Good morning. My name is Briana, and I will be your conference operator today. I would like to welcome everyone to the Mastercard Incorporated Q4 and Full Year 2023 Earnings Conference Call. Mr. Devin Corr, Head of Investor Relations, you may begin your conference.

Thank you, Briana. Good morning, everyone, and thank you for joining us for our fourth quarter 2023 earnings call. 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. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website, mastercard.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. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I'd 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, Michael Miebach.

Thank you, Devin. Good morning, everyone. Here's the headline. We closed out 2023 with another quarter of strong earnings and revenue growth. Quarter four net revenues were up 11% and operating income up 13%, both versus a year ago on a non-GAAP currency-neutral basis, excluding special items as always. These results were driven by healthy consumer spending and the ongoing execution of our strategy. Our deal momentum continued this quarter, powered by a broad range of unique diversified products and services both designed to solve our customers' needs. Let's start on the macroeconomic front, where we see both tailwinds and headwinds. First, the labor market remains strong with low unemployment and rising wages. These remain key drivers of consumer spending. Some risks we're monitoring include credit availability and delinquency rates. Second, while inflation continues to moderate, prices of many goods and services remain elevated. We're tracking the efforts of central banks who are actively managing interest rates to normalize inflation. And finally, geopolitical uncertainty remains a concern in several markets. On balance, we remain fairly positive about the growth outlook, but we are monitoring the environment closely and we'll manage the business accordingly. Looking at our switch trends this quarter, domestic volume growth remains healthy and cross-border spending remains strong, up 18% globally in the fourth quarter on a local currency basis. With that as a backdrop, we remain focused on our strategic priorities which fuel our growth algorithm across payments and services and new networks. In payments, our growth algorithm consists of five key areas. One, being in the flow to capture the natural growth of economies. Two, accelerating the secular shift to electronic payments across both spend and transactions. Three, further penetrating the addressable market in new flow. And four, growing market share, and five, optimizing our customer portfolios for performance. Economies are growing and that's not in our control. However, we are executing on the rest. Building on that, the runway for the secular shift is substantial. We are accelerating it by scaling acceptance, enhancing the user experience for digital transactions and driving adoption in new sectors and new use cases. In 2023, we added millions of new acceptance locations worldwide. This growth has been aided by scaling our tap on phone and cloud commerce capabilities. We're now live in over 18 markets. Smaller merchants can start accepting payments by simply downloading an app, and larger merchants are leveraging the technology to promote quick and seamless checkout experiences anywhere in store. We're supporting partners like Apple, who in 2023 expanded tap to pay on iPhone into Australia, the UK, France, Brazil, and several other markets. We're also accelerating the secular shift away from both cash and closed-loop transactions such as transit through our contactless capabilities. Contactless provides a fast, secure and seamless consumer experience in areas like transit, which creates an opportunity to capture incremental transactions with a tap for every single ride. And when consumers use contactless for transit, they often extend that behavior across other low dollar spend categories. We've made great progress with many major cities such as London and New York, operating broad-based open-loop systems. However, there's still significant runway for us given that only a small percentage of large cities globally are operating open-loop systems at scale. And we're leaning into advanced payment technologies like Click to Pay, tokenization, and biometrics. They offer embedded, secure and password-free checkout solutions and with that bring an elevated level of security, simplicity, and speed to every transaction. And that's true regardless of the device, browser, or card. These solutions not only benefit consumers, but they also create value for merchants as their customers are less likely to abandon a transaction and issuers also benefit from an increase in customer stickiness. For Click to Pay, we are now live in over 35 countries supported by over 50 channel partners. And in 2023, we drove over 60% growth in transactions. Klarna will implement Click to Pay this year and activate their merchants across all European markets where they operate. We're driving tokenization across all channels including devices, commerce platforms, card on file, and guest checkout. Tokenization reduces fraud and increases approval rates by approximately 3 to 6 percentage points across regions. And we're expanding our biometric payment capabilities, which enable payments with a smile or a wave. After launching in Brazil, we have now partnered with NEC Corporation to bring our biometric checkout to the Asia-Pacific region. We're also driving growth by winning and retaining deals across consumer payments, account to account, and new flows. This week, we shared that BOK Financial will flip its U.S. Debit portfolio to Mastercard, making us the exclusive partner across its debit and commercial portfolios. They selected us due to our differentiated virtual card and open banking assets fraud solutions and our shared commitment to financial inclusion. This marks the third U.S. regulated debit flip we signed in the last year building on our recent successes with Citizens and Webster Bank, both of which have now started converting their portfolios. And BPER Banca, one of the largest banks in Italy, will migrate their debit card portfolio to Mastercard as well. We renewed our partnership with Commonwealth Bank of Australia where we will retain exclusivity across their consumer credit and debit portfolios. We signed a long-term partnership with Shinhan Card, the largest issuer in Korea, to solidify our leadership in the country. This relationship spans consumer and commercial card offerings and expands into new services including data analytics. And in Canada, we executed an exclusive long-term renewal of the President's Choice Financial, consumer credit and prepaid portfolios. We're also winning in fintechs, co-brands, and public sector partners. When it comes to fintechs, Mastercard is a partner of choice. In fact, Mastercard serves over 80% of the top digital payment and neobank fintechs on the CNBC Global Fintech list. This quarter, Starling Bank, one of the largest fintechs in