Earnings Call Transcript
Mastercard Inc (MA)
Earnings Call Transcript - MA Q1 2022
Operator, Operator
Good day and thank you for standing by. Welcome to the First Quarter 2022 Mastercard Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Mr. Warren Kneeshaw, Head of Investor Relations. Please, go ahead.
Warren Kneeshaw, Head of Investor Relations
Thank you, everyone, and thank you for joining us for our first quarter 2022 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, I would like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance is summarized at the end of the 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.
Michael Miebach, CEO
Thank you, Warren. Good morning, everyone. Russia's invasion of Ukraine marked a somber start to 2022, as war returned to Europe for the first time in decades. Given these extraordinary circumstances, we decided to suspend our business operations in Russia. We did not take this decision lightly, given that Mastercard has operated in Russia for more than 25 years. We are now focused on the orderly suspension of business operations in Russia and supporting the well-being of our employees and their families across the whole region. Even in the context of this challenging geopolitical environment, we're off to a strong start in 2022. We delivered robust revenue and earnings growth with further improvement in our underlying operating metrics, notably in cross-border travel. Quarter one adjusted net revenues were up 27% and adjusted operating income up 40% versus a year ago on a non-GAAP currency neutral basis. On the macroeconomic front, consumer spending remains strong, particularly as economies across the globe continue to reopen and pandemic-related restrictions are lifted. Labor markets are firm, with low unemployment rates and rising wages. Weighing against this healthy backdrop are a number of factors that we are monitoring, including inflationary pressures, supply chain constraints, geopolitical uncertainties, and COVID infection rates. We're monitoring these developments including the fiscal, monetary, public healthcare, and other policy responses. Let's look at this from a geographic standpoint. US retail spending remains healthy, aided in part by the buildup of excess savings during the pandemic. According to our quarter one spending pulse report, which is based on all payment types, including cash and check, US retail sales excluding auto and gas were up 4.7% versus a year ago. In Europe, spending trends are positive, although the invasion of Ukraine has introduced risks to economic growth looking ahead. Growth in Latin America continues to moderate, following a strong rebound in 2021. Asia has generally lagged the recovery of other regions. We're seeing several countries relaxing COVID-related restrictions, while others are facing stronger measures. Asia continues to have significant upside potential. Looking at Mastercard spending trends, we continue to see strong growth. Domestic switched volumes are strong across a broad range of sectors including retail, utilities, and professional spending. We also saw strong growth in travel and entertainment including spending with airlines, travel agencies, lodging, and restaurants. In terms of cross-border where the growth was particularly strong, the recovery continued this quarter led by travel. Cross-border travel reached 2019 levels as of March for the first time since the pandemic began. Geographically, the cross-border recovery has been broad-based with improvement across all regions. Cross-border card-not-present excluding travel continues to be strong. Our strategy is designed to enable and capitalize on these trends and executing against our three key strategic priorities: one, expanding in payments; two, extending our services; and three, embracing new networks. First, we're expanding in payments by continuing to grow card payments and leaning into innovation and new payment technologies to catch-up on other prioritized payment flows. We're driving growth in commercial payments through new consumer, small business, co-brand, and fintech wins. On the consumer and small business front, I'm excited to announce an enhanced partnership with Wells Fargo which includes several new elements. Wells Fargo will now issue Mastercard small business credit cards and for the first time in almost a decade, consumer proprietary and co-brand credit products. We're also excited to announce that we have deepened our relationship with our long-standing partner, Capital One. In addition to renewing our existing business, we will also be their issuing network for a larger number of new originations across both their consumer and small business products. Further on the small business front, we are expanding our small business portfolio with the First National Bank of Omaha, also partnering with the bank and Verizon to launch a new Verizon business Mastercard targeting Verizon's small business customers. In total, these partnerships will help us continue growing our U.S. small business market share. Outside the U.S. we're driving commercial card growth through new partnerships with leading B2B tech companies like Clara. We will be flipping Clara's business portfolio in Mexico to Mastercard and are working with them to launch new programs in five additional markets across Latin America. Turning to co-brands, we've made substantial progress to ensure we are well positioned to capitalize on the return of travel. We have renewed and expanded our exclusive partnership with American Airlines, one of the largest co-brand programs in the United States. American will continue to leverage our capabilities including SessionM and will participate in our Staff cast program to identify tech partners who can help drive innovation across the airline. In the U.K., we have launched two new Barclaycard Avios cards with Barclays and International Airlines Group loyalty. Outside of travel, we've expanded our relationships with leading retailers including a new co-brand program with Victoria's Secret and a renewal of our Ulta Beauty co-brand offering, both in partnership with Red Financial. We're also continuing to advance our leadership in the digital and fintech space, through new product launches and partnerships. We're partnering with BCA Digital, the digital banking arm of the largest private bank in Indonesia, to launch a digital-first Mastercard debit product catering to millennials. In Latin America, we signed a regional partnership with global payment processing platform Galileo. The partnership establishes Mastercard as Galileo's preferred partner across several markets in Latin America and they will work to integrate and distribute several of our products and services to help their fintech customers. In addition to driving new wins, we are leveraging our services capabilities to execute against many of the large portfolio migrations that are in flight. In Europe, our consulting teams are engaging with our partners at Santander, NatWest, and Deutsche Bank to ensure a smooth and timely transition and to identify opportunities to optimize those portfolios. Santander is nearly complete with a nine million card migration and we