萬事達 (MA) 2014 Q1 法說會逐字稿

Welcome to the MasterCard first-quarter 2014 earnings conference call.

My name is Adriana and I will be your operator for today's call.

At this time all participants are in a listen-only mode.

Later we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I would now like to turn the call over to Barbara Gasper.

Ms. Gasper, you may begin.

Thank you, Adriana.

Good morning, everyone, and thank you for joining us for a discussion about our first-quarter financial results.

With me on the call today are Ajay Banga, our President and Chief Executive Officer, as well as Martina Hund-Mejean, our Chief Financial Officer.

Following comments from Ajay and Martina the operator will announce your opportunity to get into the queue for the Q&A session.

Up until then no one is actually registered for the queue.

This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website at MasterCard.com.

These documents have also been attached to an 8-K that we filed with the SEC earlier this morning.

A replay of this call will be posted on our website for one week through May 8.

Finally, as set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance.

Actual performance could differ materially from what is suggested by our comments here today.

Information about the factors that could affect future performance are summarized at the end of our press release as well as contained in our most recent SEC filing.

With that I will now turn the call over to Ajay Banga.

Ajay.

Thanks, Barbara, and good morning, everybody.

For the first quarter we are very pleased to deliver strong results with net revenue growth of 14%, that is driven by a healthy growth in gross dollar volume by processed transactions and cross-border volume.

And this combined with our operating expense growth of 12% is what helped us drive EPS growth of 18%.

So as usual let's start by the global economic trends starting with the US.

Our first quarter SpendingPulse data showed US retail sales, ex-auto, growing 2.8% down from the 3.9% growth in the fourth quarter of last year.

And I guess that reflects the harsh winter weather conditions that affected parts of the US as well as a later Easter.

But on a positive note, consumers continued to spend more in some interesting sectors like airlines, lodging, restaurants, furniture and furnishings, and that reflected the increased consumer confidence we saw in the quarter.

While we continue to watch these indicators in the coming months, the good news is that despite the headwinds on consumer spending our US business in the first quarter saw processed transactions and gross dollar volume growth higher than the fourth quarter of 2013.

In Europe, the environment continues along a path of slow growth with positive PCE projections for the year.

Although they were slightly down from last quarter's forecast.

Across the region consumer sentiment and business sentiment have continued to improve and our MasterCard total European volume growth for the first quarter was in the mid-teens and processed transaction growth in the low 20s, a bit higher than the fourth quarter driven by growth and a number of countries including Russia, Sweden and Turkey as well as continued healthy growth in the UK.

In Latin America overall consumer confidence was mixed across the region.

Brazil's consumer confidence started to stabilize in March.

And our SpendingPulse data showed a 5.9% growth in consumer spending there, up slightly from last year's fourth quarter.

In Mexico consumer confidence also showed some signs of stabilizing and I think it's expected to improve.

Our business in the region continues to do well with GDV and processed transaction growth for the first quarter in the mid- to high-teens.

In Asia-Pacific consumer confidence, like in Latin America, remained mixed with some evidence of a slight slowdown in consumer spending during the first quarter.

But in South Korea, China and Southeast Asia, they actually saw improvement in confidence levels.

Interestingly, business sentiment was up across the region.

And our business in Asia-Pacific, Middle East, Africa continues to do well with processed transaction growth about 30% and GDV growth in the high-teens for this first quarter.

Overall, US and Western Europe seem to be continuing to move along a slow path to economic recovery.

While there has been increasing optimism about Europe, I think the recent geopolitical tension could have an impact on consumer and business sentiment.

And growth in Asia-Pacific and Latin America, as you know, is affected by, among other things, the continued global economic uncertainty, but also by domestic concerns like labor market conditions and consumer sentiment and spending and elections and all of which we'll continue to watch.

Before we move on to our recent business highlights, a couple of quick words about legal and regulatory matters.

First, at the end of March the US District Court of Appeals reversed Judge Leon's July decision on the Federal Reserve's implementation of the Durbin Amendment.

So absent further appeals the regulation remains as it was originally implemented by the Fed.

The appeals Court decision is good for the industry for a couple of reasons, including, because it clears the way one of the uncertainties in the market related to EMV adoption.

Second, with regards to the proposed European interchange legislation, you have heard us say before that this legislation offers us both opportunities and challenges.

A vote by the full Parliament occurred in April, which added, among other things, commercial card interchange to the scope of the legislation.

Separately, a panel review of the legislation was started in late February by the Council of Ministers and the European Commission will also need to weigh in.

We're actively engaged with all these parties, there is still opportunity for the proposed language to undergo changes and we continue to expect that adoption is probably most likely in the first half of 2015.

Finally, something about Russia and the geopolitical events going on there.

Over the past few years we have made a lot of good progress in Russia.

Although it represents only a little over 2% of our total net revenue.

The sanctions have had a significant impact in that market, not as much from an immediate financial standpoint for MasterCard, but rather on the ground where the Russian government is working to implement legislation to change their domestic payments market structure.

We are still assessing all the elements of this new law.

There are provisions there that I believe would create serious complications for the way that we can operate in that market.

One of the solutions deals with the requirement for on-soil switching capabilities, so with our distributed network structure as the foundation we have actually moved further towards an environment that can be flexible in terms of on-soil requirements.

In fact, earlier this year we launched a 24x7 operations center in Russia.

What we have in place today does not, I believe, meet all of the new Russian requirements, although we are still studying those, but we believe may actually provide some of the ingredients that will be necessary.

We are also very concerned about the new collateral requirements in the law which we continue to look at.

At the end of the day we are going to need to conform to this new Russian law, as well as international law, when we operate our business in the Russian market just as it is in other markets.

Overall, we expect a small impact from this current Russian situation on our results for 2014.

But the situation is fluid and it is difficult for us to be certain numerically about the impact for 2015 and beyond, at least until the law is clearer and we can work our way through those details which will take some months to happen.

So let's move on to some of our recent business activity.

During the quarter we signed a number of new agreements that kind of support the expansion of our business around the world, and let me run through a few quick examples.

