Earnings Call Transcript
Mastercard Inc (MA)
Earnings Call Transcript - MA Q4 2020
Operator, Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Mastercard Q4 and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. As a reminder, this call is being recorded. I would now like to hand the conference over to your speaker today, Warren Kneeshaw, Head of Investor Relations. Thank you. Please go ahead, sir.
Warren Kneeshaw, Head of Investor Relations
Thank you, everyone, and thank you for joining us for our fourth quarter 2020 earnings call. We hope you are all safe and sound. 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. 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. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency-neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, I’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’ll turn the call over to our Chief Executive Officer, Michael Miebach.
Michael Miebach, CEO
Thank you, Warren, and good morning from New York. It certainly feels like a privilege to be addressing you today for the first time as Mastercard’s CEO. I believe the foundation established under Ajay’s leadership positions us extremely well for the future. And I’m looking forward to leading Mastercard from here on, and of course, counting on your continued support. Now, 2020 presented the world and the economy with unprecedented challenges. Still, the resilience of our business model and the focused execution of our strategy by our dedicated employees allowed us to close out the year on a positive trajectory. Fourth quarter revenue and EPS growth rates versus a year ago are continuing to show sequential improvement. As we look to the future, we will continue to execute on our strategy. With our ability to enable and secure the payments ecosystem through the partnerships, our differentiated services and our role as a true multi-rail provider, we’re well positioned to capture additional flows and the significant opportunities ahead. These opportunities include certainly the accelerated secular shift to digital payments and the advancement of real-time payments and open banking. Now, let’s take a look at our business from the macro level. Retail spending during the holiday season and fourth quarter overall was relatively steady with very strong e-commerce sales. According to our SpendingPulse estimates for Q4, U.S. retail sales were up 4%, excluding auto and gas, while overall Europe retail sales slowed with a decline of 1.9% for the quarter, in part due to the recent lockdowns. In Asia, we see some bright spots in markets like Australia and then similarly, in Latin America, where retail sales in Brazil rebounded this quarter. Now, we’re also heartened to see the availability of effective COVID vaccines. But distributing them at scale will dictate when social distancing measures can be relaxed and borders opened, and that will ultimately drive further recovery. We see fiscal stimulus, such as the most recent package in the United States, as an important interim measure in the near term. And we’re working closely with governments to get funds into people’s hands quickly and safely. Now, turning to our business specifically and the four-phased framework we established for monitoring the COVID environment, we see markets go through the containment and stabilization phases, and we continue to believe most markets are now in the normalization phase domestically, where spending levels gradually improved with some markets actually approaching growth. Looking at the trends, volumes continued to modestly improve quarter-over-quarter. And our switched volume growth rates, excluding travel and entertainment, were similar to what we saw in Q4 2019 pre-pandemic. Speaking of travel, domestic travel, including spending in categories such as lodging and restaurants, declined slightly in the quarter, reversing some of the improvement we saw in the summer months. Cross-border travel remains limited. In October and November, we saw some improvement in cross-border within the EU, although recent restrictions are causing some slowing over there, as mentioned earlier. Improvement in the cross-border travel outside the EU remains limited. Now we continue to believe travel will improve, starting with personal travel as border restrictions ease and as vaccination efforts expand. We believe corporate travel will follow. Progress may not be linear, but we believe there is significant pent-up demand for travel, and we continue to expect to see improvements in the second half of the year. In the meantime, we remain focused on building on our already strong position in travel, positioning us well to capitalize on this opportunity when it occurs. So while the pandemic is affecting business drivers in the short term, we have diversified our revenue streams and remain focused on managing our business for the long term. This means focusing on our strategic priorities: one, growing our share of core payments, ensuring the digital experience for our customers, partners, and consumers is safe and seamless as we help drive the accelerated secular shift; two, deploying meaningful services that help our partners adapt to the changing environment; and last but not least, providing choice with our multi-rail capabilities. Illustrating all of that, we have quite a number of significant strategic wins this quarter, which I will now share with you. Starting in the U.K. and Ireland and building off the success we’ve had in debit with Santander and first direct, we’re really pleased to expand the long-term relationship we have with NatWest Group of credit. The bank will move its entire debit portfolio