few of the reasons why we expect cards will prevail in an agentic world, both in consumer and commercial use cases. It's early days, but engagement across the globe is energizing. The rise of agentic commerce also brings about an entirely new class of payment use cases, machine-to-machine payments. This is an expansion of our addressable market and one that we are at the forefront. We recently announced MasterCard AgentPay for machines, which enables AI agents to purchase low-value digital services, such as APIs, compute, data, content, at machine speed. With on-chain permissioning and off-chain settlement, Mastercard is the only network enabling machine-to-machine payments. An ecosystem is rallying behind us. At launch, we had more than 30 industry leaders participating, including Audien, Ant International, DDNK, Checkout.com, Cloudflare, Coinbase, and OKEx. We are a first mover in this space, and one with credibility and trust to deliver. Next is stablecoins. We believe stablecoins have great potential, but to work, there are a few essential principles for it to scale. Reliability, security, and interoperability. And that's what Mastercard delivers. There's clear utility for stablecoins, for example, in some B2B and P2P flows. But no problem to solve in P2M. In fact, digital asset players are choosing to partner with Mastercard to unlock trusted commerce at scale, benefiting from our global acceptance network, protections, and security. We offer a wide variety of crypto co-branded propositions and we're seeing strong traction. Our crypto co-brand volume has more than tripled over the last two years. This quarter, we expanded our relationships with BitGet and Kraken. Stablecoins are additive to our network. It's another opportunity for us to enable choice in how our customers and cardholders engage in commerce. We're also enabling our customers to participate in the emerging digital asset ecosystem through the creation of open standards. For our customer, it provides direct participation, reduced dependency on third parties, and the benefits of distributed economics. OpenUSD is set to go live later this year. It's another coin that we will enable across our network. We believe the space will evolve, and with it will be a creation of digital assets, including blockchains, coins, and tokenized deposits, all operating in tandem and with fiat. That's an opportunity for us. We expect to close The BVNK acquisition this quarter. With BVNK, Massacre will serve as the trusted interoperable layer, enabling customers to send, receive, store, and convert assets. BVNK's enterprise-grade payment orchestration capabilities, robust licensing, and connectivity are highly differentiated, and they are in market today. So in summary, we have a proven strategy and continue to deliver consistently strong results. Our confidence is backed by proof points. We are winning, we're capturing outside scrolls, we're delivering differentiated value, and we are shaping the future of commerce. That is what drives sustainable growth. Sachin, over to you one more time.

