Earnings Call Transcript - MA Q2 2025

Operator, Operator

Good morning. My name is Julianne, and I will be your conference operator today. I would like to welcome everyone to the Mastercard Inc. Q2 2025 Earnings Conference Call. Mr. Devin Corr, Head of Investor Relations, you may begin your conference.

Devin Corr, Head of Investor Relations

Thank you, Julianne. Good morning, everyone, and thank you for joining us for our second quarter 2025 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 would like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and discussed in further detail in our recent SEC filings, including our most recent 10-K. 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, Devin. Good morning, everyone. The headline this morning is, we delivered another strong quarter with our financial results exceeding our expectations. Second quarter net revenues were up 16% and adjusted net income up 12% versus a year ago on a non-GAAP currency-neutral basis. This is all underpinned by our winning strategy, diversified business model, and a relentless focus on executing against the priorities that fuel our growth algorithm. I will share several compelling examples on that today. But before I do, I will provide a few observations on the macro environment. Consumer spending remains healthy, supported by low unemployment and wage growth that continues to outpace inflation. This is true across both affluent as well as mass market consumers. While macro uncertainty remains due to government actions and geopolitical tensions, overall, we remain positive about our growth outlook as the fundamentals that support consumer spending have been strong. With that as a backdrop, let's get into the details of the quarter. We continue to deliver a steady drumbeat of significant wins with leading merchants and retailers. I'm thrilled that we have extended our exclusive partnership with American Airlines, one of the world's largest credit co-brand portfolios. Our services continue to set us apart. American will leverage our advanced analytics, loyalty, personalization, and security solutions to optimize their card proposition and enhance their industry-leading travel rewards program. We're also partnering with OnePay, a leading consumer fintech platform and Synchrony to launch a new credit card with Walmart that will be available to consumers across the U.S. And we're expanding our relationship with Uber, extending our exclusive Uber Pro card portfolios in the U.S. and Canada. We will also launch new programs in additional markets, including the U.K. as part of our global partnership. As you look around the world, it's clear that leading merchants see tremendous value in partnering with Mastercard. We're also winning with fintech's Buy Now, Pay Later providers and marketplaces. With PayPal, we extended our card issuing partnership in the United States. We also signed new credit and debit issuing agreements in the U.K. and Germany, and we are excited for PayPal's recently launched contactless mobile wallet in Germany. I just love doing things in Germany. In the Buy Now, Pay Later space, we signed an exclusive prepaid and credit card issuing deal with Afterpay in Australia. In Argentina, we renewed our consumer prepaid deals with e-commerce and fintech platform, Mercado Libre. We're also partnering with them to launch new credit card programs in that market. And we renewed our partnership with Sicoob, one of the largest credit unions in Brazil across credit, debit and commercial. In addition to winning deals, we are capitalizing on the significant volume and transaction opportunity in consumer payments. By expanding acceptance, transforming the checkout experience, opening new verticals, leveraging alternative distribution channels, and launching innovative new capabilities. I'll give you a few examples for each of these five dimensions. Starting with acceptance. We continue to leverage our contactless technology to drive open-loop acceptance in the transit space. Our momentum here continues. In the second quarter, over 60 new public transport operators helped on board to accept cards from Ventura County, California, to Taichung Metro in Taiwan. We're also opening transit acceptance in China. This quarter, we launched Tap to Pay in the Shanghai Metro, which followed our successful launch in the Beijing Metro last year. In a QR-based ecosystem, this represents an important evolution toward a multiform factor market that includes NFC technology. We're also transforming the online checkout experience by driving adoption of capabilities like tokenization, Click to Pay, and payment passkeys. We have significant momentum towards our 2030 vision to transform online checkout into a single-click experience. In Europe, over 50% of e-commerce transactions are now tokenized. And for Click to Pay, Commonwealth Bank of Australia and Westpac are automatically enrolling cardholders over the coming months, bringing mass market adoption in Australia. Issuers around the world are committed to removing manual entry by also making Click to Pay a core card benefit, including NatWest, Standard Bank, Bank Vostok in Ukraine and others. And on the acceptance side, the number of Click to Pay transacting merchants was up 4 times in the first half of 2025 versus a year ago. We're also focused on driving acceptance in new verticals that have not historically been well penetrated by card. Insurance payments are a great example. Significant flows, strong consumer demand in a vertical that has undergone a digital transformation in recent years. However, card penetration is far lower relative to other carded categories. We are attacking this opportunity through new agreements with partners like Adyen, Checkout.com, Stripe, Transcard, and Worldpay. These partners will focus on enabling consumers to pay their insurance premiums. They will support claims disbursements to policyholders, and they will facilitate B2B payments from insurers to vendors providing services for these clients. Next, we're tapping into alternative distribution channels. For example, we are enabling stored value wallets around the globe, our partnership with Alipay in Hong Kong and GCash will enable 36 local e-wallets to extend their use for cross-border through the international Alipay plus wallet gateway. And Mastercard credentials automatically added to the wallets, allowing any stored value to be spent by a simple tap anywhere Mastercard is accepted around the globe. This is again a huge road of confidence for NFC. Let's look at other areas where we are creating and deploying smart and engaging consumer experience that drive brand preference and incremental spend. First stop, we're providing offerings that meet the unique needs of each individual cardholder. In Canada, we partnered with CIBC to launch the CIBC Adapta Mastercard, which automatically applies additional rewards against your top three spending categories each month. It also includes our innovative touch card functionality, which allows cardholders, including the visually impaired, to easily distinguish the card from others in their wallet. Next, affluent cardholders. On average, they spend over 2 times more per card and up to 3 times more on cross-border. We're elevating our affluent value proposition with the Mastercard Collection, a comprehensive set of premium benefits created to drive top-of-wallet behavior, that's paired with the expansion of our world product suite in the newly created world Legend Mastercard, our most prestigious consumer card is now available to banks globally. This first launch this month with the Citi Strata Elite card. And finally, we're providing greater flexibility for consumers. We've