to Mastercard across all consumer and business product lines and across multiple brands, including NatWest and Royal Bank of Scotland. This migration of approximately 16 million debit cards will start later this year and when complete, will contribute to the growing overall debit share in the U.K. from low single digits to approximately one-third of the market on all recent wins that migrated to Mastercard. We look forward to innovating together to build an enhanced digital experience for NatWest’s customers across multiple payment rails. Now turning to Germany. We expanded our relationship with Deutsche Bank and will become the exclusive international scheme partner, including both Deutsche and Postbank Banks, expanding our market share in debit and credit. As part of the upcoming migration, a total of 10 million consumer and commercial credit and debit cards will be reissued to Mastercard-branded products. Deutsche Bank is already leveraging our services within our existing partnership and will now extend those to the larger customer base and use our advisers’ consulting and analytics to assist with the conversion. We look forward to developing new opportunities together in B2B and other payment flows. In the U.S., we will be the network partner for the Citi Plex account on Google Pay, which leverages our tokenization services to provide Citi Plex customers with a seamless and more secure payment experience. The Citi Plex account will include a digital debit Mastercard that’s automatically loaded for use in the Google Pay wallet with an option to request a physical contactless card, providing customers the choice to pay when, where, and how they want to pay: by debit card, smartphone, or online. Building on our fintech momentum, we have secured additional wins around the globe with new partners like Payoneer and Aeldra in the U.S., HYPE and Flow in Italy, Treezor in France and Prex in Peru. Our fintech customers appreciate our tailored approach, addressing their very specific needs, leveraging our expertise, our tech, and of course, our global network. Now we’re also excited to announce a new strategic partnership with Walgreens. This multifaceted relationship includes a new credit product to be issued by Synchrony Bank and prepaid products that enable contactless shopping experiences, mobile-first money management, and rewards via the Walgreens app. This partnership will enable Walgreens to leverage a number of Mastercard services, including insights and analytics, loyalty, and point-of-sale financing, including installments. We will also look into future opportunities together, including a digital-first debit card and other tech-driven solutions to innovate the future of healthcare payments. Now we remain very active in the U.S. co-brand space, where we extended and expanded our Sam’s Club co-brand with enhanced rewards and digital experiences, as announced yesterday, and extended our Walmart consumer credit in co-brands and payroll cards; renewed our GM co-brand, now with Goldman Sachs as the new issuer and expanded our relationship with Bass Pro Shops and Cabela’s to include small business. Let’s come back to travel. We continue to prepare for the broader return of travel with several new partnerships in this space. First off, building on the travel co-brand momentum we announced last quarter, we will now be the exclusive network for Aeroplan co-brand program in the U.S. with JPMorgan Chase Bank and Air Canada, which will launch later this year. In both the UK and Spain, we’re innovating with IAG Loyalty, part of the International Airlines Group, our new co-brand and loyalty partnerships that will provide customers more choices to earn Avios points and reward them with exclusive benefits. And on the wholesale travel program front, one of the largest global online travel agencies, Booking.com, has chosen Mastercard to be their preferred partner for virtual card payments to their suppliers. Let’s talk about the change in consumer. As spending patterns change, it is critical to offer online and in-person capabilities, and we have solutions for both. As e-commerce accelerates, with card-not-present transaction accounting for about 45% of our switched volume in 2020, which is up from 40% in 2019, we have several efforts underway to enable safer and more seamless online purchases. Notably, we continue to scale our merchant tokenization services for card-on-file, a critical use case, with a six-fold increase in the number of unique merchants transacting in quarter four versus a year ago. Recent surveys tell us that 7 in 10 e-commerce consumers have payment card information saved with at least one merchant type. Card-on-file tokenization is particularly helpful for subscription services like Netflix, marketplaces like Etsy, and ride-hailing services like DiDi who have just signed on this quarter. But we believe that when restrictions ease, people will return to shopping in person. And hence, we’re driving a secular shift in store as well. For example, we saw a strong acceleration of contactless in 2020 as more than 80 markets grew contactless penetration as a percentage of in-person transactions by at least 10%, which is driven by consumer demand for increased speed and safety, but of course, cleanliness at the point of checkout. This paves the way for new solutions that leverage contactless, such as our recently launched Cloud Tap on Phone, which will allow merchants of any size to quickly and easily accept contactless payments on a range of devices, including mobile phones, further expanding our acceptance reach. This will be particularly important for all those hard-hit small businesses