萬事達 (MA) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2021 Mastercard, Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. Operator Instructions) I would now like to turn the call over to Warren Kneeshaw, Head of Investor Relations. Thank you. Please go ahead.

Thank you, Denise, and good morning, everyone, and thank you for joining us for our first quarter 2021 earnings call. We hope you're all safe and sound. With me today are Michael Miebach, our Chief Executive Officer; and Sachin Mehra, our Chief Financial Officer.

Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. You can access our earnings release, supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website, mastercard.com.

Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency-neutral basis unless otherwise noted. With the release and the slide deck both include reconciliations of non-GAAP measures to GAAP reported amounts.

Finally, as 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 will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Mike Miebach.

Thank you, Warren, and good morning, everyone. So here are the headlines. We started the year with good momentum, delivering positive net revenue growth this quarter. We're encouraged by the return of domestic spending levels to pre-pandemic trends. We continue to execute against our strategic objectives as we signed notable new deals, advanced our multi-rail strategy by closing our transaction with Nets and extended our digital identity capabilities with the planned acquisition of Ekata.

So let's dive in, looking at the broader economy first. Domestic spending levels showed continued improvement with very strong e-commerce sales. According to our quarter 1 spending pulse report, which is based on all tender types, U.S. retail sales were up 11.8% versus a year ago ex auto, ex gas. This reflects the impact of fiscal stimulus and the lapping of the start of the pandemic.

Spending costs also indicated that overall European retail sales got close to flat in quarter 1 versus a year ago. The vaccine rollout has become scaled in the U.S., U.K. and several other countries. And broadening this critical effort is underway, but will take time.

Let's start with our business, specifically, and the 4 phases framework we established for managing through the COVID environment. At this time last year, markets were going through the containment and stabilization phases. We now believe many markets are transitioning from the normalization phase to the growth phase domestically. Cross-border travel spending continues to be in the stabilization phase, where spending is restricted due to closed borders.

Looking at Mastercard spending trends, volumes continued to improve quarter-over-quarter with strength across products. We saw particular strength in debit, primarily driven by fiscal stimulus and share gains. In terms of how people are spending, e-commerce continues to be strong and we're seeing improvements in card-present spending.

On the travel front, we've seen some recent improvements in domestic travel, primarily personal travel. Cross-border travel remains limited as border restrictions remain in place for most markets. Cross-border card-not-present spending, excluding online travel spend, continues to hold up well.

As we have observed in many markets, progress is not always linear. And we believe there's significant pent-up demand for travel, as we've just seen in domestic travel. We expect domestic travel to improve progressively throughout the year in countries with strong vaccination programs.

International travel should start to open on a select basis in the second half of the year between countries, the strong vaccination programs and/or low case rates. In the meantime, we remain focused on building on our already strong position in travel, engaging travelers early through our loyalty programs and expanding relationships with our partners in travel. As a result, we are well positioned to capitalize on this opportunity when it occurs.

As we look forward and see positive momentum in the drivers that impact our top line growth, we will increase the investment we put toward our strategic priorities: one, for payments; two, deploying a broader set of services; three, enabling digital solutions; and four, providing choice with multi-rail capabilities. As always, we will do this with an eye towards driving top and bottom line growth over the long term, along with expense discipline.

Let me illustrate how we're executing against each of these strategic priorities. I will begin by sharing how we're driving growth in the core, always supported by differentiated services capabilities. Here are a few key examples. Building on our strength in U.S. retail co-brands, we're excited that Mastercard was chosen as the exclusive network for Gap Inc.'s co-branded credit cards across the Old Navy, Gap, Banana Republic and Athleta brands. This partnership will include a reimagined rewards program to drive increased customer engagements, with the migration of existing card members planned for 2022.

We've had a long-term services relationship with Gap, which led to additional opportunities to support both their co-brand programs and their broader business.

We're also leveraging our differentiated service to expand relationships with key global partners like Santander. This quarter, we signed a new deal with Santander Brazil and executed a long-term exclusive partnership with Superdigital, Santanders fintech arm, to provide digital prepaid accounts across 7 Latin American markets.

Also, we're happy to announce that the financial arm of one of the largest retailers in Europe, El Corte Ingles, is migrating its entire closed-loop consumer credit portfolio to Mastercard exclusively for 10 years. This strategic partnership includes our processing capabilities and will contribute to growing Mastercard's overall credit share in the region.

Talking about share. I'd also like to point out that the migration of Santander U.K. debit portfolio is progressing well, and we're preparing for the other conversions to be previously announced. Finally, we secured several strategic renewals and expansions. As many of you know, Huntington Bank announced its anticipated acquisition of TCF at the end of last year, which will make them a top 10 U.S. regional bank. I'm happy that they have decided to both renew their existing business with us and convert the TCF business to Mastercard. This brings significant new debit volume to our brands. We've also expanded our relationship with Synchrony Bank, as the exclusive partner for their general purpose consumer credit portfolio.

Turning to the next strategic priority. We continue to enable digital solutions to drive the secular shift to electronic payments. A great example of this can be seen through the partnerships we have established with several leading mobile telecom providers across Africa and other regions.

In Africa, there are more mobile money accounts than bank accounts and consumers increasingly expect digital financial services to be provided through their mobile phones. Now we signed a multiyear partnership with the MTN group to enable millions of their MTN mobile money wallet customers with a Mastercard virtual payment solution.