expect to be complete by early next year, while NatWest commenced the issuance of Mastercard at the end of last year and plans to migrate their entire 16 million card portfolio by the middle of 2023. Deutsche Bank's 10 million consumer and commercial credit and debit cards will be reissued as Mastercard-branded cards with a credit migration starting in quarter four of this year and the debit migration commencing early next year. Similarly, our team in the U.S. is supporting key migrations including Gap Inc., Merrick Bank, and First Interstate Bank. All the migrations are on track with Gap Inc. scheduled to be completed this summer. We're also expanding in payments by leading entertainment innovation in areas like installments and cryptocurrencies. Our Openbit Mastercard installment program has been very well received and is progressing according to plan. Remember Mastercard installment is built into our network making Buy Now Pay Later available to millions of consumers and merchants worldwide. We continue to add a wide array of new lender and fintech partners including Amount, Deserve, i2c, Lithic, and Southern Bank. In this quarter, we announced several merchant partners who are excited to support Mastercard installments including Bass Pro Shops, H&R Block, Saks Fifth Avenue, and Walgreens. U.S. customers will begin offering Mastercard installments to consumers this quarter and international expansion is planned for later this year. We continue to build solutions to support the crypto economy with a principled approach focused on three key areas. First, helping consumers easily and safely purchase cryptocurrencies and NFTs. Additionally, we are enabling consumers to spend their crypto holdings on card and cashing out their crypto wallets via Mastercard Send. Second, providing identity, cyber, and consulting services for market participants, including engaging with central banks as they design and develop central bank digital currencies. Third, preparing our core network to directly support digital currencies. We made substantial progress in each of these areas. This quarter the Gemini Mastercard, which offers crypto rewards, went live across the U.S. We also partnered with Nexo to launch a new crypto card in Europe, one that uses consumers' digital assets as collateral to back their credit line. We established several other international crypto card partnerships including banks in Europe and Abra, Invesco, and Bello in Latin America. On the crypto services front, MercadoLibre will be leveraging our AI and cyber capabilities to bring security and trust to their digital wallet in Brazil. Now turning to our second strategic priority services, our services support and differentiate our core products and play a critical role enabling many of the wins I mentioned. We also continue to extend our services across multiple growth vectors through new payment platform capabilities, new verticals, and new use cases. Here are a few examples. First, we completed our acquisition of Dynamic Yield. Now that the transaction is closed, we will combine Dynamic Yield's personalization platform and decision engine within our SessionM loyalty platform and our test-and-learn experimentation software. The result will be a truly differentiated consumer engagement and loyalty hub for our customers. Second, we announced that we're expanding our consulting services into three new practices dedicated to open banking, crypto, and digital currencies, and ESG. We've seen increased customer demand and a growing portfolio of successful engagements in these areas. For example, we are supporting Handelsbanken and Intesa Sanpaolo design programs that advance their ESG priorities. We're helping Wirex explore innovations in crypto. And finally, we're expanding the breadth of our customer base and deploying our capabilities to solve for a wider range of use cases. For example, we deployed our Test & Learn capabilities to help tailored brands optimize retail operations and improve marketing efficiency for leading menswear brands. We deployed our FX capabilities with Santander in Spain to help streamline dispute resolutions and improve the customer experience. Beyond expanding in payments and extending our services, our third key priority area is embracing new networks. Our current focus is on two areas: open banking and digital identity. Our open banking and multi-rail strategies are converging enabling us to leverage our unique set of assets to address new flows in verticals like rent payments. For rent payments, the risk of ACH returns due to insufficient funds is a significant pain point for both renters and landlords. To address this challenge, we're launching a new suite of smart payment decisioning tools. These solutions will use Finicity's open banking capabilities to recommend the optimal payment day and payment rail for each transaction based on cost, speed, and risk. The Bill Payment Alliance, a collection of more than two million rental homes, will be one of the first fintech partners to launch these capabilities. We plan to expand these solutions across a broad range of bill payment verticals. Additionally, we continue to expand our open banking reach with Finicity and Aiia, by penetrating new verticals and establishing new partnerships. We continue to enhance our capabilities in the mortgage vertical and are now expanding into the auto lending vertical. We're leading the way in terms of provisioning permission-based income, employment, and asset verification information and we've partnered with Stripe, who will be using our open banking capabilities for various use cases. We're also extending our open banking reach through data access agreements with products like Fiserv, which will enable direct API connectivity to thousands of financial institutions in the U.S. In the digital identity space, Ekata continued its strong performance in quarter one, securing deals with financial services companies including MoneyLine and several leading Buy Now Pay Later providers. In addition, we recently joined forces with Microsoft in a collaboration to improve digital transaction approval rates and reduce fraud. The solution enables issuers to optimize authorization decisions using network and merchant-specific authentication data. Combined, open banking and digital identity extend our value before and after the payment transaction and into new digital transactions. These are attractive and growing opportunities and we are uniquely positioned to be successful in both. In summary, our business fundamentals remain strong, and we delivered robust revenue and earnings growth again this quarter, which also reflects our disciplined approach to expense management. We're executing against our strategic priorities, notably expanding our share with key issuers. In addition, we've worked hard to expand our travel-oriented portfolios, which positions us well to capitalize on a strong recovery in cross-border travel. Last but not least, we want to reflect on what is most important, the safety and well-being of our employees and their families who have been impacted by the war. Our thoughts are with them and the people of Ukraine. Sachin, over to you.
