Good morning. My name is Julianne, and I will be your conference operator today. I would like to welcome everyone to the Mastercard Incorporated Q2, 2024 Earnings Conference Call. Mr. Devin Corr, Head of Investor Relations, you may begin your conference.

Thank you, Julianne. Good morning, everyone, and thank you for joining us for our second quarter 2024 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. The headline this quarter is that we delivered very strong results powered by broad-based momentum across all aspects of our business. Second quarter net revenues were up 13% and adjusted net income was up 24% versus a year ago on a non-GAAP, currency-neutral basis. These results were underpinned by healthy consumer spending, including strong cross-border volume growth of 17% year-over-year on a local currency basis and value-added services and solutions. Net revenue grew 19% year-over-year on a currency-neutral basis. The macroeconomic environment remains mixed and we continue to monitor the positives and negatives. A few to note: strength in consumer spending continues to be supported by a solid labor market and wage growth. While there are some signs of labor market growth moderating, this is off very strong levels of job creation; inflation and interest rates remain in focus. We've seen inflation cool, but to varying degrees across carded and non-carded categories. Price levels are still elevated for many goods and services. Interest rates also remain elevated, but many central banks have started to ease and economic indicators support broader rate reductions. While tailwinds and headwinds to economic growth remain on balance, we remain positive about our growth outlook. But as a backdrop, we remain focused on executing our strategic priorities, which fuel our growth algorithm across core payments, new payment flows, and services. You may remember that we recently announced organizational changes to further increase our focus on these priorities. They included the realignment of both regional operations and payments and services to support our growth algorithm. These changes were designed to accelerate growth and unlock capacity to invest in long-term business opportunities. This also helps us continue to deliver positive operating leverage over the long-term. For example, we plan to redeploy resources into growth markets with high cash levels. We will invest in opening acceptance in new verticals, and we will continue to apply technology to help us realize even more of the shift to digital across both consumer and commercial. We will also enhance and expand our value-added services, such as in data analytics, fraud, and cybersecurity, particularly as we further embed AI into our products and services. As a result of this organizational realignment, which positions us well for long-term growth, we expect to incur a one-time restructuring charge in the third quarter. Now, moving on to an update on some specific elements of our growth algorithm. In payments, we're driving growth by winning and retaining deals, and we're tapping into the vast secular shift opportunity by expanding into new geographies and further digitizing the payments ecosystem. Let's start with our continued deal momentum. I'm happy to announce that Varo Bank will convert their debit and credit portfolios to Mastercard. They were the first all-digital bank to receive a national charter in the United States. Varo chose Mastercard due to our differentiated data insights, merchant-funded offers platform, and our ability to seamlessly integrate into their technology stack. We extended our enterprise agreement with Wells Fargo and partnered to launch the Attune World Elite Mastercard. This is our first proprietary consumer credit program with the bank. We also renewed deals this quarter with key U.S. prepaid partners, including H&R Block, Blackhawk Network, Relevate, and Dash Solutions. In aggregate, these partnerships will drive a meaningful increase in our U.S. prepaid market share. In Canada, we extended our longstanding partnership with the National Bank of Canada across consumer credit, commercial, and prepaid for the next decade. And PostaPay, which already issues millions of Mastercard cards in Italy, has expanded our collaboration to drive additional growth across debit and prepaid. Let's deep dive into a few specific verticals and geographies. Travel is, of course, a key focus. It has strong growth potential and a meaningful cross-border component. Travel is also a natural fit with our virtual card technology and our marketing loyalty and consulting capabilities. We executed several new travel partnerships this quarter. We signed a deal with global digital payments provider checkout.com to enable them to deploy their virtual card issuing solution to their online travel agency customers. We also announced a multi-year agreement with Wells Fargo and Expedia to launch two new co-brand cards with a range of unique travel benefits. And we executed a new co-brand deal with Dashen and Ethiopian Airlines, the largest airline in Africa. This builds on a co-brand deal with RwandAir and INM Rwanda that we initiated earlier this year. I'm sure it wasn't lost on you that these two last deals I mentioned are in Africa. The continent is a great example of the vast secular opportunity in emerging markets. External sources estimate that approximately 90% of transactions in Africa are made in cash. We are committed to the digital transformation of the region and we're doing so by ramping up our investments, developing new partnerships, and rapidly expanding our acceptance footprint. For example, Africa is the world's largest adopter of mobile money accounts. Our partnerships with large telcos and mobile network operators like Airtel, MTN, Vodafone Egypt, and others put us in a great position to accelerate inclusion and cash conversion. On the acceptance front, we've more than tripled the number of acceptance locations in Africa over the last five years. We recently signed deals with the Commercial Bank of Ethiopia, the largest bank in the country, and I&M Bank in Kenya. These partnerships will enable us to increase share in both markets. In Nigeria and Ghana, we partnered with BlueSoft Financial, who will work with fintechs across the region to issue Mastercard cards. Also, our Mastercard move capabilities are the foundation for a new cross-border money movement solution with Access Bank Group. Together, we're enabling businesses and consumers in several African markets to send and receive international payments across over 140 countries. Now this secular opportunity is not limited to Africa; we see opportunities around the globe. Think about emerging markets in Latin America and Asia Pacific. Fully capitalizing on that secular trend requires that we continue to innovate to support the digital economy at scale, and we're doing just that. We're enhancing the checkout experience and expanding our tap-on-phone acceptance capabilities. We're scaling our contactless technology in areas like transit, and we are driving the ongoing conversion of Maestro to Debit Mastercard. Let's dig into online shopping. It must be simple and it must work on all devices and all channels. That's why we are leaning into a new area of one-click payments. We announced that we will phase out manual card entry for e-commerce payments in Europe by 2030 in favor