SEB Baltics, which is a division of the SEB Group.

SEB Group is a key MasterCard relationship in the Nordics.

And SEB Baltics is in the process of converting their entire debit and credit card portfolios to MasterCard.

So as a result we expect to be the leading payments brand in the Baltics by the end of this year.

Additionally, Svenska Handelsbanken, the second largest retail bank in Sweden, will begin converting all their consumer credit, debit, co-brand and installment cards across all of their markets, including the Nordics, Baltics, UK, Netherlands and Poland.

This deal actually represents the largest conversion in Europe since we won the business with Swedbank and will make MasterCard both the exclusive partner of Handelsbanken but also the leading debit brand in Sweden which, as you know, is one of the countries with the lowest use of cash in the world.

Kenya Commercial Bank, East Africa's largest bank, announced that it will issue 5 million debit prepaid and credit MasterCard products over the next five years.

That builds on the partnerships we've announced over the last couple of years in Kenya at both Nakumatt Supermarkets and Equity Bank and more than doubles the number of our cards in that market.

As we said before, over the last several years we have been focused on investing and deepening our merchant relationships as well.

And you've read that Wal-Mart and Sam's Club announced recently that they will start converting their co-brand credit cards to MasterCard starting this summer.

And starting in early 2015, Target will be converting their Target branded credit cards to MasterCard.

Additionally, their entire Red Card portfolio which adds in their private label cards will be enabled with our EMV solution and will support chip-and-PIN transactions in their stores.

We are delighted to be chosen obviously as Target's EMV solutions partner and for their faith in MasterCard as quoted from their press release that they will, quote, aggressively move forward to bring enhanced technology with the most secure payment product available, unquote.

In addition, we're also expanding our relationship with Wal-Mart beyond the US to work with some of their Latin American affiliates.

So in Mexico, their Sam's and suburbia co-brand cards have been converted to MasterCard, one from a competitor, the other from a private label store card.

In Chile they've recently started to migrate their private label cards to co-branded MasterCard and that is Wal-Mart's local supermarket brand Lider, is one of the largest in that country, that is the one we are migrating.

One additional example of the progress we have made in expanding our merchant relationships is in Japan with Amazon.com, who just recently launched a MasterCard co-brand card.

That card provides the cardholder an opportunity to earn rewards when shopping on Amazon's website or at any MasterCard accepting merchant as well as free shipping through Amazon Prime.

Moving on to the mobile front, the convergence of the physical and digital world is reflected in the continuing shift in payments to digital forms and, more interestingly, new payment flows.

It represents one of the most significant changes in our space since I think the introduction of plastic payment cards many years ago.

And over the last several years we have been developing a foundation to support this shift by establishing products, services and standards to address the needs of this new ecosystem.

So you have heard all of us talk about many of these in the past -- MasterPass Digital Wallet is one example, our efforts around tokenization, another example.

But we're continuing to build on that.

And for example, last quarter we announced our acquisition of C-SAM, a leading provider of mobile wallet software.

The idea is that this would help us increase the pace of the deployment of our MasterPass wallet as well as the development of additional services, customer specific offers for example, loyalty and rewards, for example.

When it comes to mobile, we are technology agnostic, we support implementation based on different market models around the world.

One model puts payment credentials on the phone.

So for example, we recently announced a collaboration between TREVICA, which is our European a provider of processing services, let's say business we own, and three mobile operators who represent about 80% of the mobile subscribers in Germany -- Deutsche Telekom, Telefonica Deutschland and Vodafone.

Any bank in Germany that connects to TREVICA will be able to provision their cards to the phones provided by any of these three mobile operators.

A different model is to put payment credentials in the cloud as compared to on the phone.

And for that we will soon publish technical specs supporting what we announced a little while ago which is Host Card Emulation which will make it easier to roll out contactless NFC-based mobile payments in markets that want alternatives to storing payment data on the phone.

So the final note, MasterPass momentum continues; we are now in seven countries, the US, UK, Canada, Australia, New Zealand, Italy and China, with more than 40,000 merchants accepting the wallet.

In addition, which I think is very interesting; MasterPass will be available soon as an in-app option so that it can be selected within a mobile shopping app, eliminating the need for the consumer to have to enter payment card information of any type to make a purchase.

So, with that, I'm going to hand it over to Martina for a detailed update on our financial results and all of our operational metrics.

Martina?

Thanks, Ajay, and good morning, everyone.

Let me begin on page 3 of our slide deck where you see the "as-reported" as well as the FX-adjusted growth rates.

All of my comments pertain to the FX-adjusted figures which are essentially the same as the as-reported numbers due to the strength of the euro offsetting the weakness of the Brazilian real.

As Ajay said, we are very pleased with our strong performance this quarter, which we were able to deliver in spite of the mixed economic environment.

Net revenue growth of 14% combined with operating expenses growth of 11% resulted in net income growth of 14%.

EPS growth was 18% and share repurchases contributed $0.03 per share.

During the first quarter we repurchased just over 21.3 million shares at a cost of approximately $1.7 billion.

Through April 24, we repurchased a little more than 6.2 million shares at a cost of approximately $450 million and we now have $1.5 billion remaining under the current authorization.

We will continue to look to repurchase shares on an opportunistic basis.

Turning to cash flow, cash flow from operations was $568 million.

Additionally, at the end of the quarter we completed an inaugural debt offering of $1.5 billion and we ended up the quarter with cash, cash equivalents and other liquid investments of about $6.6 billion.

So let me turn to page 4 and here you can see the operational metrics for the first quarter.

Our worldwide gross dollar volume, or GDV, was up 14% on a local currency basis and that is essentially the same as last quarter.

US GDV grew 9% and our US debit growth was also 9%, again same as last quarter.

On the credit side, after some difficult quarters in consumer credit, we are turning the corner with growth of 6%, an increase from last quarter.

Also commercial credit growth was in the mid-teens, up from the low teens last quarter.

And outside of the US, volume growth was 16% on a local currency basis and this continues to be driven by APMEA and Latin America with more than 15% growth and solid mid-teens growth in Europe.

