Q4 2024 Earnings Call Transcript

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 Q4 and Full Year 2024 Earnings 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. [Operator Instructions] Thank you, Mr. Devon Kaur, head of Investor Relations. You may begin your conference.

Thank you, Julianne. Good morning, everyone, and thank you for joining us for our fourth quarter 2024 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 is 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 GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I'd like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our 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 will now turn the call over to our Chief Executive Officer, Michael Miebach.

Thank you, Devin. Good morning, everyone. We finished the year strong. Fourth quarter net revenues were up 16% and adjusted net income up 19% versus a year ago on a non-GAAP currency-neutral basis.

Our diverse capabilities in payments and services and solutions, including the acquisition of Recorded Future this quarter set us apart. They also position us well for long-term growth, as we outlined at our Investor Day. And this is what you will see and the new and expand the partnerships we will discuss this morning. The macroeconomic environment continues to perform well, and it is underpinned by healthy consumer spending as we've seen in today's news.

The labor market is strong with low unemployment and continued wage growth. Inflation has moderated, but to varying degrees across categories and countries. Consumers remain engaged. Affluent consumers have benefited from the wealth effect, while the mass segment remains supported by the labor market.

Our e-commerce institute expects a year of global economic expansion in 2025, defined by shifts in monetary and fiscal policy, or by geopolitical concerns remain. Overall, we remain positive about our growth outlook. We will continue to monitor the external environment and stand ready to adjust if needed. We remain hyper focused on successfully executing on what we can control.

Our strategic priorities, which fuel our growth algorithm. We laid out in detail at our Investor Day, those three strategic priority areas include consumer payments, commercial and new payment flows and services and solutions. A clear proof point on how we're executing is our steady drumbeat of share wins across products and geographies. Now I often highlight our larger wins on these calls with you, but it's important to note that our local teams are competing for and winning deals of all sizes based on the differentiated value that we provide.

Having a diverse portfolio with customers of all types is essential. It allows us to further expand our customer base and enables us to bake into new areas where we can partner and grow together. In 2024, we flipped or expanded hundreds of relationships globally. Let's first focus on the U.S. where we have won several large flips over the last few years.

That momentum continued this quarter. ICBA payments, which serves thousands of community banks will significantly expand its partnership with Mastercard. This includes card issuance across their partner banks spreaded and debit portfolios. In Mid-Florida, a large credit union will migrate their credit and debit portfolios to us.

Both partners highlighted our differentiated product suite, analytics capabilities and the expertise of our people as a key in their decision to expand their relationship with Mastercard. In the public sector space, we renewed our long-standing relationship supporting the Direct Express program, one of the largest social benefit card programs in the world. Direct Express disperses benefits, including social security, veterans and disability on to Mastercards held by over 3 million Americans. And the momentum also continues into travel and retail verticals.

Porter Airlines and Bank of Montreal, will launch a new co-brand program with us in Canada. In the U.S., we renewed our consumer and small business co-brand credit card partnership with IHG and Chase. They will leverage our data analytics and loyalty assets to enhance their value proposition. And we renewed our co-brand partnership with Sam's Club, we will continue to leverage our products and services.

Our success extends across all regions with several significant renewals and expansions. We secured long-term exclusivity on debit with Saudi National Bank. We renewed and strengthened our partnership with Nubank. We've extended our relationship with Banco Santander in the U.K., and we successfully renewed our global premier credit card agreement with HSBC in over 20 countries.

All these wins are a result of the successful execution of the strategic priorities we discussed at Investor Day. I will share a few highlights on each area, starting with consumer payments. Now these flows represent a long runway of opportunity for sustained growth. Today, there's over $11 trillion and 1.5 trillion transactions and cash and check around the world.

We are capitalizing on the significant secular opportunity by expanding acceptance, reimagining checkout, opening closed-loop systems and enabling new verticals. First up, we're positioned to be the most accepted payments network in the world with around 150 million acceptance locations globally today. Second, we are reimagining checkout. And that with our 2030 global plan to phase out manual card and password entry online in favor of smiles and fingerprints.

Not only is that a better experience, but it's also more secure and is fully aligned with our data privacy principles. And the online space needs that. Fraud rates are 7 times higher online and in store. And approximately 25% of online shopping cards are abandoned because checkout is just too slow.

Our tokenization biometric capabilities sit at the heart of these solutions. Need proof? Well, in 2024, we tokenized about 4 billion transactions per month, which is up 40 times over the past 6 years. As we have said in the past, there are many use cases for tokens.

Take, for example, the next click of our multi-option payment solutions. We're rolling out the Mastercard 1 credential, which allows consumers the flexibility and control to set their payment preferences in their banking app for each transaction, if they so choose to, be it credit, debit, prepaid or buy now pay later, all behind one credential one token. And the merchant the merchant accepts that through the same simple and secure digital connections as always, no added work. Tokens provide tremendous value, and we offer a set of services on and around those tokens such as life cycle management and authentication, which enhance that value.

Now while the growth of token makes the ecosystem safer and more secure, we also benefit on the natural tailwind associated with the growth of token usage. Shifting gears. We're also driving incremental volume and transactions on our network by opening up closed-loop systems. Beyond the transit opportunities we talked about many times, we're also partnering with local wallet providers to create greater simplicity and access for the end consumer.

In Sweden, we're working with Swish so that users can tap to pay and store both domestically and abroad by adding their Mastercard to the Swiss app. In Latin America, we collaborated with Davivienda to co-create a digital-first debit product aimed at driving financial inclusion. We signed an exclusive partnership with them to launch the product on the DaviPlata digital app. And our pay local service seamlessly connects with local digital wallets, enabling consumers who use Mastercard to make card payments across a broader set of local merchants.

