Earnings Call Transcript
Mastercard Inc (MA)
Earnings Call Transcript - MA Q1 2021
Operator, Operator
Ladies and gentlemen, thank you for standing by and welcome to the Q1 2021 Mastercard Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the call over to Warren Kneeshaw, Head of Investor Relations. Thank you. Please go ahead.
Warren Kneeshaw, Head of Investor Relations
Thank you, Denise, and good morning, everyone, and thank you for joining us for our First Quarter 2021 Earnings Call. We hope you're 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 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. With the release and the slide deck both include reconciliations of non-GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and 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, Mike Miebach.
Michael Miebach, CEO
Thank you, Warren, and good morning, everyone. So here are the headlines. We started the year with good momentum, delivering positive net revenue growth this quarter. We're encouraged by the return of domestic spending levels to pre-pandemic trends. We continue to execute against our strategic objectives as we signed notable new deals, advanced our multi-rail strategy by closing our transaction with Nets and extended our digital identity capabilities with the planned acquisition of Ekata. So let's dive in by looking at the broader economy first. Domestic spending levels showed continued improvement with very strong e-commerce sales. According to our quarter one spending pulse report, which is based on all tender types, U.S. retail sales were up 11.8% versus a year ago excluding automotive and gasoline. This reflects the impact of fiscal stimulus and the lapping of the start of the pandemic. Spending costs also indicated that overall European retail sales were close to flat in quarter one versus a year ago. The vaccine rollout has become scaled in the U.S., U.K. and several other countries. And broadening this critical effort is underway, but will take time. Let's start with our business specifically and the four-phase framework we established for managing through the COVID environment. At this time last year, markets were going through the containment and stabilization phases. We now believe many markets are transitioning from the normalization phase to the growth phase domestically. Cross-border travel spending continues to be in the stabilization phase where spending is restricted due to closed borders. Looking at Mastercard spending trends, volumes continued to improve quarter-over-quarter with strength across products. We saw particular strength in debit, primarily driven by fiscal stimulus and share gains. In terms of how people are spending, e-commerce continues to be strong and we're seeing improvements in card-present spending. On the travel front, we've seen some recent improvements in domestic travel, primarily personal travel. Cross-border travel remains limited as border restrictions remain in place for most markets. Cross-border card-not-present spending excluding online travel spend continues to hold up well. As we have observed in many markets, progress is not always linear. And we believe there's significant pent-up demand for travel as we've just seen in domestic travel. We expect domestic travel to improve progressively throughout the year in countries with strong vaccination programs. International travel should start to open on a select basis in the second half of the year between countries with strong vaccination programs and/or low case rates. In the meantime, we remain focused on building on our already strong position in travel, engaging travelers early through our loyalty programs and expanding relationships with our partners in travel. As a result, we are well positioned to capitalize on this opportunity when it occurs. As we look forward and see positive momentum in the drivers that impact our top-line growth, we will increase the investment we put toward our strategic priorities; one, growing our share of payments; two, deploying a broader set of services; three, enabling digital solutions; and four, providing choice with multi-rail capabilities. As always we will do this with an eye towards driving top and bottom line growth over the long-term along with expense discipline. Let me illustrate how we're executing against each of these strategic priorities. I will begin by sharing how we're driving growth in the core, always supported by differentiated services capabilities. Here are a few key examples. Building on our strength in U.S. retail co-brands, we're excited that Mastercard was chosen as the exclusive network for Gap Inc.'s co-branded credit cards across the Old Navy, Gap, Banana Republic, and Athleta brands. This partnership will include a reimagined rewards program to drive increased customer engagement with the migration of existing card members planned for 2022. We've had a long-term services relationship with Gap, which led to additional opportunities to support both their co-brand programs and their broader business. We're also leveraging our differentiated service to expand relationships with key global partners like Santander. This quarter we signed a new deal with Santander Brazil and executed a long-term exclusive partnership with Superdigital, Santander’s fintech arm, to provide digital prepaid accounts across seven Latin American markets. Also, we're happy to announce that the financial arm of one of the largest retailers in Europe, El Corte Ingles, is migrating its entire closed-loop consumer credit portfolio to Mastercard exclusively for 10 years. This strategic partnership includes our processing capabilities and will contribute to growing Mastercard's overall credit share in the region. Talking about share, I'd also like to point out that the migration of the Santander UK debit portfolio is progressing well and we're preparing for the other conversions to be previously announced. Finally, we secured several strategic renewals and expansions. As many of you know, Huntington Bank announced its anticipated acquisition of TCF at the end of last year, which will make them a top 10 U.S. regional bank. I'm happy that they have decided to both renew their existing business with us and convert the TCF business to Mastercard. This brings significant new debit volume to our brands. We've also expanded our relationship with Synchrony Bank as the exclusive partner for their general-purpose consumer credit portfolio. Turning to the next strategic priority. We continue to enable digital solutions to drive the secular shift to electronic payments. A great example of this can