Sachin Mehra, CFO
Thanks, Michael. Turning to page 3, which shows our financial performance for the quarter on a currency-neutral basis excluding special items and the impact of gains and losses on our equity investments. Net revenue was up 27%, reflecting the continued execution of our strategy and the ongoing recovery in spending. Acquisitions contributed two percentage points to this growth. These revenues were above expectation primarily due to stronger-than-expected cross-border and domestic volumes, favorable cross-border mix, and FX-related revenues. Operating expenses increased 13%, including a six-percentage point increase from acquisitions. Operating income was up 40%, which includes a one-percentage point decrease related to acquisitions. Net income was up 61%, which includes a 20-percentage point benefit due to the recognition of a one-time discrete tax benefit related to a U.S. tax regulation published in the current period and a one-percentage point decrease from acquisitions. EPS was up 65% year-over-year to $2.76, which includes a $0.36 contribution from the one-time discrete tax benefit and a $0.05 from share repurchases. During the quarter, we repurchased $2.4 billion worth of stock and an additional $599 million through April 25th, 2022. Moving to page 4, you can see the operational metrics for the first quarter. Worldwide gross dollar volume or GDV increased by 17% year-over-year on a local currency basis. Of note, data related to sanctioned Russian banks was not reported to us and hence such amounts are not included in Q1 2022. In the U.S., GDV increased by 14% with credit growth of 31% and debit growth of 1%, reflecting the recovery of credit spending on travel and the lapping of stimulus. Outside the U.S., volume increased 19% with credit growth of 20% and debit growth of 18%. Cross-border volume was up 53% globally for the quarter with intra-Europe cross-border volumes up 50% and other third-country volumes up 56%, reflecting continued improvement in travel-related cross-border. For the first time since the onset of the pandemic, cross-border volume was above 2019 levels for all regions, and cross-border travel was above 2019 levels for the first time in March. Turning now to page five, switched transactions grew 22% year-over-year in Q1 and were at 150% of 2019 levels. Card present and card not present growth rates remain strong. Card-present growth was aided in part by increases in contactless penetration in several regions. With respect to card counts, as a result of the suspension of our business operations in Russia, cards issued by Russian banks are no longer active on our network and are therefore excluded from our card counts this quarter. So, accordingly, card growth was lower at 4% this quarter. If you exclude Russian-issued cards from current and prior years, our growth would have been 9%. Globally, there are 2.9 billion Mastercard and Maestro-branded cards issued. Now, let's look to page six with our highlights on the revenue line items, again described on a currency-neutral basis excluding special items unless otherwise noted. The increase in net revenue of 27% was primarily driven by domestic and cross-border transaction and volume growth as well as growth in services, partially offset by increases in rebates and incentives. Acquisitions contributed approximately two percentage points to this growth. I also like to point out that in the first quarter, the suspension of business operations in Russia had a minimal impact on the overall growth rate of the company as the loss of volume was offset by a one-time benefit of lower rebates and incentives due to the absence of a customer incentive agreement renewal in Russia. Looking quickly at the individual revenue line items, domestic assessments were up 21% while worldwide GDV grew 17%. The four-percentage point difference is primarily due to unreported volumes from Russian-related sanctioned customers and a favorable mix. Cross-border volume fees increased 57%, while cross-border volumes increased 53%, both ahead of expectations. The full percentage point difference is primarily due to favorable mix as higher-yielding ex-intra Europe cross-border volumes grew faster than intra-Europe cross-border volumes this quarter. Transaction processing fees were up 27% while switched transactions grew 22%. The five-percentage point difference is primarily due to favorable cross-border mix and FX-related revenues. Other revenues were up 20%, including a seven-percentage point contribution from acquisitions. The remaining growth was driven by our Cyber & Intelligence and Data & Services solutions. Finally, rebates and incentives were up 30% reflecting the strong growth in volumes and transactions and new and renewed deal activity. As a percentage of gross revenues, rebates and incentives were lower than expected primarily due to the absence of a planned customer incentive agreement renewal in Russia, a higher mix of cross-border revenues, and the timing of new internal deals. Moving to page seven, on a currency-neutral basis, total operating expenses increased 13% including a six-percentage point impact from acquisitions. Excluding acquisitions, operating expenses grew 7% primarily due to increased spending on advertising and marketing, higher personnel costs to support the continued investment in our strategic initiatives, and increased data processing costs. Turning to page eight, let's discuss the operating metrics for the first three weeks of April. For your reference to help you understand the trends in the business excluding Russia, we have included an appendix later in the deck to show all the data points from the schedule if you excluded activity from Russian-issued cards from current and prior periods. Going through the metrics in turn, starting with switch volumes. For the first three weeks of April, we grew 23% year-over-year, down four percentage points compared to Q1, primarily due to the cessation of activities in Russia. If you exclude Russia-related volumes from the current and prior periods, switch volumes grew 27%, down one percentage point compared to Q1. Switch transactions grew 14% year-over-year through the first three weeks of April, down eight percentage points from Q1 again driven primarily by the absence of Russia-related transactions. Of note, Russia has a relatively low average ticket size which results in a larger relative impact on this metric. If you exclude Russia-related transactions from the current and prior periods, switched transactions grew by 25% year-over-year, up one percentage point from Q1. Overall cross-border volumes through the first three weeks of April grew 60% year-over-year, up seven percentage points from Q1. Excluding Russia from the current and prior periods, cross-border volumes through the same period grew 65% year-over-year, up 13 percentage points from Q1. Since the end of January, cross-border travel has rebounded quickly as border