Mastercard's (MA) Management at Sanford C Bernstein Strategic Decisions Conference - Transcript

Mastercard Incorporated (NYSE:MA) Sanford C Bernstein Strategic Decisions Conference May 28, 2020 2:00 PM ET

Company Participants

Sachin Mehra – Chief Financial Officer

Conference Call Participants

Harshita Rawat – Sanford C Bernstein

Harshita Rawat

Good afternoon. Thank you for joining us today for our 36th Annual Strategic Decisions Conference. I'm Harshita Rawat, the Senior Analyst covering payments at Bernstein. I'm delighted to be joined today by Sachin Mehra, the CEO – CFO of Mastercard. I hope everyone is safe and healthy.

Two quick housekeeping items for investors during this webcast, they're able to submit questions through the Pigeonhole link available on the left hand side of their viewing screen. Also please complete the Procensus poll at the end of the fire side chat and you will have immediate access to the poll results. The link to the poll is also on the left hand side of your viewing screen. And with that let's begin. Sachin, thank you very much for joining us today.

Sachin Mehra

Nice to be here, Harshita. Hope you're doing well and hope everybody on the call is doing well.

Harshita Rawat

And Sachin, made out a lot of thought full comments in the earnings call around what you are seeing in the current environment. Can you talk us through the global framework you've laid out to manage through this pandemic and also comment on any recent trends you're seeing in this?

Sachin Mehra

Yes, happy to do that Harshita. First of all, I’d just like to say, I mean, I'm going to state the obvious here, clearly the pandemic and everything we're seeing with COVID-19 is a tragedy at many levels from a humanitarian standpoint. And we certainly hope that this thing gets to a much better place which is something I'm assuming everybody on this call feels likewise about, but more specifically to your question, our view around what the shape and speed of recovery from this pandemic will look like will be a function of what we believe to be several policy initiatives.

And there are three different levels that what we call initiatives, which might be there from a public policy and a health initiative standpoint, which governments might put into place and have put into place. Number two things which are going on from a fiscal stimulus standpoint and thirdly things which are going on from a monetary policy standpoint. And really, I mean, each one of these is pretty self explanatory, but the way we kind of come up with our framework of thinking about how we see the different phases of this COVID crisis playing out is predicated on these initiatives and these initiatives being around, what are the things going on from a health and public policy standpoint, i.e., what are the kinds of border restrictions? What are the kinds of social distancing measures? What is the developments which are taking place from a therapeutics and from a vaccine standpoint? And what are the implications of that, overall as we go – roll through the various phases, and I'll talk you through what we think about on the phases.

And then of course there's everything which is being done from a fiscal stimulus standpoint to help the people most impacted by this crisis, both at the consumer level as well as at the small business level, certainly a lot of activity going on in the U.S., but even outside of the U.S. and several countries around that space. And then finally on the monetary policy piece, liquidity is key, as we all know, it's really important as monetary policy is being – it plays a part also in terms of instilling confidence and keeping markets function in an effective manner, we think that's a really important part of how this entire pandemic kind of plays out.

So to the specific question around what are the four phases, which we are thinking about, we've kind of modeled those four phases around what we call containment, stabilization, normalization, and growth. And containment, as it sounds is really the phase in which governmental authorities are putting in place restrictive measures around travel restrictions, around social distancing measures, around closing of nonessential businesses. And in that phase, what we see is a rapid decline in spend levels relative to what were going on in the pre-COVID environment.

The next phase, as we see it is that of stabilization and the stabilization phase is one where all of these measures, which have been putten by the government, i.e., around travel restrictions and closing of nonessential businesses, school, social distancing are being adhered to and people are actually following through on that and living it. And from a spend level implication standpoint, as you can well imagine as people are staying at home and are not traveling, you start to see spend levels plateau out at these lower levels which were the result of the containment phase.

The next phase after that we see is one-off normalization, and normalization is really that phase where you start to see a little bit of relaxation take place in terms of travel, in terms of social distancing measures and that – we expect that to be accompanied by gradual reacceleration in spend levels. Certainly, it doesn't mean that you will get to the pre-COVID levels right away, but we feel like that normalization phase is a gradual journey from what was the plateaued low levels of spend to the – to an improving trend around spend levels.

And then finally is the growth phase. And the growth phase, we kind of think is the one where restrictions are lifted from a travel standpoint, restrictions are lifted from a social distancing measure standpoint, you probably see growth also be accompanied by some more concrete evidence around the availability of therapeutics and vaccines. And it's our expectation that the growth phase will be typically accompanied by spend levels going back to those which are above the pre-COVID level. So that's kind of the four phases of the framework.

The one thing I’ll mention Harshita is that, we don't expect this to be linear. We see ourselves as this thing plays out, because nobody can really tell how the pandemic is going to play out as to whether the virus is going to reoccur, what the impact of that might be, don't really know that. What we do want to identify ourselves with as we would expect that different sectors and different geographies might be at different phases. Some might be at civilization at some point in time others might be in normalization others could very well be in growth as well. So we see this playing out in a nonlinear manner.