trying to operate more digitally coming out of the pandemic. Now with respect to services, services continue to be in strong demand as we help our customers adapt and succeed in this evolving omnichannel environment we just talked about. In aggregate, our services line represented about one-third of our revenues in 2020 and grew at 18% during that period on a currency-neutral basis, providing a critical source of growth and diversification. We will continue to invest in these capabilities across all payment flows to keep the ecosystem secure and to provide key insights to our customers, including publishing monthly trends, leveraging assets such as SpendingPulse. Our recent acquisitions in the services space providing a key source of differentiation are continuing to gain scale. For instance, Bank of America recently expanded its use of Ethoca’s dispute management tools. Fintechs in the U.S. and abroad, including American e-commerce company Rappi, are using the behavioral biometric technology of NuData and Transfast certification process, signing new customers for RiskRecon to ensure cyber health across their system. Brands like Chico’s are leveraging our end-to-end loyalty platform through SessionM. So let’s turn our focus on the initiatives that are designed to address a broader set with payment flows with our multi-rail capabilities. They offer the choice and flexibility that consumers, businesses, and governments need and increasingly expect. First, we are pleased to report that we closed the acquisition of Finicity in November, extending our network to provide data transmission capabilities essentially to fully capitalize on the future of open banking. Finicity continues its leadership in signing direct data access agreements with financial institutions and fintechs, building off existing direct relationships with major banks like Chase, Citi, Bank of America, Capital One, and Wells Fargo. We recently added Chime, Brex, BMO Harris, Charles Schwab, and we’re moving quickly to secure more direct access relationships. Finicity continues to build out its digital assets and credit decisioning solutions, including those launched with 4 leading mortgage companies, and have seen rapid adoption of its lending and payment solutions. In parallel, we continue to expand our open banking capabilities in Europe and intend to leverage Finicity there as well. In the real-time space, we’re excited that Payments Canada has selected Mastercard to build and run its new real-time payment systems, clearing and settlement infrastructure. Our technology and expertise will power our best-in-class real-time payment infrastructure that provides a platform for innovation to enhance Canada’s economy. With this win, we are now providing real-time payments infrastructure for 12 of the top 50 GDP countries, extending our global footprint. Relating to these new infrastructure wins, we continue to build out applications that leverage real-time payment rails like with Mastercard Track Business Payment Service, which is now live with real-time payments and batch ACH in the U.S. alongside our card functionalities. We’ve also extended Track’s card payment capabilities worldwide and now continuing to build out our network with a number of bank and nonbank partners that considerably extend our reach on both the buyer and supplier side. This year, we plan to continue expanding the platform into new geographies and add our cross-border payment capabilities. We’re also delivering on our multi-rail promise with Mastercard Send, which continues to grow across the globe. For example, we expanded our reseller network by deepening our long-standing relationship with Citi to enable them to offer business-to-consumer disbursements in the U.S. This is one of several new partnerships leveraging Mastercard Send to enable B2C and person-to-person money transfers domestically and internationally. We also partnered with TransferGo, enabling customers across 20 European countries to make international money transfers from any card or bank account directly to a Mastercard debit or credit card. Now let’s take a look into the future. As you’ve surely heard, there’s a lot going on in the digital currency space, with many governments around the world evaluating central bank digital currencies. When a country chooses to issue its own CBDC like the pilots we’ve seen in countries like Sweden or China or instead, it provides a regulatory framework for private stable points or otherwise pursues both public and private options in parallel, we are engaged with central banks through our policy and the solution perspective. We’ve continued to invest in this space to be ready to co-invest with governments, banks, and fintech partners. For example, the virtual test platform that we launched a short time ago is being received well. And our cryptocard programs, including Wirex in the U.K. and Uphold in the U.S., enable consumers to spend their crypto balances within our acceptance network. This year, we plan on adding digital currency controlled directly on our network, enabling our partners to take advantage of our acceptance reach and settlement capabilities. This will give choice and flexibility for consumers and merchants for what currency they want to use or receive. Our level of support will vary based on regulations in a given market. It will continue to be guided by our published principles on security, compliance, and consumer protections and the value to our stakeholders in determining our involvement in a specific initiative. So there’s certainly a lot going on and significant opportunity ahead. With that, let me turn the call over to Sachin.
