Earnings Call Transcript
Mastercard Inc (MA)
Earnings Call Transcript - MA Q4 2024
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 Incorporated Q4 and Full Year 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. Thank you, Mr. Devon Kaur, 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 fourth quarter 2024 earnings call. With me today are Michael Miebach, our Chief Executive Officer; and Sachin Mehra, our Chief Financial Officer. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency-neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I'd like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach.
Michael Miebach, CEO
Thank you, Devin. Good morning, everyone. We finished the year strong. Fourth quarter net revenues were up 16% and adjusted net income up 19% versus a year ago on a non-GAAP currency-neutral basis. Our diverse capabilities in payments and services and solutions, including the acquisition of Recorded Future this quarter, set us apart. They also position us well for long-term growth, as we outlined at our Investor Day. And this is what you will see and the new and expanded partnerships we will discuss this morning. The macroeconomic environment continues to perform well and is underpinned by healthy consumer spending as we've seen in today's news. The labor market is strong with low unemployment and continued wage growth. Inflation has moderated, but to varying degrees across categories and countries. Consumers remain engaged. Affluent consumers have benefited from the wealth effect, while the mass segment remains supported by the labor market. Our e-commerce institute expects a year of global economic expansion in 2025, defined by shifts in monetary and fiscal policy, or geopolitical concerns remain. Overall, we remain positive about our growth outlook. We will continue to monitor the external environment and stand ready to adjust if needed. We remain hyper-focused on successfully executing on what we can control. Our strategic priorities, which fuel our growth algorithm, were laid out in detail at our Investor Day. Those three strategic priority areas include consumer payments, commercial and new payment flows, and services and solutions. A clear proof point on how we're executing is our steady drumbeat of share wins across products and geographies. Now, I often highlight our larger wins on these calls with you, but it's important to note that our local teams are competing for and winning deals of all sizes based on the differentiated value that we provide. Having a diverse portfolio with customers of all types is essential. It allows us to further expand our customer base and enables us to break into new areas where we can partner and grow together. In 2024, we flipped or expanded hundreds of relationships globally. Let's first focus on the U.S. where we have won several large flips over the last few years. That momentum continued this quarter. ICBA payments, which serves thousands of community banks, will significantly expand its partnership with Mastercard. This includes card issuance across their partner banks' credit and debit portfolios. In Mid-Florida, a large credit union will migrate their credit and debit portfolios to us. Both partners highlighted our differentiated product suite, analytics capabilities, and the expertise of our people as key in their decision to expand their relationship with Mastercard. In the public sector space, we renewed our long-standing relationship supporting the Direct Express program, one of the largest social benefit card programs in the world. Direct Express disperses benefits, including social security, veterans, and disability onto Mastercards held by over 3 million Americans. And the momentum also continues into travel and retail verticals. Porter Airlines and Bank of Montreal will launch a new co-brand program with us in Canada. In the U.S., we renewed our consumer and small business co-brand credit card partnership with IHG and Chase. They will leverage our data analytics and loyalty assets to enhance their value proposition. We've also renewed our co-brand partnership with Sam's Club, and we will continue to leverage our products and services. Our success extends across all regions with several significant renewals and expansions. We secured long-term exclusivity on debit with Saudi National Bank. We renewed and strengthened our partnership with Nubank. We've extended our relationship with Banco Santander in the U.K., and we successfully renewed our global premier credit card agreement with HSBC in over 20 countries. All these wins are a result of the successful execution of the strategic priorities we discussed at Investor Day. I will share a few highlights on each area, starting with consumer payments. Now these flows represent a long runway of opportunity for sustained growth. Today, there's over $11 trillion and 1.5 trillion transactions in cash and check around the world. We are capitalizing on the significant secular opportunity by expanding acceptance, reimagining checkout, opening closed-loop systems, and enabling new verticals. First up, we're positioned to be the most accepted payments network in the world with around 150 million acceptance locations globally today. Second, we are reimagining checkout. Our 2030 global plan to phase out manual card and password entry online in favor of smiles and fingerprints