At the same time, merchants benefit from access to more consumers and the protections we provide. The solution supports local tourism, that market that we travel to where we couldn't pay, provides a seamless consumer experience and helps drive cross-border volumes. Building on partnerships with leading wallet providers like Alipay and GrabPay, several additional players in Asia Pacific will now open their wallets to cards. This include Dana in Indonesia, Touch & Go in Malaysia, Bakong in Cambodia and Lanka Pay in Sri Lanka.

We're also capturing new verticals like consumer bill payments. This quarter, we partnered with Bemobi in Brazil. Bemobi will integrate Click to Pay into their bill payment platform, enabling fast and secure payments for recurring services like telecoms and utilities. Now as a network company, we're focused on enabling the broader ecosystem, and that's exactly what we have been doing in the crypto sector.

We have a well-planned, balanced strategy that serves financial institution, crypto players and, of course, consumers to drive growth and provide choice in this space. We're partnering with a wide range of crypto players to enable consumers to buy cryptocurrencies on card and spend their crypto balances anywhere that Mastercard is accepted. I'm very excited about new partnerships with Crypto.com and Metamask. Just a few of the many new players we have added in 2024. And we're enthusiastic about the future of block chain technology, but to reach its full potential, we believe there's a need for sound governance interoperability and real-world use cases.

All this is a core competency of ours built over decades. To meet these needs, we develop the multi token network, MTN. This quarter, we partnered with Conexus by JPMorgan, the firm's block chain base unit to integrate MTN as a payment settlement solution. By bringing together the power and connectivity of Mastercard's MTN with Conexus digital payments, we aim to unlock greater speed, transparency and faster settlement capabilities for cross-border B2B payments.

And while it's early days, we're excited about the opportunities, which digital assets can bring to the world of payments as the space evolves, complementing our existing solutions. Now while consumer payments offer a significant runway for growth, commercial flows represent an even larger $80 trillion serviceable addressable market. Only about $3 trillion is carted today. In 2024, our commercial credit and debit volumes represented 13% of our total GDV and grew at 11% year-over-year on a local currency basis, just to give you the latest stats.

On top of that, disbursements and remittances represent an additional $20 trillion in addressable market. We're pursuing that opportunity with Mastercard Move, where transactions were up over 40% year-over-year in the fourth quarter. But let's dig into commercial. First, we're expanding our global leadership in virtual cards by expanding across use cases, geographies and verticals.

For example, partnering with Net Narest [ph] to distribute our new mobile VCN to U.K. companies and their employees. We're deploying virtual cards with Citi in Argentina, the first deployment of ECN in that market. And then in the travel vertical we established new partnerships with Worldpay and Emirates NBD to offer virtual cards to their customers. We're also leaning into our success in travel and applying into new high-potential verticals.

For example, trade and logistics. Building on our previous announcement of Dubai First World, we're driving continued growth in this sector. Global Fintech invoice Bazar will distribute new co-branded Mastercards to help digitize payments across the trade ecosystem. And similar in consumer packaged goods, we partner with Dean [ph] Finance and Prime Dash to enable small business in the Middle East to automate payments to Coca-Cola distributors.

This builds on partnerships with leading beverage distributors in Latin America that I spoke about in previous calls. They have good momentum on connecting small business in this space. We're also driving small business growth through expanded issuer partnerships. We signed an exclusive commercial deal with DNA, the state-owned bank in Argentina, AMP Bank in Australia will launch Mastercard debit cards for the new digital SME and consumer bank and ANT International's World first will expand our partnership to now issue virtual cards for SMEs and new markets, including Singapore and Australia.

Now let me turn to our third strategic priority, Services and Solutions. As we outlined at our Investor Day, services represent a serviceable addressable market of at least $165 billion. We delivered almost $11 billion in services and solutions revenue in 2024, $11 billion. That's exciting.

But it's equally exciting that we're less than 7% penetrated. That's a significant runway for growth. We have a clear plan to execute against it. First, we're developing and launching differentiated products.

This quarter, we launched new services to support customer acquisition, provide unique market insights, manage subscriptions and identify threats. This includes closing on the acquisitions of both Minna Technology and Recorded Future. Let's stay right there. Cyber criminals have been around for decades, but attacks and fraud attempts are increasing at high levels as commerce increasingly move online and as AI becomes more prevalent.

Our investments, both organic and inorganic, are key to fighting fraud and protecting the ecosystem. They also drive revenue growth. And add Recorded Future to this list. It is now part of Mastercard.

Recorded Future is the world's largest threat intelligence company with more than 1,900 customers across 75 countries. Customers include over 50% of the Fortune 100 and government agencies in 45 countries, including more than half of the G20. We've been deploying AI at scale for well over a decade, so has Recorded Future. They leverage AI-powered insights to analyze threat data from every corner of the Internet and customers gain real-time visibility and actionable insights to proactively reduce risks. We now have an even more robust set of powerful intelligence, identity, dispute, fraud and scan prevention solutions.

Together, these uniquely differentiated technologies will enable us to create smarter models, distribute these capabilities more broadly and help our customers anticipate threats before cyber-attacks can take place. That means better protection for governments, businesses, banks, consumers the entire ecosystem and well beyond the payment transactions. We're also leveraging our distribution at scale to deepen market penetration of our services and solutions. For example, we provide a fraud solution that facilitates real-time information sharing between merchants, issuers and consumers to streamline disputes and reduce chargebacks.

This quarter, we announced a new partnership with Stripe who will offer these capabilities to their millions of users. In Latin America, Itaú Unibanco will make them available across its digital channels to suborn millions of cardholders. In Loyalty, we partnered with Nordea to consolidate their loyalty offerings with Mastercard and launch new cashback offers across Norway and Sweden. And we're also selling into new buying centers with traditional customers, opening up a larger share of wallet.