the UK renewed their partnership with Mastercard. In the co-brand space, we're partnering with J. Crew and Synchrony in the U.S. to launch the retailer's first co-branded digital-first card. And in the public sector, we have an exclusive partnership with Fiserv Money Network for all U.S. state and federal government benefit and wage disbursement debit programs. As part of our partnership, we are thrilled to launch with the California Economic Development Department in February, the largest unemployment program in the United States. As you can see, we continue our positive deal momentum powered by our differentiated products and services, while always keeping a focus on financial discipline. This also helps us to capture more of the secular tailwind and in turn further drive services growth. Looking to China, we are thrilled that our joint venture in China has released formal approval to commence domestic bankcard clearing. We believe that we will be uniquely positioned to provide Chinese consumers with an exceptional payment experience using a single card that's optimized for both domestic and cross-border spend. While we're excited about the medium to long-term opportunity, there's still work to be done as we fully build out the issuing and acceptance footprint. As we do that, we continue to grow our presence with bank and fintech partners in the market. ICBC launched the first world Mastercard product in November and Bank of Communications selected Mastercard to launch their first international debit card. Beyond cards, we also continue to make meaningful progress in the account-to-account space. This quarter, we announced a long-term strategic partnership with The Clearing House, the operator of the RTP network, which continues to secure our position in real-time payments in the United States. Now shifting gears, we continue to execute against our strategy to capture the large secular opportunities in targeted new flows including commercial payments and disbursements and remittances. We continue to win in commercial. This spans commercial point of sale and B2B accounts payable which we target through our market-leading virtual card solution. This quarter alone we renewed our commercial relationships with JPMorgan and FLEETCOR, two of the largest commercial issuers in the United States. BNP Paribas Fortis will flip their business credit portfolio to Mastercard in Belgium and on the virtual card front, we announced two exciting partnerships in the online travel agency space with Booking.com and Agoda. Turning now to disbursements and remittances. In 2023, we grew transactions by over 30%. We continue to scale our use cases. For example, UBS has integrated our cross-border services capability. This will enable them to execute instant cross-border payments from multiple use cases, including helping their customers pay employees abroad. In addition, we also partnered with Alipay to establish them as a cross-border payments receiving institution in China. Payments, services and new networks reinforce each other. We said it countless times. Our services and new networks provide differentiation as noted in many of the wins I mentioned. Underlying payments growth helps drive services too and payments growth brings incremental rich data. Our services turn that data into valuable insights and when implemented by our customers, those insights can drive incremental digitization of payments. In turn, this generates even more data, more transactions, more need for fraud tools and the powerful cycle continues. The services and new networks components of our growth algorithms are built on, driving increased penetration of existing customers, extending our services across new customers and customer types and continuing to build and deploy new services. Here are a few examples of how we are executing against each of these. The past year Bank of America has expanded their services relationship with us to include test and learn program management and supplier enablement solutions. This is on top of many of our services they already have. Axis Bank in India has also expanded their relationship with us. They will use our consulting, marketing and analytics services to support end-to-end portfolio lifecycle management. Worldpay is utilizing our fraud alerts to streamline the dispute resolution process. And Citi has deployed consumer clarity digital receipts to provide eligible U.S. cardholders with detailed purchase information directly to their bank app. Now with increased visibility about the merchant and purchase details, consumers can easily validate transactions and reduce the number of disputes they file. Square is also integrating consumer clarity solution. Furthermore, Nexi has chosen Mastercard as a strategic partner to rollout open banking for e-commerce payments across Europe and the list goes on. We're extending our services and solutions across new customer types including large marketplaces. Alibaba will use Mastercard's open banking technology to help streamline the onboarding experience for small businesses on the U.S. marketplace and reduce fraud. And Meta utilizes our digital identity technology to improve authentication for online orders. We also continue to develop new services and solutions, many of which leverage the work we are doing with Generative AI. Generative AI brings more opportunity to drive better experiences for our customers, and makes it easier to extract insights from our data. It can also help us increase internal productivity. We're working on many GenAI use cases today to do just that. For example, we recently announced Shopping Muse. Shopping Muse uses Generative AI to offer a conversational shopping tool that recreates the in-store human experience online, can translate consumers' colloquial language into tailored recommendations. Another example is Mastercard Small Business AI. The tool will draw on our existing small business resources along with the content from a newly formed global media coalition to help business owners navigate a range of business challenges. The platform, which is scheduled for pilot launch later this year, will leverage AI to provide personalized real-time assistance delivered in a conversational tone. And finally, we expanded Mastercard Access, which provides customers with a single point of connectivity to quickly and easily source our AI digital and identity services. Using access customers can deploy these services across multiple rails or networks including those outside the Mastercard network. This is an exciting development, which enhances our ability to scale our services across networks and streamlines the ability for our customers to adopt our capabilities. So with that, I will wrap it up. In summary, we delivered another strong quarter and year of revenue and earnings growth. We're successfully executing against our strategy and on our growth algorithm. Our differentiated capabilities, diversified business model, and focused strategy position us well to capitalize on the significant opportunity in front of us. Sachin, over to you.