We've also expanded our partnership with the Airtel group to equip their Airtel money customers with virtual cards and QR solutions. And we've extended our partnership with the Airtel Payments Bank in India along with the recent investment in Airtel Mobile Commerce.

While our digital capabilities are enabling us to penetrate new geographies, our multi-rail strategy is allowing us to provide greater choice and capture new payment flows. We're happy that we have now completed the acquisition of the majority of the Corporate Services division of Nets, which reinforces our leadership position in providing real-time payments, infrastructure and applications. This transaction significantly enhances our application capabilities, inclusive of a robust set of bill payment solutions, which are operating at scale across several markets.

Furthermore, this is an integral component of our regional strategy in Europe, enabling us to operate as a local partner. We see significant opportunity to expand these capabilities into additional markets around the world.

Speaking of Bill Pay, in the U.S., we continue to scale our Bill Pay Exchange solution through new billers and bank partners. We're excited to announce that Verizon will connect as the most recent national biller on the platform.

Turning to cross-border applications. We have now fully integrated our acquisition of Transfast and can now provide unsurpassed reach via a single point of access that allows banks and digital partners to send and receive money through bank accounts, mobile wallets, [cards], and cash payouts to over 90% of the world's population in more than 100 countries. We're expanding our relationships with the United Nations Federal Credit Union, Saudi British Bank to expand their reach into additional markets. And both Bancorp and IDT payment services will now leverage our capabilities for cross-border advantages.

And in addition, we have extended our partnership with Western Union, who will be using our capabilities to allow customers in 18 European countries to transfer funds directly to debit cards in near real time.

Our multi-rail capabilities are critically important to our efforts in open banking as well. They enable us to provide our customers across banks and fintechs with greater flexibility in how they manage both payment and data flows. We're off to a strong start at Finicity as we've integrated our sales teams and already signed several new connectivity partners and application users.

For example, we're live with our state-of-the-art API-based data access in several large banks, including U.S. Bank, as well as with the leading payroll processor, representing millions of employees.

Finicity was also selected by companies like Upgrade, SWBC, MoCaFi, MoneyLion and TomoCredit to provide permission-based access to financial data to support a variety of use cases, including mortgage, lending and, of course, payments. We're expanding our open banking capabilities in Europe as well as we're now live with our Open Banking Connect solution with Lloyds Bank in the U.K. for consumers to make payments to their credit cards.

We continue to see a great deal of interest and activity in digital currencies, and we're innovating in this space through new crypto and CBDC partnerships, enabling digital currencies on our network, and continuing our investments and underlying blockchain technology as part of our multi-rail strategy.

We have several new crypto partnerships approved for launch this quarter, including a partnership with Gemini, a leading crypto platform here in the U.S., to launch a first of its kind cryptocurrency rewards credit card that allows consumers to receive crypto rewards on everyday purchases.

And over in Spain, Crypton, a crypto exchange launching a Mastercard Crypto Card. On central bank digital currencies, we continue to engage with central banks around the world, and our virtual testing platform is helping them design features, similar issuance and evaluate interoperability with existing payment systems. In partnership with the Central Bank of Bahamas and Island Pay, we launched the world's first CBDC-linked payment card, enabling people to pay for goods and services using fiat currency anywhere Mastercard is accepted.

Digital identity. Digital identity is critically important as the shift to a digital economy continues. It is a foundational component of our multilayered approach to security and have allowed us to help consumers and businesses safely and easily prove their identity while enabling them to main control over their information.

Last week, we announced the planned acquisition of Ekata, which advances the digital identity efforts we have underway. Ekata has access to validated identity information on a global basis and leverages artificial intelligence to produce highly accurate identity scores. Ekata's insights support multiple payment and nonpayment use cases, including new account openings, instant issuance and transaction risk checks to be used by a broad range of customers, including leading digital merchants, financial institutions, travel companies and digital currency platforms. This is an example of how we are entering into adjacent areas and innovating beyond the core payment transaction.

And now back to the bigger picture. We're leveraging our business to have a broader impact on society by executing our commitment to bring 1 billion people into the digital economy by 2025. Specifically on the environmental front, we have pledged to achieve net 0 emissions by 2050 and issued a sustainability bond in the last quarter to support these efforts.

Furthermore, our Mastercard carbon calculator developed in collaboration with Doconomy, is enabled on our network to provide consumers with a snapshot of carbon emissions generated by their purchases. We've worked with customers to issue over 10 million cards using sustainable materials. If we tie all of this together, we are now linking executive comp to Mastercard's sustainability priorities.

With all of that in mind, I continue to be excited about the opportunity ahead, and I'm happy with the progress we're making against our objectives. And with that, Sachin, over to you.

Thanks, Michael, and good morning, everybody. So turning to Page 3, which shows our financial performance for the quarter on a currency-neutral basis and excluding special items and the impact of gains and losses on the company's equity investments. Net revenue was up 2%, returning to positive growth for the first time since the peak of the pandemic in Q2 2020, and includes a 1 ppt benefit from acquisitions.