of a one-click checkout button. There are three foundational components to this effort, all anchored on driving simplicity and security. First, tokenization. Tokenization replaces payment credentials with a digitally secure token. When deployed, fraud rates decrease and approval rates improve. So launching a decade ago, the technology has been broadly adopted around the world. In fact, we surpassed $22 billion tokenized transactions in the first half of 2024, up 49% versus a year ago. Second is Click to Pay. Click to Pay simplifies online guest checkout by eliminating the need to manually enter payment credentials. Guest checkout becomes as easy as remembering your e-mail address. It also makes checkout more secure using the token technology I just mentioned. We are working with our merchants and bank partners to drive adoption. Click to Pay transactions more than doubled year-over-year in the first half of 2024. And third, up payment passes. Passkeys eliminate the need for passwords or text for one-time pass codes. They allow consumers to authenticate online purchases using a fingerprint or facial features that you use every day when opening your phone. When combined, these powerful technologies are enabling us to deliver on our promise of a simple and secure one-click online checkout experience for consumers. We also continue to enhance in-store checkout. For example, we are scaling our biometric checkout program to new regions. In Europe, we're partnering with Polish fintech Payee to allow shoppers to pay with a simple glance. And in Latin America, we are working with Ingenico so that consumers who participate in supermarkets can pay with a wave. We're also working at pace to migrate Maestro cards to Debit Mastercard outside the United States. Shifting to Debit Mastercard is a critical element of our strategy as we see a 2x spend lift on cards once they are migrated. In the first half of 2024, we converted over 14 million cards, which brings us to almost 300 million cards migrated since 2016. These innovations are examples of the investments we are making to differentiate the Mastercard experience versus other payment methods like P2P or local payment schemes. We also continue to capture the large secular opportunity in targeted new payment flows. Today, I will focus on commercial, starting with accounts payable payments. We are operating from a position of strength. Our market-leading virtual card capabilities have been deployed with over 90 issuers worldwide. Additionally, we are integrating our technology into four of the top five leading global procure-to-pay solution providers, completed the integration of our virtual card technology into Oracle Cloud ERP, and commenced invoice payments for the first HSBC corporate customer in the U.S. On the supplier side, we signed several acquirers onto Mastercard receivables managers. This includes Elavon, whose customers are using our AI-powered platform to streamline the process of accepting virtual cards. We also continue to expand distribution of our virtual cards, signing new deals with Brex and Ad Groups World First. On commercial point of sale, we're increasing the distribution of our commercial card products worldwide. In the U.S., the Wells Fargo small business credit card portfolio migration is now complete. In Europe, we've extended our partnership with Virgin Money to continue growing our small business portfolio, and our partnership with SAP Concur, which automatically integrates our corporate card data into Concur Expense, is yielding results. Large insurer Score awarded their T&E card program to Mastercard based on the value delivered through this joint offering. And finally, we're executing against our strategy to penetrate new B2B verticals. This quarter, we signed an exclusive partnership with CBC, the largest Pepsi distributor in Latin America, and the fintech enabler YalloTech Migo Payments. This partnership will provide card distribution acceptance and financial education to almost two million retailers. These small businesses can now use their Mastercard small business cards to purchase inventory and other items. In the healthcare space, we signed an exclusive partnership with the Medical Tourism Association. They will now accept cards from consumers and utilize virtual cards to make cross-border payments to medical providers. Separately, we are working with Square to broaden card acceptance amongst smaller healthcare providers in the U.K. Now turning to services, payments support our services and vice versa. Services played an important part in winning many of the deals I just mentioned. And the strong payments drivers helped fuel services growth. That, coupled with strong demand, drove 19% value-added services and solutions net revenue growth in the second quarter on a year-over-year currency-neutral basis. This is our powerful flywheel turning. I'm excited about our momentum and the future potential, whether it's deepening penetration of existing customers, launching new capabilities, or distributing our services in new ways and across new customer and transaction types. A few examples. First, our services help to improve Mastercard issuer portfolio performance, thereby supporting our customers' core business objectives. For example, SEB in the Baltics is building their customer loyalty strategy together with Mastercard and Revolut is working with us to develop and execute their marketing strategy, launching campaigns across the U.K., Ireland, and Italy. We're also deploying our services across non-financial institutions, helping to diversify our business and capture a new set of growth opportunities. Customers as varied as Paramount and McDonald's in Taiwan are using our test and learn capabilities to address core business needs, including media measurement and new product introductions. And we're working with LATAM Airlines in Brazil to optimize their co-brand portfolio and develop innovative marketing campaigns. We're partnering to distribute our capabilities in new and more efficient ways; Salesforce has integrated our dispute resolution services into its financial services cloud. This enables banks and other financial institutions to handle disputes and prevent chargebacks more effectively. And KPMG Norway has partnered with the Norwegian government to distribute our risk recount capabilities. The solution will help hundreds of local governments evaluate their cyber risk posture and that of their suppliers. Turning to open banking, we continue to make strong progress in scaling new use cases. I'll use our account opening and account linking use case as an example. Klarna in the U.S. is now using Mastercard's open banking for this purpose. PayPal will leverage account linking, balance checks, and transaction history for their wallet in the U.S., and Jack Henry will distribute these capabilities to streamline the account opening process for hundreds of issuers they support. So with that, I'll wrap it up. In summary, we delivered another strong quarter of revenue and earnings growth. We're driving growth by winning and retaining deals, we're penetrating the substantial secular opportunity, and we continue to see strong demand for our services. Now our differentiated capabilities, diversified business model, and focused strategy position us well to capitalize on the significant opportunity ahead of us. Sachin, over to you.