Thanks, Michael. Turning now to Page 3, which shows our financial performance for the fourth quarter on a currency-neutral basis, excluding where applicable, special items and the impact of gains and losses on our equity investments. Net revenue was up 11%, reflecting continued growth in our payment network and our value-added services and solutions. Operating expenses increased 9%, including a minimal impact from acquisitions. And operating income was up 13%, including a minimal impact from acquisitions. Net income and EPS increased by 15% and 18%, respectively, both reflecting the strong operating income growth as well as a non-recurring tax benefit recognized in the fourth quarter. EPS was $3.18, which includes an $0.08 contribution from share repurchases. During the quarter, we repurchased $1.8 billion worth of stock and an additional $586 million through January 26, 2024. So let's turn to Page 4, where you can see the operational metrics for the fourth quarter. Worldwide gross dollar volume or GDV increased by 10% year-over-year on a local currency basis. In the U.S., GDV increased by 4% with credit growth of 5% and debit growth of 3%. Outside of the U.S., volume increased 13% with credit growth of 13% and debit growth of 12%. Sequentially, the debit growth rate was primarily impacted by the lapping of the NatWest portfolio migration in the UK. Overall, cross-border volume increased 18% globally for the quarter on a local currency basis, reflecting continued strong growth in both travel and non-travel related cross-border spending. While this is sequentially lower versus Q3, this is primarily due to tougher comps as we continue to lap the cross-border travel recovery from last year. Turning to Page 5. Switched transactions grew 12% year-over-year in Q4, both card-present and card-not-present growth rates remain strong. Card-present growth was aided in part by increases in contactless penetration as contactless now represents approximately 65% of all in-person switched purchase transactions. In addition, card growth was 8%. Globally, there are 3.3 billion Mastercard and Maestro-branded cards issued. Turning to Slide 6 for a look into our net revenues for the fourth quarter discussed on a currency-neutral basis. Payment Network net revenue increased 7%, primarily driven by domestic and cross-border transaction and volume growth and also includes growth in rebates and incentives. Value-added Services & Solutions net revenue increased 17%, primarily driven by strong growth in our Cyber & Intelligence Solutions, driven by the growth in our underlying drivers and the continued scaling of our fraud and security solutions and our identity and authentication solutions. In addition, we saw strong growth in our marketing, data analytics and consulting services as well as our loyalty solutions. This was partially tempered by slower relative growth in our other solutions. Now let's turn to Page 7 to discuss key metrics related to the payment network, again, described on a currency-neutral basis unless otherwise noted. Looking quickly at each metric. Domestic assessments were up 7%, while worldwide GDV grew 10%. The difference is primarily driven by mix. Cross-border assessments increased 21%, while cross-border volumes increased 18%. The 3 percentage point difference is primarily due to favorable mix. Transaction processing assessments were up 10%, while switched transactions grew 12%. The 2 percentage point difference is primarily due to lower revenues related to FX volatility versus the prior year. Other network assessments were $251 million this quarter. As a reminder, these assessments primarily relate to licensing, implementation, and other franchise fees and may fluctuate from period to period. Moving on to Page 8. You can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 9%, which includes a minimal impact from acquisitions. This increase was primarily due to increased spending on personnel to support the continued execution of our strategic initiatives and increased spending on marketing campaigns, advertising and sponsorships like the UEFA Champions League and the Rugby World Cup. Turning to Page 9, you will see that we are no longer providing operating metrics as a percentage of 2019 given that we are well past the pandemic. Now let me comment on the operating metric trends in the fourth quarter and through the first four weeks of January. Starting with switch volume growth year-over-year. The sequential decline from Q3 to Q4 is primarily due to the lapping effects from the routing of all Mastercard branded volume in Japan to the Mastercard switch and the migration of the NatWest portfolio to Mastercard. Specific to the U.S., the sequential decline from Q3 to Q4 was primarily due to tougher comps. Moving to the first four weeks of January, switched volume growth in the U.S. was impacted primarily by severe weather events across the country. As we look specifically at the fourth week of January, which did not have the same impacts from severe weather, switched volume in the U.S. returned to approximately 5% growth year-over-year, similar to what we saw in December. Outside of the U.S., we continue to lap the migration of the NatWest portfolio. Switch transactions follow similar patterns to switched volumes. Looking at cross-border for both Q4 and the first four weeks of January, cross-border travel growth continues to be primarily impacted by tougher comps as we lap the recovery of travel. Cross-border card-not-present ex-travel continues to show strength. Turning now to Page 10, I wanted to share our thoughts on fiscal year 2024. Let me start by saying our business fundamentals remain strong. We continue to grow through a combination of healthy consumer spending, new and renewed customer agreements, continued secular shift from cash to card and strong growth across our service offerings. In short, as Michael said, we are executing on our strategy and realizing the benefits from our growth algorithm. Overall, we remain fairly positive about the growth outlook. Consumer spending continues to be supported by a strong labor market and wage growth. Our base case scenario for 2024 reflects healthy consumer spending and recent spending dynamics. That being said, we are closely monitoring both positives and negatives in the macro environment as well as geopolitical events, and we stand ready to manage our investment levels as appropriate while maintaining focus on our key strategic priorities. As it relates to the full-year 2024, our base case is for net revenues to grow at the high end of a low double-digit rate on a currency-neutral basis, excluding acquisitions. Acquisitions and foreign exchange are forecasted to have a minimal impact for the year. In terms of operating expenses, we expect full year growth at the low end of a low double-digit rate on a currency-neutral basis, excluding acquisitions and special items. Of note, this includes an increase of approximately 1 percentage point in operating expense due to a new Brazil tax legislation, which went into effect as of January 1, 2024. This legislation results in higher operating expenses due to an increase in indirect taxes, which is more than offset by a reduction in our income taxes expense. Acquisitions and foreign exchange are forecasted to have a minimal impact to this growth rate for the year. Now turning to Q1 2024. Year-over-year net revenue growth is expected to be at the low end of a low double-digit rate on a currency-neutral basis, excluding acquisitions. Acquisitions and foreign exchange are forecasted to have a minimal impact to this growth rate for the quarter. Let me briefly talk through why our full year currency-neutral net revenue growth is expected to be higher than the first quarter of 2024. This is primarily driven by two factors: First, revenues related to FX volatility were highest in Q1 2023 compared to the other quarters in the year. And second, while our value-added services and solutions continue to grow at a healthy pace, from a cadence perspective, we expect Q1 growth to be lower relative to the other quarters, primarily due to tougher comps. From an operating expense standpoint, we expect Q1 operating expense growth to be at the high end of a high single-digit rate versus a year ago, again, on a currency-neutral basis, excluding acquisitions and special items. Once again, this includes an increase of approximately 1 percentage point related to the Brazil tax legislation that I mentioned earlier. Acquisitions are forecasted to add 0 to 1 percentage point to this OpEx growth and foreign exchange is expected to be a headwind of approximately 0 to 1 percentage point for the quarter. Other items to keep in mind. On the other income and expense line, we expect an expense of approximately $60 million to $65 million for Q1, given the prevailing interest rates and debt levels. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect a non-GAAP tax rate of 16% to 17% for Q1 and approximately 17% on a full year basis, all based on the current geographic mix of our business. This reflects the benefit to our effective tax rate related to the Brazil tax legislation that I mentioned earlier. And with that, I will turn the call back over to Devin.