Cross-border volume grew 17% on a local currency basis to slightly down from the 18% growth that we saw in the fourth quarter.

APMEA grew more than 20% with Europe and Latin America in the high-teens.

And countries contributing to good cross-border volume growth this quarter include Australia, China, Russia, Italy and Sweden.

And we also saw some deceleration in Latin America and in Canada.

Turning to page 5, here you see processed transactions; they grew almost 14% globally to more than 9.8 billion.

We saw double-digit growth in most regions with particular strength in APMEA and Europe.

And globally the number of cards grew 8% to just over 2 billion MasterCard and Maestro branded cards.

So let me turn to page 6 for some insights on a few of our revenue line items.

Domestic assessments grew 8% while worldwide GDV grew 14%.

And then the gap between those two growth rates is 6 ppt, which is driven primarily by the contribution of higher growth outside the US with lower than average revenue yields.

Also many of these non-US markets fall into the category of emerging markets where the growth of ATM transactions is often higher than POS transactions.

Cross-border volume fees grew 17%, in line with cross-border volume growth.

But when you drill down into the details, 10 percentage points of pricing, the majority of which laps in this quarter, was essentially offset by a higher mix of intra-European activity.

Transaction processing fee grew 14%, in line with the 14% growth in processed transactions I just spoke about.

And overall, as I said earlier, net revenue growth was 14% both on an as-reported and FX-adjusted basis as the impact of the euro and the real offset each other.

Beyond those two currencies we had a roughly 2 ppt headwind from the weakening of other local currencies such as the Russian ruble, the Canadian dollar, the Australian dollar and the Turkish lira, mostly in the domestic assessment and cross-border revenue categories.

And moving on to page 7, here you can see that Total Operating Expenses were up 11% in the quarter as we continued investing back into the business.

In addition, I would like to point out two other items that contributed to this growth.

First, there was a 2 ppt impact due to the rebalancing of our quarterly cadence of A&M away from Q4.

And second, there was an almost 2 ppt impact due to acquisitions.

Also D&A increased 19% as we begin to see the impact of our growing levels of capital expenditures.

This primarily reflects investments in technology supporting initiatives like Priceless Cities and MasterPass.

Turning to slide 8, let's discuss what we have seen in April through this past Monday.

Each of our business drivers was flat or higher compared to the first quarter.

The numbers through April 28 are as follows -

Globally our cross-border volumes grew about 17%, the same as our first-quarter growth rate.

While US cross-border was down slightly, rest of world was a bit better driven by Europe.

In the US our processed volume grew 11%, up about 2% from what we saw last quarter due to the continued improvement in both consumer and commercial credit.

Processed volume growth outside the US grew 16%, that is essentially the same as the first quarter, our European processed volume growth was in the mid-teens, again the same as what we saw in the first quarter despite some deceleration in Russia.

And globally, processed transaction growth was 14%, the same as what we saw in the first quarter.

Looking forward let me start with our long-term performance objectives for the 2013 to 2015 period.

We continue to believe that our business can deliver an 11% to 14% net revenue CAGR and at least 20% EPS CAGR over this period.

These rates are on a constant currency basis and exclude new M&A activities.

We also remain committed to our annual operating margin target of at least 50%.

Since we first introduced these performance targets back in September of 2012, a number of things have happened in the payment space.

Three interesting and relatively recent developments are -

One, while we learned about the loss of the Chase portfolio in late 2012, we are only now in the process of working through that deconversion.

However, you can already see our progress on winning new deals, particularly in the US consumer credit which shows up very nicely in our US credit metrics.

Two, the current geopolitical tensions around the Russia situation;

And three, the continued evolution of the European payments industry regulation.

We expect minimal impact in 2014 from either the Russian situation or the European regulation.

Looking ahead, Russia will be complicated to work through.

While that market currently represents a little over 2% of our revenue, it is unclear today how developments there will impact us over the next two to three years.

With respect to the European regulation, like all other regulatory actions that we faced over time, it will great challenges for the payments space, but, as in other cases.

It will also open up new opportunities for those who are innovative and competitive and we will look for ways to take advantage of that.

We are monitoring each of these situations closely, but after weighing a number of factors we are still confident about being able to deliver on our long-term commitment.

That said, remember these objectives exclude M&A activities and since we've done a number of deals, our as-reported results will include the impact of those.

So let me now share with you some more specific thoughts about 2014.

Over the past several months we have announced four acquisitions spanning the processing, mobile and loyalty spaces.

Therefore I am updating the EPS dilution and our expected as-reported results for full-year 2014 from the $0.01 to $0.02 that I mentioned on our last earnings call to $0.06 to $0.08.

The quarterly impact will ramp up over the course of the year and the timing of the deal closings could affect the total dilution as well as the quarterly impact.

We will continue to update you as we go forward about the potential impact of any additional M&A activity.

Turning specifically to net revenue, let me highlight three points.

First, Q1 growth came in a bit higher than expected, however, we are still forecasting to come in at the low end of our three-year range for full-year 2014, excluding M&A, and at a constant currency.

That includes some small impact from the Russian situation as well as the attrition that we expect from Chase.

Second, we still have no definitive schedule from Chase and while the deconversions have started a bit slower than we originally expected, we continue to believe most of the attrition will occur in the latter half of this year with some continuation into 2015.

And third, our new acquisitions are expected to contribute up to an additional 1 ppt to our as-reported net revenue growth.

On the operating expense front, similar to net revenue, we haven't changed our view at all about expense growth from what we said in January.

However, when you now add in the impact of acquisitions, the as-reported growth rate will be in the low-double-digits.

Growth in D&A will continue to accelerate beyond what we have seen in the past, likely in the 25% range, due to our higher level of capital expenditures as well as the impact of amortizing intangible assets related to acquisitions.

As a reminder you will need to add into your models roughly $30 million over the balance of the year to account for the interest expense associated with the inaugural debt offering that we did in late March.

And again, for modeling purposes, you should continue to assume a full-year tax rate of about 32% which does not recognize the impact of discrete items.

