Earnings Call Transcript - MA Q1 2026

Operator, Operator

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Inc. Q1 2026 Earnings Conference Call. Operator instructions were provided. 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 first quarter 2026 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 facts that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach.

Michael Miebach, Chief Executive Officer

Thank you, Devin. Good morning, everyone, and thank you for joining us. We are a quarter into the new year. Much has happened but so much opportunity lies ahead. You've seen the release this morning so let's get into the highlights. Building on 2025 momentum, '26 is off to an excellent start. Net revenue growth was up 12% and net income up 15% in the first quarter on a year-over-year non-GAAP currency-neutral basis. Looking at the macro picture, the economic foundation remains generally supportive with healthy underlying consumer and business spending. However, the backdrop remains uncertain, driven by geopolitical tensions, which has put some pressure on cross-border travel. Overall, labor markets continue to be balanced and wages are still outpacing inflation in most major markets. As we've done consistently, we are monitoring the situation in the Middle East and the global economy, and we will adjust as needed. Quarter 1 results were supported by the healthy spending I noted, and of course, our team's strong execution. But above all, this quarter continues to reflect the strength and resilience of our network. We have built and diversified our network over decades, navigating and innovating through every cycle. It's a foundation spanning four pillars: one, unparalleled global reach. We have hundreds of millions of acceptance locations and digital access points across 150 currencies. In the last five years alone, we have grown acceptance locations by approximately 70%. Mastercard powers payments when and where you need us. That scale brings participants into a single network where the more activity that flows through it, the more data is available and the more valuable it becomes for everyone; that drives the ability to capture and extend the secular opportunity. Two, our franchise rules. Our franchise helps our network operate with consistency. The rules bring trust and protection for all participants, ensuring transactions are secure, merchants are paid, disputes can be resolved and people have zero liability for unauthorized transactions. That trust allows global acceptance at scale. Three, best-in-class technology. We invest to make payments faster and simpler. Core card network upgrades are already delivering faster transaction flow and near real-time settlement. These capabilities are live in South Africa today, already driving new wins and incremental switching. And we look to extend into other markets over time. And remember, our payments infrastructure goes well beyond cards, including account-to-account rails, and we're now further embedding digital assets. Fourth, our differentiated value-added services and solutions, powered by data from our networks and AI. We have curated unique services that make the network secure, drive more payments and help our customers make smarter decisions. Many of these services are tied to and brought to market through the network. That's our virtuous cycle, strengthening the franchise and improving outcomes for customers. It's that strong foundation that uniquely positions us to power and protect tomorrow's digital economy even as innovations emerge and the macro environment changes. It's our differentiated services powered by our data and how we approach partnerships that underscore why customers continue to choose Mastercard. So let's take a moment on recent key innovations: agentic e-commerce and stablecoins. On agentic, the ecosystem continues to evolve. Our payment solutions are ready and we are engaged shaping what comes next with key players, including Google, Microsoft, OpenAI and other partners across the ecosystem. We're deepening our partnership with OpenAI, reinforcing their use of Mastercard Agent Pay, working to enable agent-to-agent payments and collaborating to embed our services across their solutions while using their tools as an enterprise customer. I'm also happy to share that nearly all Mastercards around the world are now enabled for Mastercard Agent Pay. And we continue to develop our agent-related services. In quarter one, we launched verifiable intent, a tamper-resistant record of what a user authorized when an AI agent acts on their behalf. In fact, the FIDO Alliance is now using it as a foundation for setting security standards in this space. And earlier this month, we announced a partnership with Craftsman, a leading blockchain infrastructure platform. Craftsman will integrate Mastercard Agent Pay and verifiable intent to enable secure Mastercard transactions for AI agents in its ecosystem. This will initially launch on the OpenClaw platform with plans to expand. There's a lot of moving pieces. But as agent-driven commerce gains traction, our network is there with tokenized credentials powering the payments, bringing the security, trust and reach that everyone is looking for. It's very clear there is even more incremental opportunity in transactions and in services over time. On to stablecoins, another rail to complement and expand our network. We leverage