Thank you. Briana, you may open the call for questions now.

We'll pause for just a moment to compile the Q&A roster. Your first question comes from Harshita Rawat with Bernstein.

I want to ask about U.S. card volumes. So weather aside, the growth has decelerated a bit to mid-single-digit levels versus what we've seen in the last 5 to 10 years, especially if you compare that to PC. So how should we think about kind of a normalized card volume growth in the U.S? Or is there simply more runway, a number of transactions. So that's the metric we should be watching? And also, just as a follow-up, can you also comment on Reg II impact on U.S. bonds?

Sure, Harshita. Let me take those questions. First, on Reg II, let me just kind of share with everybody that from a Reg II standpoint, we haven't seen any material impact come through as far as what we've seen so far on the data. Obviously, we will keep a close eye on it as the year progresses, but nothing to actually report from any sort of material impact. On your question around U.S. card volume growth. Look, at the end of the day, here's the way we think about it, right? We continue to believe that in the U.S., there remains a decent amount of secular opportunity, both from a volume standpoint and from a transaction growth standpoint. In addition to that, as you know, business models are evolving, spending behaviors are changing, and that creates greater opportunity from a volume and a transaction standpoint. But more specifically, what I'd tell you is the following, which is in the release of the U.S. We've got to kind of think about what's going on with PCE and what the impact of inflation is in the PCE numbers relative to where it's taking place, i.e., is it taking place in carded volumes? Or is it taking place in non-carded categories of spend? So as you do the analysis, at least as we do the analysis, the way we think about this is, we look at PCE, we think about, on a normalized basis, if inflation were to take place fairly evenly across both carded and non-carded PCE, it gives us a high degree of comfort that there's a decent amount of secular opportunity, which still remains in the U.S. from a growth standpoint. Now in addition to the secular opportunity and the fact that the U.S. continues to actually perform well from an overall consumer health standpoint, we're very active. We're growing our volumes by winning share. I mean you've heard about this quarter-over-quarter in terms of what we're doing to win volumes from new customers. We've had good wins on the debit space, which, as you know, is a challenged kind of environment in the U.S. So overall, I tell you from the U.S. standpoint, it continues to be a very important market, one which is going to be a decent contributor to our growth, driven by the PCE growth component, the secular shift, as well as share. And again, what I’m talking about is, on the card payment volume side of the business.

