Ajay Banga – MasterCard, Inc.

Not much has changed in economy

“Now turning to the economy, broadly speaking, not much has changed since the last quarter. We’ve seen modest pickup in global growth, in part due to market-specific fiscal stimulus, although uncertainty about the direction of trade policies continues to be a concern. In the U.S., consumer and business confidence remained strong. Employment is rising. Wages are beginning to increase.”

Brazil emerging from recession

“In Latin America, Brazil is showing signs of emerging from its two-year recession, and we continue to see modest growth in Europe with the unemployment rate nearing a 9-year low. Germany remains solid. There’s slower growth in the UK, Italy, and France, driven by rising inflation and some uncertainty around the impact of Brexit negotiations. Regarding travel, we are seeing increased inbound traffic into the UK due to the weaker pound. However, outbound consumer spend has declined in the case of the UK.”

Brazil is turning a corner

“So, Don, you’re absolutely correct that the international markets have in the last, I would say not just this quarter, over the last six to nine months, things have been moving up in the international markets. Remember, Brazil was one of those big markets for us that was holding it back. Brazil is turning the corner. I wouldn’t yet call it a reshape movement, by the way. I’m looking at a kind of flat U. It’s stopped declining. It’s improved a bit. This is a good thing. There’s a lot going on in Brazil on the political and economic environment that still has to pan out for this to be a continued improvement, but it’s a way better than it was a year ago at this time. So that’s the first one.”

Lower growth in China but Korea and Hong Kong are fine

“China is interesting. There is lower growth in China, but Korea and Hong Kong remained very strong, so it moves around. But if I were to focus on cross-border, it would be Europe and North America that are showing results, with Brazil as well. And then the others come a little after that.”

India still not totally back to normal because of cash withdrawal

“Overall, GDV is still impacted. I think if you spoke to consumer product companies that are large in India, a Unilever kind of company, they would tell you they still see an impact on total consumer volumes and downsizing of inventory in the retail system because of some non-availability of adequate cash for transaction capability. So there’s an interesting mix going on. You’re seeing more electronic. You’re seeing a little more cash, still not back to where it was, but it’s headed in the right direction, but more importantly, headed in the right direction with some tailwind on the need to fix towards electronic versus more cash. That’s what’s going on underlying all this.”

Debit cards growing but still a heavy reliance on cash

“Now let me give you a couple of numbers that will tell you the magnitude of what has to be done there. So there are about 840 million debit cards in India, and those have grown by 20% – 25% over the last six months. This is a huge number. But of those, 770 million of them only take out cash from ATMs. Only 70 million of them have been used more than once at a point of sale. And therefore, the total volume of the number going through these two, the ones that I use for cash at an ATM, it’s $450 billion a year, the ones that are used for point-of-sale transactions $30 billion. So we’re talking a very cash-heavy marketplace with a great deal of reliance on cash as the instrument of driving the economy. That’s what they’re trying to work their way through.”

Ajay Banga

Global economic overview

“We continue to see bright spots as well as some areas of concern in the global economy in the US. Post-election optimism remains relatively high. Consumer confidence, unemployment, wages all seem to be holding steady. It’s still too early to tell what impact any new policy proposals might have on the US or other economies. But like all of you, we’re expecting to see initiatives around taxation, regulation, infrastructure spending and trade. And in fact on regulation, you’ve all seen the recent executive order talking about taking out two regulations for every one proposed. Turning to Europe, the economic recovery is persistent in many markets throughout the prior year, throughout 2016, led by Germany. And the prospects for this coming year of 2017 seem encouraging as economic sentiment and unemployment continue to improve. The UK appears to be stable. We’re seeing continued growth in travel to the country as a result of the weaker pound, and it’s going to take a few years obviously to work through the specifics of how Brexit is implemented. So, we remain watchful of the implications of that on the UK and broadly on the EU.”

India move towards electronic forms of payment

” In India, the government has recently implemented a plan to address its parallel economy and to help drive the shift from cash to electronic forms of payment. Given the heavy reliance on cash in that economy, this is expected to soften consumer spending in the short term, but could well fuel economic growth and modernize the payment system in the long term.”