our existing card rails to make it easier for people to spend their digital asset holdings with cards. In quarter one, we saw spend growth continue at a healthy clip across our crypto co-brand programs as cardholders gain access to our acceptance and protection. This quarter, OKX, a leading global crypto exchange, is expanding its Mastercard crypto card program into Europe. And remember, we also enable purchases of digital assets using Mastercard, we allow stablecoin settlement, and we integrated stablecoins into Mastercard Move. But we also see a broader need to connect stablecoin rails to fiat rails. As digital asset scale and complexity grow, the need for interoperable, reliable and trusted infrastructure grows. That is why we are excited about our planned acquisition of BVNK. We do not see a change in how consumers pay. Cards continue to deliver a seamless experience. But given the speed, 24/7 availability and programmability of stablecoins, we see clear potential for the technology, especially when paired with our network and use cases like person-to-person (P2P) transfers and cross-border B2B payments. BVNK has leading technology that serves as an important enabler to send, receive, convert and hold stablecoins. They also directly address the interoperability challenge in digital assets. They bring together liquidity providers, stablecoin issuers, market makers and more. BVNK also holds important hard-to-get licenses and offers critical compliance and regulatory tooling. So when you bring together the strength of our network, and you add continuous innovation, including most recently in agentic commerce and digital assets, you see continued leadership in payments. And that fuels the virtuous cycle across our three strategic pillars: consumer payments, commercial flows and value-add services and solutions. Let's take them one by one. Turning to the first pillar, consumer payments. I'll start with two exciting portfolio wins that reinforce the enduring value of Mastercard across the globe. One was CIB in Egypt. Our partnership will expand meaningfully with new markets and services. This includes the conversion of an affluent portfolio and the expected issuance of over five million new Mastercards over the term of the deal. The second is a renewal and expansion of our partnership with Westpac, one of the largest banks in Australia, putting Mastercard in the hands of more Westpac customers than ever before. We also continue to see strong momentum in the affluent space as issuers look to differentiate and deepen relationships with high-spend customers. Since launching World Legend last year, U.S. World Legend cards have demonstrated higher overall spend and more than three times higher cross-border spend on an average monthly basis compared to the U.S. World Elite portfolio. Two growing value propositions that ring true to the segments they were designed for. Still early days in bringing World Legend cards to market but very encouraging. Our affluent value proposition, including the new globally connected Mastercard Collection is resonating around the globe. In North America, our new World Legend has been launched by Rogers Bank with Safra National Bank to launch in the coming months. Mastercard will now be the network of choice on the new United Airlines Canada co-brand program. In Latin America, Bancolombia and in Brazil are also launching new World Legend portfolios and we are excited to partner with Aeromexico in bringing their whole co-brand to Mastercard. And in Asia, HSBC Hong Kong is launching a set of affluent products, including World Legend. And in Indonesia, Bank Mandiri is launching a new private banking card in the super-affluent segment. These card wins reinforce the importance of offering payment choice. We continue to scale Mastercard One credential — a single Mastercard credential linked to multiple funding sources such as credit, debit and installments. We're launching with SoFi, it's the SoFi Smart Card. And through partnerships with Fiserv and Blossom, Mastercard One credential will be more easily accessible to community banks and credit unions. Now turning to the second pillar, commercial and new payment flows. We continue to deliver value by building on our strengths. In the U.S. alone, small businesses fuel nearly half of GDP. We're proud to say that the U.S. Amazon small business co-brand card issued by U.S. Bank will move to Mastercard. That is very exciting. These partners see value in Mastercard's differentiated SME offerings, including easy savings, analytics tools and our overall partnership approach. There's so much potential in commercial, and we are doubling down in segments where we already lead. Fleet and distribution continue to be a long-standing strength for Mastercard, especially in the U.S., where we are the partner of choice for most of the industry's largest fleet players. This quarter, we added multiple new U.S. partners in this segment, including Free, which enables card-based invoice payments for wholesale food distributors. And we are extending our capabilities outside of the U.S., where our expertise in the space helps secure Ride, a European digital fleet and in-car payment system operator, converting its closed-loop fleet program to open-loop Mastercard. On B2B travel flows, issuers continue to select Mastercard for seamless B2B travel payments using virtual cards for their online travel