is a significant step forward. Not only is that a better experience, but it's also more secure and fully aligned with our data privacy principles. The online space needs this shift, as fraud rates are 7 times higher online than in-store. Approximately 25% of online shopping carts are abandoned because checkout is just too slow. Our tokenization and biometric capabilities sit at the heart of these solutions. Need proof? In 2024, we tokenized about 4 billion transactions per month, which is up 40 times over the past 6 years. As we have said in the past, there are many use cases for tokens. For example, the next click of our multi-option payment solutions, we're rolling out the Mastercard 1 credential, which allows consumers the flexibility and control to set their payment preferences in their banking app for each transaction, if they choose, be it credit, debit, prepaid, or buy now pay later, all behind one credential and one token. The merchant accepts that through the same simple and secure digital connections as always, no added work. Tokens provide tremendous value, and we offer a set of services on and around those tokens such as lifecycle management and authentication, which enhance that value. Now while the growth of tokens makes the ecosystem safer and more secure, we also benefit from the natural tailwinds associated with the growth of token usage. Shifting gears, we're also driving incremental volume and transactions on our network by opening up closed-loop systems. Beyond the transit opportunities we have discussed many times, we're also partnering with local wallet providers to create greater simplicity and access for the end consumer. In Sweden, we're working with Swish so that users can tap to pay and store both domestically and abroad by adding their Mastercard to the Swish app. In Latin America, we collaborated with Davivienda to co-create a digital-first debit product aimed at driving financial inclusion. We signed an exclusive partnership with them to launch the product on the DaviPlata digital app. Our pay local service seamlessly connects with local digital wallets, enabling consumers who use Mastercard to make card payments across a broader set of local merchants. At the same time, merchants benefit from access to more consumers and the protections we provide. The solution supports local tourism in the markets that we travel to, providing a seamless consumer experience and helping drive cross-border volumes. Building on partnerships with leading wallet providers like Alipay and GrabPay, several additional players in Asia Pacific will now open their wallets to cards. This includes Dana in Indonesia, Touch & Go in Malaysia, Bakong in Cambodia, and Lanka Pay in Sri Lanka. We're also capturing new verticals like consumer bill payments. This quarter, we partnered with Bemobi in Brazil, which will integrate Click to Pay into their bill payment platform, enabling fast and secure payments for recurring services like telecommunications and utilities. Now as a network company, we're focused on enabling the broader ecosystem, and that's exactly what we have been doing in the crypto sector. We have a well-planned, balanced strategy that serves financial institutions, crypto players, and, of course, consumers to drive growth and provide choice in this space. We're partnering with a wide range of crypto players to enable consumers to buy cryptocurrencies on card and spend their crypto balances anywhere that Mastercard is accepted. I'm very excited about new partnerships with Crypto.com and Metamask, just a few of the many new players we have added in 2024. We're enthusiastic about the future of blockchain technology, but to reach its full potential, we believe there's a need for sound governance, interoperability, and real-world use cases. All this is a core competency of ours built over decades. To meet these needs, we developed the multi-token network (MTN). This quarter, we partnered with Conexus by JPMorgan, the firm's blockchain-based unit to integrate MTN as a payment settlement solution. By bringing together the power and connectivity of Mastercard's MTN with Conexus digital payments, we aim to unlock greater speed, transparency, and faster settlement capabilities for cross-border B2B payments. While it's early days, we're excited about the opportunities digital assets can bring to the world of payments as the space evolves, complementing our existing solutions. While consumer payments offer a significant runway for growth, commercial flows represent an even larger $80 trillion serviceable addressable market. Only about $3 trillion is carted today. In 2024, our commercial credit and debit volumes represented 13% of our total gross dollar volume (GDV) and grew at 11% year-over-year on a local currency basis. Disbursements and remittances represent an additional $20 trillion in addressable market. We're pursuing that opportunity with Mastercard Move, where transactions were up over 40% year-over-year in the fourth quarter. But let's dig into commercial. First, we're expanding our global leadership in virtual cards by expanding across use cases, geographies, and verticals. For example, partnering with Net Narest to distribute our new mobile virtual cards to U.K. companies and their employees. We're deploying virtual cards with Citi in Argentina, the first deployment of the electronic