I don’t believe that the administration wants to restrict trade

“The aspects of trade, Tien-Tsin, as you know, my normal approach to trade is that I continue to believe that the United States is way too large a marketplace for companies and businesses to feel that they shouldn’t be involved with having on-soil presence and on-soil activity and frequent travel in and out by business executives alike. So, I consider the US to be too attractive for that to change dramatically. I do believe like everybody else that in the corporate world, there are a lot of us have built our business on the freer flow of cross-border trade, data and people. If that were to change over time, that would be a problem, but I don’t believe that that’s what the administration wants to do. They want to grow the economy. The economy is not going to grow without the right inputs in the right places. It may change specifics of the way trade gets enacted, but I continue to be relatively bullish on where this economy could go over the next four to five years.”

Dislocation of demonetization in India

” So, India has only 1.4 million terminals actually at the point of sale, and it tends to be a very cash dominated market. I’d say 95%-plus of the transactions in retail are cash. When the demonetization happened, the two biggest currency notes were taken out of circulation, the INR 500 and the INR 1,000 notes constituted 86% of the currency notes in circulation. That’s the shock that is referred to as what could lower consumer spending for a couple of quarters. We saw that because restrictions in cash withdrawal from banks and from ATMs were instituted as the government tried to catch up with the demand for cash. With the new notes, they were printing, those notes had to be put into the market. The ATMs had to be redesigned. Their hoppers had to be redone. Or you can just imagine the level of work in a country where the largest public sector bank has 18,000 branches, and is spread across a relatively large country. So, that’s what caused some of the dislocation…I think the Prime Minister is to be credited for his willingness to take it on, because in the medium to long term, this could be transformative for the way India’s economy operates in the recognizable formal economy, as compared to the informal economy, where it’s denied taxation and denied credit and denied insurance. I think he’s really trying to do something pretty brave here.”

Mastercard’s (MA) CEO Ajay Banga on Q3 2016 Results

Perspective on the economy largely unchanged

“Our prospective of the economy remains largely unchanged since last quarter you’ve all seen the U.S. GDP growth report this morning. We’ve continued to believe like we said in the previous quarters that the U.S. is on a steady growth path with consumer confidence, unemployment, and wages holding firm. Of course, unless something unforeseen our growth coming out of the upcoming elections, but basically the U.S. had a steady growth path.”

Markets across Europe showing gradual recovery

“Many markets across Europe are showing a gradual recovery, led by Germany, as economic sentiment hold steady, unemployment rates are continuing to decline. Although uncertainties from Brexit and its impact on Europe remain a concern, I think it will take a few years to understand the full implications. ”

Picture is still mixed in Asia, Brazil seems to be bottoming out

“In the Asia the picture is still mix. In China, both exports and imports were down sharply. And you all know the concerns over inflated asset values. In Australia, however, business confidence is up, and India continues its relatively strong growth trajectory. In Latin America, Brazil even though is expected to remain in a recession for the near future seems to be bottoming out. And the political environment seems to be stabilizing, which should hopefully improve economic condition over the next six to twelve months. In Venezuela, the political and fiscal crisis is deepening. In Mexico, the economy continues to expand, but with increasing dependence on consumer spending growth.”

China outbound increasingly going to other Asia

“So the first part, the second part, which is actually a transactional piece of information on outbound China. I think you’ll find growth to certain parts of the world, but not to others. It’s not coming into the U.S. and Europe as it used to. It’s actually going much more to the Asian markets, so Australia through Japan, so those parts of the world. That’s actually similar to what I may have said at Investor Day, but I don’t fully recall if that question came up. But that’s kind of what we’ve seen on the China part of it.”

No one has figured out safety and security

” anybody who will tell you that they figured it out of safety and security. It’s probably somebody you should run a mile from, because there is no such right answer. There is a continuous effort of people break into everyone systems. You read that all the time. So you only have as good in safety and security as the efforts you keep putting into it to keep your clients having products and capabilities that keep them — keeping their promise to their consumers. So we recently launched a series of products that use our official intelligence and machine learning in the safety and security phase. We are going to keep doing that.”

My IR person gets nervous when I speak because I don’t stick to the script

“So first of all I’m glad you called them prepared remarks, Barbara’s, also nervous when I’m speaking because she’s tracking all that I’ve said. I don’t always follow the script. But I will use your comment as proof of my being relatively helpful. The second part is the UK, so to the other question, I’m just cracking up a little. I’ve taken it out on Barbara for 10 years of this. So the UK, be careful about assuming that a lower currency will necessarily lead to inbound travel, either tourist related or business related. It works in a place like the UK because it is one of the world’s most attractive tourism destinations.”

Outward US travel strong still, inward weak

“Kind of shopping destinations, the U.S. right now inward tourist traffic is down with the dollar being strong whereas outdoor travel by Americans is quite strong. And so those are just natural things that we ought to do as well.”