restrictions continue to be lifted and we distance ourselves from Omicron. In the first three weeks of April, cross-border travel was up 179% year-over-year, up 38 percentage points from Q1. Cross-border card-not-present excluding travel was up 5% year-over-year in April, a decrease of 8 percentage points compared to Q1, reflecting in part the lapping of a strong comparable period a year ago. One point to emphasize is cross-border travel is now above pre-pandemic levels at 110% of 2019 levels. Turning to Page 9, I want to share our thoughts on the remainder of 2022. Let me start by saying that our business fundamentals remain strong, as we continue to grow our customer relationships and expand our product and service offerings. As Michael mentioned, consumer spending remains robust, particularly as economies open further and pandemic-related restrictions are lifted. Having said this, we are monitoring a number of factors, including inflationary pressures, supply chain constraints, geopolitical uncertainties, and COVID infection rates. At this stage, we have not seen any significant impact of these factors on consumer spending. Cross-border travel is recovering rapidly as border restrictions ease. This is occurring faster than our earlier expectations. We are well-positioned to capitalize on this growth with our travel-oriented portfolios. Weighing against these positive trends are the impacts of the war in Ukraine and the suspension of our business operations in Russia. So now taking all of this into account, we continue to expect net revenues for full year 2022 to grow at the high end of a high teen rate on a currency-neutral basis, excluding acquisitions and special items. Essentially, we are maintaining our growth expectations in the same range as the strong cross-border travel recovery and strength in consumer spending helped mitigate the loss of sizable revenues in Russia and Ukraine. Acquisitions are forecasted to add about one percentage point to this growth, while foreign exchange is expected to be a headwind of three to four percentage points for the year, primarily due to the strengthening of the U.S. dollar relative to the euro. In terms of operating expenses, we are reducing our forecast for the year to reflect cost savings related to Russia. All year, we expect operating expenses to grow at a high single-digit rate on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecast to add about four to five percentage points to this growth, while foreign exchange is expected to be a tailwind of approximately two to three percentage points for the year. With respect to the second quarter, year-over-year net revenue is expected to grow at the high end of a high teen rate, again, on a currency-neutral basis, excluding acquisitions. This reflects closely strong consumer spending, including continued improvement in cross-border travel spending relative to 2019. Secondly, the discontinuation of revenues from Russia and a sequential reduction in revenues related to Ukraine. Finally, the lapping of a strong quarter that was aided by fiscal stimulus and the easing of pandemic-related restrictions as vaccination programs rolled out. Acquisitions are forecast to add about one percentage point to this growth, while foreign exchange is expected to be a headwind of approximately five to six percentage points for the quarter. From an operating expense standpoint, we expect Q2 operating expenses to grow at a high single-digit rate versus a year ago on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecast to add about four to five percentage points to this growth, including the acquisition of Dynamic Yield, which we are pleased to have just closed. Foreign exchange is expected to be a tailwind of approximately three to four percentage points for the quarter. Other items to keep in mind: on the other income and expense line, we are at an expense run rate of approximately $115 million per quarter given the prevailing interest rates and our recent debt issuance. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect a tax rate of approximately 18% to 19% for each of the remaining quarters of the fiscal year based on the current geographic mix of our business. Before closing out, I want to briefly comment on our three-year performance objectives for 2022 to 2024. Clearly, the elimination of Russia-related revenues and the reduction of those from Ukraine create a headwind to achieving these objectives. If this continues, it would result in a headwind of approximately two percentage points to our net revenue CAGR. Having said this, we are off to a strong start in 2022 with the recovery of cross-border travel ahead of expectations, as I previously mentioned. We remain focused on building long-term sustainable growth for the company. And net-net, it is really too early to adjust our three-year performance objectives, as we work to offset some or all of these headwinds. And with that, I will turn the call back over to Warren.
Warren Kneeshaw, Head of Investor Relations
Thank you, Sachin. Jamaria, we are now ready for the question-and-answer session.
Operator, Operator
Your first question will come from the line of Sanjay Sakhrani with KBW. Please proceed with your question.
Sanjay Sakhrani, Analyst
Thanks. Good morning. I've had a question on inflation. I know the data suggests the consumer remains in good shape as we look across trends in the vertical. Are you seeing anything that is seeing some kind of negative impact on consumer spending patterns as a result of inflation? I know we heard some comments on e-commerce. Maybe you could talk about that? Thank you.
Michael Miebach, CEO
Sanjay, thanks for your question. So on the inflation side, as Sachin mentioned earlier, we have not seen anything yet in terms of changing consumer spending behaviors. But what we are seeing is in terms of the impact on vertical mix and so forth. There has been a 1% increase in our switched volume that's related to gas price increases. We're seeing some shifts in the airline sector, which is again under inflationary pressure from ticket pricing perspective. So we have to see where it goes going forward. Fundamentally, I stand on this is the push by consumers into the digital space. They learn these habits and they’re online. All that will continue. And we will see where the underlying prices go, and this comes back to what we've been saying all along: There are macro considerations in each country that have to be considered here. What is monetary and fiscal policy? And then there are the micro aspects of the different verticals: which ones are ‘carded’ and which ones we would see or not. Could there be a crowding-out effect of rents or gas prices, particularly in Europe? Yes, that might be, but that's not something we can tell just yet.
Sanjay Sakhrani, Analyst
Thank you.
Operator, Operator
Your next question will come from the line of Harshita Rawat with Bernstein. Please proceed with your question.