agency customers. While external events might drive slower growth in the short term, we have long-term conviction in the space and continue to pursue it given the sizable opportunity. This quarter, we signed HighNote in the U.S., Travelsoft and Juniper in Europe; and Bulla in Brazil, further securing commercial travel as an area of strength. At the same time, Mastercard Move continues to scale, powering financial institutions with the ability to offer near real-time money movement with transparency and with access to our more than 1.7 billion endpoints. This quarter, we extended our connections with Bank of Shanghai supporting SME trade, international tuition and remittances into and out of China. We will now further penetrate U.S. insurance disbursement flows with a renewed agreement with One Inc. and recently introduced an AP solution. Mastercard Move will now power Mastercard Global Commerce Suites for small business. This solution helps banks support small business cross-border money movement needs by bringing together payments with collections and expense management in one solution. Turning to value-add services and solutions. Demand remains high and we continue to drive strong growth. VAS is built on our data curated into differentiated products and offered alongside our payment network. The combined proprietary global real-time transaction data with petabytes of permissioned data from our services and solutions. That scale and quality of our data power smarter insights, stronger fraud tools and better outcomes for customers, especially in an AI-driven world. In March, we announced a new foundational generative AI model, leveraging capabilities from NVIDIA, trained on our vast data sets that will help anticipate behaviors beyond the scope of traditional models, spotting unusual activity, predicting where a cardholder may spend next and signaling shifts in consumer behavior. These insights can then be embedded across our products or power new use cases. This early-stage work is very exciting. It's not just about the future. Our services are already helping customers solve real needs today, including with many solutions that are unique to us. You've seen how Mastercard has modernized dispute resolution over the years. That innovation continues to provide value and trust to our customers. Dispute resolution includes our unique network tools powered by Ethoca that help connect issuers and merchants post-transaction. Collectively, Ethoca products grew around 25% year-over-year last quarter. Checkout.com will embed Ethoca alerts into their global digital experience to enable merchants to enroll directly in pre-chargeback dispute resolutions. This is also a great example of one-to-many distribution. Enhanced merchant clarity, consumer receipt visibility and better dispute information curb friendly fraud, which third-party research estimates cost issuers and merchants in the U.S. over $100 billion annually. Elsewhere, Westpac and Capitec will now leverage some of these network-agnostic services as well as subscription management capabilities from MENA. Cybersecurity is mission-critical. And the stakes keep rising. As you know, we acquired Recorded Future in 2024, a leader in this space. Last year, we launched Mastercard Threat Intelligence, bringing Mastercard and Recorded Future capabilities together. In a short period of time, more than 500 customers are already engaged using the product, and partners have taken down malicious domains responsible for payment card fraud impacting over 10,000 e-commerce sites. That's tangible value. In Open Finance, we power use cases from account opening and smarter lending to simple account-to-account payments and better cash flow visibility for small businesses. We continue to see traction across all. In health care, Optum Financial initially deployed our account opening verification services for HSA accounts, and they are now expanding into additional account types. Webster Bank's HSA Bank elected Mastercard Open Finance to support both identity verification and account linking, making onboarding increasingly seamless for its members. And that brings me to consulting and marketing services — offerings we have been growing for many years, built around payments expertise and fueled by our unique data to solve customer problems. We're enabling highly targeted insight-driven actions that generate measurable ROI. This is evident: nearly three-quarters of our customers from 2024 returned to use these services again last year and increased their usage by more than 20% year-over-year. In fact, many customers embed these services within customer business agreements. DCBA-linked services directly support growth, drive payment volume, increase customer acquisition and so on. Separately, this quarter, Intesa Sanpaolo expanded its services partnership with us to boost card penetration and usage, combining advanced analytics and portfolio optimization with always-on marketing across both Intesa and its digital bank Easy Bank. Now that's a lot to fit into one quarter, but all these examples reinforce how we continue to execute and deliver on a proven strategy. We are a strong global network, deeply leveraging proprietary data extended through innovation, scale through partnership, diversified through our products and services. Thank you for your continued trust and partnership. And with that, I'll turn it over to Sachin.