Great. Well, thank you, Michael. Look, before I jump into the numbers, I'd like to take a moment to thank all of our investors and analysts. I truly appreciate your engagement, your thoughtful questions, and the support over the past seven plus years. that I've had the privilege of serving as the CFO of this company. MasterCard is a special company with so much opportunity ahead and I'm excited to continue driving our strategy from a different seat. I'm not going very far and our paths will cross again in a different capacity and I look forward to it. So now let's dive in. Turning to page three which shows our financial performance for the second quarter on a currency neutral basis excluding where applicable special items and the impact of gains and losses on our equity investments. Net revenue was up 12%, reflecting continued growth in our payment network and our value-added services and solutions with minimal impact from dispositions. Operating expenses increased 10%, including a 1 PPP benefit from dispositions. And operating income was up 14%. Net income and EPS increased 16% and 19% respectively, Driven primarily by the strong operating income growth in the quarter. EPS was $5.04, which includes a $0.14 contribution from share repurchases. During the quarter, we repurchased $4.9 billion worth of stock and approximately $700 million of additional stock through July 27, 2026. Now turning to page 4, where I'll speak to the growth rates of our key volume drivers for the second quarter on a local currency basis. Worldwide gross dollar volume, or GDB, increased by 8% year-over-year. In the U.S., GDB increased by 6%, with credit growth of 10% and debit growth of 1%. As a reminder, the Capital One debit portfolio migration was basically complete in Q1. Excluding the impacts from that migration, our U.S. debit GDB growth would have been 8%. Outside of the U.S., GDB increased 9% with credit growth of 9% and debit growth of 10%. Cross-border volume increased 12% globally for the quarter, reflecting continued growth in both travel and non-travel related cross-border spending. Turning to page 5, switch transactions grew 9% year-over-year in Q2. We continued to drive contactless penetration, which in Q2 stood at 80% of all in-person switch purchase transactions. This is up 5 PPP since the same period last year. And token penetration reached over 40% of all switch transactions this quarter. In addition, card growth was 5%. Globally, there are 3.7 billion MasterCard and Maestro-branded cards issued. Turning to slide 6 for a look into our net revenue growth rates for the second quarter, discussed on a currency-neutral basis. Amen Network net revenue increased 8%, Transcription by CastingWords Now let's turn to page 7 to discuss key metrics related to the payment network. Again, all growth rates are described on a currency-neutral basis, unless otherwise noted. Looking quickly at each key metric. Domestic assessments were up 10%, while worldwide GDD grew 8%. The two-key GDD difference is primarily driven by pricing. Cross-border assessments increased 20%, while cross-border volumes increased 12%. The 8PPT difference is driven primarily by pricing in international markets and mix. Transaction processing assessments were up 12%, while switch transactions grew 9%. The 3PPT difference is primarily due to favorable mix and pricing, partially offset by lower revenue from FX volatility. And other network assessments were $326 million this quarter. Moving on to page 8, you can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 10%, which includes a 1PBT benefit from dispositions. The growth in operating expenses was primarily driven by spending to drive the execution of our strategic priorities, including initiatives to further harden our infrastructure, geographic expansion, and product innovations. Turning to page 9, let me comment on the operating metric trends for Q2 and the first four weeks of July. Switch metrics were generally in line with Q1, and underlying spend remained stable. Of note, excluding Capital One Debit, on a like-for-like basis, U.S. switch volume growth was 10%, or 2 PPP higher sequentially. This increase was driven by higher spend on fuel and overall strong consumer and business spending. Moving to our cross-border metrics, our overall cross-border volume growth remained healthy at 12% in the second quarter. Cross-border card not present ex-travel remained strong at 20%, benefiting from increased card not present spend from Venezuela and the timing of large retail promotional events. And while cross-border travel was down sequentially, relative to the April metrics we discussed on our last earnings call, we saw improved growth in the quarter, due to lower impacts from the developments in the Middle East and timing of holidays. Now, as we look at the first four weeks of July, our metrics remain relatively stable and strong. Looking specifically at Cardinal Present X travel, let's focus on July compared to June. The sequential decline is primarily driven by timing, including the large retail promotional events that happened in June this year as compared to July last year, and by mix of days. Turning to page 10. In Q2, Mastercard delivered above expectations. This strong performance was broad-based, with the upside primarily driven by lower-than-anticipated impact from the challenges in the Middle East, an uptick in cross-border spend out of Venezuela, where we are market leaders, and strong demand for our value-added services and solutions. These results, despite an uncertain geopolitical and economic backdrop, are evidence of the resilience of our diversified business model and our continued focus on execution across both payment network and value-added services and solutions. As Michael said, we continue to see a macroeconomic environment that is generally supportive. Around the world, economies are adapting to changing conditions with consumers and businesses continuing to demonstrate resilience. This is reflected in our underlying drivers. We continue to monitor geopolitical tensions and related energy prices along with critical economic data like unemployment, inflation, and so on. But overall, the underlying fundamentals of consumer and business spending and travel remain healthy. As we look at the second half of the year, our base case continues to assume spending remains healthy. As noted earlier, impacts from the instability in the Middle East moderated throughout Thank you for joining us. helps us navigate across a range of operating environments. Now turning to our thoughts for Q3 and the remainder of the year, which include the impacts related to the acquisition of BB&K that we expect to close in Q3. As it relates to our expectations for the third quarter of 2026, year-over-year net revenue growth is expected to be at the high end of low double digits range on a currency neutral basis, excluding inorganic activity. We expect a minimal impact from inorganic activity and a headwind of approximately 0.5 ppg from foreign exchange given the recent trajectory of the US dollar. From an operating expense standpoint, we expect Q3 growth to be at the low double-bidgets range versus a year ago on a currency-neutral basis, excluding inorganic activity and special items. We anticipate a 0.5 ppg headwind from inorganic activity Thank you very much. largely due to our stronger first half performance. We anticipate minimal impact from inorganic activity and a tailwind of approximately 1 ppt from foreign exchange. As it relates to operating expenses, year-over-year growth is expected to remain at the low double digits range versus a year ago on a currency neutral basis excluding inorganic activity and special items. We expect a minimal impact from inorganic activity and a headwind of 0.5 to 1 ppg from foreign exchange on a full year basis. Other items to keep in mind. On other income and expense, in Q3, we expect an expense of approximately $125 million. This is higher sequentially, driven primarily by incremental interest expense related to our bond issuance in June. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. And finally, we expect a non-GAAP tax rate in the range of 20% to 21% for both Q3 and Q4. And with that, I will turn the call back over to Devin. Thank you.