Harshita Rawat, Analyst
Hi. Good morning. Michael, Sachin, I want to ask about cross-border travel—very strong recovery here. Is there a scenario where, even if, let's say, China and other parts of Asia don’t come back meaningfully, you can still get back to this normalized 30% to 40% kind of levels above 2019, which was the run rate pre-pandemic? Because there's so much pent-up demand. Or does Asia and China need to come back for the next cross-border recovery? And Sachin, just a follow-up for you. Can you just talk about the sensitivity of your revenue guidance should macro consumer spending deteriorate from here? Thanks.
Sachin Mehra, CFO
Thanks, Harshita. So first on your question on cross-border, you're absolutely right. Cross-border travel has come back stronger than our expectations, and there continues to be pent-up demand. In terms of how we're thinking about our guidance, we've built in that improving recovery in cross-border travel on a going-forward basis. So I want to get that out there. But to give you a little bit more color on cross-border, cross-border volumes are above 2019 levels across all regions for the first time. I would tell you that the top 20 destinations which represented approximately 70% of our total cross-border travel pre-pandemic, and we were at 70% of 2019 levels when we discussed this at our Investor Community Meeting, are now at 85% in Q1 of 2022. Specifically, on your question around Asia-Pacific, it's important to note that Asia Pacific has been slower to recover. The Asia Pacific opportunity as I see this is as follows: Asia Pacific represented approximately 14% of total inbound cross-border travel volumes pre-pandemic, and we're at 40% of our 2019 levels in Q1. As you can see from this number, there is a fair amount of recovery still remaining to come from Asia Pacific. Obviously, it does matter how restrictions are lifted in that market. Again, the point is at the end of the day, cross-border fundamentally is still very sound. This is something we've been talking about right through the pandemic, where we felt like when restrictions are eased, volumes in cross-border will come back. We've seen that happen, and we continue to believe fundamentally that that remains very much in place, particularly in Asia. A couple of thoughts in China: both inbound and outbound from China were not a very significant portion of our cross-border volumes pre-pandemic. In fact, I would argue that outbound China was slightly higher than inbound China. So when you think about recovery, you've also got to think about what restrictions are there in terms of people going into countries versus coming out of countries. Outbound China has shown better improvement than inbound China for obvious reasons, given that there have been lockdowns in China. So net-net, I think about the fundamentals of cross-border being strong. I think about the potential for pent-up demand continuing to contribute to improvements in cross-border travel spend. And again, Asia Pacific still remains a fairly large opportunity on a going-forward basis.
Michael Miebach, CEO
Yes. If I can just build on that: we love cross-border. But while we love the trends, it's a lot of hard work. And over the last two years, the travel industry was hard hit from the outset of the pandemic. We have leaned in. And as I recall, over the last two years, JetBlue, Cathay Pacific, British Airways, LatAm, Aeroplan, AirCanada—you name it—it's a long list of where we have either expanded or renewed additional volume. So we're participating in the trend in a very significant way. We've always said it’s going to happen this year, and we're ready for that.
Operator, Operator
Your next question will come from the line of Rayna Kumar with UBS. Please proceed with your question.
Rayna Kumar, Analyst
Good morning. Thanks for taking my question. It was really good to see the strong operating margin expansion in the quarter of 460 basis points. Can you discuss some of the underlying drivers outside of the return of cross-border and how sustainable you believe an upper 50% operating margin is going forward?
Sachin Mehra, CFO
Yes. Rayna, happy to take that question. Look, at the end of the day, the business we have is a high operating leverage business. Incremental dollars of revenue typically flow to the bottom line just because of how we operate. So certainly, the cross-border recovery is playing into the recovery in operating margins, but it's not just about cross-border. It's about overall strong consumer spending and all of which is contributing to the delivery of improved operating margins. Helping that even further is the good new strength in our services and everything we're doing along those lines. So, it's all of the factors contributing to the expanding operating margins that you're seeing come through. The message I'd like to leave you with is that we continue to run the business for long-term sustainable growth. This means effectively that we're going to continue to invest in a disciplined manner to ensure that we are creating the right opportunities for ourselves to deliver this long-term top line growth. While we do that, you should see the impact of that come through in terms of operating margins.
Warren Kneeshaw, Head of Investor Relations
Next question, please.
Operator, Operator
Your next question will come from the line of Darrin Peller with Wolfe Research. Please proceed with your question.
Darrin Peller, Analyst
Hi. Thanks, guys. When we look at the types of opportunities on cross-border that you're seeing right now, you're clearly positioned as you said before to take advantage of the upswing in travel. Historically, it's been very high pass-through without rebates and incentives. Should we still expect that to be the case, or is there anything around the new business relationships that Michael mentioned earlier that would cause that growth yield, I guess we can say, our net yield to be a little bit different going forward on this type of big pickup in resumption and spending on travel? And Michael, just more strategically, when we think about that industry in terms of cross-border payments: There's been so much change, and even you guys are trying to work through opportunities for more account-to-account and open banking opportunities across globally. Does that change the ecosystem at all, or is card-based really how you expect cross-border players to stay dominant for payments over time?