Sachin Mehra, Chief Financial Officer

Great. Thanks, Michael. Turning to Page 3, which shows our financial performance for the first 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 12%, reflecting continued growth in our payment network and our value-added services and solutions. Operating expenses increased 9% and operating income was up 13%. Net income and EPS increased 15% and 18%, respectively, driven primarily by the strong operating income growth in the quarter. EPS was $4.60 which uses a $0.10 contribution from share repurchases. During the quarter, we repurchased $4 billion worth of stock and an additional $1.7 billion through April 27, 2026. This quarter, we accelerated the pace of our share buybacks given current valuation levels and our strong conviction in our long-term growth potential. Now turning to Page 4, where I'll speak to the growth rates of our key volume drivers for the first quarter on a local currency basis. Worldwide gross dollar volume, or GDV, increased by 7% year-over-year. In the U.S., GDV increased by 4% with credit growth of 8% and debit growth of 1%. Excluding the impacts from the migration of the Capital One debit portfolio, our U.S. debit GDV growth would have been 7%. The migration of the debit portfolio is now basically complete. Outside of the U.S., volume increased 9% with credit growth of 9% and debit growth of 8%. Overall, cross-border volume increased 13% globally for the quarter, reflecting continued growth in both travel and non-travel related cross-border spending. As one would expect, starting in March, we began to see some impact on cross-border travel from the conflict in the Middle East. Turning now to Page 5. Switched transactions grew 9% year-over-year in Q1. Excluding the impacts from the migration of the Capital One debit portfolio, our Switch transaction growth would have been 10%. We continue to drive contactless penetration, which in Q1 stood at 78% of all in-person Switch purchase transactions. This is up 5 percentage points since the same period last year. In addition, card growth was 5%. Globally, there are 3.7 billion Mastercard- and Maestro-branded cards issued. Turning to Slide 6 for a look into our net revenue growth rates for the first quarter discussed on a currency-neutral basis. Payment Network net revenue increased 8% 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 18%, primarily driven by growth in our underlying drivers, strong demand across security solutions, digital and authentication, business and market insights and consumer acquisition and engagement 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 6%, while worldwide GDV grew 7%. The difference is primarily driven by mix, partially offset by pricing. Cross-border assessments increased 18%, while cross-border volumes increased 13%. The five-percentage-point difference is driven primarily by pricing in international markets. Transaction processing assessments were up 15%, while Switch transactions grew 9%. The six-percentage-point difference is primarily due to favorable mix and pricing, slightly offset by lower revenue from FX volatility. Other network assessments were $277 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 9%. The growth in operating expenses was primarily driven by increased spending to support various strategic initiatives, including investing in our infrastructure, geographic expansion and enhancing and delivering our products and services as well as the increase in foreign exchange activity-related expenses within the quarter. Turning now to Page 9. Let me comment on the operating metric trends for Q1 and the first four weeks of April. As we look across Q1 and April, growth rates of our operating metrics were impacted by timing of holidays, namely Ramadan and Easter. March benefited from that timing, while February and April saw a negative impact. Looking at the Q1 operating metrics on a sequential basis, Switch metrics were generally in line with Q4 and underlying spend remains stable. Of note, U.S. Switch volume was flat sequentially as the strength in consumer and business spend offset the impact from the migration of Capital One's debit portfolio in the quarter. Excluding Capital One, on a like-for-like basis, U.S. Switch volume growth was over 1 percentage point higher in Q1 as compared to Q4. Now on to Switch transactions. Excluding the migration of the Capital One debit portfolio, growth was generally in line with Q4. Moving to our cross-border metrics. Our overall cross-border volume remains healthy with growth at 13% in the first quarter. Cross-border card-not-present ex-travel grew at 18% and remained strong. The sequential decline in cross-border travel was due primarily to the conflict in the Middle East and portfolio shifts. Now looking specifically at cross-border travel for the first four weeks of April, the sequential decline from Q1 is due to an acceleration of the impact of the conflict, the portfolio shifts and the negative impact from the holiday timing I just mentioned. None of these factors relate to any fundamental change and underlying consumer and business spend remains healthy. Turning to Page 10. I wanted to share our thoughts for the remainder of the year. We delivered another solid quarter, fueled by the strength of our payment network and value-added services capabilities. Despite elevated geopolitical risks, the macro economy has remained largely supportive with healthy underlying consumer spending and the fundamentals of our business remain strong. With that said, we are operating in a period of heightened uncertainty, magnified by the ongoing conflict in the Middle East. Since the outbreak of the conflict at the end of February, we have seen restrictions on travel and a reduction in the world's energy supply. And as I noted earlier, we are seeing impacts from that in our cross-border travel metrics. But let's take a step back. We are a global company, and we are heavily diversified across geographies, products, consumer segments, services and so on. This diversification reduces concentration risk while enabling us to deliver consistently on solid top line and bottom line growth. So while the conflict in the Middle East is a headwind, our global diversified business positions us well to sustain growth, both in the short and long term. We are confident in our strategy, delivering value to our customers and partners across the globe and innovating to power the next wave of digital payments. As we look at Q2 and the full year, our base case assumes underlying consumer spending remains healthy outside of the impact of the conflict in the Middle East. We assume the conflict ends in Q2 and the related headwinds will be largest in Q2 and then progressively recover as we move through the second half of the year. As it relates to our expectations for the second quarter of 2026, year-over-year net revenue growth is expected to be at the low end of the low-double-digits range on a currency-neutral basis, excluding inorganic activity. This includes our current estimates for the impacts from the conflict in the Middle East, without which we would have expected Q2 growth to be generally in line with the first quarter on a currency-neutral basis. We expect minimal impact from a disposition that we anticipate to close within the quarter and a tailwind of approximately 1 to 2 percentage points from foreign exchange. From an operating expense standpoint, we expect Q2 growth to be at the low end of the low-double-digits range versus a year ago, again, on a currency-neutral basis, excluding inorganic activity. We anticipate a 0 to 1 percentage point benefit from the disposition while foreign exchange is forecasted to be a headwind of approximately 0 to 1 percentage point for the quarter. On other income and expense, in Q2, we expect an expense of approximately $150 million. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. This higher sequential expense is primarily driven by the following: first, Q1 came in better than expected, aided by a few one-time items. We do not expect these to repeat in the second quarter. Second, we expect lower cash balances and higher debt levels in the second quarter. Cash balances tend to be seasonally lower in the second quarter. And as I noted earlier, we have accelerated the pace of our share repurchases. And lastly, a one-time unfavorable impact from the disposition I mentioned earlier. As it relates to our expectations for the full year 2026, net revenue growth remains at the high end of a low-double-digits range on a currency-neutral basis, excluding inorganic activity. We anticipate minimal impact from the planned disposition and a tailwind of approximately 1.5 percentage points from foreign exchange. From an operating expense standpoint, we expect growth to be at the low double-digits range versus a year ago on a currency-neutral basis, excluding inorganic activity. We expect a 0.5 to 1 percentage point tailwind from the disposition and a headwind of 0.5 to 1 percentage point from foreign exchange on a full year basis. And finally, we expect a non-GAAP tax rate in the range of 20% to 21% for both Q2 and the full year. As a reminder, the Q1 tax rate was lower primarily due to discrete tax benefits including those related to share-based payments. And with that, I will turn the call back over to Devin.