card network in that market. In the travel vertical, we established new partnerships with Worldpay and Emirates NBD to offer virtual cards to their customers. We're also leaning into our success in travel and applying it to new high-potential verticals, such as trade and logistics. Building on our previous announcement of Dubai First World, we're driving continued growth in this sector. Global Fintech invoice Bazaar will distribute new co-branded Mastercards to help digitize payments across the trade ecosystem. Similarly, in consumer packaged goods, we partnered with Dean Finance and Prime Dash to enable small businesses in the Middle East to automate payments to Coca-Cola distributors. This builds on partnerships with leading beverage distributors in Latin America that I mentioned in previous calls. We're driving small business growth through expanded issuer partnerships, having signed an exclusive commercial deal with DNA, the state-owned bank in Argentina. AMP Bank in Australia will launch Mastercard debit cards for their new digital SME and consumer bank, and ANT International's World First will expand our partnership to now issue virtual cards for SMEs in new markets, including Singapore and Australia. Let me turn to our third strategic priority, Services and Solutions. As we outlined at our Investor Day, services represent a serviceable addressable market of at least $165 billion. We delivered almost $11 billion in services and solutions revenue in 2024; that's exciting. But it's equally exciting that we're less than 7% penetrated—that's a significant runway for growth. We have a clear plan to execute against it. First, we're developing and launching differentiated products. This quarter, we launched new services to support customer acquisition, provide unique market insights, manage subscriptions, and identify threats. This includes closing on the acquisitions of both Minna Technology and Recorded Future. Cyber criminals have been around for decades, but attacks and fraud attempts are increasing to high levels as commerce increasingly moves online and as AI becomes more prevalent. Our investments, both organic and inorganic, are key to fighting fraud and protecting the ecosystem. They also drive revenue growth. Add Recorded Future to this list; it is now part of Mastercard. Recorded Future is the world's largest threat intelligence company with more than 1,900 customers across 75 countries. Customers include over 50% of the Fortune 100 and government agencies in 45 countries, including more than half of the G20. We've been deploying AI at scale for well over a decade, and so has Recorded Future. They leverage AI-powered insights to analyze threat data from every corner of the internet, providing customers real-time visibility and actionable insights to proactively reduce risks. We now have an even more robust set of powerful intelligence, identity, dispute, fraud, and scam prevention solutions. Together, these uniquely differentiated technologies will enable us to create smarter models, distribute these capabilities more broadly, and help our customers anticipate threats before cyber-attacks can take place. That means better protection for governments, businesses, banks, and consumers across the entire ecosystem and well beyond payment transactions. We're also leveraging our distribution at scale to deepen market penetration of our services and solutions. For example, we provide a fraud solution that facilitates real-time information sharing between merchants, issuers, and consumers to streamline disputes and reduce chargebacks. This quarter, we announced a new partnership with Stripe, which will offer these capabilities to their millions of users. In Latin America, Itaú Unibanco will make them available across its digital channels to support millions of cardholders. In Loyalty, we partnered with Nordea to consolidate their loyalty offerings with Mastercard and launch new cashback offers across Norway and Sweden. We're also selling into new buying centers with traditional customers, opening up a larger share of wallet, for example, by partnering with the CISO at Webster Bank to deploy RiskRecon and Cyber Quant solutions. We're seeing strong demand for our services and solutions across a more diverse customer base, including online delivery services, gaming companies, and travel partners. For example, we expanded our partnership with DoorDash, which will use our insights and analytics to optimize business performance globally. Sony PlayStation leverages our capabilities to showcase digital receipts to cardholders and provide purchase information to bank call center agents. In currency, we’ll incorporate our open banking capabilities to support Hilton's new debit co-brand offering. Services and Solutions are a large and growing revenue opportunity; they are essential in a powerful virtuous cycle with our payments. We're laser-focused on executing and capitalizing on the significant runway of services in front of us. In summary, we delivered another strong quarter and closed out another strong year. The fundamentals of our business are strong, so I'm very optimistic about the future for us here at Mastercard. Our proven growth algorithm and differentiated solutions position us to deliver and win as we've demonstrated time and time again. And with that, I'm going to hand it over to Sachin.