And finally, with respect to FX in 2014 you need to think about it in two pieces.

First, remember that when we talk about constant currency we are talking about the impact from our functional currencies besides the US dollar.

If those rates remain similar to where they are today, so that is the euro trading at the 1.38 level and the Brazilian real at the 2.24 level for the rest of the year, the net impact of the euro and the real would be a slight tailwind for the full year.

As I mentioned earlier, the FX impact of these two currencies was minimal in the first quarter due to the strength of the euro, offset by the weakness of the real.

Further, beyond the functional currency impact of the euro and the real, we have already seen a 2 ppt headwind to net revenue growth in the first quarter from other currencies depreciating against the US dollar and the euro primarily.

While we are carefully managing those exposures, we have assumed some impact for the rest of the year.

Now let me turn the call back to Barbara to begin the Q&A session.

Thank you, Martina.

We are now ready to begin the question-and-answer period.

In order to get to as many people as possible, we ask that you limit yourself to a single question and then queue back in for additional questions.

(Operator Instructions).

Dave Koning, Baird.

Yes, good morning and great job.

I guess my question is just cross-border, you mentioned the price increase that lapped.

Should we expect now, if we have high-teens cross-border growth, to generate high-single-digit revenue growth?

So about a 10% disconnect between the two for the rest of the year?

I said that the pricing that we had put in last April, April in 2013, is pretty much lapping.

Almost all of it is lapping at this point in time, so you should expect that what is happening between the cross-border volume fees as well as the cross-border volume growth itself should be much closer in range.

Impacted continue to be impacted, of course, by two things.

One, the mix of the intra-European travel; and two, by local currency as we are still seeing a weakening in foreign-exchange rates versus the euro and the US dollar.

Great, thank you.

Dan Perlin, RBC Capital Markets.

So the question I have, I guess, is the success you guys are starting to have and the kind of pace of the cobranded card portfolios in the United States for credit; I'm just wondering how is it that you are differentiating yourself here in that environment?

I know that your competitor recently announced that they are going to drop I think 50% of their operating rules, and I'm just wondering are you guys less cumbersome in that respect?

Are you closer to these retailers?

And just generally what is -- I guess what is allowing you to differentiate yourself right now?

Thanks.

I am not quite sure what the competitors are doing in that space.

We have already worked our operating rules down actually quite some time ago, a couple of months back, three, four months back, towards the end of last year.

I'm actually not aware of exactly what the others are planning to do.

So I am not going to comment on a comparison.

But I am pretty confident that we aren't winning our business based on operating rules only.

We win our business based on analytics and capabilities around goals.

We build our business based on what we do in terms of acceptance.

We build our business based on the kind of marketing and co-programs we do.

We build it based on relationships, but of course, we build it based on pricing, and that is always the things that everybody looks at.

So it is a mix of all those things.

And to me, the last few periods of months when this entire issue with Target happened actually has opened a whole new set of discussions around EMV, chip, signature, PIN and tokenization.

And we think that we represent a good process in that space.

All these things put together, I think, are helping us win business.

Now, we don't win every deal we bid for, don't get me wrong.

And these are still going to be singles and doubles, I said that a year or two ago, but we are doing them consistently and steadily and we will win some, we won't win the others, but that is one of the ways for us to rebuild our position in the consumer credit business in the US.

In addition to what we are doing with our bank partners where we are little by little winning deals in the growth areas of their credit book too.

So, kind of a mix bag of what we are doing.

I wouldn't put it all down on any one silver bullet; I wish life were that simple but it ain't.

Thank you.

Tien-tsin Huang, JPMorgan.

Just a follow-on to that last question.

On the Target front, I am curious, did your EMV solution cause you to win that or were there other factors behind it?

And then as a follow-on or bigger picture question, do you think this EMV push could actually drive some brand flips?

Thanks.

Tien-tsin, you will have to ask Target why they gave us all the business.

But at the end of the day, again, I believe it is a mix of things and I wouldn't rely openly on any one thing because I don't think any merchant or any bank goes based on any one item.

It is the mix of things we bring to the party that allows us to win and then other times we will lose because we don't bring the right mix to that party.

So I have kind of got my feet firmly on the ground about this issue.

We have got two of the largest retailers in the US between Wal-Mart and Sam's, on the one hand, and Target now.

But it is a win one by one at a time.

So I wouldn't conclude too much either one way or the other unless you ask Target and they give you a different answer.

We are just very excited to be their partner because I have seen them, having gone through what they have gone through, their desire to really make a big difference.

And that is useful for somebody like us who also is trying to grow in that space.

So that is kind of what is going on in these wins.

Will you get a chance to get more flips?

I don't know yet.

I honestly don't know.

I am still focused on the singles and doubles and just keeping my head down and trying to win deals.

Next question please, operator.

Chris Donat, Sandler O'Neill.

I wanted to ask a follow-up on the Target and the chip-and-PIN enablement.

Is that something that in the United States chip-and-PIN isn't -- entering PINs is not something I think US consumers are comfortable doing.

So is this more giving Target the optionality that if consumers do want that level of security they have it?

Or is it a blanket for everything?

Can you just help us understand where that fits in?

Sure.

The whole EMV migration is going to depend a little bit on the manner in which the stores are -- chip cards will definitely be coming in.

I mean look, a number of issuers are already issuing chip cards for their overseas travel.

And I have -- my number may be wrong in my head; it is a month or two old.

But I do recollect somewhere between 6 million and 8 million cards, and I might be a little off the number, already issued that are chip enabled by banks to individuals who travel.

I personally use those as well.

Our entire corporate card portfolio in MasterCard for our employees is chip enabled.

In some cases it is chip-and-PIN like our corporate card and in others, like my personal card, it is chip-and-signature.

You'll find that different models of this will emerge over a period of time, depending on the adoption of PIN terminals at the point of sale, depending on the bank's concerns about different kinds of losses in their loss book and the advantages and disadvantages of those.

And then finally, and most importantly, it will depend on consumer behavior.

And so, it is a mix of those three.

And in all these cases, while we are going to enable chip-and-PIN, as you know, we have even incented for people to have chip-and-PIN.

