Mastercard Incorporated Price & Performance (MA)

Thank you, Julian. Good morning, everyone, and thank you for joining us for our 4th quarter 24 earnings call. With me today are Michael Meebock, our Chief Executive Officer and Sasha Meira, our Chief Financial Officer. Following comments from Michael and Sachin, the operator will announce your to get into the queue for the Q and 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. 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, set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings.

A replay of this call be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Milak. Thank you, Devin. Good morning, everyone. We finished the year strong. 4th 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 we outlined at our Investor Day. And this is what you will see in the new and expanded 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 Economics Institute expects a year of global economic expansion in 2025, defined by shifts in monetary and fiscal policy.

Albeit 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, So we laid out and detailed at our Investor Day those 3 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. 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 break into new areas where we can partner and grow together. In 2024, we flipped or expanded 100 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. ICVA payments, which serves thousands of community banks, will significantly expand its partnership with Mastercard.

This includes card issuance across their partner bank's credit and debit portfolios. In MidFlorida, 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 Maastricht. In the public sector space, we renewed our longstanding relationships 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 onto Mastercards held by over 3,000,000 Americans. 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 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, 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. Renewed and strengthened our partnership with NewBank, We've extended our relationship with Banco Santander in the UK.

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 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 $11,000,000,000,000 in 1.5 trillion transactions in 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 are positioned to be the most accepted payments net network in the world with around 150,000,000 acceptance locations globally. [indiscernible] 2nd, we are reimagining checkout and that is our 2,030 global plan to phase out manual card password entry online and save off smiles and fingerprints. Not only is that a better experience, but it's also more secure and it's 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. The proof Well, in 2024, we tokenized about 4,000,000,000 transactions per month, which is up 40 times over the past 6 years. And 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. We offer a set of services on and around those tokens such as lifecycle management and authentication enhance that value. Now while the growth of Topen 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 in store both domestically and abroad by adding their Mastercard to the Swish app. Latin America, we collaborated with David Yenda 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 Dabi Plata And our PayLocal service seamlessly connects with local digital wallets, enabling consumers who use Mastercard to make comp 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 traveled 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 This includes Dana in Indonesia, Touch and Go in Malaysia, Barkong in Cambodia and Lanka Pay Sri Lanka. We're also capturing new verticals like consumer bill payments. This quarter, we partnered with B Movi in Brazil. B Movi will integrate Click to Pay into their bill payment platform and utilities. Now as a network company, we're focused on enabling the broader ecosystem 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 has 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 blockchain 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 developed the multi token network MTN. This quarter, we partnered with Connexus by JPMorgan, the firm's blockchain based unit integrate MTN as a payment settlement solution. By bringing together the power and connectivity of Mastercard's MTN with Connexus digital payments, we aim to unlock greater speed, transparency and faster settlement capabilities for cross border B2B payments. 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 offer a significant runway for growth, commercial flows represent an even larger $80,000,000,000,000 serviceable addressable market. Only about $3,000,000,000,000 is carded today. In 2024, our commercial credit and debit volume 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 remit [indiscernible] in addressable market. We're pursuing that opportunity with Mastercard Move where transactions were up over 40% year over year in the 4th quarter.

But let's dig into commercial. First, we're expanding our global leadership in virtual cards by expanding use cases, geographies and verticals. Partnering with NetNeves to distribute our new mobile VCN to UK companies and their employees. We're deploying virtual COVID with City in Argentina the first deployment of ECN in that market. And in the travel vertical, we've 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 the Dubai First World, we're driving continued growth in this sector. Global FinTech Invoice Bazaar will distribute new co branded Mastercards to help digitize payments across the trade ecosystem And similar in consumer packaged goods, partnered with Deem Finance and PrimeDash 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 spoke about in previous calls have good momentum on connecting small business in this space. We're also driving small business growth through expanded issuer partnerships to sign an exclusive commercial deal with BNA, the state owned bank in Argentina AMP Bank in Australia will launch Mastercard debit cards for their new digital SMB and Consumer Bank. And Enter International's World First will expand our partnership to now issue virtual cards for SMEs in new markets including Singapore and Australia. Now let me turn to our 3rd strategic priority, services and solutions. As we outlined at our Investor Day, services represent a serviceable addressable market of at least $165,000,000,000 We delivered almost €11,000,000,000 in service and solutions revenue in 2024, dollars 11,000,000,000 dollars 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. [indiscernible] we're developing and launching differentiated products. This quarter, we launched new services to support customer acquisition, provide unique market insights, manage subscriptions, 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 moves 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 1900 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 [indiscernible] Together, these uniquely differentiated technologies will enable us to create smarter models, distribute these capabilities more broadly, and help our customers anticipate threats before cyberattacks 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 service 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 charge backs. This quarter, we announced a new partnership with Stripe, who will offer these capabilities to their millions of users. In Latin America, Itau Unibanco will make them available across digital channels to support millions of cardholders. In loyalty, we partnered with Nordea to consolidate their loyalty offerings Mastercard and Launch new cashback offers across Norway and Sweden. And we're also selling it to new buying centers with traditional customers opening up a larger share of wallet. For example, we partnered with the CISO at Webster Bank to deploy Risk Recon and Cyber Quant solution. And finally, we're seeing strong demand for our services and solutions across a more diverse customer including online delivery services, gaming companies and travel partners. For example, 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 banks' 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 without 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's significant opportunity ahead. The fundamentals of our business are strong So I'm very optimistic about the future 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 Q4 on a currency neutral basis, excluding where applicable and the impact of gains and losses on our equity investments. Net revenue was up 16%, 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% includes a minimum impact from acquisitions. Net income and EPS increased 19% 22% [indiscernible] driven primarily by the strong operating income growth and further aided by a discrete tax benefit recognized in the 4th quarter.