MasterCard (MA) Ajay Banga on Q2 2016 Results

US economy holding steady

“The United States economy is still holding steady. Consumer confidence up slightly, stable job growth, lower inflation, and frankly, prior to the Brexit vote, many parts of Europe were showing steady signs of improvement in both consumer confidence and unemployment. And you know, while it’s still too early to predict the full impact of Brexit, we will obviously watch that situation very carefully.”

Outlook in Asia remains cautious

“The outlook for Asia remain cautious. We’ve got a prolonged slowdown in China, a weaker than expected recovery in Australia. India continues to be a bright spot. Both consumer and business sentiment there remains strong.”

Brazil may be reaching a bottom

“In Latin America, Brazil is still in a deep recession but interestingly, a modest increase in business confidence is beginning to show signs that the economy may be reaching a bottom. In Venezuela, economic conditions continue to deteriorate but Mexico is in a steady growth path.”

Terrorism does affect cross border trends, but actually up so far in July

“Interestingly, in the UK, we’re actually seeing an increase of inbound cross-border spend. So it’s kind of bouncing around but specifically in a couple of countries that got impacted by terrorism, there’s no doubt that it causes some angst in cross-border trends. Having said that, remember what Martina said, right now, our cross-border volumes for the first few weeks of this quarter, it’s only a few weeks, are up compared to where we were last quarter. And in fact, Europe is one of the contributors to that being up.”

I’m not sure I understand the deal between Visa and Paypal

” I can tell you that I’m not clear that I understand enough about what exclusivity Visa signed with PayPal, because we’re not encountering any difficulty while talking to PayPal in that space. So I don’t know exactly what the nature of that exclusivity is. You got to ask PayPal or Visa, because I’m pretty clear that we’ve got enough good conversations going on, not just now but for a little while.”

Martina Hund-Mejean – Chief Financial Officer

Numbers through July 21

“The numbers through July 21 are as follows. Starting with processed volume, we saw global growth of 11%, slightly lower than the 12% we saw in the second quarter. In the US, our processed volume grew 8%, down 1 PPT from the second quarter, with slower growth in credit but higher growth in debit. Gas had less than a 1 PPT negative impact on our July growth, and that’s very similar to the second quarter. And processed volume outside of the US grew 15%, up a bit from the second quarter, primarily driven by Europe and Latin America.”

Cash has a cost of transaction

“because quite frankly, no card payments are a heck of a lot cheaper than what you have to do with cash, right.”

Europe outside of the UK is still an emerging market in terms of card acceptance

“What we haven’t seen yet as much as movement is on the smaller merchants, and that’s obviously where there’s a lot of work that we still have to do. And we’re hoping that that will continue to allow us to change the secular trend in Europe which, outside of the UK, right, in the UK a lot is already electronic side, but in the rest of the Europe, in the Continent, I always call it that this is still an emerging country for us. That will help us on the secular trend from cash and check to electronic forms of payments and will help our numbers over time.”

Martina Hund-Mejean

Not seeing any change in the consumer

“I don’t think we see anything different really than what we said back when we had our last earnings call in our first quarter earnings call in April, right, I guess. So from a U.S. perspective, I think that is probably of most interest to many of you. From a U.S. perspective again, we are really not seeing much of a different behavior. The volumes are coming through the same way as we discussed it from an economic point of view. We don’t see that the consumer had a step-down in spend. We see the same kind of growth trajectory that we had said before and we see no difference in terms of what they are doing from a discretionary point of view.”

Not much change in Brazil either

” Latin America, we are not really seeing much of a change in Brazil yet, maybe if some reforms are being put through, maybe there is an upside to be thinking about, but that’s not what we are going to see. And the one country that is still having a huge amount of trouble is really Venezuela from a Latin American point of view.”

We’re not a credit card company, we’re a technology company

“we are not a credit card company. So, we are actually a technology company. What we do is we actually transport the transaction. So, we don’t issue cards, we don’t acquire cards. So, in terms of an impact on interest rates that is mostly impacting issuers who issue cards, issue credit, make obviously money on that, so there is absolutely no impact from our point of view for MasterCard as a business model.”