Devin Corr, Head of Investor Relations

Thank you. Julianne, you may now open up for questions.

Operator, Operator

Operator instructions were provided. Our first question comes from Will Nance from Goldman Sachs.

Will Nance, Analyst, Goldman Sachs

Michael, I wanted to ask on the VAS strategy and the growth you've been putting up there. I think there's been a focus on how you differentiate yourself with the strategy. And I think historically, Mastercard has been very forward leaning on embracing new networks and things like A2A payments. Can you talk about the evolution of that strategy maybe in the context of the planned divestiture and how some of these types of activities fit into the broader strategy around VAS?

Michael Miebach, Chief Executive Officer

Right. Well, great question. So we've always believed in consumer choice when it comes to payments and business choice when it comes to payments. So it's clear that cards is a great answer for person-to-merchant payments, but it's not the answer for everything, so there are a set of dedicated use cases and a lot of volume out there for us to go after to apply our services. That was originally the idea to go into what we called at the time a multi-rail proposition, account-to-account. You know that history: acquisition of VocaLink and various other real-time payments assets around the world, and then we exported the stack to run about a dozen systems around the world right now. So that strategy still holds. There is no question about that because real time is very much in focus. A lot of governments choose real-time payment systems to facilitate payments of all types across their respective markets, where we're a known and respected partner in this space. So strategy hasn't changed. What we're really evolving is to ensure that we find more and more services that we can apply to these payments. The franchise rules are different in that space than they are in a card space. But something like cybersecurity is particularly in focus as account-to-account fraud and account scams are rising. Our Account-to-Account Protect solution is an excellent example of how we found a way where we can rally a market and drive value for us and for the market. So cybersecurity is in focus. Generally, this gives us a seat at the table with governments in the current world where more countries are inward-looking for more resilient infrastructure, which puts us also in a very unique position. So strategy continues where we said we're not looking to grow into a lot more new geographies because we're in the markets that we want to be in: United States, U.K., Thailand, Philippines — large economies where this business runs at scale and very profitably for us.

Sachin Mehra, Chief Financial Officer

And Will, it's Sachin. Very quickly, I just want to clarify because you alluded to the disposition. The disposition I referred to in my commentary relates to SessionM, which is our loyalty business, which is one of the acquisitions we had done a few years ago, and that's the sale which was announced a couple of months ago. So that's what I was referring to in my prepared remarks.

Michael Miebach, Chief Executive Officer

And I glanced over that other market rumor because we don't comment on market rumors.

Operator, Operator

Our next question comes from Sanjay Sakhrani from KBW.

Sanjay Sakhrani, Analyst, KBW

Sachin, I want to talk about the assumptions for the outlook on the war ending in Q2. I'm just curious if you could elaborate on the assumptions you're making on cross-border. I assume that's where the biggest impact is. And then where the offsets are that are helping you sort of raise the guidance because I'm sure some other things are outperforming and offsetting it. And then one follow-up on the portfolio shift point you made: does that impact cross-border for a year now going forward? I'm just curious if you could elaborate on that.