EPS was $3.82 which includes an $0.08 contribution from share repurchases. During the quarter, we repurchased $3,400,000,000 worth of stock and an additional $644,000,000 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 4th 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 of 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. [indiscernible] [indiscernible] 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 3,500,000,000 Mastercard and Maestro branded cards issued. Turning now to Slide 6 for a look into our net revenue growth rates for the 4th 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 rebits and incentives. Value Added Services and 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 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 [indiscernible] The difference is primarily driven by cross border mix. Cross border assessments increased 24% while cross border volumes increased The 4 ppt difference is primarily driven by pricing in international markets. Transaction processing assessments were up 15 percent, while switch transactions grew 11%. The 4 ppt difference is primarily due to favorable cross border mix and pricing.

Other network assessments were $239,000,000 this quarter. As a reminder, these assessments primarily relate to licensing, implementation other franchise fees and they may fluctuate from period to period. [indiscernible] 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 higher than anticipated primarily due to the impact of the acquisition expenses. The acquisition of the Corvid 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 Mastercard 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 1st 4 weeks of January, the metrics are holding up well and are generally in line with the 4th quarter. The increase in switch 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 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 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, acquisitions are expected to add 1 to 1.5 ppt to this growth rate 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 the 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 bpt. This impact of acquisition related expenses was already contemplated in the 3 year performance objectives that we shared with you last November our Investor Community Meeting. Let's dig into the acquisition related expenses a bit. We closed the acquisition of Recorded Future and Mena 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 3 main components. Slightly more than 2.5 PPT relates to the run rate expense [indiscernible] 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 one time 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 Q1 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 [indiscernible] Acquisitions are forecasted to have a 4 to 5 PPT impact to this OpEx growth, while we expect the 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 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 Q1. And with that, I will turn the call back over to Devon.

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

Thank you. At this time, I would like to remind everyone in order to ask a question, Our first question comes from Andrew Schmidt from Citi. Please go ahead. Your line is open.

Hey, Michael. Hey, Sachin. Thanks for taking my questions this morning. Good metrics across the board here. Great to see. I could just dig into the cross border piece, the month to date trends through Jan 28, If you could talk about just the drivers of growth there, whether weather was relatively similar to the 4th quarter. And then your expectations for 25. And then if I could just sneak one more in just thinking about 25. We get a lot of question on the Cap One and Discover, maybe some thoughts about how you're thinking about that with respect to the model?

Sure. No problem, Andrew. I'll take that question. So 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 talked with. Various airlines, etcetera, 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 1st 4 weeks of January is exactly that, It's the 1st 4 weeks of January. And what you're seeing in the nature of the 20 going down to 18% is going back exactly to 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 in intra Europe, which is primarily being driven by 2 factors. 1 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 our overall stents 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 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 actually performing well and you know that commercial actually also lends to a cross border metrics. So something to keep in mind out there as well.

On the Cap 1, 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. Think it's fair to say the indications are positive that it will be will be approved. There's a whole range of examples where we have strategic partners who 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 partner to ours, a 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 and other parts of the business. So we value this partnership. We'll continue along those lines. There is no surprises here to what we have said last time around.

Satya?