Sachin Mehra, CFO
Thanks, Michael. Turning to Page 3, which shows our financial performance for the quarter on a currency-neutral basis and excluding special items related to certain litigation and tax matters and the impact of gains and losses on the company’s equity investments. Net revenue was down 7%, reflecting the impact of the pandemic and includes a 1 ppt benefit from acquisitions. Operating expenses were flat year-over-year or down 3% if you exclude the 3 ppt impact of acquisitions. Operating income was down 12% and net income was down 17%, both of which include a 2 ppt decrease related to acquisitions. EPS was down 16% year-over-year to $1.64, which includes $0.04 of dilution related to our recent acquisitions, partially offset by a $0.03 contribution from share repurchases. During the quarter, we repurchased about $1 billion worth of stock and an additional $356 million through January 26, 2021. So let’s turn to Page 4, where you can see the operational metrics for the fourth quarter. Worldwide gross dollar volume or GDV increased by 1% year-over-year on a local currency basis, reflecting the effects of the pandemic. U.S. GDV increased by 4%, with debt growth of 15%, partially offset by a credit decline of 7%. Outside of the U.S., volumes were flat. Cross-border volume was down 29% globally for the quarter. Similar to last quarter, intra-Europe volumes were less impacted than other cross-border volumes. Specifically, intra-Europe volume was down 15% for the quarter, whereas other cross-border volume was down 41%. Turning to Page 5. Switched transactions grew 4% in the fourth quarter globally. We saw positive growth in switched transactions across most regions, aided in part by the continued adoption of contactless. In addition, card growth was 6%. Globally, there are 2.8 billion Mastercard- and Maestro-branded cards issued. Now let’s turn to Page 6 for highlights on a few of the revenue line items. The decrease in net revenue of 7% was primarily driven by a decline in cross-border volumes due to the effects of border restrictions and social distancing measures, partially offset by growth in GDV, switched transactions, and continued growth in our services. As previously mentioned, acquisitions contributed approximately 1 ppt to net revenue growth. Looking quickly at the individual revenue line items, domestic assessments were up 1%, while worldwide GDV grew 1%. Cross-border volume fees decreased 41%, while cross-border volumes decreased 29%. The 12 ppt difference is primarily due to an adverse cross-border mix mainly driven by lower-yielding intra-Europe cross-border volumes being less impacted than higher-yielding other cross-border volumes. Transaction processing fees were up 4%, while switched transactions were up 4%, with the unfavorable cross-border mix I just mentioned being offset by strong services growth. Other revenues were up 17%, including a 1 ppt contribution from acquisitions. The remaining growth was primarily driven by our data analytics, consulting, and cyber and intelligence solutions. Finally, rebates and incentives were up 1%. Moving on to Page 7, you can see that on a currency-neutral basis and excluding a special charge related to litigation, total operating expenses remained flat. This includes a 3 ppt increase related to acquisitions. Excluding acquisitions, we delivered an expense decrease of 3 ppt. Turning to Page 8, let’s discuss the specific metrics for the first 3 weeks of January. Starting with switched volumes, we continue to believe that most markets are in the normalization phase domestically with some approaching growth. Overall, switched volume growth remains generally consistent with the trends we saw in December. While we are seeing stronger growth in the U.S., this is being more than offset by slower growth in markets outside the U.S., primarily Europe. Switched volumes in the United States have been strong in recent weeks, supported in part due to the recent fiscal stimulus. Outside of the U.S., switched volumes in Europe have slowed considerably due to the increased lockdowns in countries like the U.K., Germany, and Italy. When you look at how people are spending, we have recently seen a decrease in card-present growth rate due primarily to the effects of the increased lockdowns that began to be put in place in December, while our card-not-present growth rates remain healthy. Trends in switched transactions remain steady and are tracking the trends we are seeing at switched volumes. In terms of cross-border, we have seen a reversal in intra-Europe cross-border in recent weeks relative to the improvement we saw in November and December. Higher-yielding other cross-border remains more adversely impacted than intra-Europe