Sachin Mehra, CFO
Well, great. Thanks, Michael. Turning to Page 3, which shows our financial performance for the fourth quarter on a currency-neutral basis, excluding where applicable special items, and the impact of gains and losses on our equity investments. Net revenue was up 16%, reflecting continued growth in our payment network and our value-added services and solutions. Acquisitions had a minimal impact on this growth. Operating expenses increased by 15%, including a 1 ppt increase from acquisitions. Operating income was up 17%, which includes a minimal impact from acquisitions. Net income and EPS increased by 19% and 22%, respectively, driven primarily by the strong operating income growth and further aided by a discrete tax benefit recognized in the fourth quarter. EPS was $3.82, which includes an $0.08 contribution from share repurchases. During the quarter, we repurchased $3.4 billion worth of stock and an additional $644 million through January 27, 2025. So let's turn to Page 4, where I'll speak to the growth rates of some of our key drivers for the fourth quarter on a local currency basis. Worldwide gross dollar volume (GDV) increased by 12% year-over-year. In the U.S., GDV increased by 9% with credit growth of 8% and debit growth of 11%. Credit and debit growth was aided by the conversions of the previously announced Wells Fargo Commercial Credit and Citizens debit migrations, respectively. Outside of the U.S., volume increased by 13% with credit growth of 11% and debit growth of 14%. Overall, cross-border volume increased by 20% globally for the quarter, reflecting continued strong growth in both travel and non-travel-related cross-border spending. Turning to Page 5, switched transactions grew by 11% year-over-year in Q4. Both card-present and card-not-present growth rates remained strong. Card-present growth was aided in part by an increase in contactless penetration, as contactless now represents approximately 72% of all in-person switched purchase transactions. In addition, card growth was 6%. Globally, there are 3.5 billion Mastercard and Maestro-branded cards issued. Turning now to Slide 6 for a look into our net revenue growth rates for the fourth quarter discussed on a currency-neutral basis. Payment Network net revenue increased by 15%, 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 by 17%. Acquisitions contributed approximately half a percentage point to this growth. Growth was primarily driven by our underlying drivers, strong demand for our consumer acquisition and engagement and business and market insight services, the scaling of our security, 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 at each key metric, domestic assessments were up 10%, while worldwide GDV grew by 12%. The difference is primarily driven by cross-border mix. Cross-border assessments increased by 24%, while cross-border volumes increased by 20%. The 4 ppt difference is primarily driven by pricing in international markets. Transaction processing assessments were up 15%, while switched transactions grew by 11%. The 4 ppt difference is primarily due to favorable cross-border mix and pricing. Other network assessments were $239 million this quarter. As a reminder, these assessments primarily relate to licensing, implementation, and other franchise fees, and they fluctuate from period to period. Moving on to Page 8, you can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased by 15%, which includes a 1 ppt impact from acquisitions. Total adjusted operating expenses were higher than anticipated, primarily due to the impact of the acquisition expenses. The acquisition of Recorded Future closed earlier than expected in Q4 2024, versus originally expected in Q1 2025, and was therefore not part of our Q4 forecast. Excluding acquisitions, the growth in operating expenses was primarily due to increased spending to support the continued execution of our strategic initiatives. Now turning to Page 9, let me comment on the operating metric trends. Starting with Q4, our switched volume metrics were strong with sequential increases versus the prior quarter, driven by healthy consumer and commercial spending. Cross-border volumes also benefited from healthy spending, easier comparisons, as well as a pull forward of travel spending. Specific to cross-border, card-not-present ex travel, we saw an uptick due to the purchases of cryptocurrency in Q4. The timing of high-volume versus low-volume calendar days and the timing of Black Friday impacted switched volume and