deployed the Mastercard One credential as a network-level capability worldwide. This enables issuers to offer a single digitally connected credential to give consumers flexibility as to how they want to pay, debit, credit, prepaid, installments, or stablecoin all through their banking app. And as Raj and Jorn explained in detail in our recent call on the Agentic Commerce and Stablecoins, we're leaning into opening up and driving new opportunities for our network in these spaces. If you didn't have a chance to join, I encourage you to listen to the replay. Today, I reinforce a few key points. First, Agentic Commerce. We see this as an exciting opportunity across consumer and commercial flows to shop with merchants easily and securely. We are scaling Agent Pay globally, leveraging our capabilities to extend the trust of the Mastercard brand. It enables us to support a new way for consumers to transact. It gives us yet another capability that sets us apart from domestic and alternative payment systems, and it provides a way for us to drive switching and sell more services. And as to stablecoins, we see this as another currency. We also see it as additive to the network with opportunities for us to provide the on and off ramps from fiat to stablecoin to partner with wallets to bring interoperability, relevant services, bring global reach and trust to the specific use cases. With new technologies, we always embrace innovation. We offer choice and extend our network to new partners, and we're doing the same thing here. We will bring our reach, ubiquity, and trust to Agentic Commerce and stablecoins and will provide an environment for our partners to innovate upon. That is the Mastercard way. Now turning to commercial payments, we're driving growth by launching differentiated capabilities, scaling our industry-leading virtual card solutions and expanding small business card distribution through new and expanded partnerships. In terms of new capabilities, the small business navigator provides U.S. entrepreneurs access to cybersecurity solutions, insights and analytics, and partner tools to support more efficient and effective operations. Through the platform, Fiserv's Clover is partnering with us to offer SMEs discounted point-of-sale capabilities, and Square is providing tailored educational programs to help small businesses thrive. In the fleet space, several leading U.S. issuers, including Corpay, are deploying our new capability to integrate fleet cards into digital wallets. For the first time, fleet managers can now instantly issue and manage digital cards while drivers will be prompted to provide key data like a dominant readings which he has to pay at the pump. When it comes to invoice payments, we continue to scale our proprietary virtual card technology by making it easier for issuers and technology platforms to integrate our capabilities. We are now live with eight leading B2B platforms, including Coupa, Cvent, GEP, HRS, Navan, Oracle Fusion Cloud, ERP and, SAP Taulia, several more in the implementation. On the supplier side, our Receivables Manager platform is now available globally. It's being deployed through partners like Elavon, Run Payments, and Easy Pay to streamline virtual card acceptance and payment reconciliation. We're also driving small business and card distribution through a series of new and expanded issuer and marketplace partnerships. We've enhanced our exclusive relationship with Payoneer through a suite of services designed to accelerate the growth of their small business customers across Europe. We're partnering with e-commerce marketplaces like FoxCommerce, who will distribute prepaid business cards to their merchants so that they can make and receive payments on cards across several countries in Africa. Shifting to disbursement, we continue to see strong growth in our Mastercard Move capabilities with year-over-year transaction growth of over 35% in quarter 2. We're focused on penetrating a wide range of new and existing use cases. For example, in the disbursement space, we partnered with Jack Henry to distribute Mastercard Move to thousands of community banks through their rapid transfer solution. We've expanded our relationship with New Way, who will leverage Mastercard Move to enable Canadian businesses to facilitate near-instant payouts to Mastercard debit and prepaid cards. And staying in Canada, BMO Canada is expanding the use of our cross-border services in about 20 additional corridors. Moving to our third strategic pillar, value-add services and solutions. We continue to leverage the power of our data and product capabilities to differentiate payments and capture adjacent revenue opportunities. We do this by penetrating existing customers, diversifying into new customer types, targeting new buying centers, leveraging B2B partners for distribution, and deploying new services. Our experience and full suite of products helps us build fit-for-purpose solutions for clients. We're seeing this in practice with several large customers. For example, we've partnered with Garanti BBVA to support multiple strategic initiatives, including revamping their digital wallet, optimizing collections, and boosting credit card sales across digital channels. And we've partnered with Deutsche Bank to use our open banking capabilities to grow account-to-account payments across Europe. These services deliver significant value in their own rights, but they are even more powerful because of the linkage to payments that fuels our virtuous cycle. We also continue to capture payment adjacent opportunities and win business with customers beyond issuers and acquirers. We're leveraging our test and learn capabilities with partners as diverse as Lufthansa, an ad tech company, to help them conduct scalable sophisticated testing in areas such as media measurement, operations, and marketing. Our range of capabilities also enables us to expand into new buying centers with existing customers. For example, the credit risk team at Stone, one of the largest acquirers in Brazil plans to leverage our small business credit analytics product to enhance the accuracy of its credit offerings to SME clients. We're also leveraging B2B channel partners to distribute our services at scale. Solidgate, a payment processing platform in EMEA used by merchants in over 150 countries will use identity insights for transactions to help reduce fraud and increase acceptance. Finally, we continue to develop new services. We just announced Mastercard account-to-account protect, which will combine our cutting-edge fraud prevention technology with a new dispute resolution framework to safeguard consumers when making account-to-account payments. Deploying services like this across account-to-account rails is a major step forward as it helps us grow our addressable market while also further protecting our customers and the ecosystem. We're starting with customers in the U.K., including NatWest, Santander, and Monzo to bring this global account overlay to other markets later this year. We remain enthusiastic about our future growth potential for services. Our breadth of data, network of partners, unique product capabilities, strong customer relationships, and our incredible challenge will help us to continue to differentiate and provide us with substantial runway for growth. So with that, that was a lot. I will wrap it up. In summary, we delivered another very strong quarter despite an uncertain backdrop; there is significant opportunity ahead. The fundamentals of our business are strong. Our proven growth algorithm and differentiated solutions position us to deliver and win as we have demonstrated time and time again. Sachin, over to you.