Julianne, you may now open the queue for questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press stars and the number 1 on your telephone keypad. Please let me press star one once to queue up for questions as pressing star one multiple times may affect your position in the queue. We'll pause for just a moment to compile the Q&A roster. And our first question comes from Randy Ellisall from . Please go ahead. The line is open.

Hi. Thank you for taking my question. I wanted to ask you about stablecoins and agentic commerce sort of together. They're both sort of focus areas for you. You commented on in your prepared remarks. Do you see use cases in a Gentic that will require stable coins, something like microtransactions perhaps? Or again, traditional MasterCard credentials basically fulfill all the use cases that stable coins can. I'm just trying to figure out whether there's a unique value proposition you're looking to solve for with stable coins.

Right. Thank you for that question, Ramzi. So, you know, as we were laying out earlier, you know, we're... Innovating around the future of payments, and these are two areas that will shape the future of payments, Gentic Commerce and Stablecoins. Let me start off by talking just Gentic Commerce, and then we see how transactions can flow in Gentic Commerce. So there's your The consumer-oriented use cases in agentic commerce where, you know, keyword search turns, changes, and we may use agents for that. That could be an LLM. That could be a first-party agent by a large retailer. And, you know, there are transactions that are now then delegated to agents, and that can happen very well through the existing con networks. What you need for that is that's what merchants always need. They need reach. They need, you know, predictable user experiences. That's the same. That's true for consumers. So we really believe that cards will prevail in that world. This is a tremendous opportunity for us also on the services side through tokenization, inside tokens, and so forth. We talked about this many times. The card infrastructure and the card ecosystem and the MasterCard proposition within that is unique. It's unique because we have additional capabilities that we put into the agent pay brought a call from us, and one of them is verifiable intent, which allows you to basically challenge a transaction, say I never wanted to buy this, and then the chargeback process can kick back in. This was innovated together with Google. So there's some unique propositions here on the agent pay side, but it just basically comes back to the main point that cards can prevail there. Now, if you look on the B2B side, you can see there's a range of agentic commerce transactions that can happen where you have an agent that does purchasing for a company that can very well happen on the card ecosystem, very similar to what I just said on the consumer side. Amounts, speeds, purposes, they will need the protections, they need the global reach, all of that can apply, and we believe that's a continued opportunity for us, particularly on the services side again. Now, there could be an entirely new range of transactions, and that is machine-to-machine payments. That is low-ticket, micro-ticket transactions that happen at very high velocity. And for that, we can see a world emerging where different kind of underlying infrastructure is required. And for that... We've put out our protocol, which is an evolution of agent pay, which is agent pay for machines. This is the only network protocol that's out there today to facilitate that. Now, the underlying infrastructure for that, we've mapped it out. You can start to see that there is a transaction that is recognized from one agent to another, these machines talking to each other, but the settlement happens in different kinds of rails. That could involve stablecoins, but it also could involve different types of settlements. We're actually quite open to that. But what it needs is the immediacy of these agents to recognize that transaction. And that is what Agent Paper Machine actually does. So that is a connection to stablecoins. You could see that stablecoins play a role, but not the only thing. Stablecoins, on the other hand, for us is a separate topic generally. will play a role in the financial ecosystem of the future, which is why we have been investing. Our current approach on stablecoins is really facilitating that you can spend your crypto balances if you still want to, your stablecoin balances that you purchase the same. We facilitated settlement in our networks if that is so wanted. We facilitate money movement using stablecoins. to drive immediacy and transparency of cost. But it's also true that Sablecoin isn't the answer to everything because you still need protections, you still need acceptance, and you still need to kind of find your way into fiat. We expect a world of multiplicity, many coins, many chains, and all of that needs a trusted interoperable layer because people will transact across different coins and so forth. And that is what BB&K will do for us. Sachin mentioned it. We're expecting to close the BB&K acquisition. So that is another tremendous opportunity for us. Across the whole thing, there's still services opportunity for us. That's a lot more than you asked for, Ramzi, but it is all very important. We're very excited about it. And the two topics, very much to your questions, they do interlink.