Specifically as to what we are seeing in the current environment. I think you're aware that earlier this month we had put out operating metrics for the week ending May 7, and you saw that the trends in that had shown the cross-border spend levels show a slight level of improvement relative to what we had talked about in the first quarter earnings call and likewise on switched transactions and switched volumes. Since then, if you fast forward to where we are as of the week ending May 21, I would tell you the trends are generally consistent with what we shared in the operating metrics, which we put out earlier this month, we have seen some level of improvement though in switched volumes and switched transactions relative to what we saw in the first week of May.

So when I compare the third week of May as results to those of the first week of May, there's some level of improvement which has taken place in switched volumes and switched transactions. And in terms of why we feel like that's the case. I think there are a couple of factors which are influencing that. One is, you're starting to see the impact of the U.S. stimulus come through in terms of how people are spending, but equally if not more important is, you have started to see some level of relaxation take place in social distancing measures and in terms of how people are getting out and starting to get back to work and so on and so forth. And you're starting to see that translate into higher spend levels.

You're seeing that in categories like card-present has started to improve a little bit more relative to what we were seeing earlier, you would expect that to be the case as people are starting to get out of their homes. But also in terms of sectors of spend, I would tell you that, you are seeing a little bit of improvement in more of the discretionary spend, where in the past it was mostly on the essentials, you're starting to see some level improvement on discretionary spend as well.

Harshita Rawat

That's very, very helpful. Thanks, Sachin. And I guess just if I think about some of the overarching behavioral changes Sachin that we're seeing today, can you talk about what some of those are across consumers, merchants, businesses, governments, which may outlive this crisis and how does it impact Mastercard?

Sachin Mehra

Yes, absolutely happy to do that. Look, I mean, I think it's kind of interesting, we've always believed that the business model which we're operating in and the strategy, which we're actually pursuing has been one around trying to capitalize on secular trends, right. And that's the shift from cash to electronic forms of payment.

And once you've started to see as part of what's the result of this pandemic is, I would say an acceleration in some of those trends which were already in play, so it wasn't like secular trends were not in play in our favor, but you've seen an acceleration of that take place and you're seeing that across multiple levels. Maybe I can spend a few minutes just talking through that.

Firstly, there's an increased amount of e-Commerce volume, which is going through the system. And that means currently a more of a demand for digital and we expect that trend to continue over the longer-term. It's an interesting kind of phenomenon. It’s one where you've been seeing that movement take place to increase the amounts of e-Commerce spend translating into increased digital usage that has certainly picked up, in some instances because people have had no choice other than to get onto it. And now that they've gotten onto it, behavior really they've come to realize that the experience is not that bad. It's actually a pretty good experience.

And so it's our expectation based on a lot of what we're observing, as well as some of the dialogues we've had through some of the surveys we've done that people like that experience and that has got some legs to it from a long-term sustainability standpoint.

Second is there's an aversion to cash, people don't want to necessarily touch cash. Just because from a hygiene standpoint, they don't feel it's the best place to be. We expect that and we are seeing this translate in terms of actual metrics as well into greater amounts of contactless transactions. Now, you know that we've been seeing increased usage of contact less take place globally, even prior to the pandemic, we just feel like this is another catalyst towards calling for greater utilization of contact less methods of payment. And we think that's long-term sustainable.

The third piece is around demand for services. It's very interesting, the company Mastercard has been very focused on driving our services capabilities at multiple levels and we can talk about that more if you have any interest in that. But what we are seeing, particularly as we're seeing this pandemic come through is, greater demand for our data and analytical capability, our test and learn capability, the insights we can provide based on all the investments we've made to build out our – what we call our data and services capabilities. That's from one facet of services.

The second piece is around, as you can imagine in the current environment the level of fraud attacks has increased. And as fraud attacks have increased there's a greater demand coming through for our cyber intelligence products. And so we view this as, this is something which again, was a trend we were already seeing, it's being accelerated and we're seeing greater demand for that stuff come through. And we see that’s being long-term sustainable.

The next element I would comment on is around travel and particularly on cross-border. So clearly cross-border has taken a hit because of travel restrictions, which have been put in place. And we expect that over time that too will come back. And it's a question of it might not look the same as it did prior to COVID in terms of how people travel. But the basic value prop of travel is something we are big believers in and we believe that comes back. It might take some time to come back, but we feel like that's something we should come back.

Another piece which we're seeing be accelerated on is engagement with governments. And I bring this up only because, through this pandemic, there is a greater appreciation for what Mastercard can bring to government. And there's a greater desire on the part of governments to partner with Mastercard, because they see the value we can bring. Whether it's in the nature of the data and insights we can provide them on a real time basis to help them more pointedly go after how they want to get their stimulus out there in order to actually reintegrate economies around the world and this is not just a U.S. phenomenon, this is actually a very global kind of comment I'm making in terms of the level of demand coming from governments around that.

But also as it relates to our multi-rail capabilities, I think governments have come to realize the importance of actually getting to a more digital environment and into more of a fast ACH environment as part of this pandemic and one might ask why does that matter, it matters to them only because they've come to realize that cash based and check based economies are really very susceptible environments such as this. And so that dialogue is something we're seeing as long-term sustainable with government.