Operating expenses increased 7%, which includes a full ppt increase from acquisitions. Operating income was down 1%, and net income was down 6%, both of which include a 1 ppt decrease related to acquisitions. EPS was down 5% year-over-year to $1.74, which includes $0.02 of dilution related to our recent acquisitions, offset by a $0.02 contribution from share repurchases. During the quarter, we repurchased about $1.4 billion worth of stock and an additional $418 million through April 26, 2021.

So let's turn to Page 4, where you can see the operational metrics for the first quarter. Worldwide gross dollar volume, or GDV, increased by 8% year-over-year on a local currency basis. We are seeing sequential improvement in both debit and credit as vaccination progress takes hold and mobility increases.

In addition, debit growth is being further strengthened by fiscal stimulus and share gains. U.S. GDV increased by 14% with debit growth of 26% and a decline in credit of 1%. Outside of the U.S., volume increased 5%, with debit growth of 12% and a decline in credit of 2%.

Cross-border volume was down 17% globally for the quarter with intra-Europe volumes down 11% and other cross-border volumes down 23%.

Turning to Page 5. Switched transactions grew 9% in the first quarter globally. Card-not-present growth rates have accelerated during the past year and continue at those elevated levels, while card-present transactions are now growing above 2019 levels for the first time since the peak of the pandemic.

In addition, card growth was 6%. Globally, there are $2.8 billion Mastercard and Maestro-branded cards issued. Now let's turn to Page 6 for highlights on a few of the revenue line items, again described on a currency-neutral basis, unless otherwise noted. The increase in net revenue of 2% was primarily driven by domestic transaction and volume growth as well as strong growth in services, partially offset by lower cross-border volume fees and higher rebates and incentives. As previously mentioned, acquisitions contributed approximately 1 ppt to net revenue growth.

Looking at the individual revenue line items. Domestic assessments were up 8%, in line with worldwide GDV growth of 8%. Cross-border volume fees decreased 26%, while cross-border volumes decreased 17%. The 9 ppt difference is primarily due to an adverse cross-border mix, mainly driven by lower-yielding intra-Europe cross-border volumes being less impacted than higher-yielding other cross border volumes.

Transaction processing fees were up 4%, while switch transactions were up 9%. The 5 ppt difference is primarily driven by adverse mix. Other revenues were up 27%, including a 3 ppt contribution from acquisitions. The remaining growth was mostly driven by our Cyber & Intelligence and Data & Services solutions. Finally, rebates and incentives were up 4%.

Moving on to Page 7. You can see that on a currency-neutral basis, total operating expenses increased 7%. This includes a [OPDD] increase from acquisitions and a 3 ppt increase related to the lapping of a favorable hedging gain from a year ago. Excluding these items, expenses were flat as we continue to invest in our strategic priorities while keeping an eye on top line growth.

Turning now to Page 8. Let's discuss the specific metrics for the first 3 weeks of April. We are seeing significant improvements in the growth rates across our operating metrics versus 2020, primarily due to the lapping effects related to the pandemic that began mostly in March of last year. Hence, to provide you better visibility into current spending levels, we thought it would be useful to present the 2021 volumes and transactions as a percentage of the 2019 amounts when we were not experiencing the impact of the pandemic.

So if you look at the spending levels as a percentage of 2019. For switched volumes, they have shown steady sequential improvement, continuing along the same trend line we saw in Q1. This is driven primarily by the U.S., which has benefited from the recent fiscal stimulus. We have seen improvements in discretionary categories like clothing, furniture and sporting goods. And we have also seen some recent strength in personal domestic travel in the U.S. and the U.K., which we are making strong progress in vaccinations.

For instance, we have seen U.S. airline spend essentially doubled over the last 4 weeks relative to where it was earlier in Q1. Trends in switched transactions remain steady and are generally tracking the trends we are seeing in switched volumes.

In terms of cross border, spending levels as a percentage of 2019 remained mostly unchanged through the start of April. We continue to see very strong growth in card-not-present cross-border volumes, excluding online travel-related spend. However, border restrictions remain widespread and to cross-border travel, which is card-present and travel-related card-not-present volumes continues to be impacted.

As you can see from the numbers, there's a significant opportunity for improvement in cross-border travel. In fact, where borders are open, such as Mexico, certain Latin American countries and the UAE, we have seen travel improve.

Turning to Page 9. I wanted to share our current thoughts looking forward. First off, we continue to make strong progress against our strategic objectives and feel we are very well positioned to grow with the new and renewed deals we have signed over the last several quarters.

We have positioned ourselves for the return of travel, with travel-oriented portfolios and have built a strong set of services capabilities, which continue to grow at a healthy rate and has helped diversify our revenue base. In terms of the macro environment, domestic spending levels have continued to improve, entering the growth phase this quarter, supported in part by fiscal stimulus and the rollout of effective vaccines. The pace of vaccinations has been uneven, however. And as a result, we expect the pace of recovery to vary from country to country.

As Michael said, we do believe there is significant pent-up demand for travel and are already seeing domestic travel improve. In terms of cross-border, we believe that in the second half of the year, we will see additional borders open, particularly between those countries with low infection rates and/or advanced vaccination programs.

Turning to the second quarter. If spending levels continue on their current trajectory, we would expect Q2 net revenues to grow around a low- to mid-20s growth rate year-over-year on a currency-neutral basis, excluding acquisitions.