cross-border metrics within the quarter. Transaction growth remained flat sequentially compared to volumes due to higher average ticket sizes in Q4. Looking through the first 4 weeks of January, the metrics are holding up well and are generally in line with the fourth quarter. The increase in switched volume growth in the U.S. was primarily driven by an easier comparison. Severe weather events across the country negatively impacted volumes this year and last year, but the impact was more pronounced last year. As it relates to the decrease in intra-Europe cross-border volumes, this is primarily driven by the mix of calendar days and travel spend pull forward I just mentioned. Turning to Page 10, I'd like to share our thoughts on fiscal year 2025. The fundamentals of our business remain strong, and we are well positioned for the opportunities ahead, driven by a diversified business model, the significant opportunity for further secular shift to digital forms of payment in both consumer and commercial sectors, and strong demand for our differentiated value-added services and solutions. The macro environment remains supportive of our base case, reflecting healthy consumer spending. We remain confident in our ability to successfully execute our strategy while maintaining a disciplined capital planning approach. Overall, we are positive about the growth outlook for the short, medium, and long term. For the full year 2025, we expect net revenues to grow in the high end of the low double digits to low teens range on a currency-neutral basis, excluding acquisitions. We estimate a headwind of approximately 2 ppt from foreign exchange, while acquisitions are expected to add 1 to 1.5 ppt to this growth rate for the year. From an operating expense standpoint, we expect growth to be at the low end of a low double digits range versus a year ago on a currency-neutral basis, excluding acquisitions and special items. We expect a tailwind of approximately 1 to 2 ppt from foreign exchange, while acquisitions are forecasted to increase the OpEx growth rate for the year by approximately 5 ppt. To be clear, this impact of acquisition-related expenses was already contemplated in the 3-year performance objectives that we shared with you last November at our Investor Community Meeting. Let's dig into the acquisition-related expenses a bit. We closed the acquisition of Recorded Future and Minna Technologies at the very end of 2024, and now we will see a full year impact in 2025. The 5 ppt impact can be broken down into three main components: slightly more than 2.5 ppt related to the run rate expenses for operating the business, approximately 1 ppt from the amortization of acquired intangible assets related to purchase price allocation, and the remaining relates to integration costs and other one-time expenses. Our acquisition philosophy is strategy-led. We purchase companies that are complementary to our capability suite and that add to our addressable market. These companies are primarily in earlier stages with modest revenues compared to Mastercard, albeit fast-growing. After acquisition, we look to scale revenues, drive synergies, and ultimately deliver positive operating leverage over the medium term consistent with how we run our overall business. For the first quarter of 2025, year-over-year net revenue growth is expected to be in the low teens range on a currency-neutral basis, excluding acquisitions. Acquisitions are forecasted to have a 1 to 1.5 ppt impact on this growth rate, while we expect a headwind of approximately 3 ppt from foreign exchange for the quarter. In terms of operating expenses, we expect Q1 growth to be in the low double digits range versus a year ago, again, on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to have a 4 to 5 ppt impact on OpEx growth while we expect a tailwind of approximately 2 ppt from foreign exchange for the quarter. Regarding other income and expenses, in Q1, we expect an expense of approximately $120 million, given the prevailing interest rates and debt levels, excluding gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect a non-GAAP tax rate in the range of 20% to 21% for the full year and approximately 20% for Q1, based on the current geographic mix of our business. A lower forecasted tax rate for Q1 as compared to the balance of the year is consistent with prior years due to expected discrete tax benefits related to share-based payments in the first quarter. 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 line for questions.