But at the end of the day we will work with what works in that environment.

And that is what we are trying to do.

Next question, operator.

Jason Kupferberg, Jefferies.

Ajay, just hoping you could just drill a little bit more into the Russia legislative process to the extent you guys have some insight into some of the milestones or next steps.

I think you said it will probably be a multi-month process until it fully plays out.

So if you can help us understand that a little bit.

And in conjunction with that, just how are you guys sort of probability weighting some of these I guess worst-case scenarios of some of these more onerous provisions actually become law.

I mean, does it feel more like that is just kind of some saber rattling or is it felt to be a very serious threat of passage into law?

Jason, I think the whole Russia situation is all very serious, both on a geopolitical level and in our own small way.

I don't think this is a saber rattling situation any longer, I think this is going to be tough to work for almost everybody, governments and companies, over the next few months or periods of time -- it might last longer than that, in one way or the other.

That is just me and my personal opinion.

As far as we are concerned as a Company, what we have seen in the recent legislation that got approved by the Duma and then by the upper house but hasn't at least till this morning received the signature of the President.

But I am assuming that is a matter of time.

And somewhere over the next few days that will probably happen.

For all I know it could be happening now.

And therefore, I assume that that legislation will get enacted.

Two of its provisions that are really interesting and complicated are the ones that I picked on when speaking and Martina picked on a little bit too.

One of those has to do with the on-soil requirement.

And the definition of on-soil obviously will depend -- the devil is in the details -- of what constitutes on-soil versus what constitutes not being there.

Is it just a question of data moving, is it a question of clearing, is it a question of authorizing, is it a question of settlement, is it clearing, authorizing and settlement?

There is a gazillion different -- and gazillion is a technical term, but there is a heck of a lot of these different permutations and combinations that we are working our way through.

I actually don't have clarity on that yet.

Because a lot will depend on the dialogue with the Central Bank of Russia, which will establish the rules and the processes by which the legislation actually gets implemented on the ground.

My sense is that could take anywhere between, if done rapidly, 60 days to longer than that.

Given that Russia clearly feels that they need to get something done quickly I would expect they will make some energetic efforts to get it done quickly rather than later.

It was in that context that we came around to the belief that the limitation of the impact in 2014 will be small, which Martina has factored into our estimate of our revenue growth for the year, which is one of the reasons why even though our first quarter did a little better than we thought, we're still sticking around with the guidance we gave you earlier for the year as a whole.

Now if Russia doesn't become as onerous on that or something else changes, then life will change.

But right now we are dealing with these imponderables.

And we didn't want to not acknowledge the imponderables, but at the same time tell you that in our head there is some check and balance in that system bringing us back to the guidance we already gave you earlier in the year.

That is kind of how we are thinking about it.

There is another very onerous element in the legislation that has to do with the provision of collateral that will be required if somebody is considered to be a foreign payments player.

Now, what is foreign?

What is domestic?

How do you become more domestic, does on-soil with clearing authorization, clearing and settlement make you more domestic?

Is it something else that makes you more domestic?

Not clear.

So I don't all that yet.

I worry about all this because I consider myself to be a worrier and a paranoid guy about some of these things.

But I don't know the answer yet.

So, however, I don't think that will impact us directly in a financial sense as hard as could some other elements of this.

Now, the third element of this is how consumers in the market economy and Russia are behaving.

In truth the Russian economy was already slowing over the last couple of years, that is public knowledge.

And we could see it in our data where we went down from very high growth rates in transactions and revenue a couple of years ago.

Even though we have been growing share in Russia over the last few years our growth rate was reducing, reducing but still very attractive in that sense.

What is seen?

In the first quarter, as Martina told you, there was really no direct impact.

People were doing what they had to do.

I guess that is how it would be.

Remember that the sanctions of all the banks, including the more recent ones, impact less than 1% of the cards we've issued.

So in a day-to-day sense people are still buying the stuff.

And what we are seeing change, however, which is about to happen, is some cross-border activity, people going in, people coming out.

That I expect would happen when tensions increase in an area.

And I expect that to be the first impact even going out further as the Russian economy continues to get impacted by whatever goes on in the geopolitics and the reactions of the United States and Europe and other countries.

That is kind of where I am.

It is a long answer, it is a complicated issue.

We tried to drill into it and come out with the path that some impact will happen in 2014, it's probably 2015 and 2016 that will have more of the impact.

We tried to give you guidance that at the end of the day this is a little over 2% of our revenue.

But it is a good growth market, so I don't like it but it is what is happening, it is what we have got to deal with.

As you know, when you look at the domestic volume, that has been going down from a growth rate point of view from very high growth rates last year as they're also trending down given what is going on from an economic, from a pure economic point of view in Russia.

And on cross-border volume, we really haven't seen a lot of change -- a little bit of trending down but not a lot of change, certainly not in the first quarter.

Only very recently over the last couple of weeks we've seen a little bit less, as I said in my remarks for the April 28 numbers, we've seen a little bit more of the growth coming down from a cross-border perspective.

Next question, please.

Smitti Srethapramote, Morgan Stanley.

My question is on debit.

Your competitor recently spoke about weakness in debit payment volumes while your numbers seem quite robust.

Do you think you are gaining share or are there any notable differences to debit exposure to call out that drove the divergence trends?

I guess the math would tell you we are gaining share.

But I don't know what is causing the issue for the others.

In truth, I know that our PIN debit volumes continue to remain, as I said, above that 400 million transactions a month which is up from the 100 million that we used to have pre-Durbin.

It goes up and down by 10 million to 20 million transactions depending on where we are in the routing table of the larger retailers who have a very sophisticated way of comprehending where they want to pass that transaction.

But that is kind of where we are.

Next question, please.

Craig Maurer, CLSA.

Regarding how we are progressing toward a mobile payment infrastructure in the US -- I was wondering how discussions with banks are proceeding in terms of MasterCard perhaps filling the role of a central token provider that can aggregate all the banks into a single token source and make it easier for a mobile rollout from someone say like Apple.