Sachin Mehra, CFO
Thanks for your question, Darrin. I'll take the first part and then Michael will address your second question. I'll give you this headline: we're not seeing anything fundamentally change in terms of the profile of our cross-border revenues. Meanwhile, again depending on how much cross-border comes from intra-Europe versus volumes from outside of that intra-Europe corridor, because as you know, intra-Europe is lower yielding and other cross-border volumes are higher yielding. But fundamentally, I would tell you not much has changed. I will make one point: There's a lower indexation of rebates and incentives to cross-border. There has always been some level of rebates and incentives associated with cross-border, not nearly as high as what's in the domestic volume environment. But we're not seeing fundamentally much change in that regard.
Michael Miebach, CEO
Right. And strategically, Darrin, here's what I'd say is: similar lens that we took at Investor Day where we looked at different universes and different use cases. You've got the P2M world, where the card is well established domestically, but certainly also cross-border. The industry and we—specifically with our services propositions—have found a way to ensure that the risks associated with these cross-border transactions for merchants and consumers are addressed. This increasing approval rates. So, there isn't much of a problem to be resolved to payment for payments for goods on a cross-border basis. Now, where we're actively looking is in our—tending to participate in all relevant payment flows. We're saying what other payment volumes are happening cross-border that we can contribute to with our technology and our franchise? Here, the whole space of import-export, cross-border, and accounts payable: that's a space where counter-account solutions make sense to hold. We have specifically indicated for you at Investor Day the focus on remittances. Again, that's significant. So, I look at it as a growth opportunity while we're going to continue to power the cost side of the house.
Warren Kneeshaw, Head of Investor Relations
Next question, please.
Operator, Operator
Your next question will come from the line of Lisa Ellis with MoffettNathanson. Please proceed with your question.
Lisa Ellis, Analyst
Terrific. Thank you. I was hoping to shine a spotlight on LatAm, specifically Brazil. Just taking a peek at the supplement, Mastercard's volumes are up 40% to 50% in that region. But Brazil is also a market where you've got a local network, like PIX, gaining a lot of traction. Can you just use that as an example to talk a bit about how Mastercard coexists in a market like that, with one of these domestic networks? Is a player like PIX actually a customer or a potential customer of some of your open banking or fraud or identity services? Thank you.
Michael Miebach, CEO
All right. So let me take that. Brazil has been a strategically important market for us for years. We're very well established with the large banks out there, like Itau, for example. So, I'm actually seeing the Brazilian country manager right after this call, so it's very much in focus. We're very happy with what's going on there. Overall, it's a market that drives a lot of innovation. Buy Now, Pay Later has been a thing in Brazil forever. Open banking is on the rise, as are real-time payments. So, a lot of movement there. The P2P network that's been introduced by the Central Bank in the Brazil market is another push to further digitization in that market. So, the whole digitization in Brazil is really seeing great momentum, and we're leaning right into that. Now the kind of flow that PIX is going after, you see a lot of P2P flows and some B2B flows. That's not necessarily anything that we're particularly worried about. But it's also the kind of flows that are part of our multi-rail strategy that we like to support ourselves, and we have a whole set of technologies for that. What's have paid just to point one out, which is the first live in Brazil itself, is set a market with innovation and a lot of momentum there. So, I look at it as a lot to learn from, a market where we invest in and chart past for the new additional flows beyond card flows that are specific to this market.
Sachin Mehra, CFO
I'll just add a couple of thoughts on Brazil. One, you asked about the strong growth. Clearly, it's a combination of the macro environment but also the fact that we've been leaning in pretty heavily with our traditional issuers as well as our fintech partners in that space, which has been part of the reason why we've been seeing some of that growth come through in a decent manner, Lisa. The second point I'd make, tying back to Michael's comments around PIX, the market has to be bifurcated in the context of both debit and credit. On the credit side, we continue to see tremendous growth. As Michael said, PIX is primarily catering to P2P and B2B flows, even if it were to proliferate a little bit into the smaller merchants from a P2M standpoint. We're primarily focused on the debit side of the equation, and so credit still remains our mainstay in Brazil as it stands.
Operator, Operator
Your next question will come from the line of Tien-Tsin Huang with JPMorgan. Please proceed with your question.
Tien-Tsin Huang, Analyst
Thank you. Good morning. I wanted to check in on the balance of trade and this whole card volume coming in and out from wins and losses migrating. Given the update, I know you mentioned Wells, and of course, ended there, NatWest, and Deutsche Bank. Are you gaining share when all is said and done? I'm just trying to get a better sense, especially in the short term with all the migrations in and out, where you stand in the share gains. Thanks.
Sachin Mehra, CFO
Thanks, Tien-Tsin. Everything we talked about and Michael talked about earlier on in this conversation was about our expanding relationships with these issuers. So with these issuers, we are gaining share. That’s the reality of the situation. Again, there are puts and takes in the market. As I think about the new relationship—we should say expanded relationship—we have with Wells: that's an increasing share position with Wells taking place. So the bottom line is the following: whether it's Wells, Capital One, what we're doing with Santander, NatWest, Deutsche—you name it—the portfolio, all of these incrementally are helping us drive our volumes. From a holistic market standpoint, as I said, there are puts and takes. But we're very optimistic about how we see business translate for us. As we mentioned at the Investor Community Day, we are growing market share across all regions, with market share growth in 16 of our top 20 markets, which is something we shared with you at the Investor Community Day. We're very pleased with these results so far.
Michael Miebach, CEO
And Tien-Tsin, I should add, I'm very happy to ask the question. I thought this news was just going to pass by with none of you asking about it, so it's much appreciated.
Operator, Operator
Your next question will come from the line of David Togut with Evercore ISI. Please proceed with your question.