Sachin Mehra, CFO

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 16%, reflecting continued growth in our payment network and value-added services and solutions. Acquisitions contributed 1 percentage point to this growth. This growth was ahead of expectations, primarily driven by higher-than-expected revenue from FX volatility. Operating expenses increased 14%, including a full percentage point increase from acquisitions. And operating income was up 17%, which includes a 1 percentage point headwind from acquisitions. Net income and EPS increased 12% and 14%, respectively, driven primarily by the strong operating income growth, partially offset by a higher effective tax rate due to the impact of the global minimum tax rules, which came into effect at the start of this year. EPS was $4.15, which includes a $0.09 contribution from share repurchases. During the quarter, we repurchased $2.3 billion worth of stock and an additional $1 billion through July 28, 2025. Now turning to Page 4. Let's first look at some of our key volume 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%. This growth was impacted by the lapping of the Citizens debit portfolio migration to Mastercard, which commenced in Q1 2024. Outside of the U.S., volume increased 10% with credit growth of 9% and debit growth of 11%. Overall, cross-border volume increased 15% globally for the quarter, reflecting continued growth in both travel and non-travel related cross-border spending. Turning to Page 5. Switch transactions grew 10% 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 75% of all in-person switched purchase transactions. In addition, card growth was 6%. Globally, there are 3.6 billion Mastercard and Maestro-branded cards issued. Turning now 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 13%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives. Value Added Services & Solutions net revenue increased 22%. Acquisitions contributed approximately 4 percentage points to this growth. The remaining growth was primarily driven by demand for our consumer acquisition and engagement services, growth in our underlying drivers, the scaling of our security and digital and authentication solutions, and pricing. 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 9%, while worldwide GDV grew 9%. Cross-border assessments increased 15%, with cross-border volumes also increasing 15%. Pricing in international markets was primarily offset by mix as lower-yielding intra-Europe cross-border volumes grew faster than higher-yielding ex-intra-Europe cross-border volumes this quarter. Transaction processing assessments were up 18%, while switched transactions grew 10%. The 8 percentage point difference is primarily due to revenue related to FX volatility and favorable mix. Other network assessments were $260 million this quarter. Moving on to Page 8. You can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 14%, which includes a 4 percentage point impact from acquisitions. Excluding acquisitions, the growth of total adjusted operating expenses was primarily driven by increased spending to support various strategic initiatives, including hardening of our technology infrastructure, diversifying our geographic footprint to further capture the secular trend, enhancing our products and delivering our services. Turning to Page 9. Let me comment on the operating metric trends. Overall, we continue to see healthy consumer and business spending, and metrics were generally in line with our expectations. Starting with Q2, I will discuss the operating metrics on a sequential basis adjusting for the leap year and the timing of Easter and other holidays. Switched volume growth was impacted by a number of smaller factors, including tougher comps primarily due to the lapping of portfolios won in 2024, and the timing of social security payments and the mix of calendar days and lower gas prices. Switched transaction growth remained relatively stable. As it relates to cross-border, underlying growth remains strong. Let's double-click on cross-border travel growth. As mentioned in our last earnings call, we saw some moderation in select Middle East and Africa markets, primarily due to tougher comps, enforcement of Mastercard rules, and a ratcheting up of geopolitical conflict late in the quarter. We also saw some lapping of portfolios won in 2024. Cross-border card-not-present ex-travel growth remained strong. Now looking at the first four weeks of July, switch volume, switch transaction, and cross-border card-not-present ex-travel growth remained stable. For cross-border travel growth, the sequential decrease is primarily driven by the timing of Easter as well as the continuation of the impacts I mentioned earlier. With all of that being said, our overall cross-border volumes continue to grow well in the mid-teens range. This is supported by strong underlying consumer spending and a diversified portfolio across geographies and travel and non-travel spend. Turning now to Page 10. I want to re-share our thoughts for the remainder of the year. The headline