For example, you partner with the CISO at Webster Bank to deploy RiskRecon and Cyber Quant solutions. And finally, we're seeing strong demand for our services and solutions across a more diverse customer base, including online delivery services, gaming companies and travel partners. For example, we expanded our partnership with DoorDash, who will use our insights and analytics to optimize business performance globally. Sony PlayStation.

We leverage our capabilities to showcase digital receipt to cardholders and banking apps and provide purchase information to bank's call center agents. In currency we’ll incorporate our open banking capabilities to support Hilton's new debit co-brand offering. Services and Solutions are a large and growing revenue opportunity. They are essential, powerful virtuous cycle with our payments.

We're laser-focused on executing capitalized on the significant runway in services in front of us. So in summary, we delivered another strong quarter, closed out another strong year. There is significant opportunity ahead. The fundamentals of our business are strong, so I'm very optimistic about the future for us, for us here at Mastercard.

Our proven growth algorithm and differentiated solutions position us to deliver and to win as we've demonstrated time and time again. And with that, I'm going to hand it over to Sachin.

Well, great. Thanks, Michael. Turning to Page 3, which shows our financial performance for the fourth 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 16%, reflecting continued growth in our payment network and our value-added services and solutions.

Acquisitions had a minimal impact to this growth. Operating expenses increased to 15%, including a 1 ppt increase from acquisitions. And operating income was up 17%, which includes a minimal impact from acquisitions. Net income and EPS increased 19% and 22%, respectively, driven primarily by the strong operating income growth and further aided by a discrete tax benefit recognized in the fourth quarter.

EPS was $3.82, which includes an $0.08 contribution from share repurchases. During the quarter, we repurchased $3.4 billion worth of stock and an additional $644 million through January 27, 2025. So let's turn to Page 4, where I'll speak to the growth rates of some of our key drivers for the fourth quarter on a local currency basis. Worldwide gross dollar volume, or GDV, increased by 12% year-over-year. In the U.S., GDV increased by 9% with credit growth of 8% and debit growth of 11%.

Credit and debit growth was aided by the conversions of the previously announced Wells Fargo Commercial Credit and Citizens debit migrations, respectively. Outside of the U.S., volume increased 13% with credit growth 11% and debit growth of 14%. Overall, cross-border volume increased 20% globally for the quarter, reflecting continued strong growth in both travel and non-travel related cross-border spending. Turning to Page 5. Switched transactions grew 11% year-over-year in Q4. Both card-present and card-not-present growth rates remained strong.

Card present growth was aided in part by an increase in contactless penetration as contactless now represents approximately 72% of all in-person switched purchase transactions. In addition, card growth was 6%. Globally, there are 3.5 billion Mastercard and Maestro-branded cards issued. Turning now to Slide 6 for a look into our net revenue growth rates for the fourth quarter discussed on a currency-neutral basis.

Payment Network net revenue increased 15%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives. Value-Added Services & Solutions net revenue increased 17%. Acquisitions contributed approximately half of PPT to this growth.

Growth was primarily driven by growth in our underlying drivers, strong demand for our consumer acquisition and engagement and business and market inside services, the scaling of our security, digital and authentication solutions and pricing. 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 at each key metric.

Domestic assessments were up 10%, while worldwide GDV grew 12%. The difference is primarily driven by cross-border mix. Cross-border assessments increased 24%, while cross-border volumes increased 20%. The 4 ppt difference is primarily driven by pricing in international markets.

Transaction processing assessments were up 15%, while switch transactions grew 11%. The 4 ppt difference is primarily due to favorable cross-border mix and pricing. Other network assessments were $239 million this quarter. As a reminder, these assessments primarily relate to licensing, implementation and other franchise fees, and they fluctuate from period to period.

Moving on to Page 8. You can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 15%, which includes a 1 ppt impact from acquisitions. Total adjusted operating expenses were higher than anticipated, primarily due to the impact of the acquisition expenses. The acquisition of the Recorded Future closed earlier than expected in Q4 2024, versus originally expected in Q1 2025, and was therefore not part of our Q4 forecast. Excluding acquisitions, the growth in operating expenses was primarily due to increased spending to support the continued execution of our strategic initiatives.

Now turning to Page 9, let me comment on the operating metric trends. Starting with Q4, our switched volume metrics were strong with sequential increases versus the prior quarter, driven by healthy consumer and commercial spending. As was the case with switched volumes, cross-border volumes also benefited from healthy spending, easier comps, as well as a pull forward of travel spend. Specific to cross-border, card not present ex travel, we saw an uptick due to the purchases of cryptocurrency in Q4. Of note, the timing of high-volume versus low-volume calendar days as well as the timing of Black Friday impacted switched volume and cross-border metrics within the quarter.

Transaction growth remained flat sequentially as compared to volumes due to higher average ticket sizes in Q4. Now looking through the first 4 weeks of January, the metrics are holding up well and are generally in line with the fourth quarter. The increase in switched volume growth in the U.S. was primarily driven by an easier comp. Specifically, severe weather events across the country negatively impacted volumes this year and last year. However, the impact was more pronounced last year.

As it relates to the decrease in intra-Europe cross-border volumes, this is primarily driven by the mix of calendar days and travel spend pull forward I just mentioned. Turning to Page 10. I wanted to share our thoughts on fiscal year 2025. Let me start by saying that the fundamentals of our business remain strong. And we are well positioned for the opportunities ahead, driven by a diversified business model, the significant opportunity for further secular shift to digital forms of payment in both consumer and commercial, and strong demand for our differentiated value-added services and solutions.