be seen through the partnerships we have established with several leading mobile telecom providers across Africa and other regions. In Africa, there are more mobile money accounts than bank accounts and consumers increasingly expect digital financial services to be provided through their mobile phones. Now we signed a multi-year partnership with MTN Group to enable millions of their MTN mobile money wallet customers with a Mastercard virtual payment solution. We've also expanded our partnership with the Airtel Group to equip their Airtel money customers with virtual cards and QR solutions. And we've extended our partnership with the Airtel Payments Bank in India along with the recent investment in Airtel Mobile Commerce. While our digital capabilities are enabling us to penetrate new geographies, our multi-rail strategy is allowing us to provide greater choice and capture new payment flows. We're happy that we have now completed the acquisition of the majority of the Corporate Services division of Nets, which reinforces our leadership position in providing real-time payments infrastructure and applications. This transaction significantly enhances our application capabilities inclusive of a robust set of bill payment solutions which are operating at scale across several markets. Furthermore, this is an integral component of our regional strategy in Europe enabling us to operate as a local partner. We see significant opportunity to expand these capabilities into additional markets around the world. Speaking of Bill Pay in the U.S., we continue to scale our Bill Pay Exchange solution through new billers and bank partners. We're excited to announce that Verizon will connect as the most recent national biller on the platform. Turning to cross-border applications. We have now fully integrated our acquisition of Transfast and can now provide unsurpassed reach via a single point of access that allows banks and digital partners to send and receive money through bank accounts, mobile wallets, cards, and cash payouts to over 90% of the world's population in more than 100 countries. We're expanding our relationships with the United Nations Federal Credit Union and Saudi British Bank to expand their reach into additional markets. Both Bancorp and IDT payment services will now leverage our capabilities for cross-border advantages. Additionally, we've extended our partnership with Western Union, who will be using our capabilities to allow customers in 18 European countries to transfer funds directly to debit cards in near real-time. Our multi-rail capabilities are critically important to our efforts in open banking as well. They enable us to provide our customers across banks and fintechs with greater flexibility in how they manage both payment and data flows. We're off to a strong start at Finicity as we've integrated our sales teams and already signed several new connectivity partners and application users. For example, we're live with our state-of-the-art API-based data access in several large banks including U.S. Bank as well as with the leading payroll processor representing millions of employees. Finicity was also selected by companies like Upgrade, SWBC, MoCaFi, MoneyLion, and TomoCredit to provide permission-based access to financial data to support a variety of use cases including mortgage, lending, and of course, payments. We're expanding our open banking capabilities in Europe as well as we're now live with our Open Banking Connect solution with Lloyds Bank in the U.K. for consumers to make payments to their credit cards. We continue to see a great deal of interest and activity in digital currencies and we're innovating in this space through new crypto and CBDC partnerships enabling digital currencies on our network and continuing our investments in underlying blockchain technology as part of our multi-rail strategy. We have several new crypto partnerships approved for launch this quarter including a partnership with Gemini, a leading crypto platform here in the U.S. to launch a first-of-its-kind cryptocurrency rewards credit card that allows consumers to receive crypto rewards on everyday purchases. In Spain, Crypton, a crypto exchange, is launching a Mastercard Crypto Card. On central bank digital currencies, we continue to engage with central banks around the world and our virtual testing platform is helping them design features, issuance, and evaluate interoperability with existing payment systems. In partnership with the Central Bank of Bahamas and Island Pay, we launched the world's first CBDC-linked payment card, enabling people to pay for goods and services using fiat currency anywhere Mastercard is accepted. Digital identity is critically important as the shift to a digital economy continues. It is a foundational component of our multilayered approach to security, and has allowed us to help consumers and businesses safely and easily prove their identity while enabling them to maintain control over their information. Last week, we announced the planned acquisition of Ekata, which advances the digital identity efforts we have underway. Ekata has access to validated identity information on a global basis and leverages artificial intelligence to produce highly accurate identity scores. Ekata's insights support multiple payment and non-payment use cases, including new account openings, instant issuance, and transaction risk checks, to be used by a broad range of customers, including leading digital merchants, financial institutions, travel companies, and digital currency platforms. This is an example of how we are entering into adjacent areas and innovating beyond the core payment transaction. And now back to the bigger picture. We're leveraging our business to have a broader impact on society by executing our commitment to bring one billion people into the digital economy by 2025. Specifically on the environmental front, we have pledged to achieve net-zero emissions by 2050 and issued a sustainability bond in the last quarter to support these efforts. Furthermore, our Mastercard carbon calculator developed in collaboration with Doconomy is enabled on our network to provide consumers with a snapshot of carbon emissions generated by their purchases. We've worked with customers to issue over 10 million cards using sustainable materials. If we tie all of this together, we are now linking executive compensation to Mastercard's sustainability priorities. With all of that in mind, I continue to be excited about the opportunity ahead and I'm happy with the progress we're making against our objectives. And with that, Sachin, over to you.