Thanks, Michael. Turning to Page 3, which shows our financial performance for the second 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 13%, reflecting continued growth in our payment network and our value-added services and solutions. Operating expenses increased 10%, including a minimal impact from acquisitions. And operating income was up 15%, including a minimal impact from acquisitions. Net income and EPS increased 24% and 27%, respectively, both reflecting the strong operating income growth as well as a lower tax rate in the current quarter compared to Q2, 2023, primarily due to a sizable discrete tax expense in the prior year as well as the change in the geographic mix of earnings. EPS was $3.59, which includes a $0.07 contribution from share repurchases. During the quarter, we repurchased $2.6 billion worth of stock and an additional $820 million through July 26, 2024. So let's turn to Page 4, where I'll speak to the growth rates of some of our key drivers for the second quarter on a local currency basis. Worldwide Gross Dollar Volume, or GDV, increased by 9% year-over-year. In the U.S., GDV increased by 6% with credit growth of 6% and debit growth of 7%. Debit growth was aided by the conversion of a previously announced debit win in the U.S. Outside of the U.S., volume increased 11% with credit growth of 10% and debit growth of 11%. Overall, cross-border volume increased 17% globally for the quarter, reflecting continued strong growth in both travel and non-travel related cross-border spending. Turning to Page 5. Switched transactions grew 11% year-over-year in Q2, both card present and card-not-present growth rates remain strong. Card present growth was aided in part by an increase in contactless penetration as contactless now represents approximately 69% of all in-person switched purchase transactions. In addition, card growth was 7%. Globally, there are 3.4 billion Mastercard and Maestro-branded cards issued. Turning to Slide 6 for a look into our net revenue growth rates for the second quarter discussed on a currency-neutral basis. Payment network net revenue increased 9%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives, which were lower than anticipated, primarily due to the timing of planned deal activity. Value-added services and solutions net revenue increased 19%, primarily driven by growth in our underlying drivers: strong demand for our consulting, data analytics, and marketing services, and the scaling of our fraud and security and our identity and authentication solutions. Now let's turn to Page 7 to discuss key metrics related to the payment network. Again, all growth rates are described on a currency-neutral basis unless otherwise noted. Looking quickly at each key metric: Domestic assessments were up 7%, while worldwide GDV grew 9%, primarily due to mix. Cross-border assessments increased 21%, while cross-border volumes increased 17%; the four percentage point difference is primarily driven by mix and pricing. Transaction processing assessments were up 13%, while switch transactions grew 11%; the two percentage point difference is primarily due to mix and pricing. Other network assessments were $244 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 10%, which includes a minimal impact from acquisitions. The growth in operating expenses was primarily due to increased spending to support the continued execution of our strategic initiatives as well as an increase in indirect taxes as discussed on our Q4 2023 earnings call. This was partially offset by the timing of advertising and marketing spend within the year. Turning to Page 9. Let me comment on the operating metric trends in the second quarter and then through the first four weeks of July. As a reminder, our Q1 switch metrics include the impact of the leap year in 2024, which added just over one percentage point to growth across each of switched volumes, switch transactions, and cross-border volumes. In addition, our switch metrics in Q1 and April were impacted by the timing of Easter, which occurred at the end of Q1 this year as compared to in April in 2023. After adjusting for the leap year, the timing of Easter and excluding the benefit from the U.S. debit portfolio that I previously discussed, our switch metrics in Q2 were generally stable sequentially in the U.S. and across the globe. Looking at the first four weeks of July, trends remained generally stable versus Q2. Turning to Page 10. I wanted to share our thoughts for the remainder of the year. As Michael said, there are a number of economic headwinds and tailwinds that we are monitoring, and we remain focused on executing on our strategy. Business fundamentals remain strong, as evidenced by the results we delivered this quarter across all aspects of our business. Our diversified business model, underpinned by healthy consumer spending, the continued secular shift to digital forms of payment, and strong demand for our value-added services and solutions continues to position us well for the opportunities ahead. Overall, we remain positive about the growth outlook. Now turning to Q3, 2024. Year-over-year net revenue growth is expected to be at the high end of a low double-digit range on a currency-neutral basis, excluding acquisitions. Acquisitions are forecasted to have a minimal impact on this growth rate while we expect a one to two percentage point headwind from foreign exchange for the quarter. From an operating expense standpoint, we expect Q3 operating expense growth to be in the low double-digit range versus a year ago, again, on a currency-neutral basis, excluding acquisitions and special items. We expect higher growth in advertising and marketing in Q3 compared to the first half of the year, primarily driven by the cadence of spend related to our sponsorship activities. Acquisitions are forecasted to have a minimal impact on this operating expense growth for the quarter, while we expect a 0 to one percentage point tailwind from foreign exchange. Separately, as Michael mentioned, as part of our recent reorganization, we expect to record a one-time restructuring charge in Q3 of approximately $190 million. This will be recorded as a special item and excluded from our non-GAAP metrics. We expect these actions will free up capacity to further invest in our strategic priorities as we continue to execute on our growth algorithm. We also expect they will contribute to delivering positive operating leverage over the long term. As it relates to the full year, we expect net revenue to grow at the high end of a low double-digit range on a currency-neutral basis, excluding acquisitions. Acquisitions are forecasted to have a minimal impact for the year, and foreign exchange is now expected to be a headwind of approximately one percentage point for the year. In terms of operating expenses, our expectations for the full year are to grow at the low end of a low double-digit range on a currency-neutral basis, excluding acquisitions and special items. Acquisitions and foreign exchange are forecasted to have a minimal impact on this growth for the year. Other items to keep in mind. On other income and expenses, in Q3, we expect an expense of approximately $100 million. This assumes the prevailing interest rates and debt levels continue and 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 between 17% and 18% for Q3 and 17% to 17.5% for the full year, all based on the current geographic mix of our business. One last point. I wanted to let you know that we are planning to host an Investor Day in New York on November 13. We look forward to discussing our future plans with you at that time. And with that, I will turn the call back over to Devin.