It is important to point out that this is just one potential scenario, which could be impacted by factors such as more restrictive measures being put in place because of rising infections, or the opening or closing of borders. In terms of operating expenses, we continue our disciplined expense management approach while furthering our strategic imperatives and keeping an eye on top line growth. As we progress through the growth phase of the pandemic domestically, we will look to increase our investments in key areas such as digital, cybersecurity, data analytics, B2B and our multi-rail solutions, as well as begin to increase our advertising and marketing-related spend.

For Q2, we expect operating expenses to grow at a rate in the low 20s versus a year ago on a currency-neutral basis, excluding acquisitions. As a reminder, we are now beginning to lap the spending actions we took last year as the pandemic hit.

With respect to acquisitions, we are pleased to have announced the planned acquisition of Ekata and have now closed on the transaction with Nets, and expect acquisitions will contribute about 2 to 3 ppt to revenue in Q2 and for the year. Similarly, acquisitions will contribute approximately 9 to 10 ppt to operating expense growth in the second quarter, and 8 to 9 ppt for the year. As a reminder, we discretely disclosed the impact of acquisitions for the year in which they close and the subsequent year, after which time, we do not split them up.

Other items to keep in mind. Foreign exchange is expected to be a 2 to 3 ppt tailwind to net revenues and a 3 to 4 ppt headwind to operating expenses in Q2. On the other income and expense line, we are at an expense run rate of approximately $115 million per quarter given the prevailing interest rate environment. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. And finally, we expect a tax rate of approximately 18% to 19% for the year based on the current geographic mix of our business.

And with that, I will turn the call back over to Warren.

Thank you, Sachin. Denise, we're now ready for questions.

(Operator Instructions) Your first question comes from Harshita Rawat with Bernstein.

Michael, can you elaborate on Ekata acquisition and your broader digital identity efforts? Digital identity has so many problems today, streaming for solutions and is something you've been looking at for quite a while. So can this be a long-term adjacency for your business? And how does it fit in with what you're doing with open banking at Finicity?

Yes. Harshita, thanks for the question. So we're excited about Ekata. And it is a continuation of what we have been doing in digital identity. So clearly, it's a non-sustainable path forward in a more digital economy to have even more passwords, so that's pretty clear. So identify is one pillar in our overall security strategy. So we needed to strengthen up here. The -- we started that activity with a pilot that we launched in Australia about a year ago, that is now going live in partnership with the Australian telecom, Optus, where we are introducing a reusable digital identity. What Ekata does is it accelerates our efforts, and accelerates our efforts because Ekata has access to verifiable data points that allow to establish an identity. As I said earlier, they can, in near real-time, produce very accurate identity scores. And it comes along with a set of -- established set of global customers, digital merchants, cryptocurrency chains, financial institutions and so forth. So we were on the track. Ekata is accelerating our efforts. It sits right into our existing set of cyber solutions. It's at the start of the transaction. It's at the end of the transaction. And in between, we have our decision intelligence, our various other transaction-focused solutions. So it's a full package. It sets us apart. And as you can appreciate, you linked this back to open banking, as you asked the question, we are going beyond the payment transaction and such. And you need identity solutions for data transaction just as much as you do for digital identity use cases.

Your next question comes from Jason Kupferberg with Bank of America.

Two quick ones for me. First off, just anything you can tell us in terms of second quarter expectations on rebates, whether it's relative to last quarter or last year? I know you had given us a little bit of help on that for the first quarter. So I'd love to hear your thoughts on Q2. And then just wondering if we can get a quick comment on OpEx. I mean I know that on an organic constant currency basis, the second quarter OpEx is growing about in line with net revenue. So is that kind of the right general model to think about in the second half as well if the recovery progresses in line with your base case? Or does the second quarter have more catch-up OpEx spend in it?

Thanks, Jason. So let me take your rebates and incentives question first. Look, I mean, rebates and incentives is really dependent on the timing of deals and how the volume and mix plays out. Having said that, we expect rebates and incentives as a percentage of growth to be up sequentially as domestic spending recovers and new and renewed deals come online. I think you're aware about the fact that our domestic volumes are more indexed -- our rebates and incentives are more indexed to domestic volumes. There are less indexed to cross-border. So depending on how that volume mix plays out, things might move around. But generally speaking, we expect rebates and incentives as a percentage of growth to be up from current levels, pretty much the remainder of the year as volumes recover.

On your second question around OpEx, look, as we look forward, we see positive momentum in the drivers that impact our top line growth, and we will increase the investment we put forward towards our strategic priorities. And these are essentially the ones we've talked about growing our share of core payments, ensuring that digital experience for our customers, driving a broader set of services capabilities, executing on our digital strategy as well as our B2B strategy.

As we do this, we will keep an eye on both the top line as well as the bottom line. And we will basically be very focused on making sure that we are making investments to drive the long-term growth of our business. And that's kind of the essential thing I'd like to leave you with, which is we will continue to stay disciplined from an expense management standpoint. We see domestic spending is transitioning towards the growth phase, which gives us confidence, and vaccines are effective and they're being deployed at scale. So we will keep an eye on all of those metrics, we will keep an eye on the top line, and we will look to invest in the business to drive that long-term growth objective that we're talking about.

Your Next question comes from Darrin Peller with Wolfe.