Sachin Mehra, Chief Financial Officer

Sure. Sanjay, first, I'll kick off by saying we have taken what we believe to be our best estimate as it relates to our base case, which assumes the conflict ends in Q2, because we had to predicate this on some assumption, and that's what we shared with you. So let's start with that piece. The impact is most pronounced, and assumed to be most pronounced, in cross-border travel. That is a correct statement. The second point is that the impact would be, in our assumptions, most pronounced in the second quarter. While there will be some impact in Q3 and Q4, we expect there will be a gradual recovery which will take place in Q3 and Q4 based on the assumption that the conflict ends in Q2. You also asked about the offsets, which relate to our full year guide. On a currency-neutral basis, it's basically unchanged versus what we shared a quarter ago. The increase you're seeing in the full year guide is primarily being driven by a change in FX assumptions for the year. On top of that, we started the year strong. Consumer spending is healthy. We're executing on our strategy. We had a first quarter where we outperformed our own expectations. So we're off to a good start in the year. That obviously provides a little buffer relative to three months ago versus today, notwithstanding the conflict headwinds. A few more items to keep in mind as you go through the year: Q2 of last year had the highest levels of FX volatility, so that creates the biggest headwind in Q2 of this year. We have some headwind from FX volatility in Q3, but it's less than what was there in Q2 last year, and in Q4 we had more normalized levels of FX volatility. So the headwind dissipates as you go across the end of the year. Lastly, value-added services and solutions, which represent roughly 40% of the company's revenues, continue to perform. We delivered 18% currency-neutral growth in the first quarter, another solid quarter, and we're seeing strong demand for those capabilities. That will be an important contributor as we execute the rest of the year.

Michael Miebach, Chief Executive Officer

I can just add one point. What happens here with the cross-border side is a general shift in spending patterns. Our customers ask, 'What do you see in your data? How is spending shifting? Where else is it going? Where do we meet our customers and their customers in terms of solutions they need?' This is something we took to a science back in COVID because recovery insights were key then. We now have crisis insights. Within 24 hours, we had a website up for our customers in the Middle East to show shifting spending patterns and to collaborate. This is an opportunity for us to lean in and drive forward, and that will be a compensating factor.

Sachin Mehra, Chief Financial Officer

And Sanjay, on your question about portfolio shifts: yes, the impact of portfolio shifts will stay with us for quarters. Every portfolio has a different migration schedule, but that factors in. You are seeing a more pronounced impact on travel because some of the portfolios were more travel-heavy. That's something to keep in mind.

Operator, Operator

Our next question comes from Harshita Rawat from Bernstein.

Harshita Rawat, Analyst, Bernstein

I want to ask about Switch transaction growth, Sachin, Michael. Historically, it used to grow kind of in the low double-digit to low teens range. More recently, growth has decelerated a bit to 9%. I know there's one percentage point of Cap One debit in there, but maybe talk about some of the other drivers within that Switch transaction growth and some deceleration versus history. And then as we think about the high end of the low double-digit, medium-term revenue objective, maybe talk about the growing importance of value-added services in that algorithm and remind us about your conviction in the sustained strong growth of that.

Sachin Mehra, Chief Financial Officer

Sure. On Switch transactions, as I shared earlier, adjusted for the Capital One migration we grew at about 10%. One of the bigger factors that influences Switch transaction growth is the mix of our portfolio. For example, when we suspended operations in Russia, which was a low average ticket size market, that impacted our transaction growth rates because average ticket size plays a part. Extending that logic across different parts of the globe, depending on where we're seeing more or less growth and what the average ticket sizes are influences our Switch transaction growth. Mix by geography impacts our Switch transactions. Fundamentally, we're continuing to focus on driving Switch transaction growth. For the longest time, we weren't switching transactions in Japan — we're now switching transactions in Japan. We previously weren't switching transactions in a meaningful way in Mexico, and that's started to change. The company is very focused on driving greater Switch transaction growth because it not only generates revenue but provides data. With data, you can deliver value-added services and solutions, which drives incremental revenue. As another metric, in our most recent quarter our proportion of Switch transactions is now north of 70%. We're executing on the Switch transaction strategy and remain focused given the sizable secular opportunity.

Michael Miebach, Chief Executive Officer

Yes. In 2020 it was 60%, so that's a sizable increase. A lot of where it's coming from is countries building domestic payment systems. Many domestic schemes exist, but digital capabilities are hard to do and hard to scale. That's part of our strategy and how we win volume: we bring tokenization, safety, security, and other digital capabilities. This is a key metric for our company and is helping fuel our services opportunity.

Operator, Operator

Our next question comes from Adam Frisch from Evercore ISI.

Adam Frisch, Analyst, Evercore ISI

A quick clarification and then a question. If the war goes longer or the near-term impact becomes more destructive, what's the calculus on how that might impact your outlook, if at all? And then my question is on stablecoin — do you feel like the mounting challenges with getting the Clarity Act passed in D.C. delays the time frame for the industry in general? Or is there enough motion to keep the momentum going and does having BVNK's capabilities help you shape the trajectory a little bit more?