Thank you, Sachin. Julianne, please open the call for questions now.

Our first question comes from Harshita Rawat from Bernstein. Please go ahead, your line is open.

Good morning. Michael, can you talk about U.S. merchant litigation, the settlement rejection and the ball forward from here? How should we think about the range of outcomes?

Right. Thanks, Harshita. You're not asking about the secular opportunity. I know the same. So the merchant settlement. So the first thing I would say is we're disappointed in where this has landed for now. I would describe it as we respectfully disagree with the court's ruling to reject the settlement. This has been negotiated over many years across many parties, I think with the best intentions, and they would have produced a lot of benefits for consumers, for merchants, and across all parties. So this is now not happening. We are obviously ready, and we will take all efforts to ensure that a solution is found before it goes to trial, engaging our parties. We've done this in previous scenarios before. It's difficult to speculate on our outcomes at this point. But I think this intention to lean in and see how we can provide more security and predictability to merchants and to banks and our parties here is what's driving us. There are a number of co-defendants in this, and everybody will obviously take their own decisions here. But across the board, there has to be a dialogue and we find the best outcome of this.

Our next question comes from Trevor Williams from Jefferies. Please go ahead. Your line is open.

Great. Thanks a lot. I wanted to ask on rebates and incentives growth. I think that came in a little bit better than you guys have been expecting for Q2. Sachin, if you could just unpack some of the upside there relative to expectations and then any help for what you're expecting for R&I growth over the next couple of quarters.

Sure. Thanks, Trevor. So you're right. As I mentioned in my prepared remarks, our rebates and incentives did come in slightly lower than our expectations for the second quarter. I just want to kind of take it up a level, just to kind of remind everybody, we're very active in the markets. We are constantly looking at what opportunities exist with existing customers and then with who could be potential new customers. And we have a view on what our pipeline of activities is. So the vast majority of what we had in the nature of better or, I would say, lower rebates and incentives in the second quarter were driven by some of that deal activity not materializing in the second quarter. It still remains in the pipeline. It's still something we expect will occur as the year progresses. More specifically, as it relates to Q3, we expect that our rebates and incentives as a percentage of our payment network assessments will be higher than it was in Q2. And it's essentially based on exactly what I just said, which is it's a very rich deal pipeline that we have. And again, this is more of a timing issue than anything else.

It comes back to the point. In the end, we want to be in the transactional floor. We want to be relevant to our customers. We want to be relevant in the eyes of the consumers that they have a Mastercard product in their hand, and we fight for the deals that we find strategically relevant that also meet our financial criteria. In the end, it all has to add up in combination between payments and services that our net revenue yield develops positively and that we keep in focus.

Our next question comes from Dan Perlin from RBC. Please go ahead. Your line is open.