As you know, Craig, we put out the full announcement, not just the MasterCard by the way, but as an industry.

Visa, AMEX -- we were all in that announcement about providing tokenization as a way to help protect the increasing percentage of transactions that are digital because that is where this impacts the most.

While at the same time allowing the right amount of information about which card is being used, which category, which type, which institution, who issued the card to flow back and forth between the merchant and the issuer.

That is the whole purpose of what we're trying to do with tokenization the way that Visa, AMEX and us are trying to do it.

It is really not specific to us only.

The discussions are proceeding.

We are talking to every institution, we are talking to merchants, we are talking to banks.

We have had discussions with legislators who want to understand tokenization, although that is at very early stages.

As you know, there is always interest in the legislative community around the whole mobile payment space, more as a way of getting aware of what is going on in the space than in any other comprehension.

So that is going on even as we speak.

So kind of dialogue as usual; we are making progress and being ready to do all these things.

We are -- our technological development is continuing apace and in fact is going to keep adding to our CapEx.

That is one of the things we have got to do.

We've got to invest money in tokenization and MasterPass and we are doing it, so that is what is going on.

But at the same time, as I said in my remarks, we are also working on different ways in which the mobile payments industry will develop.

It could he through secure elements, it could be through Host Card Emulation, and there are different levels of interest from banks, merchants and hardware and MNO providers on those two elements.

And then there is of course the more old-fashioned way of mobile payments, which is really more for transfers which is the SMS or simple wallet-based transfer of money.

We're playing around with all of those from Telefonica, which is more in the simple transfer of money to the conversations that you have had -- you know we've been having with more sophisticated players who are trying out different ways of doing mobile payments.

So it is the whole range.

As I said in the past, I don't want to pick winners and losers in this.

I believe that one of the things we need to do as a Company is to be a strong participant in these alternative ways in which digital payments will evolve.

And I actually don't know that mobile payments are the only way digital payments will evolve.

It may be through wearables, and mobility as a whole will probably be an asset, it may not be only the phone.

And so, we are trying to play around with all of those.

And between Ed McLaughlin in our emerging payments area and Garry Lyons in MasterCard Labs, we have a very strong team that is working with our core products team to try and work with as many of these different methodologies as possible.

Thank you.

David Hochstim, Buckingham Research.

I wonder if you could just clarify two things.

In the 2% of revenues from Russia, does that -- that includes cross-border volume?

And then could you --?

Yes.

Okay, and so that could be a high percentage of that, it might not disappear?

Actually it is not.

It is not a high percentage.

It is actually a relatively low percentage.

So first of all we said a little bit more than 2% of our revenues, but it does include all of cross-border and it is not a very significant -- it is some portion but it is not the majority, it is much less than that.

Okay.

And could you just clarify what the --?

Let me give you a hint, and overwhelming majority of the Russian revenue is domestic.

Thank you.

How is that?

That is helpful, thank you.

And could you just remind us what the revenue impact could be once the Chase portfolio is fully deconverted?

Now, so, David, while we are doing it, it is all of my remarks that I have done for 2014 as well as for the longer period, 2013 to 2015, bakes in the Chase deconversion.

But we are not calling out the specific number to a specific customer.

Okay.

Thank you.

Kevin McVeigh, Macquarie.

Just given what seemed like a little bit higher level of rebates and incentives in Q1 and obviously Q4, should we expect that to tail off over the balance of the year or just pretty consistent with historical trends as well?

Should we see a bit of a step down given that the investments in Q1 and Q4 or still at relatively historical levels?

So, Kevin, so let me just set this a little bit correctly.

What happened in Q4 was basically a catch-up from the prior quarters.

When you look at our Q2 and Q3 in 2013 rebates and incentives the numbers were relatively low and then you had a catch-up in Q4 for that.

What you are now seeing in Q1 of 2014 is very similar to what you have seen in prior years.

So you can actually say that 2013 was an anomaly form a quarter-over-quarter performance, not from a whole year.

And now in 2014 you are going to see something very similar to 2012 -- in 2014 to 2012.

Thank you.

Sanjay Sakhrani, KBW.

I guess the accelerating GDV and processed transactions growth in the United States is pretty encouraging given the backdrop.

Could you just talk about what is driving that?

Is it your customer engagement or is it consumer spending more?

And maybe you could just talk about kind of a broader read across to the economy.

Thank you.

So, yes, as I said, SpendingPulse showed a 2.8% or 2.9% growth in the first quarter ex-auto, actually that was down from the growth rate of the fourth quarter over the same quarter of the prior year.

All these numbers, by the way, are not sequential quarter, they are quarter over quarter the same quarter prior year.

And that was down, by the way -- the fourth quarter was down over the third quarter.

So in a sense it feels like the growth rate of consumer spending ex-auto in the US felt like it was slowing over these three quarters.

But interestingly, when you unpeel the first quarter I should see two things that make me feel that we shouldn't jump to that conclusion too quickly.

And the first one has to do with the regional spending trends in the United States and the consumer spending trend.

Aside from the Northeast, which actually in our SpendingPulse data declined for the total consumer spending ex-auto in the Northeast is actually the growth rate was minus.

So a little decline in the first quarter of 2014 over the first quarter of 2013.

And similarly in the Midwest, where there was very bad weather, we had a small decline.

Now a larger proportion of the US consumer spending comes from the Northeast than the Midwest.

On the other hand, the Western part of the country from Seattle down to California, grew very, very handsomely, almost in the double-digits.

And the Southwest of the country, Texas to Florida, did something similar.

So when you put the whole of the United States together, the weather truly, truly did seem to have some kind of an impact because it just matches too closely to this pattern.

The second thing that is of interest, and I don't really yet know how to calculate the impact of it, is Easter.

Easter is coming at a different time and therefore April's numbers by and large look a little better for most of our time for the consumer spending early data that I am seeing.

I haven't yet seen our new SpendingPulse data.

It will come out within a few days of May 1, which is now.

So in a few days it will emerge.

That is kind of what I know so far.