So you look, and the last piece I'll mention is that around B2B, everything you've seen from a consumer standpoint where there's been a greater adoption towards digital take place in the consumer standpoint, we're starting to see green shoots of really serious dialogue take place, where B2B is also being thought about as why are we not digital, just like the way consumers are, particularly in countries where check and cash are still very big in relevant parts of the B2B payment ecosystem. So these are trends we're currently seeing, these are trends we feel are long-term sustainable. I view these as things which we were always seeing happen for Mastercard. We just see this as an accelerating kind of catalyst to drive towards that.

Harshita Rawat

That's very, very helpful Sachin. And the travel piece you mentioned, obviously as you can imagine, this is quite top of mind for investors. And I know the situation is very, very fluid right now in terms of what the pace of recovery could look like. But as you sit here today and you think about the next three to four to five, can you – do you think that some of the tailwinds you're seeing in e-Commerce and contactless, and digitization services can they offset a prolonged travel weakness?

Sachin Mehra

Yes. Look I can't really tell you what the timeframe or which travel will come back. The one thing I have a decent amount of conviction around is the fact that people are forming opinions today based on how they feel today about the pandemic. But we also know that public memories are pretty short-lived and people tend to adapt and move on. And we've had instances in the past where the traveling industry has actually taken a fairly severe impact, I could go back to early in 2001 where there was after 9/11 people thought that travel was something which was going to be impacted over the longer term. The reality is, it came back with a different look and feel. And the different look and feel was there were different security measures put in place, there was the TSA. It was all of those kinds of things which came around. But the reality is it came back.

The value prop of travel I still believe stands. Now, I think the timeframe over which it comes back is TBD. We do have a belief that we think that domestic travel comes back sooner, intra-regional travel comes back thereafter. And even intra-regional, you should think about it in the context of where intra-regional travel can take place across borders through vehicles, through cars, driving back and forth, a la intra-Europe vis-à-vis intra-regional way you have to get on a plane. I think you see them as being different. And then the long haul interregional stuff I see is taking a little bit more time, slightly driven by what the level of consumer confidence is around the efficacy of therapeutics and then ultimately the vaccine.

If I would actually slice the travel bucket in a different way, which is personal travel versus business travel, it's our view that personal travel comes back sooner, people are itching to get on with it. I mean, I could – I was just relating to a colleague of mine at a very personal level about how even within our family, we have a daughter who goes to college and what it means to go and pack her up and bring her back from her college, right. I mean, she's been at home, but anyway, sidebar. My point really being personal travel, we feel like comes back sooner. We feel like in personal travel domestic and intra-regional comes back probably sooner than does interregional long haul.

Business travel, we probably are – a little bit different in our view as compared to others, we feel like there's a fair amount of pent up demand on business travel as well. Right now, business travel is obviously impacted we're of the view that, business travel comes back when restrictions are lifted and people feel a little bit more comfortable. I think at the end of the day, people want to meet face-to-face to get the job done, to close deals, to get customer agreements signed, to ensure that delivery of customer agreements takes place and I think that comes back.

Timing is uncertain from my perspective. I would link it back to what are the catalysts, which calls for consumer confidence to come back and those are around the existence of therapeutics and vaccines.

Harshita Rawat

And Sachin, one of the more frequently asked questions, we also get in the context of COVID-19 for Mastercard is, as you think through and beyond this pandemic, how do you expect your priorities to shift especially with regards to investments getting passed, deal-making all of those parameters.

Sachin Mehra

Yes. It's actually a really good question. There are couple of thoughts before I get into the specifics about how we think about expense management and then about, what I would call organic investments versus inorganic investments is the following.

One, our principles have not changed and our principles are those of, we're running this business to make sure we are delivering long-term shareholder returns. We keep an eye on the short-term and that still stands very much true even in the current environment. The second thing I'll just remind everybody about is that, everything we're going through right now, Mastercard as a matter of discipline prepares for as part of our annual planning process. When we go through our annual planning process, we not only develop what we think are base case for the next year is, and for multiple years is, but we also think about what might a mild downturn and a severe downturn look like.

And when we do that planning, we identify what would be the levers we would pull from an expense standpoint to ensure that we can meet our principles around delivering long-term shareholder returns while keeping an eye on the short-term. So no different than every other year, we've done that planning last year and we'll continue to do that planning this year. The good news is for all the planning we do, where we identify these levers. We also work with our business units to make sure that they are ready to actually react and make sure we can pull those levers fast, as we did in the first quarter and as we are working on every day, every week, every month out here as we go through the pandemic today, so in terms of what levers to pull.

Now specifically, what are those levers? We are looking at all our expense line items, the principles we're trying to follow all the following, which is got to make sure that things which are imperatives from a long-term standpoint, we will continue to invest in, really important for us to keep in mind what is required from a market demand standpoint, because remember what has impacted us today has impacted everybody. And if our customers and the market in general is not ready to receive what we've got to put out for in the nature of new products, new services, whatever the case might be, there's no point investing in them right now. We might want to show them until the market readiness level is there.