David Togut, Analyst
Thank you very much. Cross-border card-not-present ex-travel growth was solid in Q1, but did slow throughout the quarter and into April against known very difficult comparisons. Can you unpack cross-border card-not-present ex-travel growth by geography, especially in Europe and the U.S., and how you see this playing out throughout this year, especially with the return of the consumer to physical points of sale as vaccination rates go up? In other words, do you see a reacceleration of e-commerce later this year, or do you think the consumer is going to be more active at kind of physical brick-and-mortar locations?
Sachin Mehra, CFO
Sure, David. You're touching upon a couple of things regarding card-not-present ex-travel. The reality is, as cross-border travel comes back, you do see some give back in terms of cross-border card-not-present ex-travel. That's a mouthful. The point is at the end of the day, as you think about future growth rates for cross-border card-not-present ex-travel, there are a few factors you need to consider: number one, what's the pace of recovery on cross-border travel going to be? Number two, what were the prior year comps on cross-border card-not-present ex-travel? Because remember, these growth rates are all influenced by prior comps. Number three, you do see fluctuations come in that number as a result of crypto and crypto volumes. These three factors need to be taken into consideration. The consumer continues to spend in an omnichannel manner. When they can get out and spend in a physical environment, they do that; when they can't spend in a card-not-present environment, they do that. We are ready to support them in both manners, whether it's through our omnichannel capabilities that we're offering our merchants and the strength we’re seeing in card-not-present ex-travel is something we expect to stay going forward as well. There might be puts and takes for all the reasons I just mentioned, but largely, I think consumer behavior has changed in a manner where they've gone more digital, and you're going to see some strength come through out there.
David Togut, Analyst
Thanks.
Operator, Operator
Your next question will come from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.
Bryan Keane, Analyst
Hi. Good morning. Just a couple of quick clarifications. On the Russia-Ukraine, I heard the two points to net revenue targets to the performance objectives 2022 to 2024. Could you help us clarify the revenue and expense impact for the going-forward quarters like the second, third, and fourth this year? Just trying to quantify that. The second question will also be on cross-border recovery; what level of cross-border recovery are you assuming in the guidance for 2022? Thanks so much.
Sachin Mehra, CFO
Sure, Bryan. I'll take your question on Russia and what we're assuming. We have suspended operations in Russia, so we're not earning any revenues related to Russian-issued cards. So, as it relates to revenue for the rest of the year, we had mentioned that we had put out an 8-K about how Russia represented roughly 4% of our revenues in 2021. We've assumed that that 4% doesn't exist in any of the quarters going forward from a net revenue standpoint. Point number two: and again, like I said in my prepared remarks, there’s some level of headwind we’re assuming in Ukraine as well. But the reality is that's a little bit of an uncertainty. We're not entirely sure how the war in Ukraine evolves and what the implications of that would be. We’ve built in some assumptions and that's what we've kind of given you in our overall thoughts. From an expense standpoint, the Russia-related expenses represented roughly 2% of our operating expenses. And that’s how we think about it. As I mentioned, when we've shared our thoughts for full year 2022, we have taken down our OpEx growth rate on an ex-acquisition, currency-neutral basis to reflect that very impact from Russia.
Operator, Operator
Your next question will come from the line of Ramsey El-Assal with Barclays. Please proceed with your question.
Ramsey El-Assal, Analyst
Hi. Thank you for taking my questions. Good morning. I was wondering if you could give us your latest view on the kind of longer-term post-pandemic payment landscape. I mean, do you see a different longer-term mix of debit versus credit or any associated impacts to P&L or yields or anything that we should consider as we model out the long-term?
Michael Miebach, CEO
Right. Ramsey, let me start off on that. The structural changes that we are observing and have transpired with our regular consumer engagement surveys over the last two years and that have transpired with our customers as well are less cash and checks and more digital. The consumer mindset has changed. A couple of things are going on. First, consumers are really ready to move on from the pandemic. They want to go out there and check things off their bucket list; there's a lot of increased spending back into services. It's not a structural feature of the years to come that it's all in goods. It's going to go back to services, and it’s also not going to be only online. As Sachin just said, it’s going to balance across multi-channel. Buy in-store pickup has delivered, and vice versa. I think consumers will go for more choices, and that comes right down through our multi-rail strategy to enable all relevant choices that are out there. I think that's the right positioning. That's what we're going to see going forward. In terms of debit and credit, in the early parts of the crisis, people did not want to spend on credit if they could avoid it—more control around their finances. That was a big tailwind for debit. We're seeing travel coming back, which is more credit-oriented, particularly because of the rewards around it. You start to see in the crypto space, there's a whole new set of credit propositions. We just talked about the Gemini rewards and crypto rewards on the Nexo Card. There’s a whole dynamic happening. In the end, it's going to be multiplicity around these different tools.
Operator, Operator
Your next question will come from the line of Dan Dolev with Mizuho. Please proceed with your question.
Dan Dolev, Analyst
Hi. Thank you for taking. My question is more specific. If I look at U.S. trends, debit versus your competitor, over the last few quarters, I'm seeing a downward trend in your share of the mix in debit, whereas this picture in credit. Is there anything to call out there? Is there an opportunity to improve in debit, or am I just missing something very fundamental here? Again just U.S. versus your large competitors.