Debit bigger than credit OUS

” outside of the United States, we are big on debit, because credit is not just used as much as what you have in the United States or in the UK or in Australia. So given our heritage in Europe with Europe Pay, which the company had bought in the early 2000s, we have an extremely robust debit product portfolio. And those products can be adapted very well to such countries in Asia’

MasterCard (MA) Ajay Banga on Q1 2016 Results

US economy continues to be solid

“So now let’s take a look at the global economy, and I think it’s largely unchanged from what we discussed last quarter with the US economy remaining solid with inflation and wages growing at a similar pace and the unemployment rate kind of holding steady at 5%. We just saw the unemployment rate numbers coming out this morning as well. However, as we know from the Fed comments yesterday, uncertainty remains about when they might take action as well as the potential impact from the global economy.”

ROW is mixed

“So looking at the rest of the world, the economic outlook continues to be mixed. In Europe, both consumer confidence and economic sentiment declined slightly this quarter. However, recent stimulus measures by the European Central Bank and steady improvement in the unemployment rate I think should continue to drive growth across the region, particularly in the UK and Germany. Asia is still challenged by the continued slowdown in China. Consumer confidence remains cloudy with the exception being India where both consumer and business sentiment remain high. In Latin America, Brazil is still in the worst recession in the country’s history, and of course, economic conditions in Venezuela are deteriorating further. But Mexico is stable and it seems to be driven by solid consumer spending and declining inflation.”

issuer mix was under-performing for many years after the crisis but is now back to growing

” remember for a while, our issuer mix was underperforming soon after and for many years after the crisis. If you look at the reports, you’ll find it so happens that our issuer mix is back into growing its volumes and its businesses, and so we’re kind of riding that tailwind in our sales in addition to all the other stuff that’s going in and out.”

Ajay Banga

Consumer spending is not dramatically better, but not dramatically worse

“So U.S. consumer, look I’m not going to give you any new data on our numbers other than what you’ve got of the earnings call about a month ago. But we do the thing called spending pulse, which is a method of getting from our card spend to overall consumer spend in different countries and it’s pretty accurate and you see here us quoting from it on the earnings calls every time. So I will give you a sense of that. February was a decent month but you got discount the leap year one day, because one day is 2% – 3% of sales so you take that down and find that January, February by and large ex-gasoline is kind of similar to the second half of last year. It’s not better, it’s not dramatically worse, it’s not dramatically better it’s kind of similar. It’s moving along, bouncing along there.”

We’re lapping the gas price decreases, savings rates up

“Most of it is because gas savings are not going back into spending but the savings are lapping if you know what I mean right because gas prices are already fallen off a cliff early part of last year. So what you’re getting is a much higher personal savings rate, 5.7, 5.8% which is probably a good thing long term but not a great thing if all we’re looking for people to spend the savings from gas, [indiscernible] not getting but it’s kind of there.”

Ecommerce price index actually went up a little bit in Feb

“I’d say ecommerce growth rates were still stronger than physical clearly, but ecommerce at the end of the day even in Jan-Feb adds up to 7% – 85 of retail spend in total. Some sectors in e-commerce obvious ones are growing faster others are going slower, price indices are moving around, e-commerce price index actually went up a little bit in Feb which is a new thing but airline prices that went down that’s kind of obvious because of gasoline again. It’s kind of mixed in the way.”

Consumer confidence is slipping in the US thanks to presidential candidates

“And consumer confidence in the U.S. which is doing fine till about December seems to be slipping that’s because every presidential candidate is going around thinking [indiscernible]. So if you keep saying that enough times enough people really lose confidence in what’s going on in the economy.”

Visa could have a difficult time integrating Europe

“So he is a strong competitor as we are and so I’m taking this for granted but I would tell you that clearly if they increase prices as an opportunity there. The other side of that is you going to cut expenses faster. He’s going to have to migrate technology, you’re going to have to manage cultural change. We did all that some years ago, managing cultural change with an institution in Europe is not that easy, there’s going to be some challenges over the next two, three years that he has to deal with as well. So it’s going to an interesting few years.”

Most young people still want to get payments from a bank

“if you believe Consumer Research most young people as well would still prefer to get their payments from a bank which is interesting provided the bank gives it to them in a seamless, cool, easy way. But cool alone will not cut it, it’s going to have feature functionality, real time alert and so on and so forth that make it useful for them.”

Bitcoin had problems but blockchain is actually interesting

“remember the questions used to be about Bitcoin earlier and it’s moved on to blockchain because when I used to answer about Bitcoin is being somewhat interestingly challenged in some way. It kind of moved on to what I think is actually interesting. We at MasterCard have a bunch of people working on blockchain ideas.”