So we're being very smart about taking the lens of what the customer wants to be able to pulse our investment plans on that basis. There are certain critical areas like digital services, geographical expansion, our multi-rail strategy we continue to invest in them. We think they're important, they're the foundations and pillars of driving growth over the longer-term we'll continue to do that. There are other levels like, professional fees, there might be things around – T&E is kind of taking care of itself because nobody's traveling. So that kind of takes care of itself right there.

Or there might be things we could do from a rationalization standpoint on advertising and marketing, because the time is not right for that or let's try and be a little bit smarter. So for example, if we are sponsors of certain events and those events are not taking place, we're obviously not going to be spending around the activation of those sponsorship assets. So it's things like that, that we're working on to ensure that we're driving good expense discipline, which we always do, but in light of the current environment. And really what we want to do is we want to keep our finger on the pulse back to the four phases I talked about to have an assessment as to where we feel like we are in those four phases, to be able to reassess, how we would like to step up expenses if and when we are ready to do so. And we start to see there is being receptivity from the market to what we want to kind of actually put back onto the front burner, which we might have put on the back burner.

Now, the second part of your question was around our approach towards delivering on the strategy, organic versus M&A and our partnerships. Really, Harshita nothing's changed there. You know, we always were focused on driving the long-term growth of our business, both through organic means, as well as inorganic, you've seen us be acquisitive over the last couple of years. If it's on point with strategy, if it makes imminent sense for us to be acquiring a company as opposed to building, and there'll be various reasons why it might make sense, we will be right there and ready to acquire.

In fact, people have oftentimes asked the question, what's your view around acquisitions during this environment? My view is very simple, if it's on strategy, if the target is appropriate, if it's at a fair price, right, this would be the time to actually do it. This is the right time to capitalize on those kind of investments.

Harshita Rawat

Makes sense, thanks, Sachin. Let's talk about Mastercard CEO transition, earlier this year Mastercard announced plans for a CEO transition. What impact do you think this will have on Mastercard strategy and culture?

Sachin Mehra

Yes, I've been with the company about 10 years and it almost feels like I'm answering this question twice in two years. I answered this last year in the context of my transition with Martina. And I'm going to answer this right now as to what my views with transition over from Ajay to Michael.

Let me tell you the following, the strategy that has been put in place at Mastercard is a strategy, it's been a very consistent strategy for many years is one which will transcend leadership teams. And the reason I believe that to be the case is because it's not like there's one individual who decides on what the strategy is it's a culmination of that leadership team, which kind of brings their thoughts together as to where we want to go and how we want to drive

Michael who will be the CEO next year, has been a very integral part of the development of our strategy and the execution of that strategy. I mean, not only is Michael been leading within the Mastercard environment our Middle East and Africa region at one point in time, but then after for the last five issuers, he's been our Chief Product Officer. And as you can imagine by virtue of being a Chief Product Officer, he has been integrally involved in terms of devising the strategy and executing on it. Whether it's around the multi-rail capabilities, whether it's around the work we're doing on digital innovation, whatever the case might be, he has been part and parcel. So I don't see a big change in terms of what that strategy is, what the North Star is and how we are driving right down that path.

At personal level, I'll tell you and I know you didn't ask this question, but I'll answer it nonetheless. I am incredibly fond of Michael, I am incredibly fond of Ajay. The reality is my fondness for either one of them is not predicated on the fact that I’ve known them for the last 10 years, but it's more around just the way they conduct themselves and the way they manage the business, and the way they actually think about driving this company forward. I worked very closely with Michael when he was Chief Product Officer, because at that point in time, I used to be the lead for our global commercial products organization. So I used to report to Michael at that point in time. So we have a very good interactive relationship, which is going back some time now.

And I feel like that will now transcend into things beyond product to a more macro kind of basis. So look strategy I think would remain as is. I think the interaction model would be good. Also recognize back to my point around the leadership team, this is a pretty solid leadership team all around, right. And the strength of the company comes from certainly the leader, but also the leadership team. And I think we're in a very good place. I feel very good about it.

Harshita Rawat

Speaking of good place Sachin, if I look at Mastercard history over the last few years, your volume as well as revenue growth rate has accelerated versus the prior five years and what has contributed to this and more importantly how sustainable is this?

Sachin Mehra

Yes, look, I mean, I think it all comes back to the grow diversify build, right? If you think about the pillars, it's around growing our existing lines, which are credit, debit, commercial, prepaid, so on and so forth, right, which is in the grow pillar, then it's diversifying into new geographies and across new customers and then they're building our new capabilities.

It's when I think about key contributors, looking back call it multiple years, growing the core and winning share has been a key enabler of driving increasing volumes. I mean, driving increasing revenues. And let me kind of delve into that a little bit, which is growing the core comes across multiple facets.

It comes around growing it across various product lines, credit, debit, commercial, prepaid. It comes through in the nature of the business we've been winning, whether it's about the recently announced extension of our deal with Citibank and/or the renewal and extension of our agreement with Capital One, just to name a few.

And then if I go across the globe, similarly, we've been doing that not only with existing customers, which is retaining existing customers, but actually winning new business. And then winning new business has been an accretive factor from a volume and a revenue standpoint. When I keep delving down, then I go into co-brands, and I see about the success we’ve had around co-brands Cabela's, Kroger, L.L. Bean, so on and so forth. All of these have been wins, which have been key enablers again, to driving those volume metrics, which are looking at.