When we look at the structural improvements that are impacting the business coming out of the pandemic, it does look like you have what could be several hundred basis points of incremental earnings power long-term from all the variables you guys talked about and (inaudible), including your investments. Do you also think though -- so first of all, I guess, if you can comment on that in terms of what are the most of the areas you're most excited about in terms of incrementally having changed now, more spending in certain areas than maybe pre-pandemic. But would you also comment on whether your spend -- the investment levels you're at now on a percentage of revenue basis, or on an overall dollar amount, is something we can see some more operating leverage off of if we get that uplift from better structural terms.

All right, Darrin, let me start off with the structural changes. I mean, that's the key question here. What makes a trend? What will stick? We have, over the last 14 months, on a monthly basis, helped consumers around the world, small businesses around the world. And the input that we're getting from this research remains unchanged. And that is fundamentally starting with increasing consumer confidence, spending is going up. And then when you look at the way how people spend, what we're hearing is when the pandemic subsides, 70% of people are saying, I'm going to continue to use more online commerce than I have before the pandemic. Almost 70% is saying the same thing for digital -- for digital banking. Almost the same number says more for contactless.

And then you look at the other side of the coin, and that is about 60% of people are saying, I will actually use less cash. So we believe that these trends of elevated -- anything elevated online will prevail, maybe not at the same levels, but they will be elevated. At the same time, we're already seeing that in countries where strong vaccination programs are there and social distancing measures are reduced, that the spend in store is coming back. So people do want to go and spend at the local restaurant or support the local shop in their local main street. So the good thing is we're ready for both with our solutions.

So that is around consumer behavior, the changing consumer as we turn out of this nightmare. And then you look at what else is going on. And what else are we seeing is with this push towards a more digital economy, we're seeing there's more data around. And the thirst for data analytics is increasing. Our services teams can't be running fast enough to satisfy that thirst.

If you look at more data, you look at an increasing cyber footprint. So our cyber solutions, that is going to be -- it's going to be a continuing trend. Earlier, we talked a little bit about our multi-rail strategy and what we're doing there. I talked about Europe and being the local partner. Government is interested in -- payments government is interested in real-time payments and crypto central bank digital currency. So this whole trend of government leaning in, I think, is important. So our focus on our government vertical is going to help us there.

And finally, just came across the news over the last couple of days, is the dependence on international supply chains is showing up. It shows up in the context of vaccine distributions lately, but it has been showing up across many different industries. So there is a real push to digitize supply chains, make them more flexible. And of course, that comes to payments as well and comes to associated data flows. So B2B should also be seeing quite a push out of -- as we turn out of the pandemic. So it's a shifting picture. And Darrin, I agree with you that there's a lot of things to feel positive about in terms of our strategy is on point for all these drivers. That's why we're increasing the investment behind these. And the second half of the question, I'll turn over to Sachin.

So Darrin, just the one thing I'd kind of point out to you is, and you can see this in the slide deck, which we shared with you. You can see how let's take something like cross-border, and cross-borders card-not-present, excluding travel, right? That, as been indexed back to 2019, is showing pretty healthy growth rates. Now as we come out of the pandemic, we expect a large part of that to stick.

On the flip side, when you look what cross-border travel-related indexation looks like, in other words, 2021, current spend levels relative to 2019, they're running at about 40%. So if you believe that travel comes back, and we do believe that travel comes back, we see structurally the opportunity for upside growth coming from that as well. Just kind of bringing the whole picture together just to add to what Michael was saying. And kind of lends directly into your operating leverage question as well.

Your next question comes from Lisa Ellis with MoffettNathanson.

I had a question on crypto, specifically related to stablecoins and CBDC. Michael, you called out in the prepared remarks that many governments are using Mastercard's virtual testing platform for their CBDC experiments. Can you describe just what you're seeing in terms of if governments are looking at implementing stablecoins or CBDCs, what type of public-private partnerships are they considering? Meaning what type of role or roles could you envision Mastercard playing?

Lisa, it's a great question. Let's take a look at CBDCs. I mean across the whole crypto space, I mean where we want to play a role in CBDCs, we want to play a role in private stablecoins, we want to facilitate the buying and selling of crypto assets. So it's a broader space. Specifically in CBDCs, I would describe it as relatively early days. So the engagement that we have, and that's where we see our role to start with, is to answer the question that you just asked, in partnership with governments, is what is the right construct? What is the role of the private sector? And where we came out, and fortunately, as of late, there's been a few thought leadership pieces involving some of the leading central banks around the world, including the ECB and the Bank of England and so forth is, ideally, there's a 2-tier system where the government takes the role of mining the currency, so to say, as they do in fiat, and the private sector takes the role of distributing it. And the private sector, this comes to your question about the specific role that players could have, including us, is innovating around that. Innovating the true power of blockchain, what else could it do other than facilitating a payment.

So I think there is -- there's a direction that we like where this is going. So concepts of interoperability are also very important because the utility for a consumer or business will only come when you can do something with the central bank digital currency. I think this example out of Bahamas is actually a very striking one. So here is a Mastercard partner program that allows you to spend on a CBDC unit that you have received at any place Mastercard is accepted. That's solving the last mile issue. Imagine how we could be doing this in so many countries.

So is that engagement on model? Is that engagement on policy? Now as you try to do something like the Bahamas did, you've got to test it and try it. And for now that we see our second role, in actually facilitating a real-life test bed, where you can iterate around the design and see how does this work. And that's not only for governments. Governments like that, Sandbox, they engage, but it's also to pull in the commercial banks because it needs to go in conjunction if you have a 2-tier system.