The macro environment remains supportive of our base case, reflecting healthy consumer spending. And we remain confident in our ability to successfully execute our strategy while maintaining a disciplined capital planning approach. Overall, we are positive about the growth outlook for the short, medium and long term. As it relates to our expectations for full year 2025, we expect net revenues to grow at the high end of low double digits to low teens range on a currency-neutral basis, excluding acquisitions.

We estimate a headwind of approximately 2 ppt from foreign exchange, while acquisitions are expected to add 1 to 1.5 ppt to this growth rate for the year. From an operating expense standpoint, we expect growth to be at the low end of a low double digits range versus a year ago on a currency-neutral basis, excluding acquisitions and special items. We expect a tailwind of approximately 1 to 2 ppt from foreign exchange, while acquisitions are forecasted to increase the OpEx growth rate for the year by approximately 5 ppt. To be clear, this impact of acquisition-related expenses was already contemplated in the 3-year performance objectives that we shared with you last November at our Investor Community Meeting.

Let's dig into the acquisition-related expenses a bit. We closed the acquisition of Recorded Future and Minna Technologies at the very end of 2024. And now we will see a full year impact in 2025. The 5 ppt impact can be broken down into three main components, slightly more than 2.5 ppt relates to the run rate expenses for operating the business. Approximately 1 ppt is from the amortization of acquired intangible assets related to the purchase price allocation, and the remaining relates to integration costs and other onetime expenses. Now let me remind you about our acquisition philosophy.

As you know, our acquisitions are strategy-led. We purchased companies that are complementary to our capability suite and they add to our addressable market. These companies are primarily in earlier stages with modest revenues compared to Mastercard, albeit fast growing. At the same time, these companies are in investment mode to drive longer-term growth.

Post-acquisition, we look to scale revenues, drive synergies and ultimately deliver positive operating leverage over the medium term consistent with how we run our overall business. Now turning to the first quarter of 2025. Year-over-year net revenue growth is expected to be at the low teens range on a currency-neutral basis, excluding acquisitions. Acquisitions are forecasted to have a 1 to 1.5 ppt impact to this growth rate, while we expect a headwind of approximately 3 ppt from foreign exchange for the quarter. From an operating expense standpoint, we expect Q1 growth to be in the low double digits range versus a year ago, again, on a currency-neutral basis, excluding acquisitions and special items.

Acquisitions are forecasted to have a 4 to 5 ppt impact to this OpEx growth while we expect a tailwind of approximately 2 ppt from foreign exchange for the quarter. Other items to keep in mind. On other income and expenses, in Q1, we expect an expense of approximately $120 million, given the prevailing interest rates and debt levels. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.

Finally, we expect a non-GAAP tax rate in the range of 20% to 21% for the full year and approximately 20% for Q1 based on the current geographic mix of our business. A lower forecasted tax rate for Q1 as compared to the balance of the year is consistent with prior years due to expected discrete tax benefits related to share-based payments in the first quarter. And with that, I will turn the call back over to Devin.

Thank you, Sachin. Thank you, Michael. Julianne, you may now open the line for questions.

[Operator Instructions] Our first question comes from Andrew Schmidt from Citi. Please go ahead. Your line is open.

Hi, Michael, hey Sachin, thank you for taking my question this morning. Good metrics across the board here. Great to see. If I could just dig into the cross-border piece, the month-to-date trends to Jan 28. Can you talk about just the drivers of the growth there, whether was relatively similar to the fourth quarter, and then your expectations for 2025?

And then if I could just sneak one more in, just thinking about 2025. We get a lot of questions on [indiscernible] discover. Maybe some thoughts about how you're thinking about that with respect to the models. Thanks so much.

Sure. No problem, Andrew. I'll take that question. So from a cross-border volume standpoint, just at the highest level, what I'm going to remind you is the value prop we offer from a cross-border standpoint continues to be incredibly solid.

Our teams are out there. They're working hard. They're winning various kinds of portfolios, some of which Michael spoke about, even today about, which is some of the co-brand programs we've got with various airlines, etcetera. Specific to your question around the metrics.

Again, really good performance from a volume growth standpoint and cross-border at 20% for Q4. First of all, what you're seeing for the first 4 weeks of January is exactly that. It's the first 4 weeks of January. And what you're seeing in the nature of the 20% going down to 18% is going back exactly the comments I made in my prepared remarks, which is at the end of the day, the vast majority of that you're seeing come through intra-Europe, which is primarily being driven by two factors. One is a pull forward of travel spend into the month of December, and you can see those metrics because you'll see intra-Europe growth in December at about 23%.

And then there's the calendarization of days, which I kind of mentioned to you as well. Those are the two factors. But fundamentally, the health of what we're seeing from an overall spend standpoint on cross-border continues to be excellent. We have no real reason to believe that going forward, that there's something going to change as it relates to the value prop.

Obviously, the strength of cross-border as well as domestic spend is a function of how consumer health is. And right now, we're seeing the consumer to be in very good shape. We also mentioned about how commercial is actually performing well, and you know that commercial actually also lends to our cross-border metrics. So something to keep in mind are there as well.

All right. On the Cap One [ph] Andrew, let me start and then I happily hand it to Sachin for the model side of the question. But overall, the acquisition is in flight. As we know, it's going through the motions.

I think it's fair to say the indications are positive that it will be approved. There's a whole range of examples where we have strategic partners will we also compete with on certain aspects of the business. Look in the acquiring space, for example. So this is not a new situation for us.

Now Capital One is a tremendous part to ours. Highly strategic partner, tremendous growth that we've seen in our joint business. They have been public about shifting debit volumes to the Discover network. Now we are a competing network, and we will continue to invest in our network and ensure that we have a leading and differentiated solution out there.