Our next question comes from Sanjay Sakrani from ABW. Please go ahead. Your line is open.

Thank you. Good morning and Sachin and Ling Hai. Congratulations again. Sachin, I have a question for you on the acceleration you saw in cross-border from April to June and into July. I know you mentioned the impact of the Middle East conflict being lower, but it seems like a pretty sizable lift. So I'm curious if The World Cup had any play in that and factored into that? And then should we expect the moderation and obviously anything else to call out? Thank you. Sure, Sanjay.

So a couple of things to actually talk to as it relates to the trends we saw between April, May, and June. Certainly, you saw a recovery in terms of cross-border travel in the Middle East. Now, just to give you a little bit of color as to what we're seeing in the Middle East, broadly speaking. So We did see better spending trends as it relates to outbound from the impacted GCC countries into other parts of the globe. Hard to identify whether that's necessarily tied to the World Cup or not, but you saw trends which were starting to actually present themselves across both consumer spending and commercial spending. So for me, the way I kind of think about it is greater confidence in terms of how people are actually doing that outbound spend. That's also tied, by the way, to increasing capacity from flights and airlines and things of that sort. So that's important to recognize. The other thing which has been supportive of cross-border during the quarter has been Venezuela. And I called this out in my prepared remarks. Important to understand what's going on there. I think all of you are aware that we deconsolidated our Venezuela operations in 2018, where we deconsolidated revenue and we deconsolidated volumes at that point in time, primarily due to the fact that it was a very challenged repatriation environment at that point in time. So the ability to actually get U.S. dollars from Venezuela was challenged. Well, what we've seen is actually very interesting because over the course of, you know, the first quarter and particularly going into the second quarter, there has become an increased availability of U.S. dollars in Venezuela. And what that's effectively meant is that consumers have greater access to U.S. dollars and they're utilizing those U.S. dollars for their cross-border spending, mostly in what we call card-not-present-ex-travel. So that's less about travel, that's more about card-not-present-ex-travel. and also just to kind of just put a bow around it we are the market leaders as it relates to Venezuela and it's primarily a debit market so that's where you're seeing that spend come through. So what you're seeing is the impact of both that more I should say lower than you know April effect which came through in May and June as it relates to outbound travel from the Middle East but what you're also seeing is the trends from Venezuela which have been holding up pretty well to be honest with you. So You know, this is a competitive differentiator for us. We are the market leaders. And as you know, you've seen the U.S. dollar availability come into play. You've seen that volume come through in terms of what we're seeing in Card Not Present Extra out there.

Our next question comes from Andrew Jeffrey from William Blair. Please go ahead. The line is open.