Thanks. Good morning. Can we just spend a second on the realignment of the organization a little bit? I know you talked about it to create capacity and drive incremental growth. I think the question I have is how should we think about that in driving kind of new constituencies as you talk about new verticals and maybe expansion of data analytics? And then, more specifically, how does that open up the aperture of the network as we think about that going forward?

Sure, Dan. As I mentioned earlier, our goal is to accelerate growth without changing our core strategy, which we have already communicated. We will provide more details on this at the investor community meeting in November, focusing on our main payment solutions, new flows, and service offerings. I emphasized markets with significant cash usage, particularly in Africa, but there are also substantial opportunities in other emerging markets worldwide. We aim to strengthen our front line. It's evident that participating in the growth potential of emerging markets differs from strategies in developed ones. Thus, we are investing in product development, among other areas. Regarding services, our focus is guided by strong underlying trends. Many of our corporate and B2B partners are looking to better understand their enterprise data and make informed decisions. We assist them by using artificial intelligence to provide more tailored suggestions for their end consumers. This is about helping customers make informed decisions with specific solutions that emphasize AI. On the security and cybersecurity front, it’s crucial to safeguard all this data, a trend we have consistently highlighted. We must enhance our solutions quickly, as threats are evolving rapidly with similar technological advancements. For example, through our Decision Intelligence Pro, we can predict potential fraudulent card activities before they occur, which significantly helps our clients prevent fraud, assures their consumers, and ultimately supports our payments business. We're maintaining our overarching strategy while intensifying focus on specific areas, while also reducing other parts of our portfolio as part of this effort.

Our next question comes from David Togut from Evercore ISI. Please go ahead. Your line is open.

Thank you. Good morning, Michael and Sachin. Europe continues to be your largest geo by GDV, and also highly differentiated growth there continues. Would appreciate your look forward on cash digitization opportunity, thoughts on the consumer, and then the outlook also for cross-border travel in and out of Europe.

Sure. Let me begin by addressing how you've framed your question. We have experienced strong growth in Europe, encompassing both Continental Europe and the U.K. We have witnessed remarkable share growth, largely due to our increased local investments in Europe and our engagement with national governments and European institutions, which resonates well with our European focus. Reflecting on the COVID era, I would argue that certain large economies in Europe were lagging in terms of digitization. However, shifting consumer behaviors have intensified the push for further digitization, and we are seeing that progress. Europe is catching up, as reflected in our results. Regarding the ongoing growth opportunities we mentioned earlier, if we examine the economies in Germany and Italy, there is a significant amount of cash available that we are eager to pursue. I remain optimistic about the growth prospects in these markets. Conversely, there are also markets that are already highly digitized, where the shift from cash to digital payment isn't occurring as rapidly. This leads us to consider emerging business models in a digital landscape. The Nordics exemplify this trend, with new business models emerging, and we are committed to supporting those fintechs. This is why Europe remains one of the key regions globally for our fintech initiatives and partnerships with industry leaders. Overall, I am excited about the outlook for Europe, and we will continue to invest there.

And David, on your question around cross-border in and out of Europe, a couple of thoughts around there. Look, I mean, globally, I would say we're well positioned from a cross-border standpoint. You can see that in our metrics. And then as it relates to Europe, back to what Michael just said, as we've been winning portfolios, there's been a mix of portfolios. We've been there, some of which are high cross-border and others are lower from a cross-border standpoint. The idea is to actually be in the flow, participate, and create opportunities for ourselves to actually leverage our services and loyalty assets in order to drive cross-border, whether it's Europe or anywhere else in the world. Last point I'll make is sensitivity to foreign exchange rates. A strong dollar certainly helps in terms of the inbound into Europe because you tend to see a lot more travel from the U.S., actually showing up in Europe as part of that process. So again, we feel good about the cross-border opportunity, not only in and out of Europe, but globally for the company.

Right. And one last point to add based on the financial frame that Sachin just put around it. Back to the R&I question. So in Europe, we really feel we are well positioned in the market from a share perspective. So this aspect of financial discipline as we continue to look for deals and partnerships in Europe really rises to the top.

Next question comes from Darrin Peller from Wolfe Research. Please go ahead, your line is open.

Thank you, everyone. It's encouraging to see stability in July with U.S. volume. Could you provide more clarity on the situation, specifically regarding CrowdStrike or weather influences? Additionally, Michael, it would be helpful to understand your team's success in winning portfolios. Can you elaborate on the key factors driving this success? Are there any competitive pricing challenges, or do you expect growth from mass adoption?

Yes. Why don't I take the first part of that question, Darrin? In terms of the trends we've seen for the first four weeks of July, like I said, we feel good about general stability in drivers across the board. You can see that on Page 9 of our presentation. The reality is the weather piece has had a little bit of an impact. But it's kind of muted in terms of the context that we've got now four weeks' worth of data in there. The reality is these things kind of happen; they come at a particular week, and if you look at it, it might look lower or higher, and there might be a catch-up factor which takes place. By and large, we feel good about what we're seeing from a consumer spending standpoint, and that's reflective of what you see in the metrics right here.