Overall, I would say that the US even the numbers at the overall level looked like the growth rate was reducing, I wouldn't jump to that conclusion too quickly.

James Friedman, Susquehanna.

Ajay, I wanted to follow up on the Svenska Handelsbanken win.

Congratulations, I know that is a very prestigious issuer.

I think you had in your comments suggested it was your largest conversion in Europe since Swedbank.

So I don't have to spend $10,000 for the Nilson report, could you give us some context on Svenska?

How big are they relative to Sweden -- to Swedbank?

That would be helpful.

Thank you.

I think we should spend the $10,000, we've got to pay for other people too.

I will send you my copy.

How is that?

I don't want to talk about a particular institution, it is not what I would do in terms of their size.

But I will give you this idea.

In the Nordics there are three or four very large institutions and you are counting -- the two names you mentioned are among those three or four, right on the top.

The Handelsbanken is actually the second largest retail bank in Sweden.

Its presence outside of Sweden and the rest of the Nordics is lower than its presence in Sweden, so it may not be -- in fact I don't think it is the second largest for the whole of the Nordics.

But it is a very one of the large three or four big ones there.

It is pretty significant for us because we have been trying to build our share in the Nordics now for a little while, partly because that is all of the markets where cash is truly not king, where electronic payments are king.

And so much so that I think the estimate of cash in terms of percentage of transactions in the Nordics is between 5% and 10%, or even lower in some cases which makes it quite the opposite of the world which is 85% cash and check.

And so, we have been doing well there.

We were not in a great position four or five years ago.

We have actually grown ourselves nicely and that is the flavor I was trying to provide you in terms of becoming among the largest players in the Baltics and now the largest debit card in Sweden and we've grown our share in credit and commercial and installment cards and co-bank cards and I feel generally good about where we are there.

Thank you.

Bryan Keane, Deutsche Bank.

Just more details have come out on the European regulation front.

So I just want to get an update from you guys on any details on the potential challenges to MasterCard.

I know you guys mentioned that as something you are highlighting.

So what are the kind of things you guys are looking at that could be a challenge?

There are multiple things in that legislation the way it is currently worded, although it has changed also from the original wording and in some ways the current wording is less onerous and in others it is more onerous.

The ones that came through the last round added commercial card interchange to be controlled and dictated just as consumer interchange in the credit space was going to be controlled and dictated.

I clearly don't like that because, remember we are inside this legislation, the aspect of other four party schemes as well as schemes that look like four party but may not be called four party are also included.

But at the end of the day I think what really happened here, and this is information gleaned more from hearsay then reality, is that my sense is that the recent work was a confused work.

The legislators actually did not believe that commercial cards should be dictated in the same way as consumer credit cards.

But in a mix up in the voting pattern it got voted the wrong way.

I don't know whether that will get corrected over this coming process, but that is kind of what they are discussing openly and transparently with the legislative community and the regulatory community in Europe.

I would like that to not be in the rules clearly.

But beyond that, there is a bunch of other rules that have started.

Remember the one about separation of management between scheme and processing and there was this whole thing of what is constituted in separation and what is not.

We are getting a little more clarity; it feels like the way it looks today that management would have to be separated, you would have to have some legal entity separated, but the holding Company could be the same.

Now that's complicated but not impossible.

It is a pain in the neck, but it is not impossible.

And so, those are the kinds of things we are working our way through.

Some of them have more implications for other players in the ecosystem -- for merchants, for banks, for us -- it varies each time and we try to take a balanced view of it.

I know for sure that when regulation comes in it causes some amount of uncertainty in movement.

But as a whole what we are trying to do here is work our way through the details of it, talk to the regulators and the community there about the whole aspect of the regulation.

I think they are trying to bring in more elements around the level playing field that we had asked for.

I don't know that all the elements are there yet in reference to commercial cards for example, but they are in the others.

And so, it's kind of a mixed bag.

And I am not going to go much further on this call, but I am going to work my way through it over the next six months.

Remember, we are talking about first half of 2014 when this will probably get bedded down.

And we have got, as you can imagine, a number of very smart people working on it in some detail.

First half of 2015.

2015, sorry, not 2014.

Error.

2014 is what we are in, 2015.

As you can see I am losing track of time; it is my advancing age.

Looking ahead.

Thanks for the color.

Operator, next question.

Bob Napoli, William Blair.

Ajay, I wouldn't send that Nilson report because I don't think Nilson likes that, it's very sharp wording (laughter).

I was wondering if you could give -- with the Russia noise if you can give an update on China and if you have seen any movement there for opening up local processing or in country.

And if you feel you are in a position if you think that other countries are going to follow what Russia is doing when you see the effects that sanctions can have on a payments industry and on the banking industry.

So if you could talk a little bit about Russia, if you are seeing any movement there.

And then at what point do you just -- I mean on Russia I think one of the terms that I saw and one of the -- I'm not sure what -- exactly where they will pass, but they wanted Visa and MasterCard to put up $4 billion, $3.8 billion, two day's processing or something like that.

At what point do you just throw in the towel on Russia?

So, you had two different kinds of parts in there.

The one about the level of collateral and, as I mentioned, that is one of the issues.

I actually don't think the number is what you just said.

I think it is a lower number than that.

But having said that, it is not a number I am interested in.

So to be clear, either which way I am not a happy boy on that one.

But I don't know, we will see.

We are going to have the discussions with the Central Bank, we are very transparently in conversation with them.

It is kind of interesting on the ground in Russia -- banks and clients and merchants are still doing a lot of new things with us.

And it is almost like that is continuing.

We have actually launched new things in the last three weeks with them.

And then on the other hand -- and we're having a very open, by the way, transparent discussion with the Central Bank, which, as you would expect with a good regulator, you would expect that transparency of discussion.

Clearly there is a political circumstance in Russia that is driving in a different direction.

This whole thing of having domestic payment schemes is not new to us, Bob, we have been dealing with it in Europe for a long time before SEPA which of course changed it.

And as you know that has opened the doors for us there.