Our next question comes from Craig Maurer with FT Partners.

So two questions. One, to what degree are conversions of new wins contributing to fiscal year '24 guidance? And secondly, regarding China, knowing that you need to launch your business there within six months of approval. I was wondering if you could characterize conversations with issuers there and whether you've been able to keep warm relationships with those issuers over the years, considering you're in a very strong position in China when regulations changed, whatever it was 7, 8 years ago?

Let me address the question about China first and then return to the topic of conversions. We are excited about our prospects in China, which is a significant market where we believe we are well positioned to offer a solution that meets the needs of local consumers as well as those who travel. While there are competitors with similar offerings, our acceptance network provides a superior end-to-end solution. Currently, we are collaborating with our partners, including banks and acquirers in China, to plan the rollout both for issuing and acceptance over the next six months. For years, we have been actively engaged in cross-border activities in China, maintaining strong relationships with key banks such as ICBC and Bank of Communications, and we are now launching new products together. Our established relationships with these banks give us a strategic advantage as we move forward. It's important to note that going live within the six-month timeframe doesn't mean we will be fully operational everywhere right away; we need to develop our presence over time to fully leverage opportunities in the medium to long term. Regarding conversions, in the U.S. market, we are beginning to see conversions take place, particularly with clients like Webster and Citizens. Significant conversions in Europe have already been completed, and as Sachin noted, we are seeing progress with NatWest and others. Sachin, would you like to add anything?

Craig, I would just add, like Michael said, right? I mean as you would imagine, in terms of how we think about 2024 and our thoughts for 2024, we do factor in what our best estimate as it relates to the conversion of the portfolios. What I'd tell you is we've had a decent amount of wins across the globe. We for the most part, the sizable ones are staggered wins as and they come on over a period of time. They're not episodic flips, which will take place all at one time. So for example, Citizens, Webster, UniCredit, Deutsche Bank, all of these will play out over the course of ‘24 and in some instances, over multiple years. So we factor in our best estimates on those conversions as we kind of put our thoughts together for the year.

Our next question comes from Sanjay Sakhrani with KBW.

Sachin, thank you for sort of cadence for the year with the first quarter. But I was just wondering, could you just elaborate a little bit more on the expectations for payments versus the value-added service revenues? And then specific to that Brazil tax legislation. I guess, is it neutral to EPS? It adds to OpEx, but lower taxes? Just maybe you could help us with that, too.

Let me address the situation in Brazil first, and then I'll return to your second question. Regarding Brazil, it raises our operating expenses due to an increase in indirect taxes. However, this increase is more than compensated for in our tax rate and in the insights we've provided about our tax rate. Overall, from an EPS perspective, it is actually slightly beneficial because of the net positive effect occurring on the tax line. As for your inquiry about the comparison between payments and value-added services and solutions expectations, we are not providing specific guidance on payment network revenue versus value-added services and solutions revenue. However, on a broader level, I can say that we continue to experience strong growth in our services related to fraud and security solutions, as well as data analytics and insights, and we are incorporating all of these elements into our projections for the year. We have had a solid year in 2023 and maintain a positive outlook for value-added services and solutions as we look ahead to 2024. Similarly for payments, it is influenced by our expectations regarding carded market volume growth rates and the effects of share gains, in addition to rebates and incentives. All these factors are taken into account. Generally speaking, we anticipate that value-added services and solutions will grow at a faster rate compared to our payment network.

Our next question comes from Tien-Tsin Huang with JPMorgan.

I'm considering the outlook for growth between the U.S. and the rest of the world. Is there anything noteworthy regarding this? Do you anticipate that the trends we observed in 2023 will differ in 2024 for these two regions?

Yes, Tien-Tsin, honestly, I would tell you from a secular opportunity standpoint, right? I mean, we continue to believe, broadly speaking, the secular opportunity is greater outside of the U.S. than it is in the U.S. There's a good news, bad news story there. And the good news is that, that means we've been quite successful in driving the secular shift opportunity in the U.S., which is what you're seeing in the results come through. And again, from a bad news standpoint is there's a lower remaining opportunity on the volume side in the U.S. But if you ask me the question on a year-over-year basis, I would tell you, I don’t expect any meaningful shift in terms of suddenly the trajectory of how the secular opportunity is being realized between the U.S. and the rest of the world to be changing between ‘23 and ‘24.