cross-border. Turning now to Page 9. I’d like to provide some additional color on the cross-border trends across card-present and card-not-present. If you look at the total cross-border, which showed some improvement in November and December, is now continuing in a relatively similar band to what we saw in October due to the reimplementation of border restrictions. If you look at the orange line, card-present spend reflects continued limited travel, in part due to the border restrictions I just mentioned. Card-not-present growth continues to be resilient and has held up well. The green line represents card-not-present spend, excluding online travel-related spend, and remains positive as we effectively received strong growth across discretionary and nondiscretionary retail categories. Turning now to Page 10. I wanted to share our thoughts for the upcoming year. First and foremost, we feel like we are very well positioned to grow with the strategic deals we have laid out over the last several quarters, including those with Bank of America, NatWest, Deutsche Bank, and Santander, to name a few. Further, we have positioned ourselves with the return of travel with travel-oriented portfolios. We have built a strong set of services capabilities, which continue to grow at a faster rate than before, and we will deepen penetration of these services across our customer base while expanding this portfolio. And our multi-rail strategy positions us well to address new flows and adapt to the changing payments landscape. In terms of the macro environment, we’re enthusiastic about the availability of effective vaccines. However, the rate at which vaccinations will take place is still uncertain. As a result, we will not be providing a forward view on net revenue for 2021 at this time as we believe visibility is dependent upon border opening, the further relaxation of social distancing measures and improvement in consumer confidence. As we have said, we expect to see progress in these areas in the second half of 2021. Turning to the first quarter, we anticipate that some of the more restrictive measures that have recently been put in place because of rising infections will persist in the near term. If this were to be the case, we would not expect spending levels to improve from what we have seen so far in January. By the way, we do plan on providing periodic updates to the operating metrics during this quarter. In addition, I will offer a few additional points to help you with your modeling. First, we will continue to experience lower cross-border related deals until broader scale interregional travel recovers. Second, from a growth rate perspective, we expect to start lapping the effects of the pandemic primarily in March. Also, as a reminder, last year was a leap year and so Q1 2020 had an extra day of volumes and revenues. And finally, we expect rebates and incentives as a percentage of gross revenues to be flat or up slightly sequentially due to new deal activity, including some of the recent wins Michael has just discussed. Now let’s turn to operating expenses. We continue to carefully manage our properties in order to preserve our ability to invest in our key long-term growth drivers, namely digital, cybersecurity, data analytics, B2B, and multi-rail solutions. For Q1, we expect operating expense growth to be up mid-single digits versus a year ago on a currency-neutral basis, excluding acquisitions. Of note, this increase reflects the lapping of spending actions taken a year ago as a result of the pandemic as well as a 3 ppt increase due to the lapping of a favorable hedging gain from a year ago. With respect to acquisitions made in 2020 or later, Finicity closed near the end of last November, and we continue to expect the transaction with Nets to close in Q1. Based on this timing, we expect the acquisitions to contribute about a 0.5 ppt to revenue in Q1 and 1 to 2 ppt for the year. Similarly, acquisitions will contribute approximately 4 to 5 ppt to operating expenses growth in the first quarter and 7 to 8 ppt for the year. Other items to keep in mind. Foreign exchange is expected to be about a 2 ppt tailwind to net revenues and a 2 ppt headwind to operating expenses in Q1. On the other income and expense line, we had an expense run rate of approximately $110 million per quarter given the prevailing interest rates. This excludes gains and losses in our equity investments, which are excluded from our non-GAAP metrics. And finally, we expect the tax rate of approximately 18% to 19% for the year based on our current geographic mix of the business. And with that, I will turn the call back over to Warren.
Warren Kneeshaw, Head of Investor Relations
Thanks, Sachin. Tanya, we’re ready to take questions.