Right. And then the second part of your question, the competitive market in the U.S. and same for Europe since we just talked about, remains incredibly competitive. I think we haven't seen such elevated levels of competition in payments that we're currently experiencing. You see a lot of movements in the market. There are banks looking at network opportunities and so forth. So there's a lot going on. But it is also true that for us, we continue to broaden our payment solutions and our service offerings. What matters here is that we can help our customers run their business in a better way. What are they trying to do, and are our solutions helping with that? Data insights, cybersecurity certainly matter. The fact that cards are not the best answer to all payments, but there are also a multi-rail set of solutions that customers are looking for. We have all of that, and that puts us in a differentiated position. We're trying not to sell products but really to come in with solutions through our sales force. That's working for us. But it's clear we have to be financially competitive; that always matters. But if you can have a conversation around the top-line outcome with your customer vis-à-vis the cost of payments, it changes the dialogue quite significantly. So when I talk to CEOs on the customer side, that's what they're really interested in. That brings a lot of value, and we price for that. So we continue to price for that. You've heard us mention pricing changes in the last quarter. We do that wherever we see the opportunity. Tokenization is a great example. We've invested in tokenization, and we needed to scale it up. Now we have an opportunity to build a whole set of services on top of the basic token, which we can price for, and we feel we should price for because they drive a better outcome in terms of better approval rates, lower fraud, and so forth for our customers. I think we're well positioned in a very competitive market, and we're going to continue to try to keep that edge.

Our next question comes from Dave Koning from Baird. Please go ahead, your line is open.

Yes. Hey, guys. Thank you. My question on the cross-border line: you've had a very nice positive divergence between constant currency revenues and constant currency volumes. This quarter was about 4%. I think for 13 quarters in a row, it's been nicely positive. In prior years, it was pretty close to neutral, sometimes even a little negative. Why does that continue to be positive? And how should we think of that going forward? Is that going to stay that nice positive divergence?

Yes, David. As I mentioned, the positive divergence has been driven by a favorable mix and some pricing in the second quarter. The mix is really what has caused that positive divergence you’re referring to. Our metrics show that we have intra-Europe cross-border and other cross-border. Intra-Europe generates lower yields, while other cross-border generates higher yields for us. If the other cross-border volumes are growing faster than intra-Europe, it results in that positive divergence. I’d like to remind you that during COVID, the situation was reversed, with intra-Europe growing faster than other cross-border, leading to cross-border assessments increasing at a slower rate than the actual underlying growth. That explains our mix. Additionally, pricing also plays a role, supporting the value we provide, which has contributed to the second quarter's results.

Our next question comes from Sanjay Sakhrani from KBW. Please go ahead, your line is open.

Thanks. Good morning. I was wondering, Sachin, could you just talk about the share gain benefits in the quarter and maybe what's on the horizon? I think you mentioned it in the context of incentives. And then just specific to some of the revenue items or revenue lines. When I look at domestic assessment revenue, that kind of slowed from a trend line that we've seen that was much stronger. I know some of it was FX, but was there anything else similar for other revenues? Those were down a little bit. I know it's a smaller line, but any call-outs there?

There are three questions here, and I’ll address all of them. Regarding domestic assessments, the growth rate is currently at 7%, compared to GDP growth at 9%, primarily driven by mix factors. It's important to note that GDV and domestic assessments don’t perfectly align because domestic assessments include various other components like card fees. Therefore, growth rates will naturally differ. When discussing mix, it can arise from various sources. For instance, our GDV comprises cross-border volumes, which are not reflected in domestic assessments. Hence, as GDV grows, the related cross-border revenue is absent in domestic assessments. Additionally, shifts in geographic mix can impact growth rates; some regions yield higher or lower returns, potentially leading to positive or negative variations. Moving on to other payment network revenues, this area isn't a major focus for us. It includes licensing, implementation, and franchise fees, all of which can fluctuate. I wouldn’t worry too much if there’s strong growth one quarter and a decrease the next. The revenue in question is relatively small, and various factors can influence these changes. For example, improving customer compliance may reduce the amount of compliance fees charged, which is beneficial for the network in the long run. As for your first question about share gain benefits in the quarter, I highlighted our success with the debit conversion in the U.S. We previously announced our win with Citizens, and the conversion process is going exceptionally well, mostly completed in the second quarter with new cards sent to customers. When analyzing drivers, removing the effect of these share wins still reveals underlying stability in consumer spending trends. Regarding share gains, we’ve discussed several systems and wins, including Webster and UniCredit, which are multi-year conversion processes. The Deutsche Bank conversion is also in progress and will take a couple of years to fully realize. All of these developments will unfold over time.

Our next question comes from Tien-Tsin Huang from JPMorgan. Just go ahead, your line is open.

Thank you. Good results here. Just on the value-added services and solutions, that accelerated. I know there's an easy comp from the first quarter, but any interesting trends in terms of composition of growth within VAS and any call-outs for the second half of the year in terms of VAS growth?