Our next question comes from Dan Perlin with RBC Capital Markets.

I heard you call out a couple of times geopolitical concerns, and I know that there's some, I don't know, 30 or 40 different elections happening around the globe. So my question to you is, as you think about managing those potential concerns, are there certain regions where you feel like there could be pockets of more nationalistic behavior, which would be problematic for you guys getting into those markets? Or that because of election years historically, what you've seen are that it kind of slows down adoption and some of the secular trends that you would have otherwise been able to enjoy in maybe a non-election year? So just trying to handicap what maybe some of those positives and negatives could be just geopolitically this year.

Dan, you just touched on some of the key things to watch out for. But this is no different than us monitoring fiscal and monetary policy reactions by central banks and governments. So those are all things that affect consumer sentiment, potentially affect consumer spending. So we'll just have to stay close to what that is. Our discipline around these things is to do some solid scenario planning and making sure our playbook in terms of managing our financial responsibility responsibly is up to date. Certainly, the last three years have had no shortages of such challenges, and we adapted quickly. More specifically to the points that you mentioned, elections happen regularly. So there is nothing dramatically new in 2024. And geopolitical conflicts, they've been around, and they keep going. And that is something we'll watch what is the impact on energy prices and various downstream into the broader economy. Yet again, our Economics Institute is keeping a focus on that. So nothing very specific. That's why we kept it relatively high level. But these days, one has to just take a look left and right all the time.

Your next question comes from Darrin Peller with Wolfe Research.

It's encouraging to see the growth of our value-added services and solutions potentially increasing from 14% to 17%. Could you take a moment to discuss the factors behind this growth and your confidence in its sustainability? Additionally, could you rank the key drivers in this category?

So let me kick off on that. If you split out the value-added services here, you have our other services, which Sachin touched on earlier, for example, our real-time payment assets and things like that. The thing that we have historically focused on here in this space is our cyber and intelligence solutions, fraud solutions, and the data insights and analytics solutions. So if you think about how that flywheel talks about, I talked about the powerful cycle earlier on. So more payments that need to be kept safe, more payments throughout more data, which drive more data analytics inside. That is the underlying kind of secular trend, which is pretty closely related to the secular shift as well. So that is the baseline of growth here. And then you look at some of the more specific growth drivers here. For example, in data analytics, in that group, we also have our personalization solution. So everybody is trying to engage their consumers at this point. That is on the banking side. It's on the merchant side and here coming in with a solution that provides the right offer through the right channel at the right time to drive through that clutter. We have the number 1 personalization company that we acquired two years ago. That is one of the drivers we expect some big growth there. You look at the other hand on the cyber and security solutions, digital identity. An authentication solution today, nobody likes passwords, you're in a situation where you have to end up making trade-offs between simplicity and security when it comes to digital payments, and with our technology, we find ways to go around that effectively, driving down fraud. At the same time, ensure that there's low abandonment rates. So biometric solutions, I talked about them earlier, is one of those examples. So across these two portfolios, C&I and DNS, cyber analytics and data insights, that’s where we see the big growth and the big demand. Other solutions, real-time payments, we have a strong position there. We talked about this a couple of quarters ago, where we said we are in the markets in which we are, and we’re driving the scale volumes and the reference to our strategic partnership with TCH to show that we continue on that front. So those are kind of the key drivers that we see here. We feel this is a uniquely differentiated portfolio, and that’s in great demand.

Our next question comes from Cris Kennedy with William Blair.

And you just talked about it. But can you give a broader update on your digital identity solutions and what your strategy is for that and how it can ultimately impact your business?

Let me provide an update on our digital identity solutions. We have a range of capabilities, including biometric solutions and identity event tracking, which allow us to supply our customers with an identity confidence score. This score helps us verify when someone has previously lived at a certain address or held a specific job, giving us a reliable way to confirm their identity. This process operates seamlessly in the background. Moreover, we are not solely relying on our identity data; we are integrating it with open banking to identify impactful use cases, such as during account openings. Our open banking technology, in conjunction with our Finicity network, covers up to 90% of deposit accounts in the U.S. We are also enhancing our digital identity solution for premium account verification and opening processes. These are prime examples of how we differentiate ourselves in the market. Overall, we aim to create value through digital identity both before and after transactions, as we believe this is essential to the digital economy. By establishing a new network, we are connecting those who possess identity data with those who need it, positioning ourselves as a reliable partner in confirming identities with minimal and permissioned data usage.

Your next question comes from Paul Golding with Macquarie Capital.

I guess to touch on Finicity since you just mentioned it, Michael. Do you see this evolving more so as a value-added service and solution driver or a volume driver now that you've had it in the portfolio for some time? And then as a follow-on, I just wanted to see if we could get some more color on the acceptance location growth from a regional perspective, given the strength in international volumes in the period?