Operator, Operator
Our first question comes from Andrew Schmidt from Citi. Please go ahead. Your line is open.
Andrew Schmidt, Analyst
Hi, Michael, hey Sachin, thank you for taking my question this morning. Good metrics across the board here. Great to see. If I could just dig into the cross-border piece, the month-to-date trends to January 28. Can you talk about the drivers of the growth there, whether it was relatively similar to the fourth quarter, and then your expectations for 2025? Also, just one more thought on 2025. We get a lot of questions about discover. Maybe you could share how you're thinking about that in relation to the models. Thanks so much.
Sachin Mehra, CFO
Sure. No problem, Andrew. I'll take that question. From a cross-border volume standpoint, just at the highest level, I want to remind you that the value proposition we offer in cross-border continues to be incredibly solid. Our teams are working hard and winning various kinds of portfolios, some of which Michael spoke about today, including some of the co-brand programs with various airlines. Regarding your metrics, this is good performance from a volume growth standpoint, with cross-border at 20% for Q4. What you're seeing for the first 4 weeks of January is exactly that: the first 4 weeks of January. The nature of the 20% going down to 18% is due to two factors. One is a pull-forward of travel spending into December, and you can see metrics of intra-Europe growth in December at about 23%. The second factor is the calendarization of days. Those are two factors. Fundamentally, the overall spending standpoint on cross-border continues to be excellent. We have no reason to believe that something is going to change regarding the value proposition. The strength of cross-border and domestic spending is a function of consumer health, which currently looks very good. We also mentioned how commercial is performing well, and that also lends to our cross-border metrics.
Michael Miebach, CEO
Alright. On the Cap One, Andrew, let me start, and then I will hand it to Sachin for the model side of the question. Overall, the acquisition is in flight. It's going through the motions. The indications are positive that it will be approved. There are examples where we have strategic partners while we compete with certain aspects of the business. This is not a new situation for us. Capital One is a tremendous partner of ours with highly strategic growth in our joint business. They have been public about shifting debit volumes to the Discover network, which is a competitor. We will continue to invest in our network and ensure that we have a leading, differentiated solution available. At the same time, we've been growing together in credit and other parts of the business, and we value this partnership. There are no surprises here from what we said last time.
Sachin Mehra, CFO
Yes. And I'll just add to what Michael said. Capital One has talked about migrating the debit volumes, which primarily operate on the Mastercard network. We've built in our best assumptions from a timing and migration pace standpoint into the full-year outlook I shared. So expect some variability because our forecast isn't predictable. The deal has to be approved, and migrations start, but we have built in our best estimates.
Michael Miebach, CEO
One last thing. I should add that we have great momentum in U.S. debit. This isn’t the only aspect we have; we're building out a set of partnerships.
Darrin Peller, Analyst
Thank you, everyone. Great job. Based on what we learned at your Investor Day, which provided valuable insights into the long-term growth trajectory, could you elaborate on your expectations for value-added services in 2025 compared to consumer payments to help us understand growth better? Also, Sachin, just a quick reminder that we're finishing the year with a 16% constant currency growth. While Discover might play a role, could you clarify what other comps we're addressing? Please remind us how much of the outlook accounts for other factors that might lead to a slowdown from the exit rate down to the 12% to 13% range from 16%. Thanks again, everyone.
Sachin Mehra, CFO
Sure. No problem. First on your question regarding value-added Services and Solutions: We continue to invest and build out excellent capabilities in a sizable and fast-growing addressable market. So, again, we’re not providing a specific forecast for growth in value-added services in 2025. The underlying fundamentals of our activities there remain strong. Remember, we provided color at Investor Day as to the composition of those revenues, including drivers that contribute to payments network drivers, safety and security, and consumer engagement. The performance is broad-based and not region-specific. As for your second question, the 16% exit rate is a strong sign, and we need to account for lapping significant wins in 2024, like Citizens, Wells Fargo, etc. Some of those will begin to lap as the year progresses. The fundamentals remain solid; we expect consumer health to hold steady.