Fintechs. Fintechs have been something which Mastercard has been the leader at for some time now and continues to be the leader at. We've been growing, growing rapidly, the names of all the Fintech players. It doesn't matter whether it's Revolut, NewBank, any and all, right, I mean I can name them all, Brex, Money Line. It doesn't matter. The point really being there first at the table, partnering with them and then watching how we are able to partner and grow with them has been a key enabler as part of this.

And last but not the least, which is our services capabilities. So our services capabilities are helping us not only generate revenue enough of themselves, but are actually a key enabler to powering the core. So these wins, I just spoke about, right? The fact that we adapt a solution selling approach with our customers, as opposed to a very transactional, I wonder when you're switching business approach has been a key enabler because we're in there with our services capabilities, talking about how we can bring value and drive value for our customer, as opposed to merely saying, let's make this a price discussion around what our switching is going to cost them.

So it's a combination of all of these, which have enabled us in the past and I believe will enable us in the future. And then we're not just sitting on our laurels and saying that we've achieved all of this. The reality is every day people are out there hustling and are trying their best to try and figure out what is it that our customer needs? How do we engage with them? What does that model look like? And how do we ensure that we deliver on that? That's a very important part of how we're making this come to life.

Harshita Rawat

Sachin, I have a lot of questions for you on the diversify and build part, before we get there, I want to talk about China.

Sachin Mehra

Yes.

Harshita Rawat

On the growth piece of your strategy. So earlier this year, Mastercard's application for domestic switching in China was approved. Can you give us an update on the current status there and the next steps and what could Mastercard in China look like given the existing incumbents in the market too?

Sachin Mehra

Yes. So, first, I'll tell you, I am really excited about the opportunity which China presents. We've always been excited about it, how real it is and how fast it comes around has been something which we can kind of debate just because it's taken a while, just because everybody knows what the environment is, but we're very encouraged with where we are today in the nature of the announcement, which you've just alluded to.

We have this agreement with NUCC. As you mentioned earlier this year, the PBOC approved our joint venture application. The next steps involved are to continue doing the tech build, which we have been doing there. And we'll continue to do that, but also start working with ecosystem participants, such as acquirers and start to build out that acceptance footprint as part of what we want to do. We expect all of this will take us the better part of a year between when we were approved for the JV application to when we hope to get final approval.

The reality is time will tell, right? And the reason I say time will tell us because that is what we think in – by what the letter of the approval process says and how the reality plays out. And so we're working in full earnest to make this come to life. We believe the opportunity is great from a domestic market standpoint. The reality is China is not a new market for us. We've been playing in China for the longest time. We just done it in an environment in which we've engaged with local Chinese issuers to enable their products to be used in the overseas environment. We've been very successful at that. And that would include not only the traditional banks that would include the digital players, whether it's the Alipays of the world or Tencent players of the world.

For example with Tencent, in 2018, we announced a consumer credit co-brand with them. That's a card which is live in market as we speak. It's good for – it's a single-branded Mastercard card. It's good for use outside of China today. As time goes along, you've got the potential for once you're up and running from a domestic environment standpoint, to be able to leverage that relationship, to make it more of in China play as well.

But along those same lines, if you go back to the announcement we made a little while ago around how both Alipay and Tencent have enabled the wallets to be accepting of internationally issued Mastercard cards for utilization in China. That's another kind of proof point of how we're trying to work within the realm of what we're allowed to do in the current Chinese environment.

To your longer-term question as to what does Mastercard look like in China, called x number of years from now? I think these pieces, which we've been working on around the cross border piece we will continue to do and will do as much and more of that. On the domestic environment, we're working in full earnest, with a very good partner to be able and present to compete in a very effective manner for those domestic volumes, that is TBD dependent upon getting final approval, which we expect will take the better part of a year or thereabout.

Harshita Rawat

And Sachin, let’s talk about your multi-rail strategy, over the last several years, and you've talked about this as well. We’ve seen Mastercard's evolution from being solely a consumer card payments company to not having this multi-rail strategy. And you have made some sizeable investments in real time payments space too. Why is owning the RTP infrastructure important for Mastercard and how will Mastercard participate in this different layers of RTP around infrastructure, application and services?

Sachin Mehra

Yes. No, that's a really good question. Look, I mean, I think first, let me just kind of put one thing out there. The one thing which we are very clear off and which our customers gotten increasing levels of clarity around is that we are the only global multi-rail payments company. And by that, I mean, multi-rail across guardrails around ACH rails, around blockchain, all of these events. And the reason we've gone down that deliberate path and that deliberate strategy is because we believe choice is really important.

When you engage with a customer, when you can have a discussion around the holistic payment needs of a customer, as opposed to, guess what, I'm here to take care of your needs from a card payments base standpoint, you're, by definition, reducing the size of the addressable market for yourself. And when you talk about it across multiple rails, and you're talking about ACH, cards, blockchain, so on and so forth. You've expanded the addressable market.