Starting with Finicity, we are expanding our capabilities through our recent IR acquisition in Europe and building connectivity in Australia. These are the three regions we are focusing on. Open banking presents various opportunities, with a particular emphasis on account opening, payments, and lending for small businesses. Right now, account opening and payment solutions are key areas of interest. We are working to facilitate payments, especially in non-card scenarios, such as our pay by bank solution in the United States in partnership with JS Bank, which we anticipate will drive significant volume growth. This builds on our experience with pay by bank in the U.K., though the approach in the U.S. highlights our unique open banking capabilities. We intend to see an increase not only in API interactions for account opening but also in payment volumes. Regarding acceptance growth, we see substantial growth potential internationally compared to the U.S., where we are focusing on new use cases and broader acceptance across the payments landscape. Internationally, there are notable opportunities, such as in Japan, where the government is promoting a cashless society, and our investments in China emphasize expanding our acceptance footprint. Thus, while we are actively seeking new use cases and verticals in the U.S., we are increasingly leaning toward international growth.

Your next question comes from David Togut with Evercore.

Europe continues to be a driver of differentiated growth for Mastercard. Could you share your insights into your runway for growth in some of your largest countries, for example, Germany and Italy. And maybe frame that in terms of payment volume growth and vast growth opportunity.

Let me start with that question. First, I want to emphasize what you just said. It is a source of differentiated growth for us. We've had great success in Europe, which is driven by share growth and our ability to capitalize on the accelerated secular shift post-COVID. For instance, Germany has shown a significant increase in contactless payment usage. Overall, Europe has been thriving for us. We have a growth strategy for payments that is very much applicable in Europe. European economies will perform in their own way, but we will continue to focus on gaining market share and turning those gains into profitable volume. Conversions are key to that. We had a question about it earlier, which is our primary driver. Additionally, there are new opportunities in Europe as well. When considering alternative payment systems and the changes happening in Europe, particularly with PSD3, there is a lot of movement that we will monitor closely moving forward. We have a wide array of resources to engage with the various growth drivers in Europe, including our strong services sector. Our consulting business has been successful in Europe for quite some time, and the major wins we've experienced often involve a significant contribution from our services. In fact, they are frequently a key factor in securing those deals. Europe has embraced the trend of digitization, and we are fully committed to the region. As you know, one major topic in Europe is European sovereignty, and we are heavily invested in the area, actively engaging with stakeholders in Brussels and among nation-states, which is crucial for our partnership moving forward.

Yes. David, it's Sachin. I'll just emphasize what Michael just said, right? He has mentioned on a couple of occasions today that payments drives value-add service and solutions and value-added service and solutions drive payments. It's no different in Europe, right? For all the share wins we've had in Europe, for all the growth we're seeing on the payment side, it creates new opportunities for us on the services side. And then vice versa, as you actually do deliver on those services, you get the benefit of additional data. When you get the benefit of additional data, you are able to help optimize existing portfolios, which again drives payment volume growth. And that's not unique to Europe. It's actually true for the way we run the business globally. But the fact that we are actually increasingly becoming more prominent in the payment flow enables that cycle to work quite effectively.

Our next question comes from Ken Suchoski with Autonomous Research.

I just wanted to ask about the yields on the domestic assessment revenue line. That yield has declined year-over-year for some time now, and they came in a little bit lighter than some were expecting this quarter. I think you highlighted mix impacting the yields or the spread between revenue and volume growth. So could you just provide some more detail around the specific changes that you're seeing in terms of mix? And could we get to a place where domestic yields are actually expanding year-over-year?

Look, I mean, I'll comment on the yield piece, because what you're seeing effectively in the fourth quarter of 2023, when you look at payment network net revenue divided by GDV is what you see every year in terms of the sequential decline in yields. And that's primarily being driven by the fact that, remember, in the third quarter of all years, we tend to have our strongest cross-border performance. And our cross-border tends to come with our best yields. And so what you've got is when you're getting more bang for the buck for $1 of GDV on the cross-border side than you are on the domestic volume side. So that's what's causing for that sequential decline. You'll see that as a pattern, which has existed in prior years as well. Broadly speaking, I would tell you that, otherwise, there's nothing unusual to call out on the payment network net revenue yield. The one reminder I'll give you is that, we run the business not only to optimize payment network net revenue yield but overall net revenue yield for our company. Because again, it goes back to the question David asked right before you, Ken, which is at the end of the day, we've got to be in the payment flow. We've got to allow ourselves to have the opportunity to deliver services on those payments to generate additional revenue, which causes for overall net accretion in our overall net revenue yield. So I know your question is specific to payment network net revenue, but I just wanted to make sure you know that from our mindset standpoint, we're looking at payment network net revenue yield as well as overall net revenue growth to the company.