Harshita Rawat, Analyst
Good morning. I want to ask about stablecoins. It's likely that we get some regulatory clarity in the U.S. this year. I know a vast majority of stablecoins usage is in crypto-native use cases and trading. But are you seeing anything in cross-border money movement? And more importantly, Michael, I know you talked about the growth in settlement capabilities, and you've done a lot of work in crypto over the years. How are you positioned for growth in the crypto ecosystem? Thank you.
Michael Miebach, CEO
Thank you, Harshita. We've been active in the crypto space for some time. Your inquiry is about the potential of this underlying technology and cross-border use cases. We've moved beyond the proof-of-concept stage; real transactions have occurred, with the first one in Hong Kong last year. We are in the business of stablecoin transactions and have the MTN operational. While it hasn't scaled yet, we see this as a net addition and growth opportunity for B2B cross-border payments. There's enough momentum now in crypto, with recent mainstream discussions around ETFs and a supportive stance from the new U.S. administration. We feel well-prepared, and our partnerships with JPMorgan and other settlement players will bolster our endeavors. It’s essential to consider the broader network of real-time payments as a growing segment we are also engaging in.
Rayna Kumar, Analyst
Good morning, Michael and Sachin. Thanks for taking my questions. Could you give us an update on your progress in gaining market share in Europe and whether there are any countries where you're seeing stronger performance?
Michael Miebach, CEO
Europe has been a real success story for Mastercard. Over the last 5 or 6 years, we've seen tremendous growth on the continent, especially in the U.K. where we are market leaders. In the U.K., one-third of debit cards are now Mastercard through large conversions. Earlier, I mentioned extending our partnership with Santander in the U.K. Our approach has always included leveraging local schemes while competing with domestic networks. In Europe, there's been a noticeable push to develop local payment solutions. Ultimately, the consumer will decide based on user experience and availability. We're confident in our ability to compete, especially with our expanding services and solutions. We've seen strong volume growth in Europe at around 16%, which is a robust growth rate for us.
Tien-tsin Huang, Analyst
I want to stay in Europe if you don't mind and ask about the Mastercard 2030 initiative. It seems like the One Click payment initiative could replicate the success of contactless payment. Why focus on Europe? What makes this region special for setting this goal?
Michael Miebach, CEO
Tokenization in Europe is critical as we evolve payment markets with regulations guiding security and consumer experience. This environment makes Europe ripe for eliminating on-time password requirements and manual card entries. Our existing market share allows us to scale these changes effectively. Europe’s regulations support a seamless integration for our strategy—the partnerships we have solidify this opportunity, and we are prepared to engage other regions as well. The objective here is improved ecosystem safety, which serves all consumers and merchants.
Ramsey El-Assal, Analyst
Hi, thank you for taking my question. Michael, I wanted to get your view on potential impacts from the new political environment. Are you expecting any tailwinds or headwinds from policy changes? Specifically, regarding potential tariffs, how would that impact your business?
Michael Miebach, CEO
It's a pertinent question across many industries. The political environment is shifting as we approach elections worldwide. Payments will continue regardless because we support the economy, especially the digital sector, which remains fundamentally trending upwards. The new U.S. administration aims for a business-friendly stance, which is favorable for us. Concerning tariffs, we must see how it plays out. Our effects will be indirect, primarily through our customers and partners. Fundamental trends in digitization and discussions around digital trade remain crucial. In this context, we actively engage with policymakers, focusing on promoting the creation of digital trade policies beneficial to economies globally.
David Koning, Analyst
Yes, hey guys. Thanks, good job. I guess my question about FX volatility got better in Q4 and considerably improved in January. Just to refresh, that helps the transaction line, right? Should we expect this to augment transaction yields over the next couple of quarters if it stabilizes?