So I see all of that, and then I'll come to assume a scenario where this is in play, and it exists in a given country. We just talked about the Bahamas. There's this last mile issue. But there's also been the questions of what other applications can ride on this infrastructure. And you've heard us talk about in the context of real-time payments, our go-to-market is always underlying infrastructure, application services, and we intend to do the same thing here. And that is what is an application that could ride on top of this? It could be a smart trade contract. So a smart contract technology is what we're investing in, when I made the reference earlier, reinvesting in further blockchain technology.

And then, of course, there are services. Everybody right now is asking us what should our blockchain strategy, and our advisors team is all over that. And there will be cyber questions. Governments are raising the question, when a blockchain comes along, is that a backdoor for hackers? So our whole cyber solution space is also geared up to engage. So I think there's a role to play for the private sector and there's a role to play very specifically for us to help the private sector and government.

Your next question comes from Chris Donat with Piper Sandler.

Just trying to get a little more specific on the benefits of vaccines and lower case loads for cross-border travel. As we think about the European union taking steps to allow vaccinated U.S. tourists into Europe, when we think about that corridor of the U.S. Traveling to Europe, is that -- I imagine it's big enough to move a needle for cross-border, but can you help us understand how meaningful like some key corridors would be if they reopen in strong ways for you? Or is it a highly dispersed set of corridors that you've got around the world that will take a lot of them coming back online.

Yes, Chris, I can give you a little bit of color on that. So when you think about, first, the high-level answer to your question is the corridors are pretty widely dispersed across the globe. You could see, generally speaking, intra-Europe constitutes a fairly significant portion of our cross-border volumes. And you can see that from the metrics, which we've been sharing with you. And so that will depend upon how travel opens up within the intra-Europe border, as kind of point one. Now but we recognize also that intra-Europe is lower-yielding than the other cross-border volume. So and as you think about it, you should think about it in that context.

Secondly, what I'd tell you is U.S. is an important outbound corridor, there's no question about that. But there are several corridors well beyond that. When I think about the Middle East and Africa, when I think about what's going on in Asia Pacific, these are all important corridors. Take U.S. to Canada, another important corridor. U.S. to Latin America and Mexico these are all important corridors. I think the operative thing here is at least what we are spending a lot of time thinking about is not only about the rollout of vaccines, but what are governments doing to establish travel bubbles. So you've heard about Australia and New Zealand. You're hearing about Hong Kong, Singapore. You're hearing about China establishing some sort of bubble. So there's a lot of work which is currently underway in terms of seeing, is there a level of comfort to open up borders and to make it less onerous for people to travel. So it's kind of a 3-prong thing as far as I'm concerned: it's vaccines; it's the opening up and establishing of border kind of protocol; and then the third is, have you made it less onerous for people travel. And you've got to look at all those 3 as you think about how cross-border travel comes back.

Now the proof points we've got so far are in corridors like U.S., Latin America, things have worked out pretty nicely. It's not that onerous. People are traveling. You've seen decent cross-border spend. Similarly, in the UAE, you've seen decent cross-border spend. A lot of this -- and one more reminder, a quick one I've got for you is, a lot of our cross-border travel volume is personal travel, and we do expect personal travel will come back. And the leading indicator for that is we've seen it come back in the domestic environment pretty robustly. Now that you've taken away these quarantine requirements in the context with the U.S. and several other countries. So that's the kind of color I just wanted to share with you as you think about how this will play out going forward.

Your next question comes from Bryan Keane with Deutsche Bank.

Just thinking about modeling, going forward, looking at the 2 year. In particular, thinking about the lapping of stimulus versus the economic recovery. Sachin, I don't know if you could give us some help on how you guys thought about the impact of those 2 factors. And particularly, I'm just curious on how much stimulus had an impact? Do you think it's having an impact?

And then secondly, on services, I noticed the strength there. Just curious if that strength is expected to continue as we move forward through this year.

Modeling was a queue here. This is clearly for Sachin.

So I guess what I'd tell you, I'd tell you, our experience based on what we've seen from the stimulus is, this round of stimulus has actually come into the flow from a spending standpoint, a lot more rapidly than the last round of stimulus had come through. What we've also experienced is that the dollar spent are not kind of once and done. So said differently, people are saving. And then there is the trickle effect, which comes to over a period of time.

So it's our expectation that the impact of the stimulus will continue to be felt but at a declining pace as time goes along because we've started to see a lot of that come through in the early part right now. As I kind of just mentioned, you can see that in the strength in the numbers we've got.

And then on your question on services, solid quarter on services again. Look, services continues to do really well. It does well from a revenue-generating capability. It also powers the core very effectively. You can see that in the way we're winning share. And I'm seeing a very strong pipeline in terms of what we're seeing from a services standpoint, going forward. So I feel pretty good. And the way, again, I think about this is you have a set of existing capabilities. How do you deepen your penetration with your customer base, existing and new customers, and then you keep building on your services capabilities. For example, the acquisitions we've recently done and how did we contribute to growth on a going-forward basis. So I think when you add all of that up, I feel pretty good about our services growth trajectory going forward.