But recently in Mexico, which has always been dominated domestically by two domestic payment switches that were owned by the banks, the Mexican government has just literally -- and I think it is three or four weeks ago, has put out a new regulation that actually opens that space for people like us and our competitors to attempt to begin to process domestic transactions.

Now it will be a long road, nothing happens overnight.

I mean that has been one of the longest winding roads that we can think of.

But it is there, we are going to go after that kind of stuff.

So stuff comes in, stuff goes out.

I don't know that any one incident makes that whole domestic payment switch versus foreign company being working here, whether it changes the balance greatly.

Stuff comes in, stuff goes out.

People keep talking to us, you get peaks and troughs of conversation around that space.

And remember, within it there are flavors -- there is domestic payment switch versus on-soil processing, what constitutes on-soil, as I was explaining in the earlier answer is in itself a very detailed conversation.

So that is kind of the whole element there.

China, we continue to grow in China with the partnership that we have with China UnionPay.

As you know we are winning, I would say, the overwhelming majority of the co-brands that get issued for domestic use with th CUP blurb on it and for overseas travel with MasterCard on it.

And that is a good thing.

We're also doing things with them on e-Commerce, we are doing things with them on expanding acceptance in China and outside.

But as far as the regulator is concerned, my sense is that they are actually working their way through what kind of policy they would have to open up their domestic market while ensuring that their country's needs are met and protected.

So I don't know that you will go from having a completely closed domestic market to a US kind of market.

I never expected that, to tell you the truth.

The question is where in the middle does it come?

And honestly, I don't know enough about that.

I was there, I don't know, five, six weeks ago at the China development forum where I spoke there and I talked about a few things and I met a number of regulators, I met senior leaders there.

And my sense is they are very engaged and very open about the dialogue but they are not there yet, they are still working their way through it.

Great, thank you.

Operator, I think we have time for one last question.

Darrin Peller, Barclays.

I thought your comments on the European regulations, Russian implications, Chase, all three of those not impacting your guidance I guess long-term is helpful.

I just want to be clear.

First of all, that is long-term, right?

That is the 11% to 14% CAGR you are talking about?

And then, Martina, just as a follow-up around the dilution.

I guess you mentioned earlier I think from acquisitions during the year being $0.06 to $0.07 now versus $0.01 to $0.02 earlier in the year.

Can you just give a little more color on what is different now than in January?

Maybe you can just brand the size, the relative size of the deals?

Let me answer the first part and let her do the acquisition part of that.

Let me give a little clarity on it; I want to make sure that you hear where I am coming from.

The guidance we are referring to is of 2013 through 2015.

That is the guidance we have given, that is what is called our long-term guidance.

I believe that what is going on between Russia and the European regulation, Russia actually could be even more complicated given the level of detail we are having here as a conversation.

Europe could be some early impact which could be negative but there could be ways if we are innovative, if we are creative and if we are competitive on the ground.

I continue to believe that Europe is an enormous opportunity given that so much of Europe's expenditure outside of the Nordics is still in cash.

And I think we bring a lot of assets to the table for the European government and the European consumer and the European merchant and the European banks.

And the European MNOs who are now good partners of ours.

So that is where we are coming from.

And we think that there is a lot of negative in this, but there are a lot of positives too in a business like ours -- conversion of secular trends, the market share we are winning, the deals we are doing.

And somewhere in there is our attempt to balance and get through the guidance we are giving you.

It won't be easy.

But it is work we are committed to doing.

And we have in the past found our way through somewhat complicated situations, we have some confidence that is what they are doing here too.

Yes, so, as you can appreciate, we had to do a number of scenarios that give us the comfort that we can go to the 11% to 14% for the 2013 to 2015 period.

And that we feel comfortable that we can do that.

Now you asked a second question on the acquisitions.

What changed is what acquisitions we have made.

So first of all, we had only two acquisitions, Provus and Homesend, this is the processing play as well as the remittance play that we talked about on the fourth-quarter earnings call in January.

And they were relatively small properties.

The other two that we have announced, one we have now closed, was C-SAM that already Ajay quoted in terms of the mobile platform capabilities that C-SAM brings to us, that is a relatively larger property as well as Pinpoint which is the loyalty play in Australia that will allow us to actually expand our loyalty capabilities all over Asia Pacific.

That hasn't closed, by the way, both of those are a little larger and that leads to the $0.06 to $0.08.

Pinpoint is also factored into Martina's thinking even though it is not closed, that is the real clarity that we want to make sure you get.

And by the way, back to the earlier question to make sure you feel comfortable where we are coming from.

Honestly, what made me comfortable is the fact that there is a range there.

And I don't know yet, I have no crystal ball to tell you I'll end up where in that range.

And I know I'm going to have ups and downs.

But that is what you guys invest in us for, which is to stay committed to trying to get to the right market share and revenue growth and that is what we are going to do.

All right, very helpful, guys.

Thanks.

And, Barbara, do you have any final remarks?

I am going to turn the call over to Ajay for just a second.

Thanks, Adriana.

So, everybody, thank you for your questions.

And I'm going to leave you with a couple of closing thoughts.

So we are off to a very good start in 2014, we feel good about them despite the mixed economic conditions.

And I think we all believe those mixed economic conditions will probably be around for the near term.

We do have some challenges with Russia and the European payments industry regulations with a new wrinkle of commercial cards potentially being included that I just talked about.

But you know what, there are opportunities too around the world which we believe give us some balance and that is what the answer was just now in the last question about our guidance.

As Martina said, we are staying with our long-term guidance.

We continue to make good progress in winning deals around the world, including our singles and doubles in US consumer credit.

We are also investing in new technology and other services.

We are doing it organically, you heard about that through MasterPass and tokenization.

We're also doing it through acquisitions, C-SAM, which will help us scale MasterPass and other things in that space, the loyalty acquisition, Provus in processing and so on.

All of these help increase our share, they're creating new opportunity for our business.

Most importantly they are driving the conversion of that fat target or 85% cash that exists in the world.

So all in all our business continues with strong momentum, we are focused on delivering another good year.

And I want to thank you all for your continued support and your consideration of what we are doing.

And thank you for joining today's call.

Thank you, ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.