At the same time, we've been growing together in credit in other parts of the business. So we value this partnership. We'll continue along those lines. Fundamentally there is no surprises here to what we have said last time around.

Sachin?

Yes. And I'll just add to what Michael said. Like Michael said right now, right. I mean, they've talked about -- Capital One has talked about migrating the debit volumes over.

I think you're aware about the fact that debit volume primarily on the Mastercard network. And we built in our best assumptions both from a timing and a migration pace standpoint into the full year thoughts that I've shared with you today. So again, things might move around, and they likely will just because ours is a forecast. There's no predictability.

The deal has got to get approved. Migrations have to start, but we've built in our best estimates as to how that's going to roll out.

One last thing. I should add one more thing.

I talked about it in my prepared remarks earlier. There's great momentum in debit, which we have created in the U.S. So this isn't the only part that we have and we're building out a set of partnerships.

Our next question comes from Darrin Peller from Wolfe Research. Please go ahead. Your line is open.

Hey thanks guys. Nice job. Just -- when we follow up on what we learned at your Investor Day, which was really helpful on the long-term trajectory of growth, if we could just take that and then put it into 2025, what are you expecting more specifically around your value-added services in the year ahead of us that we're in right now versus the consumer payments just to triangulate with growth? And maybe Sachin, also just as a reminder, we're exiting the year at a 16% constant currency growth.

Obviously, Discover could be a factor. But what other comp compares are lapping? Just remind us how much is in the outlook for lapping are other factors that could cause a deceleration from the exit rate down to the 12% to 13% from 16%. Thanks again guys.

Sure. No problem. So first on your question around value added Services and Solutions, look, I mean it goes back to what Michael said, Darrin, in his prepared remarks, which is we continue to invest in that space. It continued to build out excellent capabilities, which are going after what is a sizable and fast-growing addressable market.

So again, we're not giving you a forecast as it relates to what we expect value-added service positions to grow in 2025. The underlying fundamentals of what we're doing there continue to be very healthy. And again, remember, we gave you a little bit of color at Investor Day as to what the composition of those revenues are, what the drivers of those revenues are, including payment network drivers, including what we're doing from an overall safety and security standpoint with consumer engagement and acquisition standpoint. So there's a lot of good stuff going on. And this is broad-based.

It is not region specific. I just want to be clear. Sometimes people think about this as highly U.S. centric or maybe U.S. and Europe. The reality is across the globe.

We're working hard. The teams are working incredibly hard to actually keep pushing value added solutions. You can see we're strong again there, right. I mean now again, remember, value-add service solutions is one of those things where quarter-over-quarter, you might see some level of variability.

But the reality is, overall, the fundamentals of the business continue to be very strong. Then your second question was around the fact that we closed Q4 exit rates at about 16% on a local currency basis, and you're kind of doing this compared with what the thoughts for 2025 are. A few things to keep in mind. Number one, there's a few things going on.

Number one, you've got basically -- the fact that -- you'll know we talked about pricing coming on, starting off Q2 2024 ramping up in Q3 and Q4. You're going to start to see some level of lapping take place on that. We've had several significant wins in 2024, the likes of Citizens, the likes of Wells Fargo. And these are -- and UniCredit. Now UniCredit will still continue to convert because it's a multiyear conversion.

But some of those are going to start to lap as the year kind of progresses, right. The other thing is, as I sit back and I just think about basic fundamentals. The point really is, you've got to kind of remember that overall, the consumer remains healthy. We factored that in.

The thoughts we shared for 2025 is a range which is high end of low double digits to low teens, right. So again, you got to keep that in mind. In that, we're building in assumptions around FX volatility. FX volatility picked up in Q4. You saw that come through in the exit rate you're talking about.

Hard to predict what FX volatility looks like through the end of the year of 2025. We build in our best assumptions around that. But things could move around on that as well. So again, there are various factors which are actually influencing this. But that's what I'd kind of tell you more holistically as to what's going on here.

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

Good morning. I want to ask about stable coins. It's likely that we get some regulatory clarity in the U.S. this year. I know a vast majority of stable coins usage is in crypto-native use cases and trading.

But are you seeing anything in the cross-border money movement fund? And more importantly, and Michael, I know you talked about kind of like the new settlement capabilities, and you've done a lot of work on crypto over the years. How are you positioned for the growth in the crypto ecosystem? Thank you.

Right. Thank you, Harshita. So overall, as I said in my prepared remarks, this is a space that we've been active in over a while. Your question doesn't really talk about the crypto space as crypto as an investment on-ramp.

Off-ramp we've been doing it successfully. Crypto.com, is clearly an exciting addition to the set of partnerships. You were really talking more about the potential of the underlying technology and what can it do? And the cross-border use cases has been talking about for years now.

Now we've started to move beyond the proof-of-concept stage. There are real transactions that took place, the first one in Hong Kong, last year. So we're in the business of stable coin transactions. We're in the business of having the MTN live.

It hasn't scaled yet. That's also the reality. But we have a long belief that this is an interesting space for us, B2B cross-border payments to get into. So I see as a net addition and upside opportunity for us.

There's enough push now. The crypto has gone mainstream with the ETFs. And there's clearly a push from the incoming administration here in the U.S. So we'll see more momentum, and I feel we're well prepared and our strong partnerships with players like JPMorgan and other large settlement players -- settlement bank players will help us on that front.

Now this isn't the only cross-border solution that's out there. There is real-time payments, where there's initiatives to potentially connect those systems. It's important to keep in mind that we're in 12 of large RTP markets where we have a presence. So that's an interesting space for us to also watch.