Right. Tien-Tsin, good to hear you. 19%, a strong growth rate for sure. The usual suspects in terms of driving for growth are the payments-related part of this, particularly on the cybersecurity side. That continues to grow and grow very well. So there's more need for more fraud solutions. That's one thing. And on the data analytics side, we continue to see great interest, as I laid out in remarks, test and learn, for example. I'll give you a number of examples of how customers are trying to figure out what kind of campaigns make sense, how can they serve their customers better, and so forth. So no particular change there. I think the fundamental trend that I touched on earlier in an earlier response, more infusion of AI across the board to make these products scale better and be more effective, that's certainly a trend. Overall, the whole mix of this is largely unchanged. We continue to invest in newer aspects of our services portfolio, particularly in the open banking side. I talked through a couple of use cases here. They still have yet to scale up in a significant way, but we feel we're well positioned in Europe, Australia, and the U.S. on the open banking side. So good to see. We said in the first quarter where we had a slightly lower growth rate, we're going to be higher quarter by quarter for the rest of this year, and that is playing out as predicted. Occasionally, you have tougher comps and so forth, but this is a pretty solid trend for us.

Our next question comes from Dan Dolev from Mizuho, please go ahead. Your line is open.

Oh, hey, guys. Good morning. Thank you for taking my question last quarter. I believe you gave us a cadence on rebates and incentives, growing slower in the second half versus the first half. Can you maybe give us a little bit more color on the cadence of rebates and incentives this year? And great results again.

Dan, yes. Last quarter, I shared with you a point of view around what we thought rebates and incentives would look like in the second quarter. What we had said is it would be flat to slightly lower for the second quarter. In the second quarter, rebates and incentives came in lower than the first quarter, lower than even what we had expected for the reasons I mentioned earlier, the timing of deal activity. Today, I shared with you what I think will be rebates and incentives in the third quarter, which we expect will be higher in the third quarter compared to the second quarter. We really haven't shared much on the nature of rebates and incentives beyond that. So really just for clarification, that's what I want to share with you.

Our next question comes from Andrew Jeffrey from William Blair. Please go ahead. Your line is open.

Hi. Good morning. Thanks for taking the question. Michael, I want to ask about open banking and particularly in the U.S. hearing some conflicting things about the price of real-time payments, interchange in real-time payments, I guess, versus debit, especially Durbin-regulated debit and perhaps the enthusiasm on consumers' behalf to pay from their bank accounts, but maybe some chargeback and customer service dispute issues that banks are facing. I just wonder if you could maybe parse some of the puts and takes and give an outlook on the future of open banking, particularly in the U.S.

It’s interesting that you bring this up. Earlier, I mentioned that open banking hasn’t quite reached the expectations that most market participants had over the years, and this applies globally. In the United States, when I look at open banking with a focus on specific services—like account opening, linking, or data aggregation—I see good momentum. I discussed this earlier. However, when it comes to payments, the card ecosystem still provides significant value, particularly regarding chargebacks. If an issue arises, it can be uncomfortable if there’s no reliable way to get your money back. With cards, we have established processes for this, and the same applies to fraud protection; the mechanics are well understood in card payments but less so in counter account payments. Nonetheless, as an ecosystem custodian, it’s our responsibility to track emerging technologies and customer interests, particularly regarding how consumers want to leverage their data for better services. This starts with our strong emphasis on data protection and consent management. We are actively investing in exploring how these technologies can be utilized. That’s why we highlighted open banking as a future-oriented area of investment. The use cases we currently see represent near-term opportunities, focusing on lending, account opening, linking, asset verification, and, more recently, data aggregation. Our smart subscription solution exemplifies this well. For consumers managing numerous subscriptions in one place, it really makes a difference. So, while open banking is evolving, we are at the forefront of this change, and it’s important to recognize that the value we offer through cards remains unparalleled.

Our next question comes from Fahed Kunwar from Redburn Atlantic. Please go ahead, your line is open.

Hi both. Thanks for taking the question. Just wanted to ask about profitability. Obviously, there's a lot of various moving parts with VAS growing really nicely, cross-border. How do you think about margin expansion versus kind of investing in all of these various product areas in distribution and the products themselves? Should we expect margins to carry on expanding as they have been, or will there be continued areas of investment that you think will kind of drive expenses higher from here?

So a couple of thoughts here for you, which is, number one, I think we mentioned in the past, and this philosophy of ours remains unchanged, which is we aspire to deliver positive operating leverage, which is driving net revenue growth at a faster clip than operating expense growth over the long term. So that's really what the aspiration is for how we're running the business. The most important thing to remember is we're running the business for top line growth and bottom line growth. In order to do that, we keep a very close eye on making investments to drive growth in the near, medium, and long term. So yes, we are investing in things which will drive growth in the near, medium, and long term. That is super essential from our perspective, not only because that's what our shareholders desire but also because we believe the set of opportunities in front of us are sizable. For us to leave those opportunities under-invested would be a bad move for the long-term health of our company. So we will continue to invest in the business. We will do that with the strategic priorities, which Michael has laid out. With that focus, we will constantly look at those priorities to see how the market conditions are evolving, and we will pivot as necessary. But the general flow is that we will continue to invest in the growth of our business because we see tremendous opportunity on a going-forward basis.