is that our business remains strong and consumer spending remains healthy. The macroeconomic environment has been supported with low unemployment rates and for the most part, wage growth continuing to outpace the rate of inflation. That said, ongoing geopolitical and economic uncertainty remains. With global policy shifts ongoing, we remain agile, monitoring developments, and we stand ready to adjust as needed. In this period of heightened uncertainty, what remains clear is that we have a well-diversified business across geographies, products and services, discretionary and non-discretionary spend categories. And we remain laser-focused on the execution of our strategy as Michael said, while maintaining a disciplined capital planning approach. Now turning to our expectations for the full year 2025. Our base case for the remainder of the year assumes continued healthy consumer and business spending. Given the strong first half results, we are tightening the full year net revenue outlook range to the high end of the range we shared with you at the time of our Q1 earnings. We now expect net revenues to grow at the low teens range on a currency-neutral basis, excluding acquisitions. Acquisitions are expected to add 1 to 1.5 percentage points to this growth for the year while we now estimate a tailwind of 1 to 2 percentage points from foreign exchange. From an operating expense standpoint, we continue to expect growth to be at the low end of a low double-digit range versus a year ago on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to increase the OpEx growth rate for the year by 4 to 5 percentage points, while we expect a headwind of 0 to 1 percentage points from foreign exchange. Now turning to the third quarter. 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 add 1 to 1.5 percentage points to this growth rate, and we expect a tailwind of 1 to 2 percentage points from foreign exchange for the quarter. From an operating expense standpoint, we expect Q3 growth to be at the low end of a low double digits range versus a year ago, again, on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to add approximately 5 percentage points to this OpEx growth, while we expect a headwind of 0 to 1 percentage points from foreign exchange for the quarter. Other items to keep in mind, on other income and expenses, in Q3, we expect an expense of approximately $130 million, given the prevailing interest rates and debt levels. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect our non-GAAP tax rate to be in the 20% to 21% range for both Q3 and the full year based on the current geographic mix of our business. And with that, I will turn the call back over to Devin.

Devin Corr, Head of Investor Relations

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

Operator, Operator

Our first question comes from Sanjay Sakhrani from KBW.

Sanjay Sakhrani, Analyst

Sachin, you mentioned the lapping of portfolios, obviously, citizens in the first quarter I guess, like as we move through Q2, was there a more prominent impact? And I guess as we look towards the back part of this year, are there further lapping of other deals? And then just on Capital One and Discover, I know they kind of talked about the transition happening next year now. So I assume like is that just not in your numbers for the remainder of this year in terms of the migration of the debit portfolio?

Sachin Mehra, CFO

Thank you, Sanjay. To address both of your questions, lapping involves more than just the Citizens portfolio. Last year, we acquired the Citizens portfolio and the Wells Fargo small business credit portfolio, which are the two major acquisitions in the U.S., along with several other wins globally. Specifically regarding the effect of lapping on year-over-year growth metrics, the Wells Fargo portfolio was converted in Q2 last year, while the Citizens portfolio began conversion in Q1 and ramped up in Q2. You should expect the lapping impact to be more noticeable in Q2, continuing through Q3 and Q4. Thus, there will be ongoing lapping not only from these portfolios but from others as well. Regarding your second question about Capital One, we've used our best estimates regarding the migration of the debit portfolio with Capital One, and our current guidance reflects that. With the transaction now complete, conversions are underway and still ramping up, which will take some time before the effects are fully felt. To clarify how this works, new cards are being issued to consumers while the old Mastercard-branded cards remain active. We've estimated how volumes will decline over time. Overall, we anticipate that the drop in volume will accelerate as the year progresses, but we expect the net revenue impact this year to be minimal for our overall company, with the majority of the effects anticipated next year.

Michael Miebach, CEO

And at the same time, we continue to expect a strong partnership on the credit side and the services side. So it's not only about rolling off. It's also about continuing to build our business with Capital One.