Operator, Operator
We had an expense run rate of approximately $110 million per quarter given the prevailing interest rates. This excludes gains and losses in our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect the tax rate to be approximately 18% to 19% for the year based on our current geographic mix of the business. Thank you, Sachin. Tanya, we’re ready to take questions.
Warren Kneeshaw, Head of Investor Relations
Tanya, it’s coming through very rough at this end. So, if you can try to correct that. First question, please?
Operator, Operator
Your first question is from Craig Maurer from Autonomous Research.
Craig Maurer, Analyst
Tanya, it’s coming through very rough at this end. So, if you can try to correct that. First question, please?
Warren Kneeshaw, Head of Investor Relations
There’s a lot of static on the line. Craig, you just dropped off. Can you still hear us? I’ll just rephrase the question in the hopes that you’re still on.
Michael Miebach, CEO
So, Craig, I can take that question. A couple of things that I want to point out. There is no change in our pricing either. Specifically on your question about payment once the transaction ended on the 31st of December of last year, the UK effectively became subject to the same interchange conditions as agreed with the European Commission. And recognizing the prevailing pandemic, what we did is we set the timing of the change commencing in October of 2021. We are very aware of the challenges that are being faced by retailers, businesses, and people during this pandemic. And we continue to evaluate the timeline of the, to the extent possible, implementation of this position as we go forward.
Operator, Operator
We’ll take the next question with Credit Suisse.
Unidentified Analyst, Analyst
Can you hear me?
Michael Miebach, CEO
Yes, I can hear you.
Unidentified Analyst, Analyst
Recognizing the prevailing pandemic, what we did is we set the timing of the change commencing in October of 2021. We are very aware of the challenges that are being faced by retailers, businesses, and people during this pandemic. And we continue to evaluate the timeline of the implementation of this position as we go forward. We’ll take the next question with Credit Suisse. Can you hear me? Yes, I can hear you.
Warren Kneeshaw, Head of Investor Relations
Yes. I’m sorry. We couldn’t get that. Just hold on a sec. We’re just trying to switch over the lines. This is Warren. There’s a problem with the operator’s line. We are just going to pause for a moment. So, if you could just bear with us.
Operator, Operator
Your next question is from Ramsey El-Assal with Barclays.
Ramsey El-Assal, Analyst
Glad you’re back. I wanted to ask about the impact of stimulus on your volumes. Is the U.S. switched volume improvement in January versus December largely attributable to the impact of stimulus? Additionally, I was interested in what you were saying about Mastercard’s involvement with central bank digital coins and how you will enable them to flow on your network. How do you assist governments with that product? What can Mastercard do to be of utility?
Sachin Mehra, CFO
Ramsey, it’s Sachin. I’ll take the first question. So, to your question, what we are seeing in the first three weeks of January is better performance in the U.S., and we are attributing that primarily to the impact of stimulus. Obviously, there are several factors that go into overall spending trends, but this definitely does play a part. And we are seeing that come through. In terms of spend levels in the U.S. in the first 3 weeks, what we’re seeing is being more weighted to a debit perspective.
Michael Miebach, CEO
Good. And on the central bank digital currency front, Ramsey, here’s how Mastercard can be helpful. First of all, we are engaging with governments all around the world to find out what is the path forward when it comes to modernizing the payment stack on a given country. We will certainly partner in this space and share our expertise. But we also see situations where real-time payment is a better answer, as it just may exist in the existing financial infrastructure. But let’s come back to CBDCs. We have a few principles that we put out in the market, shared by most leading central banks around the world. That is to recognize there are different roles between a central bank and a private sector bank. This is something we’re excited about supporting through our acceptance network and other capabilities.
Tien-tsin Huang, Analyst
I just want to ask about the NatWest win on the debit side. That’s a nice one. Anything interesting to share on how this win came together? And I’m also just curious, bigger picture of the pipeline for new deals, if it’s changed at all.