So, in September of last year at the investor meeting, we talked about addressable markets and we talked about how PCE was a $50 trillion opportunity in annual basis. And what we call new payment flows was $185 trillion opportunity across B2B, B2C so on and so forth. If you're really serious about going after those flows in any meaningful manner, you've got to have a multi rail platform and the multi rail platform is cards, ACH, blockchain, things of that sort.

So I want to kind of just lay that as a foundation. Now I'll come to your specific question around why is it that, it's important to be an infrastructure? What is our strategy around applications? What's our strategy around services? The first question I think everybody should ask themselves when they're thinking of our infrastructure is the reason it's important to be in infrastructure and ACH is the same reason why it's important for us to do more switching in the card world. Everybody knows that we are working hard at increasing the amount of switched transactions that we have in the card environment.

In other words, we want to do more of the authorization clearing and settlement of the transactions, which are branded Mastercard. If you would transpose that same logic over to the ACH world, you would want to be in the flow of doing the authorization, clearing and settlement of the ACH transactions as well. At scale, that's a remunerative business, right, I mean, just to be clear. Then you layer on that, the application piece and you see what the opportunity set around that is, you've got applications which range everything from bill payments to pay by bank to – there's a whole range of applications, which might not be relevant in the context of cards, but will be relevant in the context of ACH. And that's something we will go after and go after hard as well and have been. We've been doing it, we've been working on it in various different parts of the globe. Okay.

And then the third piece is services. Just like in cards, where we deliver a whole bunch of services, we talked about data insights, we talked about, the safety and security services, so on and so forth. Well, all of the services are all applicable, also on ACH rails. Now if I'm not in the infrastructure level, it's hard for me to deliver services when I'm not in the data flow. So the analogous kind of thing I would tell you is on the card side for those transactions, which we don't switch, it's hard for you to provide data insights on transactions you don't see, right? So by definition, playing an infrastructure gives you a leg up on services, gives you a leg up on applications.

It's not an imperative that you must always be in the infrastructure to participate in applications services, but it certainly gives you an advantage. And that's kind of the theory, that's the push. So I'll just bring this home to make the following point. Multi-rail is important because it provides choice. It expands the discussion with our customers and makes us a true thought leader and business partner from a payment strategy standpoint for our customers. Our customers go beyond the banks. It's true for governments. It's true for various multilateral agencies, doesn't really matter across the board.

Second, we think it's important to have a presence across infrastructure, applications, and services. We'll do it fit for purpose. And as you've seen on the infrastructure side, we've had a fair amount of success since we acquired the Vocalink asset. We've announced last year about how we won the mandate in the Philippines. We're making a lot of progress in Latin America. We've done likewise with P27 in the Nordics, Saudi Arabia, Thailand, Singapore. There are a few places where we've kind of planted the flag from an infrastructure standpoint, which we think is incredibly important. And we're building out now on services and on applications.

Harshita Rawat

And so Sachin, let's talk about B2B in that context. So you recently announced the commercial launch of the Mastercard Track Business Payment Service. Could you share your thoughts on how Mastercard Track aligns with your broader B2B strategy? And also more broadly – and Sachin, I'm looking at length at the questions I received during the course of our chat. One of the top questions is also more broadly on B2B will the traction of your B2B efforts permanently accelerate as a result of this crisis, too?

Sachin Mehra

Yes, that's a really good question. So I'll take the second question first, and I'll come back to the Mastercard Track BPS. As I mentioned earlier, I think one of the questions you asked me earlier is what are the things we're seeing coming out of COVID, which we expect to be long-term sustainable, and we certainly feel that's the case with B2B, particularly in markets where there are inefficiencies which exist in terms of how B2B payments are processed, for example, check payments; particularly in markets where there is a disparity in the information, i.e., the data, which is flowing between the maker of the payment and the receiver of the payment because data in the B2B world is incredibly important to enable seamless reconciliation of what are open accounts receivables, right; as also where there's a working capital need and where there's need for safety and security.

Now if I bring all of those four needs together, what I come up with is in a COVID-like environment, you're somewhat challenged if you're not digital from a safety and security standpoint. You're certainly challenged from an efficiency standpoint because, candidly, people can't cut checks at home. So that doesn't really work, right? So there's a big demand, which we're starting to see come through on people – the lightbulb going off and saying, "Look, we better get with the program around this stuff." I don't expect this to happen overnight. Let's just be clear about this, okay.

There has to be an ecosystem, which has got to be built out, and we're working on it. We've been working on it for the last few years in terms of building that out, which is where I go to this Mastercard Track Business Payment Service, which effectively, you should think about it as an organized way in which we're trying to connect buyers and suppliers through what are we calling Buyer Payment Agents and Supplier Payment Agents. So if I were to translate that for you in card nomenclature, I would tell you, you have issuers and you have acquirers. Issuers deal with consumers. Acquirers deal with merchants. In the B2B environment through BPS, you've got buyers who deal with Buyers Payments Agents who deal with BPS Mastercard, who deal with Supplier Payments Agents who deal with suppliers.