Operator, Operator

Our next question comes from Darrin Peller from Wolfe Research.

Darrin Peller, Analyst

When we examine some of these successes, I want to explore further the value-added services that you mention as being the most distinctive. Your competitors also emphasize value-added services. So, considering what you believe sets you apart, and in addition to that, the pricing dynamics, we've observed strong pricing for the value presented in your numbers. It appears that many of those changes occurred in July and October last year. Please discuss the areas where you are seeing the most pricing power and whether we can anticipate similar trends over the next 12 months.

Michael Miebach, CEO

Let me start by discussing the VAS portfolio. It's a carefully curated selection, not just a series of isolated offerings. Our focus is on how we can add value throughout the payment transaction process and even extend to areas like cybersecurity. Over the past decade, we have particularly emphasized security solutions, setting us apart in terms of differentiation. Additionally, we've concentrated on utilizing our data to enhance customer engagement solutions. In an increasingly digital world, cyber risks are rising, which is why cybersecurity is central to our strategy. As consumer engagement becomes more challenging, effective technology and clear differentiation are essential to cut through the noise. On the cybersecurity front, the stakes are continually rising as fraudsters adopt cutting-edge technologies like Artificial Intelligence and generative AI to execute their schemes. We're employing similar technologies, such as our Decision Intelligence Pro, which analyzes data from various internet sources through a generative AI engine to predict fraud rather than just prevent it. This represents a significant value for our customers, who recognize its worth. In terms of customer engagement, our personalization engine, a result of our Dynamic Yield acquisition, consistently delivers exceptional value. For example, if a retail bank seeks to boost new account growth, our personalized solutions ensure the right message reaches the right audience at the right time. This capability places us in the top quadrant in Gartner's evaluations, affirming our effectiveness in this area. Amid current economic uncertainties, our customers are increasingly focused on managing fraud in their profit and loss statements to improve their top-line growth through better acquisitions. This situation allows us to demonstrate clear outcomes that can be reflected in their P&L, enabling us to price effectively for that value. Our proposition is distinctly differentiated within the industry, and after a decade of development, we are committed to advancing it further.

Operator, Operator

Our next question comes from Harshita Rawat from Bernstein.

Harshita Rawat, Analyst

Michael, I want to ask about commercial POS, which you've sized as a $16 trillion opportunity and cards only having about less than 10% market share. You have a very good business in the U.S. And I know you talked about this in your prepared remarks for a little bit, but maybe expand upon how you're taking this business international and the momentum you may be seeing there? It seems like this is quite a kind of medium-term to near-term opportunity for you?

Michael Miebach, CEO

I completely agree, Harshita. The short- to medium-term opportunity in the commercial POS space is significant, as there is still a vast amount of cash and checks in circulation, along with many untapped markets where issuers have not focused yet. This is not new information; it's why we presented market sizing during our Investor Day. The key to success in this area is building strong relationships with issuers. We already have the necessary product framework in place, so our focus is on finding partners and marketplaces that cater to small businesses to drive growth. Additionally, this opportunity extends beyond just small businesses; for instance, we lead the fleet card market and are differentiating our offerings globally. The ongoing digitization trend, combined with profitability pressures and supply chain rebalancing, means companies are in search of solutions that simplify their operations. For small businesses, being paid faster is crucial, and that’s where card solutions come in to help. Our go-to-market strategy is straightforward, and while it’s not overly complex, our fleet card solutions are distinct. We have strengthened our teams globally with a focus on SMEs and product development, which is a testament to our commitment, reflected in the ambitious growth targets we shared at the Investor Day.

Operator, Operator

Next question comes from Tien-Tsin Huang from JPMorgan.

Tien-Tsin Huang, Analyst

Nice results here. The revenue showed improvement this quarter, attributed to FX volatility and the strength in value-added services. I wanted to confirm that and understand what is performing better than expected considering the steady spending trends. Additionally, Michael, do you have any updates on the performance of Recorded Future? Any surprises as we approach the half-year mark?

Sachin Mehra, CFO

I'll take the first part of your question. You're right. The upside in Q2 was mainly due to FX volatility. We had strong performance across the business. I don’t want to focus solely on FX volatility. Overall, our payment network net revenues performed well, driven by strong consumer and business spending. Our Value Added Services and Solutions are also doing well. All of this forms the foundation of our overall strong performance. However, the potential upside you mentioned primarily came from increased FX volatility. In terms of FX volatility, it was more pronounced in the early part of the quarter, mainly in April and a bit in May. It has since returned to historical levels, and it's uncertain where it will go for the rest of the year, but that is what’s driving the current situation.