Sachin Mehra, Chief Financial Officer

Adam, on the first question, I'm not going to go into multiple scenarios. I shared our base case and the impact. I also said that had the conflict not occurred, our growth rate in Q2 would have been generally in line with Q1. The reality is things will move, and it's outside our control. We are working with customers to find opportunities where we can be helpful. If useful, to size the impacted countries: take the GCC and Israel — from a cross-border volume standpoint, GCC and Israel represent roughly a portion of our cross-border volumes, and this includes both inbound and outbound flows, which affects both issuing and acquiring. That's the general size of what we're talking about.

Michael Miebach, Chief Executive Officer

On stablecoins, BVNK and the Clarity Act: we believe tokenized money will occupy a meaningful part of money movement in the future. Use cases like B2B global payers and person-to-person transfers will grow. We have some regulatory clarity already in other markets. That doesn't hold us back. We see volumes already: healthy growth in crypto co-brand activity and stablecoin settlement use cases. The timing of BVNK was important because it's an unlocking moment. We expect multiplicity in the world of digital assets — more coins, more non-dollar-denominated options — which will make interoperability and trust critical. BVNK is a leader in that space and brings interoperability, liquidity, market maker connections and licensing. Customers are asking how to proceed, and BVNK would put us in a native position to provide that interoperability and trust layer. Regarding the Clarity Act, clear regulatory frameworks would be helpful and would accelerate momentum, but its passage or timing doesn't prevent us from engaging and advancing capabilities now.

Operator, Operator

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

Tien-Tsin Huang, Analyst, JPMorgan

Just wanted to ask on the agentic side if that's okay: in Mastercard Agent Pay, Michael, you talked about some of the partners and some activity on the ground. But can you give us a little more detail on volumes or any surprises with respect to actual activity or actual demand? And I'm curious if you would talk about it in the context of who's pushing the hardest across all the players in the four-party model. What are you listening for as clues on how to invest harder, etc.?

Michael Miebach, Chief Executive Officer

Right. Agentic activity really began to get into motion about a year ago with Agent Pay and commerce-oriented protocols from Google, Microsoft and others. Those players saw a big opportunity and the payments world had to facilitate those transactions. Agent Pay leverages our tokenization capabilities to deliver everything users expect from a transaction. We're pushing equally hard. Volumes are still at an early stage because a few pieces weren't quite in place yet. The question of what goes wrong in an agent transaction — how do you prove it — makes verifiable intent very significant. We worked on this with Google and it's now a standard, which addresses a critical trust need. We're building standards and trust with urgency. We're ready to scale when volume comes and to identify new use cases such as expanded baskets and services tied to tokenized credentials. There's also B2B agent opportunity: we launched an Agent Suite to build agents with our customers in B2B, which may scale earlier than consumer agentic commerce. So we're in early-stage ecosystem building, covering the essential elements now so we can invest where the opportunity emerges.

Operator, Operator

Our next question comes from Darrin Peller from Wolfe Research.

Darrin Peller, Analyst, Wolfe Research

Just first a quick follow-up, Sachin: when you think about the way to normalize cross-border for the effects of Ramadan and Easter shifting or any other normalization just to give us a sense of what you see as sustainable given the portfolio shifts. I'm curious if you could help quantify that. Michael, I want to ask about Mastercard Threat Intelligence more broadly. We're all hearing about instances of fraud picking up around AI on payments. Are you seeing that inflection in demand really pick up pace for your value-added services and offerings around cyber and fraud? That could be a nice boost sustainably for VAS.

Sachin Mehra, Chief Financial Officer

Darrin, on cross-border travel, the sequential decline from Q1 to the first four weeks of April is driven primarily by three things: the conflict, portfolio shifts, and the timing of Easter and Ramadan. I laid them out in that order of significance, but all three contribute. The conflict is out of our control and we don't expect that to stay with us long term. Portfolio shifts will persist for quarters because migrations take time; some portfolios were more travel-heavy, which amplifies the impact. And the holiday timing causes week-to-week movement. So those are the drivers.

Michael Miebach, Chief Executive Officer

On Recorded Future and Threat Intelligence: Recorded Future broadened our capability beyond payments fraud into broader cybersecurity insight. The landscape has been changing and accelerating; we acquired Recorded Future in 2024 and launched Mastercard Threat Intelligence. Customers need reliable information to prioritize defense investments because it's hard to outspend every threat vector. Recorded Future gives us threat intelligence that's valuable to both private sector and government customers. We combined our data with Recorded Future to create stronger products like malware intelligence and autonomous threat operations. We closed the acquisition in December 2024 and have seen significant demand. Security solutions are a continued significant growth driver for us.

Operator, Operator

Our next question comes from Andrew Schmidt from KeyBanc.