Our next question comes from Paul Golding from Macquarie Capital. Please go ahead, your line is open.

Thanks so much for taking the question. I wanted to ask about AI in a fraud sense. I know that you're incorporating AI into your products, and presumably as part of VAS to combat fraud. Just wanted to ask what you're seeing in terms of the offense of fraud using AI and how that might accelerate the adoption of your new products and your investment in new products around AI to combat that.

Right. So with rapid digitization around the world, we've seen a lot of new entrants into the ecosystem. Many small businesses have digitized post-COVID as you see in emerging markets, with many people for the first time using digital solutions. Digitalization is growing, vulnerabilities are growing, and technology in the hands of fraudsters is also evolving. This creates an environment where players like ourselves, who oversee an ecosystem, a franchise between banks and merchants for the benefit of the end consumer, need to really invest in safety and security. We've done that. AI isn't anything new for us. For the better part of a decade, we've been using AI with discrete machine learning technology to predict where the next problem might be and analyze data that we have and data that our customers have to prevent fraud. So that's been very successful. As for generative AI, we see the opportunity to understand more data in a quicker way. We've used that initially to train our AI models, our discriminative AI models using generative AI to create artificial data sets. That was the first step. We then went into putting out a new set of products. I mentioned Decision Intelligence. The Decision Intelligence we've had for a long time is machine-learning driven and now we're using more data sets that are externally available to understand where our fraud vulnerabilities might be. The lift is tremendous; we see a 20% improvement in terms of effectiveness out of that product. We start to see demand for the whole reason I talked about the vulnerabilities. We expect continued growth. We also expect the fraudsters to come up with new techniques themselves; we need to continue to evolve. The penetration of generative AI in our fraud and cybersecurity product will only expand. I talked a lot about transaction-related fraud. The vectors around cybersecurity are obviously much broader. It's prediction of fraud. It is what's the general cybersecurity posture of a company, risk management capabilities and so forth. We cover the whole ecosystem and become a true strategic partner for our customers. If anything, this whole space is going to grow further, and you're going to continue to see us invest in that area.

We have time for one more question, Julianne.

Our last question will come from Andrew Schmidt from Citi. Please go ahead, your line is open.

Hi, Michael. Hey, Sachin, thanks for squeezing me in. I just want to double-click on macro viewpoint. If I hear in the message correctly, it sounds like not mix, but consumer spend trends are stable for the most part. If you could just double click on that and let us know if there's any divergence amongst different consumer demographics and correspondingly what that might mean for debit versus credit, transaction sizes, anything like that, that would be super helpful.

Right. So at the outset of my prepared remarks, I talked about the factors related to inflation and prices. The bottom line is that for now, the consumer is supported, and that's pretty much irrespective of income cohort, supported by a strong labor market. So that's fundamentally true, and it's fundamentally true around the world. But in aggregate, it's not a uniform answer. The picture clearly plays out very differently country by country. We have a very global business. So we look at what the Central Bank of Japan is doing, and we saw that today they raised rates. In Europe, you see Germany entered a small recession in the past quarter. So there's a lot of back and forth. But that fundamental point is that the consumer is supported by a strong labor market and some wage growth. I think that holds true, and we don't expect any dramatic changes on that front, and that's why we remain positive about the outlook. You peel back the onion a bit further; we see different cohorts. It's pretty clear that when it comes to higher income versus lower income, if you're spending on an expensive trip or experiences during the summer, you have more income to do that; less income allows for fewer experiences. What we generally see, though, is that higher-end consumers, along with mid-income and lower-income consumers, are more empowered by having more data and the ability to look for better deals. That's what everybody is trying to do to make things add up and work for them; that is, still wanting to go on that trip. So all that together, overall adds up to a picture that we feel pretty good about at least with respect to our side of the business. Why do I say that? Because inflation and prices cut across carded and non-carded. We are obviously particularly positioned. You saw that rise, and right now, you see a lot of inflation in auto insurance and rent, which is not necessarily carded. So these are all the factors we think through, and it comes back down to the fundamental point that we see healthy consumer spending and don't see that changing in the short term.

And Andrew, I'll just add one point, and Michael touched on this before, which is at the end of the day, our diversified business model lends really well in different environments because we are geographically diversified. We've got great diversification across debit and credit. We've got good diversification around channels of spend. The reality is when these factors take place in certain sectors of the economy, a dollar spent in one sector versus a dollar spent in another sector, we're relatively indifferent so long as it's got to spend. That diversification truly helps our business; the way we are actually structured has not happened by chance; it's happened by design. So that's something which is super important for us.

Thank you. Now I'll hand it back to Michael for any closing comments.

All right. Thanks, Devin. So everybody has seen that we talked about the momentum and having a good quarter. All of this obviously only happens due to the hard work of our colleagues at Mastercard, I thank them, and I also want to thank you for your support for Mastercard. We're looking forward to speaking with you in a quarter from now and hopefully seeing some of you at our Investor Day Community Meeting on November 13 in New York. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.