Michael Miebach, CEO

Thank you for the question, Tien-Tsin. Recorded Future is the world's largest threat intelligence company, serving 1,900 customers across 75 countries, which is quite significant. Many Fortune 100 companies and G20 governments are among these clients. Based in Boston, we have had a partnership with them prior to our acquisition, and we have already started launching several products together. Now in the post-acquisition phase, we are moving forward quickly. Although it's still early, we are already introducing more products, including Malware Intelligence, which I mentioned in the last quarter. They possess a vast amount of data from various internet sources, and we have a significant amount of data as well. The synergy created by combining our data is impactful in helping customers understand targeted threats. For companies attempting to safeguard against cybersecurity risks in a broad manner, costs can escalate. With Recorded Future and Mastercard's assistance, we help our customers pinpoint specific threat vectors, enabling them to respond more effectively. This approach not only reduces cybersecurity risks but also enhances cost-effectiveness, making it a strong offering. Our teams are actively working on product development, and there are clear synergies between Mastercard's extensive client base and our unique products. Additionally, we have a comprehensive range of security solutions that we intend to sell to our existing 1,900 customers and to new customers that Recorded Future will attract. This aligns naturally with our multilayered security strategy as we expand into Threat Intelligence, which represents the cutting edge in the field.

Operator, Operator

Our next question comes from Trevor Williams from Jefferies.

Trevor Williams, Analyst

On cross-border volumes, Sachin, I heard the call outs on the Middle East and the portfolio lapping. But outside of Q4 last year, cross-border has been consistently slowing. I mean you're at I think 12% ex-century Europe growth in July, with the mix you have today between travel and e-commerce, I'm just curious kind of what you guys view is the right normal level of growth for each of those two buckets? And then for the overall. So I'm just trying to get at kind of if we assume a stable macro, what you guys think the floor should be for cross-border volume growth?

Sachin Mehra, CFO

We do not provide long-term guidance regarding cross-border activities. However, I want to highlight that our cross-border portfolio is well-diversified and not concentrated in any single corridor. In our last earnings call, I mentioned that no individual corridor accounted for more than 3% of cross-border volume in 2024. This diversification protects us from significant fluctuations in any one area, and it's intentional rather than accidental. Additionally, the core value proposition of cross-border services remains strong among both consumers and businesses, contributing to continued growth. Moreover, we see a substantial distinction between travel and non-travel volumes. Currently, travel accounts for about 60% of our total cross-border volumes, while non-travel, which we categorize as cross-border card not present excluding travel, makes up around 40%. This segment is experiencing growth of approximately 20%. Overall, our high level of diversification and strong value proposition allows the business to perform well, growing at a rate exceeding our overall growth rates for gross dollar volume. We are positioned well to capitalize on this growth, and our focus remains on optimizing our existing portfolios while pursuing the right opportunities.

Operator, Operator

Our next question comes from Dave Koning from Baird.

Dave Koning, Analyst

Maybe on client incentives. One thing we just noticed for many years, client incentives grew faster than revenue. But the last three quarters, they've actually been growing the same or even a little slower in some cases. I'm wondering, is this a new trend? Or maybe how should we think about this and what's happening?

Sachin Mehra, CFO

Sure. So Dave, here's what I'd say. I would say that as part of our last call, I had mentioned that we expected the cadence of our rebates and incentives as a percentage of our payment network assessments to start to pick up in the second half of the year. And so if I would tell you sequentially, I would tell you that in Q3, we expect rebates and incentives as a percentage of our payment network assessments to be sequentially higher compared to Q2. The point really is the market is still a very competitive market. We continue to be very active in that market. We have a very strong pipeline of deals. Nothing has changed as far as I'm concerned in terms of how we're approaching the market and what we're doing in terms of trying to win the right portfolios. And I'll emphasize, this is not about winning every portfolio; this is about winning the right portfolios. A little bit of what you're also seeing in the contra ratio, the rebates and incentives ratio, we're talking about in the second quarter is being driven by the fact that the denominator, which is our payment network assessments has been impacted or has been helped by higher FX volatility levels. So when you take those ratios into consideration, you got to factor that in as you think about what this looks like on a going-forward basis.

Operator, Operator

Our next question comes from Will Nance from Goldman Sachs.

Will Nance, Analyst

I wanted to ask about some of the consumer data fees that some of the large banks are talking about applying, I guess, specifically, how are you thinking about the impact of those fees on Finicity and then big picture, as a consumer who relies on a lot of these services that use Finicity and other vendors, to aggregate the data. How am I and other consumers better off from the banks kind of charging you and other data providers for access to their data?

Michael Miebach, CEO

That's a very important question. We've discussed open finance for years, even before we acquired Finicity. The concept of consumers using their data to access better financial services is significant and has a broad appeal. This trend is evident in Europe, Australia, and here in the U.S. Regarding the recent discussions about consumer data fees by some banks, we don’t have complete insight into what specific measures are being considered. However, we have solid partnerships with banks like Chase. Our core belief is that consumer consented data sharing is crucial and will prove beneficial over time. There are various economic factors being debated, but we are not currently involved in those discussions. It's a vital area, and consumers should be able to benefit as you mentioned.