I just want to add one point here. So there's the deepening part into our existing customer set. As Sachin just said, you extend your capabilities. There's another vector here, and that is extending in new segments. So as we're -- throughout the last couple of years in the front of a number of acquisitions like SessionM or APT, we're finding that there's other adjacent segments that are needing these kinds of services. And as we go into these new segments, that's also an opportunity for us to also then, so to say, cross-sell our payment solutions. So it works in different ways. And then the last thing to add, obviously, when it comes to our multi-rail strategy, there's a growth dimension of extending our services across all new flows.

Your our next question comes from Tien-Tsin Wang with J.P. Morgan.

I want to ask about Nets. Now that you've had it for a couple of months, it was, I guess, a little different than what you originally agreed to buy. So given that, what are the priorities here, Michael, both short term and long term? It sounds like Europe is clearly part of it. But can you just catch us up on your to-do items right now?

Yes. So the first thing I would say, it's not entirely different from what we intended to buy. It's certainly different in terms of the expected time line. So it should have been a little faster than it was. Now but that aside, we were excited in August 2019, and we're excited on March 3 when we had Legal Day One, and we welcomed the team in Copenhagen. And I'll tell you why we're excited. So with our existing set of multi-rail capabilities, particularly in the account-to-account space, we're well positioned with Vocalink. Vocalink has strong infrastructure capabilities, applications and helped us to build the services business. What Nets does is, Nets gives us additional infrastructure capabilities because here's a significantly customizable high-end solution that Vocalink brings, which works for large established markets that have had some journey in real-time payments. And then there's Nets, which is a more nimble platform that allows us to deal with the smaller markets and take on more in a shorter period of time. So there's complementary assets here and that if you look across that, it makes us the one-stop shop partner when it comes to real-time payments, and that is unsurpassed. There's nothing else out there at this point in time.

On the application side, I'm even more excited because here, what we're having is -- we're not just getting technological capability with this purchase and we can bolt on to what we've already done in Vocalink. But we're getting scaled businesses that are live in market. There are strong bill payment propositions and volumes with large customer reach in, particularly in the Nordics regions, but other parts of Europe as well. So we've identified Bill Pay as a growth opportunity sometime back here in the U.S., and now we're bolting that on. And then we have the choice of taking some of our U.S. capabilities into other parts of the world or do the same with Nets. So that is accelerating our growth in the application space, which I'm particularly focused on.

I think last but not least, that they have activities in the open banking space and few services around real-time payments. So that just rounds off the picture. And I come back to Legal Day One. We're getting a fantastic team of engineers and experts in this space that is just really rounding off of our capability side. Now the aspect on how this might look different. So Tien-Tsin, you made that reference. And I all want to remind us, there was a remedy that we had put on the table in kind of negotiations with the EU commission throughout the approval process. And it basically means we will license the Nets infrastructure technology to a licensee, and the licensee was identified as part of the approval process. That allows -- but that is on the infrastructure side, not much of an issue because we have other assets to compete and then we can use it ourselves. So we're not excluded here. The package of having infrastructure application and service altogether, I think, makes such a differentiated proposition that we were quite happy to give that remedy. It made the EU commission happy. And it comes back to the point about -- yes, this is particularly important in Europe because in Europe, being seen as a true European partner, we have the commission put a stamp of approval on this transaction, and that works well for us. But we're going to take it elsewhere, for sure. I mean, that's the whole plan.

Your next question comes from David Togut with Evercore ISI.

Bridging to Tien-Tsin's question, how has the pandemic affected the rollout of account-to-account payments in Europe under PSD2? Account-to-account certainly seems much more akin to debit than credit, and we know debit has certainly accelerated. So any thoughts would be appreciated.

Yes, Dave, that's a great question. Throughout the last quarter calls, we make references to engagements on the government front and, oftentimes, that involve our progress and our engagement with governments on account-to-account. And there are other things, obviously, that we had to dial down throughout the pandemic because there simply was no appetite in the market, but account-to-account wasn't one of them. We never missed a single step there and neither did government.

This was really driven by a lot of governments trying to get stimulus money into their citizens' hands, and they couldn't do it fast enough, and they couldn't do it in an efficient-enough way. So the focus and the light shed on real-time payment infrastructure was -- certainly helped. So I would see, there is an increasing engagement around account-to-account. Throughout the pandemic, if you look at what else was going on, you saw the 2-factor authentication thing in Europe for -- strong customer authentication, I think, is the actual technical term there. That moved forward throughout the pandemic. So the government, the financial sector players in Europe advanced that, and that was broadly it. And then you look at what we've done with open banking. I mentioned it earlier. That's, again, a regulator-driven aspect of payments and the broader financial services here at Tesco. We talked about that last quarter, I think, in our Lloyd's. So there is momentum. I think it's actually literally a shot in the arm rather than anything else. Sachin, do you have anything to add?

Yes. I'll just make one more additional comment. When we think about account-to-account, there's certainly the domestic flows, and then there's the account-to-account cross-border. And I think we've got to kind of think about it in the composite because, candidly, we're seeing some very decent traction take place even in that cross-border space from an account-to-account standpoint. Michael mentioned this in his remarks, where he talked about the traction we're having with the integration of Transfast being complete. And it's not only exclusive to Europe, by the way. It's pretty much across the globe. So we think about it holistically, including the cross-border categories.

Your next question comes from Trevor Williams with Jefferies.