Thank you. Good morning. I wanted to drill down perhaps a little bit, Michael, on some of the domestic switching comments you made. I think the UAE initiative in particular is pretty compelling. What other markets are you targeting for those kinds of solutions? And I wonder if given all of MasterCard's capabilities, Europe is potentially ripe despite their, you know, closed-loop initiatives for the same kind of solutions?

Great question. Important topic. So I want to take you back. I'll make it slightly shorter than previous answer, I think. I'll take you back to 2022, though. This was a time when we were in COVID and we said, you know, with everything that's going on, it's important to invest in the resilience of our business. And we put a particular focus on a technology strategy, really with the goal to allow us to run anything anywhere. So that's what we did at the time, and it shows modularity of our network. And that instance in the UAE is exactly that. So we're basically running a part of the switch in the UAE, and it gives us access to transactions that we didn't have before. So it's a good partnership from that perspective, upside for us, but it gives that resilience and global technology to the UAE. Tremendous partnership. It's not the only partnership, though, where we have that. We have different versions of that, but always coming back to it has to work from a technology perspective, has to work from an economics perspective. The give and take has to work for us. But then we can get access to more transactions, which fuel our virtual cycle, as I said before. We've done something like this in South Africa, where we built a real-time payment switch that can actually carry anything. It can carry any ISO 2022 transaction, can carry a card transaction. So this is the kind of technology that we have or we're in the process of making available in Europe. Now, Europe is a very competitive market with lots of payment choices for consumers there on the P2P side, on the card side. The digital euro is in the making. There's a lot going on in Europe. So we feel very good that we have this technology that allows us to partner in different ways. For now, we are very well positioned Thank you very much. A wide set of options right now. At this point in time, we bring the most value through our card propositions, but we have the flexibility to do what we need to do should the time come we find better engagements. So that's how I look at it. You go into Asia, you see in the stands there are partnerships that we have with switches and so forth in other parts of the world. So let's run anything anywhere. Concept is really important for us to see where the world is going, but always comes down to our economic principles, apply our services, economics, and standard technology that we can use so we don't have a thousand flowers bloom kind of landscape for us.

Our next question comes from Dan Dolev from Mutuho. Please go ahead. Your line is open.

Hey, guys. Great quarter. Congrats, Michael and Sachin. I have a question about OVAX, specifically about cyber demand. So we think, you know, given what we're seeing in security software, you know, Microsoft is driving very strong demand for cyber demand. Can you maybe unpack the upside to that from MasterCard? Because it should be a pretty big catalyst in our view. Thank you.

Right, so on the safety and security part of our portfolio, great question, Ben. So, you know, we have gone much deeper than other market participants on the cyber side, recognizing that as the world digitizes faster, clearly that's an underlying growth driver for us, a tailwind for us. There's more demand. We initially started out in fraud. We're now in fraud and identity, and we're in cyber. That is the portfolio. Those are the three big categories. On the cyber side, we've strengthened our proposition with the addition of Recorded Future. So that's what the portfolio is. Currently, when you think about what is occupying the minds of CEOs, what's occupying the minds of directors in the boardroom, it is cybersecurity. And the recent discussions around frontier models And, you know, how do you go about them? Is it more of a threat? Is it actually a helpful tool for us to identify vulnerabilities in your company's technology? It's a bit of both. And we have been engaging from day one on that. So all of that puts cyber into the kind of the center of the discussion. We have strong relationships with cyber in a lot of our customers really through the fraud side. So that is a natural growth path for us to engage the CISO and talk about the expanded capabilities that we have, while at the same time the CEO talks to the CISO and say, what are we doing to protect ourselves? So it all comes together in the moment. We're meeting the moment with this portfolio. When I was talking earlier about threat intelligence, here, you know, with this ever-expanding threat landscape, it is almost impossible for any company to, you know, meet every fraud risk that there potentially is. So what you really need to know is you have to have targeted information on how you might be targeted and what is the vector, the threat vector that applies to you the most so you can actually focus there. That's very much what Recorded Future does today. So if you take all of that together, I think we're in a good position here. As far as our own cybersecurity goes, of course we have found that leveraging the latest technology Frontier Models help us accelerate identifying vulnerabilities. And we take those learnings and those best practices and how to do that and share that with our customers around the world so that we can keep the whole ecosystem safer. So fundamentally a strong trend for us, but let's not forget it's not maybe that sexy, but everyday fraud. I gave you that example on the $172 million of fraud prevented on malicious domains. All that is powering our cybersecurity business today, and it's attached to the transaction growth. We talked about all the transactions that we're going after. This is a flywheel that is very much needed right now. Obviously, fraud and cyber risk are not a good thing, but they happen to be a part of a business that they're very good at, so we're helping our customers with that.