Andrew Schmidt, Analyst, KeyBanc

Michael, appreciate the comments on selective deals. Can you comment on whether competitive intensity for deals has changed at all or whether that's relatively stable? And Sachin, how should we think about rebates and incentives trending this year or in subsequent years?

Michael Miebach, Chief Executive Officer

Selective is a good word, but we also want to win deals — that's our mindset because deals fuel transactions and the virtuous cycle. That mindset hasn't changed. Competitive intensity hasn't dramatically changed, but our ability to provide differentiated value has materially improved. Our services portfolio and what's bundled with Mastercard payments is far richer than before, which influences negotiations and outcomes. We still judge on a market-by-market basis; in markets where we're already well-positioned we may be more selective than in markets where we want to grow.

Sachin Mehra, Chief Financial Officer

From a rebates and incentives standpoint, we look at the overall net revenue yield for the company. Our planned pricing and the value we deliver are already contemplated in the guidance I shared. In the second quarter, we expect rebates and incentives as a percentage of our payment network assessments to be slightly lower sequentially compared to the first quarter.

Operator, Operator

Our next question comes from Matthew O'Neill from Bank of America.

Matthew O'Neill, Analyst, Bank of America

Just curious, if you take a step back from a high level, how does Mastercard think about a stablecoin transaction versus a local currency transaction from an economic contribution standpoint? In a future with a lot more stablecoin utilization, is Mastercard economically agnostic? Are there opportunities for accretion or the opposite?

Michael Miebach, Chief Executive Officer

Generally, today most volumes involve on- and off-ramps where card economics are straightforward. Going forward, as stablecoins and tokenized deposits scale, we see opportunities to drive interoperability and build new services on top of those rails. That can create additional value for us beyond today's card economics. We view it as a net-new growth opportunity, which is why we want to deepen our capabilities with BVNK — to capture the additional services and infrastructure layers that will arise.

Sachin Mehra, Chief Financial Officer

On the economics of the BVNK acquisition, once complete the value proposition will include convert, send, receive and store capabilities. The revenue model is based on basis points on volume — that's how the mechanism works — and it's an addressable market we don't participate in today. That's the accretive part Michael referred to.

Operator, Operator

Our next question comes from Bryan Bergin from TD Cowen.

Bryan Bergin, Analyst, TD Cowen

May I ask on yield: can you dig in on the key drivers in the TPA spread uptick? Any important considerations on pricing changes as you move through the year?

Sachin Mehra, Chief Financial Officer

From a pricing standpoint, a lot of what we do is predicated on the value we deliver. All of our planned pricing is already contemplated in the guidance I shared. I gave cadence color by quarter earlier. The guidance already contemplates the pricing we plan to implement and the value we plan to deliver, so there's nothing additional to call out beyond what we've shared.

Operator, Operator

Our last question comes from Jason Kupferberg from Wells Fargo.

Jason Kupferberg, Analyst, Wells Fargo

Michael, in your prepared remarks you mentioned how much growth we've seen in acceptance points in recent years, and I think some of that will continue to come from geographic penetration. But can we get an update on how you guys are thinking about the most fertile new categories of acceptance over the coming years just as you continue to grow the network? And Sachin, can you clarify on the VAS growth currency-neutral that you were actually steady on an organic basis year-over-year? Because I think you lapped Recorded Future?

Michael Miebach, Chief Executive Officer

On acceptance, we are following a clear plan: go after domestic schemes, closed-loop conversions and underpenetrated verticals. These are ways we're finding new volume and creating acceptance. This includes consumer and B2B areas. Underpenetrated verticals such as insurance and housing are interesting opportunities where cards can solve needs we haven't historically addressed. VCN acceptance and small business acceptance are additional growth areas. Driving acceptance every day among smaller businesses remains a core focus.

Sachin Mehra, Chief Financial Officer

On your VAS question: in Q1 we had approximately 18% growth in our VAS revenues, and that had no impact from acquisitions — meaning there's no incremental acquisition-related impact in that number. Sequentially, in Q4 of last year we had about 22% VAS growth and that quarter included about three points of acquisition impact.

Devin Corr, Head of Investor Relations

Thank you. Any closing comments, Michael?

Michael Miebach, Chief Executive Officer

Yes. That brings us to the end of the call. We overran a bit today, but there was a lot to cover. We appreciate your questions and your interest and your support. All of this work that we just discussed today is only possible because of the work of our teams around the world. The first quarter gave us some pause to really worry about the safety of our people in the Middle East, in Israel and the GCC and that is hopefully coming to a conclusion soon. But it is that work that is so critical. So thank you very much, and we'll speak to you in the quarter.

Operator, Operator

This concludes the conference call. You may now disconnect.