Yes. And I'll just add to what Michael said. Like Michael said right now, right, I mean, they've talked Capital One has talked about migrating the debit volumes over. I think you're aware about the fact that debit volumes are 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 deals got to get approved. Migrations have to start, but we built in our test estimates as to how that's going 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 the U. S. So this isn't the only partner 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 25, 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 or lapping Just remind us how much is in the outlook for lapping or other factors that could cause a deceleration from the exit rate down to the 12% to 13% from 16% Sure. No problem. So first, the new question around diluted services solutions. Look, I mean, it goes back to what Michael said, Darren, in his prepared remarks, which is we continue to invest in that space, continue to build out excellent capabilities, which are going after what is a sizable and fast growing addressable market. So So again, we're not giving you a forecast as it relates to what we expect value added services solutions to grow in 2025, but the underlying fundamentals of what we're doing there to be very healthy.

And again, remember, we gave you a little bit of color at Investor Day as to what composition of those revenues are, what the drivers of those revenues are, including payment net overall safety and security standpoint was 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 add service and solutions. We closed the year strong again there, right? I mean, now again, remember value add services and solutions is one of those things where quarter over quarter you might see some level of variability. 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 comp with what the thoughts for 2025 are. Few things to keep in mind. Number 1, there's a few things going on. Number 1, you've got basically The fact that you'll know we talked about pricing coming on starting off Q2 2024 ramping up in Q3Q4. You're going to start to see some level of lapping take place on that. 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 fundamental 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 Our next question comes from Harshita Rawat from Bernstein. Please go ahead. Your line is open. Good morning. I want to ask about Stablecoins.

It's likely that we get some regulatory clarity in the U. S. This year. I know what majority of Stablecoin usage is in crypto native use cases and trading. Are you seeing anything in the cross border money movement front? And more importantly, in my I know you talked about kind of like the new settlement capabilities and you've done a lot of work in crypto over the years. Are you positioned for the growth in the crypto ecosystem? Thank you.

Right. Thank you, Hashida. 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 this 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 [indiscernible] Now we've started to move beyond the proof of concept stage. Now there are real transactions that took place first one in Hong Kong, Last year, so we're in the business of stablecoin transactions. We're in the business of having the MTN live. It hasn't scaled yet. That's also the reality. But we have long believed that this is an interesting space for us B2B cross border payments to get into. So I see it as a net addition and up [indiscernible] There's enough push now. Crypto has gone mainstream with the ETFs and there's clearly push from the incoming administration here in the U. S. So we'll see more momentum. And I feel we're well prepared in 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 Mastercard side. So that's a topic that we engage on when it comes to RTP side of things. But also from the Stablecoin side with again interoperability between different stablecoins 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 work really well.

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

Good morning, Michael and Sachin. Thanks for taking my question.

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 has been a 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, seeing tremendous growth in the UK, In the UK, we have market share leaders, credit, prepaid and in debit, it's about a third of the the cards, the debit cards that are now Mastercard, large conversions. I just talked in earlier about extending our partnership with Santander in the UK. So that's a growth story. On the continent, particularly excited about the strategic partnership with UniCredit. That's 13 markets across continent. So there's 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. Peeper in Italy, Banco Popular there, that's is 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 shares, also really taking advantage of the secular opportunity that still exists in Europe. If you take some of the large developed economies G7 economy like Italy, still significant amounts of cash to Mastercard 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 Davos, this is a big theme. Really, it's important to remember that our business in Europe is in the Europe 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. So that's a tremendous growth rate for us. So overall, I think we're pressing every button that we that is there to press for us to push ahead on that growth story.

Our next question comes from Tien Tsin Huang from JPMorgan.

Thanks a lot. I want to stay in Europe.

If you don't mind and ask about Mastercard 20 [indiscernible] 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 2,030 potentially pushing tokenization And curious why Europe, why not more regions and what makes Europe special for you to to set this goal up for Mastercard.

So tokenization in Europe, when I think of the evolution of the European payment market from PSD 1 to PSD 2 to PSD 3, the topic of security, the topic of consumer experience, the topic of a fair and level playing field, have been themes throughout all of these regulations? This is a market in our view that's ripe for [indiscernible] Doing away with one time passports 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 strategy of ours to have reference markets and show that an initiative works and we go where there is open arms and we feel this is going to be successful. In Europe, we now have very relevant share position makes us a strategic partner across markets because if you do this just in one country in Europe, it is 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 then we'll see where we take it from that.

Why the use of tokens why the use of tokens this sets us up for exact [indiscernible] 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're going to go after. As I said earlier, it's as it's a safer ecosystem that makes sense for everybody. In the world where there's government interest and payments so forth, if we're seen as a responsible partner that drives overall payment ecosystem safety, that's a fantastic position for us as well. And I'm sure that would be seen well globally. We'll go region by region whenever we feel is the right time.