Michael Miebach, CEO
Yes. So let me take the first part of the question and then Sachin can talk a little about the pipeline. This big win with NatWest, along with our strategic relationships with Walgreens and Deutsche Bank, highlights our capabilities across multiple payment rails. We want to co-innovate with NatWest on these payment rails, and that’s a capability that matters particularly in Europe. So I think that’s generally the story. And how that’s changed from, let’s say, 2 years ago? Well, the demand for multi-rail capabilities is growing significantly.
Sachin Mehra, CFO
Yes. And Tien-tsin, I’ll just add that Michael touched upon the point around our services capabilities. The wins we’re having are very much supported by the strength of our services. Engaging with customers has become more of a partnership discussion than just a vendor relationship. That’s been key in winning. Our pipeline remains robust, and new opportunities are continually opening up.
Dan Dolev, Analyst
A quick question on debit. You mentioned debit is driving most of the growth. And if I look at Q4 versus Q3, debit growth in the U.S. decelerated. What’s behind it?
Sachin Mehra, CFO
Sure. You should think about the mix between debit and credit being influenced by multiple factors, including the timing of stimulus payments and associated spend. While debit grew at a healthy pace in Q4, it was a little slower than in Q3 due to the stimulus impact. Conversely, credit performed better in Q4 driven by increased discretionary spending.
Michael Miebach, CEO
Yes. And one point to add is that during economic downturns, debit generally becomes the preferred option as people prefer to spend what they have, mitigating further debt.
Jason Kupferberg, Analyst
I wanted to ask about cross-border. Can you just touch on what has driven an incremental improvement in that metric and the sustainability of this improvement?
Sachin Mehra, CFO
We have observed a little recovery in non-intra-Europe cross-border during the first 3 weeks. Factors include open borders for travel in certain regions and spending patterns from expats. However, we need to monitor this trend over a longer period for sustainability.
Michael Miebach, CEO
Regarding the longer-term outlook on cross-border, we are optimistic about the rollout of vaccines and the subsequent return to travel. This will be crucial for revitalizing cross-border volumes.
Darrin Peller, Analyst
I’m curious about what you expect to be more permanent improvements due to the electronic nature of what we’ve seen in the pandemic.
Sachin Mehra, CFO
We expect digital transactions to remain elevated post-pandemic, which will influence our growth.
Michael Miebach, CEO
In terms of structural changes, e-commerce is likely to grow considerably, and digital banking will continue to see increased adoption. Our capabilities will be pivotal in supporting these changes.
Lisa Ellis, Analyst
Can you elaborate on how you’re thinking about open banking and Mastercard’s role across various payment methods?
Michael Miebach, CEO
We view open banking as adding data transmission capabilities and additional transaction rails. Our multi-rail strategy allows us to engage across various payment methods, enhancing consumer choice.
Sachin Mehra, CFO
We will realize revenue across various layers of our services offerings, and our role will be to provide choices while ensuring robust value.
Warren Kneeshaw, Head of Investor Relations
We’re going to go to about 10 after 10:00, if you can stick with us just to take a few more questions.
Timothy Chiodo, Analyst
Can you discuss the evolution of cross-border volumes over the next few years?
Sachin Mehra, CFO
We do expect the return of travel to influence the mix of cross-border volumes positively. Additionally, our strategies involving various payment methods will tap into growing markets.
Michael Miebach, CEO
There are significant opportunities with B2B transactions and digitizing supply chains to enhance operational flexibility. Our capabilities in that area are critical.
Don Fandetti, Analyst
How are discussions with big tech players going today? Do you think your interests are still aligned?
Michael Miebach, CEO
Our focus remains on these partnerships. We have strong relationships across big tech companies like Amazon, Facebook, and Apple. As they advance in payments, we fit in as their specified payment technology partner, ensuring mutual growth.
Warren Kneeshaw, Head of Investor Relations
Thanks, Michael. I think it’s time to wrap up. Michael, any final thoughts?
Michael Miebach, CEO
I want to comment that our employees really stepped up during the challenging times of 2020 and allowus to close the year on a positive trajectory. We are optimistic about COVID recovery in light of vaccine deployment and the potential return of cross-border activity. Lastly, we care deeply about doing right by our communities and our commitment to net-zero is a testament to that. Looking forward to speaking to you next quarter.
Operator, Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.