Operator, Operator

Our next question comes from Rayna Kumar from Oppenheimer.

Rayna Kumar, Analyst

Just based off of some of my recent channel checks, it looks like that Pix in Brazil is being used by almost everyone there. Can you give us an update on your progress in gaining market share in regions that have strong players like Pix in Brazil and UPI in India? And what strategies and products are you employing to capture the cash transition in these countries?

Michael Miebach, CEO

Thank you for the question, Rayna. It's a topic we've been actively addressing, and I’ll share some examples during my remarks. Specifically regarding Brazil, we can see a system that was developed primarily to enhance financial inclusion, and it has been quite successful in achieving that goal. We maintain strong partnerships with banks and fintechs throughout Brazil, and our focus remains on offering better solutions to consumers. As consumers enter the digital economy through Pix, we expect them to eventually transition to the card products we offer. Our team is also dedicated to ensuring we have the most advanced solutions for online transactions in the market. We have completely revamped our debit platform in Brazil and introduced a new suite of solutions, now available to banks in the region, which enhances our competitiveness. Additionally, Pix is innovating through various offerings like Buy Now, Pay Later, and we are also developing competitive installment payment solutions. We have seen positive outcomes from our credit card propositions in the market, which helps us maintain a strong foothold. Overall, we're experiencing robust growth rates in Brazil, and our strategy focuses on providing choices, partnering effectively, and ensuring we have a solid solution for our partners. We see enormous potential in Brazil's fast-growing digital economy, where we position ourselves as a significant player.

Operator, Operator

Our next question comes from Craig Maurer from FT Partners.

Craig Maurer, Analyst

Question quick one on Pillar 2. The administration has been talking about reaching deals with certain countries to eliminate the Pillar 2 issues for U.S. companies. Any thoughts on that would be helpful. And if we can go back to your digital identity and auth solutions, it's our view that financial services due to the high regulatory requirements in this space will be leaders in this category. Can you talk about what segments you're seeing the most growth or most demand from? We hear a lot about crypto companies requiring digital auth solutions and others. So digital identity solutions. So if you can comment a little there, that would be great.

Sachin Mehra, CFO

Yes, Craig, why don't I take your question on Pillar 2 first. So look, I mean, we've seen the same news you're seeing as it relates to some dialogue around potentially having an exception for U.S.-based multinationals from the impact of Pillar 2. The reality is there's a lot of work still to be done between where we are today to that being realized. And let me just spend two minutes on this, right? At the end of the day, the way it works is if there's going to be any changes in terms of having any exceptions for U.S.-based companies from Pillar 2. That's got to happen, not only in the nature of the OECD countries agreeing upon it. But every individual country, which has enacted legislation already to implement Pillar 2 has to now reverse the impact of that legislation. So this is really, really important because the reality is there's work between when the announcement is made and when there's clarity given as to how it's going to be implemented to the actual implementation of that. So I guess the best way to describe this is there's been local legislation, let's say, passed in Singapore, which would say that we, as a company, now pay a 15% tax rate in Singapore, right? Earlier, we had an incentivized tax rate out there. We now pay starting 2025 a 15% tax rate there. There has to be a change in legislation locally to take place to reflect what you just alluded to in the nature of this exception for U.S. multinational countries. That being said, it's not only about Singapore, it's also about other countries who have actually put in this legislation who have to change it because there was a component of Pillar 2, which is called UTPR, which basically entitled other countries in the chain to collect taxes to the extent that they were not topped up at 15% as a result of a particular jurisdiction. So for example, if Singapore changes legislation and took the tax rate down again, that doesn't mean we'll get the benefit of the lower tax rate because all the other countries are now entitled to true up the gap between what Singapore's rate is and the 15% rate is. So all of those countries have to reverse that legislation before we start to see the impact of that come through. A complicated topic. Happy to talk in more detail if you like afterwards.

Michael Miebach, CEO

Good. On the topic of digital identity, if you consider the technology infrastructure for the digital economy, it plays a crucial role in powering digital commerce. Digital identity is essential in understanding who is behind a transaction. It's not solely about payments; it involves onboarding processes as well. For instance, simply sending an email for confirmation does not adequately verify a consumer's identity, which can lead to issues. Therefore, having a proper digital identity system is extremely important. As technology evolves, the challenges related to digital identity are becoming more complex, especially with increasing cybersecurity risks. The importance of getting this right is growing. We've been working on this for a long time, initially focused on Mastercard payments, but we also have concrete examples of our progress, such as in the open banking sector. We are integrating digital identity solutions with open banking to ensure that data can be shared securely. One of my favorite examples is with Major League Baseball. When voting for the All-Star game, our identity solutions ensure that it is actually you voting, rather than someone else casting your vote. There are many use cases extending beyond our core business, supporting a broader aspect of the digital economy. As we visualize transactions, with payment transactions at the center, our aim is to expand our role in truly empowering the digital economy.