Sachin Mehra, CFO
David, yes, the improvement will impact our transaction processing assessments line. Higher volatility results in positive yield impacts; conversely, decreased volatility could impact yield negatively. That line item reflects those changes.
Bryan Bergin, Analyst
Hi, good morning. Thank you. I wanted to ask about rebates and incentives. How should we think about renewal activity in 2025, and directionally, what are your expectations regarding R&I growth versus how you finished in 2024?
Sachin Mehra, CFO
Sure, Bryan. Our teams are focused on winning the right portfolios in the marketplace, not just every deal. Our renewal activity in 2025 is consistent as usual. From an overall rebates and incentive perspective for Q1, we expect levels to be similar to Q4. As for the full year, it’s contingent on deal flow and activity. While we’re focused on rebates, our priority is also to drive an accretion in our net revenue yield.
Michael Miebach, CEO
It circles back to the relationship between payments and services. We must maintain our relevance in payments to apply our payment solutions effectively. Our strategic plan to win across various types of deals is crucial—aiming for attractive net revenue yield is our target.
Tim Chiodo, Analyst
Great. Thank you for taking the question. Given the stronger dollar, could you recap your hedging strategy and how it flows through to the income statement?
Sachin Mehra, CFO
Of course. Foreign exchange exposure arises in three primary areas: transaction exposures, monetary assets and liabilities, and translation exposure. We hedge transaction exposures with designated ratios based on currency. Hedging extends to monetary assets; however, we don’t hedge translation exposures since they don’t involve cash movements. We strategically hedge based on forecasted cash flow needs elegantly.
Michael Miebach, CEO
Additionally, we appreciate that we have a geographically diversified business. This geographic diversity offers a competitive edge. Our focus remains on growth opportunities in fast-growing markets, irrespective of currency conditions.
Trevor Williams, Analyst
Great, thanks very much. I wanted to go back to domestic assessments and the growth relative to GDV and purchase volume. There’s been a consistent spread between those growth rates. Sachin, you highlighted cross-border mix as a driver of that spread this quarter. Can you explain what it means, and should we interpret that if cross-border volume is growing faster than GDV, that this mix headwind will persist?
Sachin Mehra, CFO
Certainly. The delta between domestic assessments and GDV reflects rounding effects. More significantly, domestic assessments do not include cross-border revenue, while GDV encompasses cross-border volumes. Hence, if cross-border volumes grow at a higher rate, as we saw, it reflects positively on GDV but not on domestic assessments due to this definition.
William Nance, Analyst
Hey, I appreciate you taking the questions. Michael, I wanted to ask about your thoughts on the European market following up on the mid-teens growth you've recently posted. Any thoughts on competitive dynamics with local schemes being folded into the European payments initiative, particularly in Germany? How does this change the landscape?
Michael Miebach, CEO
Great question. Our strategy has shown meaningful progress. We've consistently maintained a strong presence in Europe, notably in the U.K., where we lead in credit, prepaid, and debit offerings—accounting for roughly a third of debit cards. Local schemes exploring consolidation into initiatives like Vero serves as an indication of growth, but we remain confident that our strategies are sound and backed by both partnerships and regulatory structures that will support our competitive edge. Our focus remains on capturing market share through seamless solutions.
Devin Corr, Head of Investor Relations
Thank you, Michael, for your contributions and insights. This has been a tall session and we appreciate the valuable discussions today.
Michael Miebach, CEO
I'm happy we managed to fit Sanjay's question in, although we’re over time today. I want to express my gratitude toward our 34,000 Mastercard colleagues for their dedication and effort in driving this business forward. Thank you for your ongoing support. We look forward to speaking with you next quarter.
Sachin Mehra, CFO
Thanks, everyone.
Operator, Operator
This concludes today's conference call. You may now disconnect.