Next question comes from Ramsey El Assal from Barclays.

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 you seeing any tailwinds or headwinds from policy changes? And more specifically, if we do end up seeing kind of widespread tariffs applied, which we may or may not, how would that impact your business?

Ramsey, this is 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 waves of political changes around the world I think at the earlier part of last year, we were looking into 2024 and 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 change, there's a lot of volatility. There's 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 that is a fundamental underlying secular trend as we discussed at our Investor Day. 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 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 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 importexport 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 important topic for us to continue to watch in advance because that's good for all 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 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.

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? 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 2 if it's stays kind of where it is now? Hey, David. So yes, it's in our transaction processing [indiscernible] That's where it is. So you got that right. And again, volatility be what volatility will be. But to the extent there's higher volatility, you get the impact come through on that line item, which impacts yields positively to the extent it kind of in the opposite direction and has a negative impact on yield. But that's line item where you'll see that.

Our next question comes from Brian Bergin from TD Cowen.

Hi, all. Good morning. Thank you. Wanted to ask on rebates. Incentives. Just how to think about the level of renewal activity here in 'twenty five. And directionally just any commentary you can share on how you expect R and I growth to progress versus how you finished in 2024?

Sure.

So, Brian, 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 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 in 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 you know that's been a key enabler to help us win on the payment side. So super important for us to continue to do that. I'll tell you from an overall rebate, it's an 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 centers we pay, but 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 execution standpoint.

It comes back to the virtuous cycle between payments and services. We have to be in 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 portfolio is to win. And less strategic portfolio is to win but important across the different spectrum of different types of wins, as I talked about smaller deals earlier, The mix of all of that is 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 Teixeira from UBS.

Great. Thank you for taking the question. Just given the stronger dollar, the been a lot of incoming questions around the hedging strategy. I just thought maybe it'd 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 rough 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 arise. From and then what the hedging strategy is. So you got to think about the exposure to foreign exchange rates coming across 3 primary areas. 1 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 currency of those monetary assets and liabilities is different than the functional currency of the business here 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, Euro functional for the European entities, those euro earnings are ultimately translated back to U. S. Dollars when we do our as reported number. So there are 3 levels over which we get these exposures. Layer number 1, 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.

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 exercise materiality thresholds on that. On the monetary assets and liabilities, similar to transaction exposures, 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 0 strength or there's BRL strength, Brazilian real strength.

So these things tend to revert to the mean. We run the business for the fundamentals of the business. 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 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 [indiscernible] 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 [indiscernible] 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 as we've kind of talked about it as 10% and 12%. The reality is that 10% is a 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 GDV includes cross border volumes. And so what happens effectively is if GDV if cross border volumes are growing at 20%, is what we kind of reported for the whole quarter, You've got the impact of that coming through in the GDV 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 from Goldman Sachs. Please go ahead. Your line is open.

Hey, I appreciate you taking the question.

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 payments initiative, I think including in your home market of Germany, Any thoughts on how this kind of changes the landscape and just remind us kind of conceptually how you think about the competitive dynamics on the continent?

Right. So that's a great question. And I always love to talk about my home country. I want to put a stat into your mind. Earlier on, we talked about how 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 percent. So that's an important 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 that has tons of choices already, it's going to be very hard to 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 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 make checkout easier and so forth. So right now, we are looking at particularly at Wero. So Wero is [indiscernible] [indiscernible] place 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. Our approach has always been of one of partnership. We partner 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 a company.

So then we can squeeze one more question in.

Certainly. Our last Our last question will come from Sanjay Sakhrani from KBW. Please go ahead. Your line is open. Thank you. Good morning. Just wanted to go back to the volume acceleration, Satya, I mean, I know you mentioned a bunch of different things, but as we look underneath it all, is it that the consumers really gaining strength and that's sort of what's driving the acceleration Is it share part of it share gains? I'm just trying to think about the acceleration in the 4th quarter, the sustained one in actually a further acceleration in the United States year to date 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 Q4 compared to the 3rd quarter's 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 Q3 as they So it's really the underlying trends of the consumer and the merchant spend which we're talking about. There's a little bit of lift, which is coming from cryptos, 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 go 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 right now.

Thank you, Sachin. Michael, any closing remarks?

Well, I'm happy we got Sanjay in even though we're overtime. 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 being out there with our customers every day and pushing this business forward and 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.