I wanted to ask on yield within domestic assessments, where they held in pretty well for most of 2020, but just over the last couple of quarters, have been down about 5% or so. And I guess there are a lot of moving pieces with mix shifting around from quarter-to-quarter, with the pace of recovery varying by region. But just any color you could give us on maybe where some of the recent weakness might be coming from and really what needs to happen, whether that's a recovery in certain geographies or anything else you might not be thinking about to get yields in that segment moving back up.

Yes. So Trevor, I think your question specifically is around domestic assessment yields, correct? Just want to be sure.

Correct. Yes.

Yes. Look, I mean, we've seen a little bit of recovery in domestic assessment yields in the first quarter relative to what we saw in the fourth quarter. That number kind of moves around, right? And it moves around -- there's a whole bunch of stuff, which is kind of going on in there. Because remember, in the denominator, when you're doing yield calculations, we talk about GDV. I think the natural instinct is to think about GDV only as domestic volumes. It's a composition of domestic and cross-border volumes. Whereas the numerator, which is domestic assessments, is only the revenue we own on our domestic volumes.

So depending on how that mix moves around, you're going to see that yield move around as well. And then there are other moving parts in domestic assessments, the card fees and those kind of things, which are actually featured in there as well. But by and large, I would tell you, between the fourth quarter of 2019 going into the first quarter of 2021, our yields have held pretty steady if I take those 2 endpoints. They bounce around a little bit quarter-to-quarter, but they're now pretty steady.

Your next question comes from Craig Maurer with Autonomous Research.

Wanted to ask about the material debit wins that you've had in Europe and now in the U.S. with TCF. You're going to obviously be on-boarding a significant amount of debit volume over the next 2 years, which begs the question, how do you view the long-term in terms of debit versus credit growth rates? And we've seen insignificant outperformance of debit. During the pandemic, it's the obvious replacement for cash. So do you view the spread between the 2 versus historical levels as widening significantly, over time?

Craig, let me take this and then see if Sachin has anything to add. So throughout the pandemic, as you rightly said, there was clearly a relative rise in debit over credit transactions. The way I look at this is, this is a time of economic uncertainty, frankly, uncertainty general. And in those times, people generally prefer to spend money they have and have more control over that. So that is what we've seen in previous crises, so no surprise there, that is crisis-induced. We see debit benefit from stimulus payments because they are attached to a bank account. So we saw that.

And then you look at how the mix of spending has changed in terms of overweight to everyday spend versus discretionary spend, and that is just -- there's a lot of historical consumer behavior ingrained in that, is that you use debit for more everyday spend. That is what we're seeing in many markets around the world, and that has played out here as well. So now the question is, what of that is going to stick back to what we said earlier in terms of trends? And in the end, that's hard to predict. I do think what we're going to see is that the crisis in use spend is -- the trigger there is going to go away because this nightmare will be over at some point, hopefully, soon. And you will also see that the discretionary spend categories are coming back. We're already seeing this in the last 3 weeks when I look at the first 3 weeks of April here. So you start to see travel, strong travel programs. And it's very, I think, reasonable to expect that a lot of that is going to drive credit growth back up.

So we're going to see a bit of a balancing. Now, for us, I think the strategy has to be, we have to have the best solutions across debit and credit, and frankly, beyond cards as well because we just talked about earlier how the overall payment landscape is changing. And that's where the focus is. That's why we lean in on the travel side, but that's also why we lean in on debit. And you're right, NatWest, Deutsche, Santander, it's in conversion right now, as I said earlier, and that's going to be good for us, and we try to bring our best solutions forward with consumers. So Sachin, I don't know if you have anything to add.

Yes. I think, Michael, you pretty much covered it. The point I'd make, Craig, in addition is, obviously, the increased secular shift which is taking place. I think you were alluding to the fact that the first point of replacement of cash happens to be debit. We're certainly seeing that come through. But like Michael said, there will be some level of reversion to the mean.

The one point I'd make is, the way we look at it, even from a product life cycle standpoint, is people tend to start, when you think about financial inclusion and you think about how people come into spending in electronic forms, they start with prepaid, then move to debit, then they start getting their toe into credit. And that's just the natural evolution, which will take place. We want to have a balanced portfolio. We want to win across the board, and we want to be ready to actually address those spend as they come across debit and/or credit.

Great. I see that we've got to the top of the hour. And so maybe I'll just turn it over to Michael to see if you have any final comments as we wrap up.

All right. Thanks, Warren. So first of all, thanks for your questions. I'd love to go on for a while, but be mindful of time. Just the key takeaways, bring it all together. It's -- we're back in the growth phase domestically, that's fantastic. We're ready for the return of travel. When it comes, it's going to be selective, second half of the year. We keep strong focus on our strategic priorities, I don't have to repeat them again. We're excited about Nets, as I just laid out. And we are excited and hopeful that we will close Ekata as soon as possible. So all that is good.

None of this would happen without our people, and I do just want to recognize that. It's been 14 months, that's a marathon. And our folks are running it hard, and that is a big shout out. I sent a note to the whole team this morning with our results and told them that, that momentum that we were just sharing with you is really entirely their doing. With that, I'm going to leave you to it and look forward to speak to you in a quarter from now. Thank you very much and thanks for all your support.

Thanks, everyone.

This does conclude today's conference call. You may now disconnect.