And the idea really being to create these consolidation points with Buyer Payment Agents and Supplier Payment Agents, to allow for the appropriate formatting to take place of data elements, of payment preferences of supplier directories, so on and so forth, all of which will be housed and are housed in Mastercard Track BPS. So what we announced earlier this year about – in fact, a few weeks ago about the launch of Mastercard Track BPS in the U.S. in full earnest is exactly that. We announced with that several of these distribution partners, what we call them, as part of that launch. And those included some fairly prominent B2B names, amongst which are AvidXchange, you've got CSI, you've got Boost, you've got Global Payments. There's a whole bunch of them who are part of that who are – bought into the concept and are now enabling the creation of that ecosystem.

We're piloting right now in Latin America across – with Mastercard Track BPS and with pilots planned for the other regions as time goes along, right. So really, the thinking out here is create the ecosystem, create the infrastructure, create standards, which allow for electronification of payment rails – of payments to take place in the B2B environment. The one piece I did not talk about with Mastercard BPS is it's intended again to provide choice. We will do it over card rails, we will do it over ACH sales.

We will do it with blockchain technology. Whatever is fit for purpose, right, is how we're constructing. And then the reason is one of the lessons we learned in playing in the B2B space over the years is when you go with a one-dimensional solution, and that is only cards, what happens is people tend to disengage because they say, "I don't want to deal with an accounts payable file, where only 10% of my payments are taking care of solutions.

Give me a solution where you can take care of 100% of my payments, and we can talk about how much goes through cards, how much goes through ACH, how much goes through check. They want to have their holistic solution because otherwise, it disrupts their basic back-office operations. Don't want to do that. And this is where I think Mastercard BPS kind of drives home pretty hard.

Harshita Rawat

That makes sense. And Sachin, I remember several years ago when Mastercard first started investing in services, and I know you talked a little bit about services earlier bit about services earlier. At that time, and whether it was looked upon with investors skepticism. But fast forward to today, your service line has been a strong driver of your revenue growth rate. You talked about that a little bit earlier too, and even in this crisis. So my question for you Sachin is how is the services business a growth driver for you as well as a competitive differentiator? And then how should we think about services going forward as a growth driver?

Sachin Mehra

Yes. So we are incredibly proud of our capabilities, which we built on the services side. We think that not only was it the right move, it was the smart move in terms of on multiple facets. One in terms of enabling the core, it goes back to this whole thing of when you go and drop your customer and you go with a solution oriented approach, as opposed to, I want to sell you the switch, right? You tend to get greater engagement, and that's, what's been the key enabler of driving market share wins back to your question earlier.

Services have been a big enabler of that. The capabilities we built have been around, like, data analytics, consulting, managed services, the cyber intelligence tools to just name a few of the things we've gotten in the services toolkit. Now, the important thing as to why we went down this path was for, one, to drive diversification of the revenue streams of Mastercard as a company. Driving diversification is holding us in good stead. You can see that right now in this environment where our drivers are impacted by COVID. You have, however, seen a fair amount of resilience comes from the services lines and that's important. So it's achieving the objective of diversifying our revenue streams.

The second thing which we seek on through from services is its revenue generating in and of itself, right? At the end of the day, what its doing is it's growing at a base faster than the core. And we expect for that growth rate to be faster than the core on a going forward basis as well. We like the – so in other words, we like the resiliency. We liked the diversification effect that brings, we like the fact that it powers the core and differentiates us from our competition. And at the same time, it's a fast growing set of solutions.

So that story hangs pretty nicely together. We continue to believe it's the right approach. We'll keep investing in that space. We in fact, feel like back to the discussion we were having around multi rail strategy in just a little while ago. We feel like the skill set we've built out here, which we so far tapped into on the card rail side is very applicable on the ACH rail side. And we started down that journey already.

So short answer is, I continue to be quite bullish about our services capabilities and continue to believe that from a capital allocation standpoint, and from an investment standpoint, that's the right place for us to be putting – one of the right places for us to be putting our money to keep growing this company over the longer term.

Harshita Rawat

And Sachin, we've talked about a number of trends already during our conversation. So we talked about acceleration of e-commerce and contactless, real-time payments. Another big trend that's happened over the last couple of years, open banking. So do you view open banking as an opportunity or a threat to Mastercards and how is Mastercard approaching the open banking space more broadly?

Sachin Mehra

Yes, Look, I mean, we clearly view this as an opportunity. No question about it. We think that open banking is here to stay. We think about this as being something which is a global in nature, different parts of the globe are in different stages of adoption of open banking. We have been added for a couple of years, starting with our efforts in Europe. We came up with our strategy in Europe, which we've been executing on. It's around a four pillar strategy, which is around connecting the ecosystem, around protecting the ecosystem, around resolving disputes in the ecosystem. And last but not the least is around providing consulting to other ecosystem participants as to what it takes to be successful in open banking.

And very quickly, I'll just go through each one of those pillars, just to kind of explain to you where we see the opportunity set. I think you're familiar with what's going on in Europe with PSD2 and the need by law and regulation out there for banks to open up consumer information to third-party service providers who might want to provide services. We view our role in that no different than we view our role in the card payment network side of the business, which is we want to connect those ecosystem participants and have connected those ecosystem participants. I.e., the banks on one site and third-party service providers on the other side.