In the end, it fundamentally comes down to choice. Where do countries want to take this? Countries have looked at this as in potentially connecting in bilateral fashions. We've always been an advocate to saying multilateral approaches work better.

That's what we've proven on the card side. So that's a topic that we engage on when it comes to RTP side of things, but also from the stable coin side, again, interoperability between different kind of stable coins also matters, which is kind of the same concept. So exciting space. Leaning in for now, we're powering on with cross-border payments on the card side, which worked really well.

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

Good morning, Michael and Sachin. Thanks for taking my questions. Could you give us an update on your progress in gaining market share in Europe and whether there are any particular countries that you're seeing stronger performance from?

Right. So Europe's has been a real success story for Mastercard. If I look back over the 5 last 5, 6 years, we've seen tremendous growth on the continent. Seen tremendous growth in the U.K.

In the U.K., we're market share leaders. Credit, prepaid and in debit, it's about a third of the cards, the debit cards that are now Mastercard, large conversions. I just talked earlier about extending our partnership with Santander in the U.K. So that's a growth story.

On the continent, I'm particularly excited about the strategic partnership with UniCredit. That's 13 markets across continent. So there is not that many pan-European players. In fact, that is probably the most pan-European player there is.

That's a fantastic partnership strategic in nature. But other breakthroughs. Deeper in Italy, Banco Popular there, that's a large win. So big momentum.

I think that's the first thing to say. The second thing to say is, in these markets, it's not just about shifting share. It's also really taking advantage of the secular opportunity that still exists in Europe. If you take some of the large developed economic -- economies -- G7 economy like Italy, still significant amounts of cash to go after, and we're doing that very actively.

And we're doing that very actively also deploying our services in that space. Italy has historically been one of the most significant services opportunities for us. So with all the talk that's there about Europe, concerns about Europe, Europe's competitiveness and [indiscernible] is a big theme. Really important to remember that our business in Europe is in the European economy.

Overall, we're well positioned and growing parts of that economy. And this is tremendous for us. Now we've seen volumes grow in Europe at 16% level. That's a tremendous growth rate for us.

So overall, I think we're pressing every button that is there to press for us to push ahead on that growth story.

Our next question comes from Tien-tsin Huang from JPMorgan. Please go ahead. Your line is open.

Tien-tsin Huang: I want to stay in Europe if you don't mind, and ask about Mastercard 2030. I think the whole One Click payments initiative to get rid of manual card entry in Europe. To me, it feels like eliminating signature, which ushered in growth in contactless. Is that a fair analogy to think about Mastercard 2030 potentially pushing tokenization? I'm curious why Europe, why not more regions and what makes Europe special for you to set this goal up from Mastercard? Thanks.

So tokenization in Europe, when I think of the evolution of the European payment markets from PSD1 to PSD2 to PSD3, the topic of security, the topic of consumer experience, the topic of a fair and level playing field have been seen throughout all of these regulations. This is a market, in our view, that's ripe for the doing away with onetime passwords and keying in card numbers, I think all -- everything that is needed to make that successful, is there in Europe. And we want to prove it. It's been a strategy of ours to have reference markets and show that an initiative works and we go where there is open arms and where we feel this is going to be successful.

In Europe, we now have very relevant share position that makes us a strategic partner across markets because if you do this just in one country in Europe, then you know it's going to be problematic. So we have the regulation. We have partnerships across the board, so that's good. Now tokens are at the core of that.

And as I said earlier, and biometrics, we have that technology deployed widely in Europe. And then we'll see where we take it from that. The wider use of tokens, the wider use of tokens is -- this sets us up for exactly that, and we'll be looking at other use cases and see what that can do for our company overall. But it's a tremendous opportunity.

And of course, this is not about just Europe. You asked the question about Europe. This is a global goal. This is what we can go after.

As I said earlier, it's a safer ecosystem that makes sense for everybody. In the world where there's government interest and payments and so forth. If we're seen as a responsible part need it drives overall payment ecosystem safety, that's a fantastic position for us as well, and I'm sure that received well globally. We'll go region by region whenever we feel is the right time.

Your next question comes from Ramsey El-Assal from Barclays. Please go ahead. Your line is open.

Ramsey El-Assal: Hi, thank you for taking my question. Michael, I wanted to get your view on potential impacts of the sort of new political environment. I'm just curious if you're expecting any, or are you seeing any tailwinds or headwinds from policy changes? And more specifically, if we do end up seeing kind of widespread tariff applied, which we may or may not, how would that impact your business?

Ramsey, this is -- it's a question that I think is top of mind in many industries. So here's how I would go about that. The new political environment, first of all, we've seen ways of political changes around the world. I think at the earlier part of last year, we were looking into 2024 more than half of the population of the world was going to go to the polls.

From India to Europe and now in November in the United States. So there is a lot of changes, a lot of volatility. There is some political uncertainty. But when we sit in our boardroom and we sit in our management team, and we talk about this, is payments will continue regardless because the economic -- we power the economy and we power, in particular, the digital economy.

And there is a fundamental underlying secular trend, as we discussed at our Investor Day that just keeps going on. So that's the fundamental starting point in response to your question. Now we have a new administration here in the United States. Confirmations haven't fully been done yet, but the Secretary of Treasury is confirmed and so forth.

So some of the key partners that we would normally engage with. And we have an administration coming in that is touting a business-friendly approach, and that's fundamentally good for us. The conversation around tariffs and the intended -- intended use of tariffs that's been discussed. We have to see how it plays out and what will happen.

It's also clear, we're not in the import export industry. So the way that we would be affected is really indirect ways and how potentially some of our customers and partners get affected by that. So that's something that we'll come to when we get. I think the point that I just made before, fundamentally underlying drive of a digitizing world.