Our next question comes from Rashida Rawat from Bernstein. Please go ahead. Your line is open.

Hi, good morning. I want to ask about Europe. It's a very important region for you. If I look at purchase volumes, it used to grow in the mid-teens and now the growth has decelerated a little bit. Maybe talk about the drivers there in terms of macro, competitive environment, local dynamics, and I know there's a little bit of smaller contribution from Asia conversions as well. How should we think about the growth in the region? Thank you.

Hey, Sita, I just want to make sure, I'm curious which region you're talking about. I didn't quite pick up. You said Europe? Okay, Europe. Yeah. Okay, look, I mean, at the end of the day, our business in Europe continues to perform exceedingly well. You know, we are very much in the space of working very closely with our customers to deliver a ton of value, and they're seeing that come through in the nature of the partnerships which we've got there. Thank you very much. which was giving us the lift in terms of the share wins. Naturally, what's going to happen after that, if you're looking at competitive growth rates on a sequential basis, you're going to start to see the lapping effect of that come through. So that's certainly a factor which explains what's going on there. And then, you know, we've been pretty clear about, you know, what kind of deals we want to win and what kind of deals we're going to actually pursue. There have been deals which we have competed for, but we've done it within the realm of what we thought made good financial results And that's what we did. So you're seeing that come through as well in the nature of the roll-off of those volumes, very much the case. That discipline is something we're going to adopt and have always adopted because it's really, really important for us Volume for the sake of volume is not what this company should be chasing. Profitable volume, which is going to drive higher net revenue yield, is what we're going to chase. And we're going to do it in a manner which works well for our partners to drive higher growth for our partners. So I'll just give you, and you know this, but I'll just say this anecdotally. Winning share of a portfolio which is growing at 1% helps me in the first year and then is a huge drag on growth for the years thereafter. And so if you can't really grow the portfolio, it doesn't really matter. So that is very much the philosophy we adopt. So I know you asked the question broadly around Europe and trends, but you also asked about the competitive environment, and hopefully that gives you a little bit of color on the mindset that we adopt in terms of how we're actually running our business.

Our next question comes from Kim Jin Wong from J.P. Morgan. Please go ahead. Your line is open.

Good morning and thanks and congrats to Sachin. The U.S. growth is quite healthy here. Just curious how broad-based that is. Is there any difference in income bands to call out? Because, again, that 10% X cost capital one is really quite strong. Just trying to get a sense of the headlines. Thanks.

Yeah, sure, Ginger. Look, I mean, at the end of the day, the business country should perform really well. The strong underlying consumer and business spending, which we are seeing in the U.S., There has been a tailwind which has come on account of higher fuel prices, so let's recognize that. You probably have some impact coming through from, you know, the World Cup as well as it relates to the second quarter in particular. Hard to really quantify what that is just because it's like you can't really identify exactly what that is. But, you know, I would tell you the underlying consumer and business spending trends continue to hold up well in the U.S., and to your point, if I look at it, it's broad-based. We see it across credit and debit. We see it across consumer and commercial. And look, I mean, the teams are busy. They're busy with our customers, helping drive the growth of the customers, which at the end of the day is what matters, right? So because our customers grow, we bring our services and assets to them, help them grow their portfolios, which is accretive from a volume standpoint, but also from a revenue standpoint. So we've certainly seen that come through. On your question about You know, mass versus affluent engine, I would say they're holding up well both across mass and affluent, certainly in the U.S., but across the world as well. We try and track the best we can as it relates to what we're seeing in spending patterns based on the product flows that are out in the market which serve the different categories of customers. And when we look at that, we're seeing literally strong trends across both mass and affluent. What you do tend to see is higher growth in the affluent side of spending trends. But, you know, that's been another new phenomenon. That's been with us for some time now.