Sachin Mehra, CFO
Yes. Dan, there’s nothing fundamentally changing in our debit business. I'll put that out there. Growth rates are obviously impacted by comps. I think you get that piece. Take into consideration that there is one portfolio, which is a debit portfolio, rolling off in the U.S., which was previously announced and which is probably impacting that comparative analysis that you're seeing. We're seeing the detriment of that come through in our debit metrics and that primarily started in the recent past and will continue through the course of this year. The competitor is likely getting the benefit of that, so that's probably why you're seeing some divergence.
Operator, Operator
Your next question will come from the line of Andrew Jeffrey with Truist Securities. Please proceed with your question.
Andrew Jeffrey, Analyst
Hi. Good morning. I appreciate you taking the question. Michael, I have a question on other revenues, particularly value-added services. Ex-acquisition, it seems that it's deselling a little bit. Would have perhaps expected to see that growing faster and certainly approaching the growth in the card business. Can you just comment on the puts and takes there and what the long-term growth trajectory is for value-added services?
Michael Miebach, CEO
Andrew, an excellent question. As you know, we love our services business. It drives growth for us, it's a differentiator, and it's a margin increase. The key focus is on cyber solutions on one hand and data analytics and insight solutions. The structural trend by the way is more data and more digital work to be kept safe. More insights for all these new businesses that operate online on the data analytics side. Fundamentally, there are sound trends here. If you just pick up this quarter and unpack the numbers that you laid out, that is simply timing. We're expecting strong growth attached to our services business. Our teams are fully engaged and looking ahead in the guidance Sachin provided, we expect a strong services growth.
Sachin Mehra, CFO
I'll just add a little more color on that, as I think it's important for you as you think about your models going forward. When we talk about Russia revenues, there are a few things from a Russia revenue standpoint that you might want to take into consideration. One relates to the fact that services were well penetrated in the Russia and Ukraine markets and had strong growth, so as you think about the model and the impacts across the different line items, you're going to see the impact of lost services revenue come through in other revenues in the ensuing quarters. That's point number one. A few other salient pieces on Russia-related revenues: we will lose the volumes and transactions. Russia was a fast-growing market with no average ticket size, as I kind of mentioned earlier. There's a high degree of contactless penetration. That’s where I really want to keep in mind as you think about comps going forward. The cross-border issuing out of Russia was mostly higher-yielding into regional cross-border issuing. Also, there were strong remittances and disbursements market. Why am I sharing all of this with you? Because as you think about the various metrics we've shared across all these aspects, those will be impacted as Russia starts coming into play in future quarters.
Operator, Operator
Your next question will come from the line of George Mihalos with Cowen. Please proceed with your question.
George Mihalos, Analyst
Great. Good morning and thanks for taking my question. Sachin, I wanted to ask you to call out currency volatility as obviously being a benefit to our first-quarter results. Can you isolate what that benefit was in Q1? Just—I know it’s still a volatile time, so we’re three weeks into the next quarter. But how are you thinking about that looking into Q2?
Sachin Mehra, CFO
Yes. So George, I called it out because Q1 had unusually high foreign exchange volatility. We don't typically talk about this because these numbers kind of go back and forth from a volatility standpoint, but there was unusually high FX volatility in Q1. The outlook from a going-forward standpoint is really hard to say. This is one of those things where I guess as Michael jokes with me, 'Sachin, you wouldn't be doing the job if you knew where volatility was going on a forward basis.' At the end of the day, we've taken our best assumptions on a holistic basis for our business and shared with you what our thoughts are from both a full-year and Q2 basis on net revenue. It's very hard to predict what the outlook is going to be. Unusually high volatility does help us.
Warren Kneeshaw, Head of Investor Relations
Jameria, I think we have time for one more question.
Operator, Operator
Okay. Our final question will come from the line of Jason Kupferberg with Bank of America. Please proceed with your questions.
Jason Kupferberg, Analyst
Thanks, guys. Just a quick one. So just in terms of your expectation for cross-border travel relative to 2019 levels, last quarter you were expecting to be at 100% by the end of this year. You're already at 110% in April. So what's your updated assumption on that?
Sachin Mehra, CFO
Jason, as I mentioned, we're assuming improving trends vis-à-vis compared to 2019 as we go forward. We're not sharing a specific number for what that looks like in the second quarter or the end of the year. We've built in our expectations in terms of the revenue guidance I've shared with you around how that trend takes place. The combination of that with consumer spending and what the improving trajectory in consumer spending is, it's all factored into the numbers.
Jason Kupferberg, Analyst
Can we get a directional rebates and incentives just for the rest of the year?
Sachin Mehra, CFO
So I mentioned to you on rebates and incentives that we have a rich pipeline of deals. We continue to execute on that, as you've heard from Michael, in terms of some of the wins we've had recently. You obviously get the benefit of improving cross-border trends to play through in terms of lower amounts of business incentives impacting that. The last point I'll make on rebates and incentives is that in Q1, we had this one-time benefit relating to the non-renewal of our Russian customer agreement, which you should not expect to see coming through on a going-forward basis. Net-net, a lot of this will depend on what the timing of deals are and how we put those new deals into play and the recovery of cross-border.
Warren Kneeshaw, Head of Investor Relations
Thanks, Sachin. Michael?
Michael Miebach, CEO
Thank you for your questions, insightful questions as always. Thank you for your support for the company. Just a thought from me: we’re thinking that we’re going to get out of Omicron and then a few days later, we have an invasion in Europe. For our teams around the world, it continues to be a never-ending marathon. I just want to extend the thanks to everybody in the Mastercard team. And with that, we’ll see you next quarter. Thank you so much. Bye-bye.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.