Questions like digital trade are going to be important questions. So how is the world dealing with digital trade and how digital trade policy will play out over the years, and we have been actively engaging here in the U.S., in Europe, in ASEAN and so forth. So an important topic for us to continue to watch in advance because that's good for all the economies around the world. So fundamentally, positive business outlook here from the U.S. administration.

And we see a Europe that is now in active conversations with the second term of Ursula von der Leyen [ph] to drive a more growth-oriented approach in Europe as well, which with our position in Europe should be a good thing.

Our next question comes from Dave Koning from Baird. Please go ahead. Your line is open.

Yes, hey guys. Thanks, good job. I guess my question, you mentioned FX volatility briefly. It got better kind of through Q4 and quite a bit better in January.

I just want to refresh on that, that helps the transaction line, right in and it should help the transaction yield going forward? Should that be a nice accelerant factor to the transaction yield over the next quarter or two if it stays kind of where it is now?

David. So yes, it's in our transaction processing assessments line. That's where it is. So you got that right.

And again, volatility will be what volatility will be. But to the extent there's higher volatility, you get the impact come through in that line item, which impacts yields positively to the extent it kind of goes in the opposite direction, it has a negative impact on yield. But that's the line item where you'll see that.

Our next question comes from Bryan Bergin from TD Cowen. Please go ahead. Your line is open

Hi, good morning. Thank you. Wanted to ask on rebates and incentives. Just how to think about the level of renewal activity here in 2025. And directionally, just any commentary you can share on how you expect R&I growth to progress versus how you finished in 2024?

Sure. So Bryan, again, I think Michael kind of talked about this a little bit earlier. We continue to compete out in the marketplace. We are winning and we're winning the right kinds of portfolios, which is really important.

We're not going to win every portfolio. We're going to hopefully -- yes, and we don't want to. And -- but we want to win the right kinds of portfolios, which is what we've been doing, and that's the plan going forward as well. From a renewal activity standpoint, nothing unusual to call out in 2025 as there isn't like a lumpiness in terms of renewals in 2025 versus prior years.

So it's kind of business as usual. Our teams are out there engaged with our customers, selling on the basis of the value we deliver across payments, but also across value-added services and solutions. And that's been a key enabler help us win on the payment side. So super important for us to continue to do that.

I'll tell you from an overall rebates and incentive standpoint. You can see what the metrics are for Q4. For Q1, we expect rebates and incentives as a percentage of payment network assessments to be roughly similar to what we saw in Q4. I'm not going to give you an outlook as it relates to the full year. I mean that's really subject to what kind of deal flow and deal activity we see. The most important thing to keep in mind is while we're all very focused on the level of rebates and incentives we pay, what we're even more focused on is driving an accretion in our net revenue yield.

And that is really important. And that's what we'll continue to do from a strategy standpoint and an execution standpoint.

It comes back to the virtuous cycle between payments and services. We have to be -- we have to be relevant in payments. We have to be in the flow. So we can apply our payment solutions and our services solutions.

That is what's always in focus and our strategic portfolios to win and less strategic portfolio is to win, but importantly across the different spectrum of different types of wins, as I talked about smaller deals earlier. The mix of all of that is always on the outcome of an attractive net revenue yield. That is the target in mind where we press all of them.

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

Great. Thank you for taking the question. Just given the stronger dollar, there's been a lot of incoming questions around the hedging strategy, I just thought maybe be a good opportunity to recap some of the mechanics. I understand you've talked about doing it on a net basis, a basket of roughly 30 currencies, but not hedging some of the functional currencies.

Maybe you could just recap the approach and some of the mechanics and how this all flows through to the income statement?

Sure, no problem. So let me first define where the exposure arises from and then what the hedging strategy is. So you got to think about the exposure to foreign exchange rates coming across three primary areas. One is what we call transaction exposures, which is when the transaction currency is different than the functional currency of the business unit in question.

The next is what we have in the nature of monetary assets and liabilities where the currency of those monetary assets and liabilities is different than the functional currency of the business unit in question. And the third is what we call translation exposure, which is the conversion of our overseas earnings into U.S. dollars. So for example, we are euro functional for the European entities. Those euro earnings are ultimately translated back to U.S. dollars when we do our as-reported numbers.

So there are three levels over which we get this exposures. We hedge layer number one, which is transaction exposures. We hedge them. We have a philosophy around that.

We have hedge ratios, which vary by currency. They're generally in that range of, call it, somewhere in that 50% to 80% range in terms of what we hedge on a net basis, net of expenses. So again, that's kind of the thinking there. There are some currencies which are not necessarily hedgeable just because the market is not liquid enough and we don't hedge those.

We also don't hedge right down to the smallest currency exposure, which is there. So we exercised materiality thresholds on that. On the monetary assets and liabilities, similar to transaction exposures, we hedge those as well, right. And again, it's based on what the forecasts are.

On the translation exposures, we do not hedge them. And the reason you don't hedge them is we view our hedging strategy as being one of focused on driving the right economic outcome for the company. So what we try and do is we hedge cash flow exposures where we expect cash movements to take place. In the instance of translation, there is no real cash movement taking place from a euro functional entity to a U.S. dollar functional entity.

The cash movement takes place when dividends are made and then we'll hedge the dividend payment at that point in time. So that's kind of the philosophy as to how we go about hedging. Also remember, on translation exposures, which are not hedged, which is what I just spoke about right now, things move around, right? I mean we all know that there's dollar strength in the last couple of months and then the zero strength or there is BRL strength, Brazilian Real strength.

So these things tend to revert to the mean. We run the business for the fundamentals of the business in terms of driving underlying value. Currencies will do what currencies do. We hedge them on an economic basis, much like I just explained.