Our next question comes from Raina Kumar from Oppenheimer. Please go ahead. Your line is open.

Good morning. Thanks for taking my question. I noticed you had a nice acceleration in apnea in your payments volume, so 11% from 9% in the last quarter. Just wondering what the dynamics are there and if that type of growth is sustainable in the region going forward. Thank you.

Yeah, Raina, so a couple of things to keep in mind. Underlying growth continues to perform well in AFMEA as the broader region is known right here. The step up that you're seeing between Q1 and Q2 is driven by a couple of factors. Number one, there's a lapping effect. You'll remember last year in the second quarter, we had highlighted that there was some moderation in select markets in the Middle East. So you're lapping that effect come true in terms of the growth rate. And then, you know, you've also got the impact of fuel, which is coming through in terms of trends. And that's not truly in Apnea. That's true broad-based, actually, the impact of higher fuel prices. But not to take away from the fact that the business continues to do well, and we continue to actually drive good growth across the portfolio there.

Our next question comes from Tim Chiodo from UBS. Please go ahead. The line is open.

Great, thanks a lot. I want to also touch on the cyber fraud and identity portion of the value-added services portfolio. There's a key underlying word or theme that I think we could maybe hit on here, which is the agnostic, basically the products being very agnostic, from two ways. One is across card networks, and the other is even across non-payment use cases, many of which you alluded to earlier. I was hoping you could talk about that aspect of these services. and a minor, minor numbers question related to this. There's been a few acquisitions and dispositions since you last gave the mix of value-added services from this category. It was around 40% before. If there's been any minor update to that mix, that would be appreciated as well. Thanks.

Okay, so let me take the first part while Sachin thinks about the mix. So, of course, the... The safety security portfolio that we have cuts across a number of dimensions. So, as I said before, it started off in card fraud, and then it branched out from card fraud into identity, into threat intelligence, cybersecurity, and so forth. But to your point, there is the other dimension. Fraud doesn't only happen on cards. Account-to-account scams and account takeover threats and so forth. This is all the reality, unfortunately, today. So there is a tremendous opportunity for us to engage our customers there. Now cons live in an ecosystem and here to come to a common fraud solution through our rules is something that's a little easier than the account to account side where this is infrastructure. But we have learned through Vocalink and our real-time payment expertise how to do this now in account to account payments. And that is the first step that we've done there to prevent account to account fraud through kind of like a consortium approach with the banks in the UK. and that is a good first step. So that's a bit earlier on its journey, but a significant opportunity that we see going forward.

Yeah, and Tim, on your question, you know, on mix, just to reiterate, what Michael mentioned in his script was that approximately 60% of our VAS revenue is network linked. And, you know, if your question is how does, you know, acquisitions and dispositions impact that, well, the reality is a lot of the acquisitions which are there if they're in the security space tend to be network linked for the most part so as we do more and we start to roll them out in the market and drive the synergistic impact of that you might see some level of proportionate increase in terms of the network linked revenues which are there but that being said The remaining 40% also continues to grow at a healthy clip. So just to be clear, things we're doing from a marketing services standpoint continues to be actually a key contributor to our VAS growth. So it's important to actually keep in perspective that that balance of moving away from 60% is not going to change by one or two acquisitions. But there's a very deliberate and intended kind of focus to make sure we've got good balance in terms of how our VAS revenues are generated.