And really that role of an organizer is incredibly important because absent us playing their role. You had third-party service providers individually reaching out to banks with separate technical specifications as to how they want to hook in order to get the data they needed in order to serve what they were looking to serve. You've got Mastercard who's created a standard to allow for third-party service providers to hook into Mastercard, which has built a pipe to the banks. And that's the connect level for which we charge and we'll earn money out of that, right?

There's the protect piece, which is you've got to validate the credentials of the third-party service providers who are seeking this information from the banks. That's where Mastercard comes into play in terms of making sure there's a certification standard to ensure that happens as also protecting the data, which goes through in the open banking environment. There are principles that I'll touch upon these principles right at the end when we go through this, which we believe very strongly in as part of our approach to open banking.

But before I go there, let me finish the other two pillars, which is around resolving. Resolving is around resolving disputes. Transactions take place, data flows, payments flow. Invariably there'll be disputes. If there's no arbiter in between, what – a role we played in the card business for the longest time, right? You're going to be somewhat challenged. So we think we have a role to play there. And the last piece is the consulting piece, which is around services and things of that sort. So back to the principles which we stand for besides these four pillars, the principles are, we've got to make sure that it's an equitable ecosystem, which benefits all parties involved, benefits the banks, benefits the fintech companies, benefits consumers, obviously benefits ourselves as part of that process. So there's got to be balanced in that ecosystem. It can't be imbalanced. We think we're all positioned do that. We do that in the card world. We can do that here as well.

Number two, really important respect privacy rights of consumers. Got to make sure that they're fully in consent. They've got it. They understand what they're parting with and the nature of information. Number three, you've got to make sure that the data, which is being passed back and forth through the open banking environment as well, protected. It's in a secure place, right? Really important. Those standards are really important. And so as we're building our strategy, we're being respectful of these data principles of ours, these privacy principles of ours, these balanced ecosystem principles of ours, while we're building out the connect, protect, resolve and consulting kind of approach.

Proof point is what we recently announced was the win we had with Tesco in the U.K. We just announced a win with Tesco on the open banking front out there. We feel like we built the right model. We feel like we're in the right path down this path, and we'll continue to do it. We're doing it in Europe and have been for a few years. And other regions are not too far behind.

Harshita Rawat

Great. Sachin, we are just about out of time. So my last question for you is, so the payments landscape has changed tremendously. We've talked about some of those changes for the last several years that these new flows becoming addressable, value-added services becoming very, very important. But then there's also increasing government nationalism, a new entrance in this space. So as you look forward over the next two to three years, what is the biggest opportunity as well as the biggest risk for Mastercard?

Sachin Mehra

Okay. So I I'll take the risks first and I'll go to the opportunities thereafter. I think from a risk standpoint, I put them into maybe three buckets and bucket number one would be around what I call regulatory issues. This comes in the nature of nationalism, protectionism, and regulation. So nationalism be, as the word suggests, right, we've got to navigate through that. We've been doing it, we've done it effectively. We feel like having our multi-rail strategy is a key enabler to kind of get around some of these nationalism challenges. We'll continue to do that going forward.

Protectionism, little bit harder. In an environment like China, for example, we've had trouble getting into the market just because it's been a market, which has been close to us for the longest time, right. And then there's regulation around interchange and things of that sort, which candidly, anyone who signs up at Mastercard should be ready for that. And we've been dealing with that for some time and have navigated through that very effectively. So that's kind of bucket number one from a risk standpoint that the other two buckets are around the with the evolution of technology and new and different technologies coming in, how do we maintain and make sure that we are clearly emphasizing and articulating and delivering on the value proposition we bring to the ecosystem.

Otherwise, you get disintermediated. And we've done that, and we've done that effectively, as demonstrated by the fact that very engaged with our Fintech partners, very much at the forefront, whether it's with the Apple Pay stuff with the work we've done with PayPal, just to name of you. Right. Now most recently with Samsung, as you've kind of seen, we announced, I think it was yesterday a couple of days ago about our partnership with Samsung in their launch of a digital first debit card.

Again it's all the investments we made in our technology and innovation we've done, which has put us to the forefront of dealing with those threats, which come along with that.

And the last one is around cyber security. And look, I think this is a threat, which is existing in all industries today, not just in the payments industry, it's the risk of bad actors trying to go after various participants in the ecosystem, ourselves included. We have a multilayered strategy to protect our own network, but at the same time, we've got to set up products and solutions to our cyber intelligence capabilities to help us enable a more secure ecosystem by selling those products to our partners. That's what we do as part of our services capability. So I put those three into the risk bucket.

For an opportunity side, I've kind of touched upon a few of those opportunities when I've talked about these risks, but I kind of think about our opportunities around driving hard on multi-rail, continue to win on digital, super important, right? I mean, at the end of the day, if the digital trend is something which is here to stay and is only getting accelerated, we continue to believe that's a big opportunity. We're heavily invested in that space. Open banking, you asked about that, we think that's important. And then services. We think there, we're living it today. We think they're there for the long term. We'll continue to invest in that opportunity going forward.

Harshita Rawat

Wonderful. I think that's all – about all the time we have. I wish we had more. For those of you who are listening in, please complete the Procensus poll.

Question-and-Answer Session

Operator

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