Operator, Operator

Our next question comes from Nate Svensson from Deutsche Bank.

Nate Svensson, Analyst

I wanted to ask on the U.S. consumer here. So on the month-to-date trends, the step-up in volume growth in the U.S. stood out as relatively stable versus 2Q, but a step up from 4% in June to 8% in July. I was hoping you can dig a little more into the trends you're seeing there. It could be a day's mix thing online promotional activity, but wondering if there's anything else under the hood you're seeing that might explain the acceleration? And then I know you called out stability in mass market versus affluent consumers, but any verticals or areas of spend where trends have evolved here?

Sachin Mehra, CFO

Sure, Nate. The 4% impact you're observing in June is influenced by the mix of calendar days and the timing of social security payments, which varies between June and July. That being said, what we are noticing in the first four weeks of July indicates a strengthening U.S. consumer. However, it's important to remember that four weeks don’t define the quarter, so we need to remain cautious. If I exclude the timing factors, there are still positive underlying trends in the U.S. consumer that we are tracking closely. We make our best estimates in the guidance we provided based on the latest trends we are observing. Regarding your second question about mass versus affluent spending, we are observing good spending in both categories. Overall, we are not seeing significant differences, and while I must emphasize that our data is derived from our product categories and codes, it appears that trends are stable across both mass and affluent consumers.

Michael Miebach, CEO

Just to add a point on a tangential point here is these kind of questions we get all the time from our customers, from governments around the world and we've built a really nice engagement practice for our advisers business and throughout the Mastercard Economics Institute to really answer these prevalent top of mind questions and what's the consumer doing here? What is the sector doing there and so forth, there's been a really particularly important differentiator for us is that we engage at the highest level on the strategic dialogue with customers, government, et cetera.

Operator, Operator

Our next question comes from Fahed Kunwar from Redburn Atlantic.

Fahed Kunwar, Analyst

I had a question on pricing, actually. First, specifically on that, I know you called out deepening customer penetration, and you called out securities and customer engagement. But how much has pricing been a factor in this quarter versus kind of that being share of wallet, and how much more scope is it a pricing going forward? And I guess if I widen that question a little bit, when you think about pricing in your other businesses, CMS or your consumer payments business do you still see pricing potential as you head into 2026? Or is it remaining or does it stay quite competitive?

Sachin Mehra, CFO

So look, I mean, at the end of the day, the way I would actually answer your question is the following: we will have the ability to price for the value we deliver. So long as we continue to deliver the value we're delivering, we will have the ability to price. And that's what we've done historically, and that's what we'll do on a going forward basis. I would say that again, I don't necessarily think about this on a quarter-over-quarter basis. I think about this as what is the long-term trajectory of our product proposition rollouts and what's the ability for us to price. Sometimes you roll out products earlier, you might actually layer in the pricing at a data point in time. In other instances, you roll out the product and you'll put in the requisite pricing at the same point in time. So all of this is very strongly tied back to what is the value we're delivering. So to your question about whether we see the potential on a going forward basis, the answer is yes, as long as we continue to do our job, which is to continue to deliver value in the market.

Devin Corr, Head of Investor Relations

I think we have time for one more question.

Operator, Operator

Our last question will come from Ken Suchoski from Autonomous Research.

Ken Suchoski, Analyst

Maybe just a follow-up on that pricing question. I mean you took some price, I think, in various parts of the business. I think it was started in 3Q of '24, particularly around tokenization, I think some of the other lines should we expect to start lapping some of those pricing initiatives in the second half. Maybe you could just remind us how you're thinking about that.

Sachin Mehra, CFO

Yes, Ken, I would tell you, first of all, when you say we took price, we like to think about the fact that we delivered value in the third quarter of last year, which allowed us to actually price for the value we deliver. And to your question around lapping, I would say, yes, sure. I mean you would see the lapping effect of that particular value delivery which took place for which we priced happened in the second half of this year. But again, think about this in the nature of what is the cadence of value we can continue to provide, which will help us to actually bring in more value and more price for us to be able to actually continue to grow ourselves. So the reality is, look, you've got to think about this in the context of when companies put out new products, when companies put out differentiated products, they have the ability to charge for the value they deliver, and I'd say that's what we continue to do on a going-forward basis as well.

Michael Miebach, CEO

This is very true. It's not just about increasing prices; it's about delivering value. The key is identifying who we provide value to. We focus on our existing customers, but our go-to-market strategy for our payment solutions also targets new customers, new buying centers, and new markets. There is a vast opportunity for us to create value. We continue to pursue this to grow our business. If your question was about just one wallet, that's not our approach. Our share of wallet encompasses the entire global wallet, and we aim to create value extensively. Let's conclude the call. Thank you for your questions and continued support. I want to express my gratitude to the 35,000 employees at Mastercard for their efforts in delivering value and wish you all a wonderful rest of the summer. Thank you, and I look forward to speaking with you next quarter.

Operator, Operator

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