We need to add one more point on that. So, take Recorded Future, for example. So, this is not necessarily network-delivered on a standalone basis, but through MasterCard Threat Intelligence, actually it is. But here, the key point is, when we make an acquisition, so what we bring it, what we oftentimes try to do is use the network. That is one option. Sachin just talked on that. But there are... the kind of products that we sell in our one-on-one engagement or through distribution partners but they still benefit from MasterCard's unique features mostly through our data. So we bring together the data of the respective acquisition with our data and that makes a huge difference in terms of this is not just us inserting the company and having some sales synergies. We have more structural synergies out of that and that's generally kind of targeted we're looking for.

Our next question comes from James Fawcett from Morgan Stanley. Please go ahead. Your line is open.

Thank you very much. I wanted to go back to the open standard and that initiative. And one of the questions we've gotten a lot from investors is how we should think about the government and governance and development roadmap there and what kinds of initial use cases we should anticipate and think about as that moves forward. Thanks.

All right. So, open standard, you know, living up to the name, open. So, here is a set of company, 140 plus companies that have come together to create a consortium that facilitates the open USD coin, which has... A couple of aspects to it. It's a neutral market utility. It's with a focus on value exchange and payments. And it's a governance structure that is fairly straightforward with these companies around the table. Obviously, not every 140 participants will have a very specific say on that. Otherwise, we wouldn't move anything forward. So this is what is currently being played out in more detail. But broadly speaking, the focus will be on payment use cases. It will be ensuring that the economics can be distributed and everybody can participate. Those are some of the underlying unique features of that. And hence, we've seen all of the interest. For us, this is important, but it's not the only thing that we're doing. The key point, and I said it in my prepared remarks, is this will be one coin that we will One last question, Julian?

and certainly our last question today will come from Matthew O'Neill from Bank of America. Please go ahead. Your line is open.

Yeah, hi. Thanks so much and congrats again, Sachin. Maybe a couple of housekeeping questions just to round out after a lot of good thematic ones. Anything to... Call out or point to with respect to the rebates and incentive trend as a percent of gross payments revenue through the back half of the year. Obviously, that's relatively hard to predict and sometimes lumpy. And along those lines, anything that we should prep for with respect to the timing or impact of the BBNK deal closure through the back half of the year as well? Thanks so much.

Sure, so first a new question on rebates and incentives. For Q2, our rebates and incentives actually came in pretty much in line with what our expectations were. So that's kind of, you know, pretty much on point. As it relates to Q3, we expect that our rebates and incentives as a percentage of our payment network assessments will be slightly higher than it was in Q2. You know, look, I mean, at the end of the day, Like you said, it's hard to predict because it's largely based on timing of deals and deal performance and things of that sort. But all of that being said, at the end of the day, what we're most focused on is making sure that we've got a rich pipeline of deals and that we're executing on the same, which is where we are right now. We have a rich pipeline. We're executing on that pipeline. And it's in that vein that I've shared this third quarter outlook for where I see the bits and incentives. As it relates to the BBNK closure, as Michael mentioned, we expect the acquisition to close in Q3. That is contemplated in what we've shared with you in our REX with the materials which were posted today. So you can see the impact come through, minimal impact from a net revenue standpoint. There's some impact from an operating expense standpoint. All of that's contemplated in what we've shared with you in our REX.

Michael, any closing comments?

Yeah, so I want to chime in. Sachin, you had so many congratulations, so I'll do it one more time. Congratulations. Thank you for this last call. And Ling Hai, looking forward to working with you. Congrats to you as well.

Well, thank you, Michael. I'm very excited about the new job, and I look forward to leading the next earnings call with you.

But also my gratitude to Sachin for being such a wonderful CFO. And for those of you on the call, for all the investors and analysts, I look forward to

Thank you.

So that leaves me to do one important thing, and that is thank our employees around the world who do everything and make everything happen that we just shared with you, and also to thank you for your trust and support of MasterCard. Talk to you next quarter. Thank you very much. Thank you.

This concludes today's conference call. You may now disconnect.