And the one thing I would like to add to that is we love the fact that we have a geographically diversified business. So this comes with it. This is a fundamental differentiator for us. And many of these markets around the world are fast-growing markets where that is where we find the biggest secular opportunity.

So the FX is the last thing that I think about. I think about the growth opportunity in those markets.

Our next question comes from Trevor Williams from Jefferies. Please go ahead. Your line is open.

Great, thanks very much. I wanted to go back to domestic assessments and the growth there relative to GDV and purchase volume. There's been a pretty consistent spread between those growth rates over the last few years. And then Sachin, you called out cross-border mix as a driver of that spread this quarter.

If you could just unpack what that means. And if we should interpret as meaning if cross-border volume is outgrowing GDV that we'll kind of see that mix headwind persist? Thanks.

Sure. So the first thing I'll mention in terms of the delta between what we see in domestic assessments and GDV is there's a rounding impact which is taking place there. So while you see the numbers as we've kind of talked about it as 10% and 12%. The reality is the 10% is rounded down number, the 12% is a rounded up number.

So the delta isn't as big as it kind of seems out there. But kind of that's by the way, just FYI. On your question around the cross-border mix component, here's the reality. By its very definition, domestic assessments does not include cross-border revenue.

GDV includes cross-border volumes. And so what happens effectively is if GDV -- if cross-border volumes are growing at 20%, which is what we kind of reported for the fourth quarter, you've got the impact of that coming through in the GDP number. You have no associated revenue coming through in domestic assessments. And that's what I mean by cross-border.

Our next question comes from Will Nance from Goldman Sachs. Please go ahead. Your line is open.

Hey, I appreciate you taking the questions. Michael, I wanted to ask you about your thoughts on the European market following up on the kind of mid-teens growth you've been putting up in that geography more recently. Just wanted to get your thoughts on the competitive dynamics with some of the local schemes being folded up into the European payments initiative, I think, including in your home market of Germany. Just any thoughts about how this kind of changes the landscape and just remind us kind of exceptionally how you think about the competitive dynamics in the continent?

Thanks.

Right. So that's a great question. And I always love to talk about my home country. The -- I want to put a stat into your mind.

Earlier on, we talked about how we're driving payments growth by shifting volumes from domestic networks and closed-loop networks. Over the years, we have driven up our switching ratio to 70%. So that's important as a backdrop into this question. So we have success and we know how to deal with domestic competitors and partners.

Now on that backdrop, particularly in Europe, there has been, over the years, push to come up with local payment solutions as an alternative offer to consumers. And there's a whole range of reasons why that is contemplated in Europe, partly sovereignty, partly more control, all of that. The fundamental truth though is that in the end, the consumer is a really deciding factor here. What's a good user experience?

How about availability? If you put a new app into a payment market, it has tons of choices already, it's going to be very hard to convince merchants and consumers to change. We've seen it in the U.S. with a bank-led app as well. So all in, we feel this is good for competition.

It motivates us to continue to compete and invest in our proposition across channels. We talked about the token topic earlier on and how that makes checkout easier and so forth. So right now, we are looking at particularly at Vero [ph]. So Vero is currently an initiative of 3 countries.

This was multi-country in previous years, and now it's down to 3. And the first transaction took in December, so there's proof-of-concept, pilot stage, and we'll see where it goes. At this point in time, we don't see it as a material concern or threat to our business. But our approach has always been one of partnership. We partnered with domestic schemes in many countries around the world, maybe on the services side, and we'll see how that goes over time.

The more choice there is because it will generally bode for a level playing field on the competition side is which we like, and then we'd love to compete with our solutions.

Julianne we can squeeze one more question in.

Our last question will come from Sanjay Sakhrani from KBW. Please go ahead. Your line is open.

Thank you, good morning. I just wanted to go back to the volume acceleration, Sachin. I mean I know you mentioned a bunch of different things, but as we look underneath it all, is it that the consumer is really gaining strength in that sort of what's driving the acceleration? Is it shared -- part of its share gains?

I'm just trying to think about the acceleration in the fourth quarter, the sustained one in -- actually a further acceleration in the United States year-to-date. Maybe you could just talk a little bit about that? Thank you.

Sure, Sanjay. So I'll speak to the fact that the metrics you're talking about for the fourth quarter compared to the third quarter is the acceleration you're kind of alluding to. I think at the highest level, we should all kind of take comfort in the fact that the consumer continues to be very healthy, and we're seeing strong consumer spending and good commercial spending as well. So those are important.

As it relates to whether it's driven by share or not driven by share, frankly, quarter-over-quarter, there is very minimal impact, which is there from a share standpoint because the wins which we've talked about have been helping our volume growth in the third quarter as they have in the fourth quarter. So it's really the underlying trends of the consumer and the merchant spend, which is helping us. There's a little bit of lift, which is coming from crypto, which we kind of talked about, right, which is there. And there's a little bit in the nature of the travel spend pull forward kind of which I spoke about in my prepared remarks.

But other than that, I got to tell you, I mean, look, I mean, when you do the right things in the market, you win the right portfolios and those portfolios grow at a good pace and there's a healthy consumer, you tend to see the kind of metrics you see, which is what we're kind of showing you.

Thank you, Sachin. Michael, any closing remarks?

Well, I'm happy we got Sanjay in even though we're over time, so excellent. Good conversation. Thank you very much for your support as always. This is -- there was a lot going on this quarter.

So it was good to overrun a little bit. I still want to do what I always do is thank the 34,000 colleagues at Mastercard for being out there with our customers every day and pushing in this business forward, and thank you to all of you for your support. We'll speak to you next quarter. Thank you very much.

Thanks, everyone.

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