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.”