I should say, earlier when I was talking about the payment algorithm, I said that we are putting great focus on our financial discipline. And we do it with revenues in mind and with services revenue in mind. So yes, it needs to add up to the overall net revenue yield, as Sachin just said. But I’m telling you, we don’t want to win every deal. We want to win the deals we want to win, and we’re pretty disciplined about it.

Your next question comes from Andrew Jeffrey with Truist Securities.

I wanted to dig in, Michael, if I'm at a little bit more on your pay by bank initiatives. Can this be, especially as we see the emergence of networks like tax in Brazil, for example, can this be sort of a stand-alone growth driver in its own right? Or is it sort of folded into your overall comments on open banking? I just wanted to see if there's an important distinction to draw as we think about go-forward growth opportunities.

Both questions address a key point. We see significant interest at the intersection of open banking and payments. Open banking connectivity allows us to pursue use cases that we wouldn't have been able to before. This includes additional data that can be coupled with an underlying RTP rail to create a profitable proposition for customers, similar to what Chase Pay-by-Bank offers. Essentially, it allows for debiting customers when there’s a balance, which is enabled by open banking connectivity. This is a solid solution. Globally, systems like Pix in Brazil, UPI in India, and FedNow are examples of real-time payment systems that we have experience with and, in some cases, operate ourselves. These systems represent assets that we intend to combine into offerings for our customers. Moreover, it's important to note that these public sector initiatives are successfully bringing more participants into the digital economy. This allows us to introduce our solutions, including real-time payment options and card-based solutions, contributing to a broader digital economy and promoting financial inclusion. We will manage carefully as these systems evolve and offer alternatives to our own solutions, ensuring we provide the best options for consumers and customers. On the fraud side and ease of use, many of these systems lack certain functionalities, which we prioritize. We're committed to offering the best choices to our customers. While we welcome competition, we also see significant opportunities to leverage these rails for open banking solutions. This area is not only interesting but also fosters overall economic growth in the digital space.

Your next question comes from Trevor Williams with Jefferies.

Sachin, I was just hoping you could put a finer point on the growth algorithm within the full year revenue outlook. I know you mentioned some of the cadence dynamics with VAS and currency vault, but any help on what you're assuming for volume and transaction growth relative to the January trends, rebates and incentives, pricing? Any help on those would be great.

I'm not going to provide a specific forecast regarding our assumptions about drivers. We've shared our base case, which continues to assume that consumer spending stays healthy. We're reflecting current spending dynamics in terms of overall volumes and transactions. Regarding pricing, it's consistent with our past approach; we price based on the value we provide to our customers and will continue to do so globally. We're launching new offerings that deliver added value to our customers, and we'll adjust our pricing accordingly. On the topic of Contra, it's important to recognize that Contra facilitates volume growth. We provide incentives and rebates to our customers to drive more volume onto our network, and we incur costs for that. For the first quarter, we expect Contra as a percentage of our payment network assessments to be similar to what we observed in the fourth quarter of 2023. On a full-year basis, it will depend entirely on how deals progress and the state of our pipeline. While some opportunities will materialize, others may not, and there will be fluctuations. Therefore, I can't provide a full-year outlook on Contra, but for the first quarter, I can confirm that we expect it to be roughly in line with Q4 of 2023.

We have time for just one more, Brianna.

Our last question comes from Ashwin Shirvaikar with Citi.

I appreciate all the comments so far. My question is on real-time payments. And Michael, you did have some incremental comments there on TCH, but saw the TCH renewal. Obviously, you have a global set of capabilities here. My question is, what's the runway and what drives it? Is it the use cases rather than more countries? And then if it is use cases, what are some of the use cases that you see coming up that are exciting from a conversion perspective?

The strategic relationship with the Clearinghouse in the U.S. is significant to note. When real-time payments began to gain traction in 2016 and 2017, we invested in VocaLink, which was a partner of the Clearinghouse at that time. The renewal of this partnership is a strong statement about our position in real-time payments. In ten of the top 50 GDP countries, we either operate or provide software and services for their real-time payment systems. This indicates a robust presence in the market. Furthermore, our discussions with various players include new applications that build on this foundation. For instance, the Chase Pay-by-Bank example illustrates how we can access payment rails while also enhancing transactions with additional data, transforming simple payments into value-added services. This is the direction we're headed in. The use cases will likely evolve in unique ways. While we're always interested in global solutions, this area is heavily influenced by geography. Therefore, we need to be mindful of this as we evaluate our market strategies. Currently, our focus is on scaling applications and volumes in our key markets.

Thank you, Michael. Any last comments?

Well, as always, thank you for your support to Mastercard. Thank you for listening to Sachin and me, and thank you to everybody at Mastercard for making all this work. We'll speak to you in one quarter. It's also unusual to note this is on a Wednesday today. I don't think we ever had that before. Certainly, for me, this is the first Wednesday. We'll see how we mix it up next time. Speak to you in a quarter. Thank you, and bye-bye.

Thanks, everyone.

This concludes today's conference call. You may now disconnect.