Sachin Mehra, CFO
Thanks, Michael, and good morning, everybody. So turning to page 3, which shows our financial performance for the quarter, on a currency-neutral basis and excluding special items, and the impact of gains and losses on the company's equity investments. Net revenue was up 2%, returning to positive growth for the first time since the peak of the pandemic in Q2 2020 and includes a one percentage point benefit from acquisitions. Operating expenses increased 7%, which includes a four percentage point increase from acquisitions. Operating income was down 1% and net income was down 6%, both of which include a one percentage point decrease related to acquisitions. EPS was down 5% year-over-year to $1.74, which includes $0.02 of dilution related to our recent acquisitions offset by a $0.02 contribution from share repurchases. During the quarter, we repurchased about $1.4 billion worth of stock and an additional $418 million through April 26, 2021. So let's turn to page 4, where you can see the operational metrics for the first quarter. Worldwide gross dollar volume or GDV increased by 8% year-over-year on a local currency basis. We are seeing sequential improvement in both debit and credit as vaccination progress takes hold and mobility increases. In addition, debit growth is being further strengthened by fiscal stimulus and share gains. US GDV increased by 14% with debit growth of 26% and a decline in credit of 1%. Outside of the US, volume increased 5% with debit growth of 12% and a decline in credit of 2%. Cross-border volume was down 17% globally for the quarter with intra-Europe volumes down 11% and other cross-border volumes down 23%. Turning to page 5. Switched transactions grew 9% in the first quarter globally. Card-not-present growth rates have accelerated during the past year and continue at those elevated levels while card-present transactions are now growing above 2019 levels for the first time since the peak of the pandemic. 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, again described on a currency-neutral basis unless otherwise noted. The increase in net revenue of 2% was primarily driven by domestic transaction and volume growth, as well as strong growth in services, partially offset by lower cross-border volume fees and higher rebates and incentives. As previously mentioned, acquisitions contributed approximately one percentage point to net revenue growth. Looking at the individual revenue line items, domestic assessments were up 8% in line with worldwide GDV growth of 8%. Cross-border volume fees decreased 26%, while cross-border volumes decreased 17%. The nine percentage point 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 switch transactions were up 9%. The five percentage point difference is primarily driven by adverse mix. Other revenues were up 27%, including a three percentage point contribution from acquisitions. The remaining growth was mostly driven by our Cyber & Intelligence and Data & Services solutions. Finally, rebates and incentives were up 4%. Moving on to Page 7. You can see that on a currency-neutral basis total operating expenses increased 7%. This includes a 2 percentage point increase from acquisitions and a three percentage point increase related to the lapping of a favorable hedging gain from a year ago. Excluding these items, expenses were flat as we continue to invest in our strategic priorities while keeping an eye on top-line growth. Turning now to Page 8. Let's discuss the specific metrics for the first three weeks of April. We are seeing significant improvements in the growth rates across our operating metrics versus 2020, primarily due to the lapping effects related to the pandemic that began mostly in March of last year. Hence, to provide you better visibility into current spending levels, we thought it would be useful to present the 2021 volumes and transactions as a percentage of the 2019 amounts when we were not experiencing the impact of the pandemic. So if you look at the spending levels as a percentage of 2019, for switched volumes, they have shown steady sequential improvement, continuing along the same trend line we saw in Q1. This is driven primarily by the US, which has benefited from the recent fiscal stimulus. We have seen improvements in discretionary categories like clothing, furniture, and sporting goods. And we have also seen some recent strength in personal domestic travel in the US and the UK, where we are making strong progress in vaccinations. For instance, we have seen US airline spend essentially double over the last four weeks relative to where it was earlier in Q1. Trends in switched transactions remain steady and are generally tracking the trends we are seeing in switched volumes. In terms of cross-border, spending levels as a percentage of 2019 remained mostly unchanged through the start of April. We continue to see very strong growth in card-not-present cross-border volumes, excluding online travel-related spend. However, border restrictions remain widespread, and cross-border travel, which is card-present and travel-related card-not-present volumes, continues to be impacted. As you can see from the numbers, there's a significant opportunity for improvement in cross-border travel. In fact, where borders are open, such as Mexico and certain Latin American countries, and the UAE, we have seen travel improve. Turning to Page 9. I wanted to share our current thoughts looking forward. First off, we continue to make strong progress against our strategic objectives and feel we are very well positioned to grow with the new and renewed deals we have signed over the last several quarters. We have positioned ourselves for the return of travel with travel-oriented portfolios and have built a strong set of services capabilities, which continue to grow at a healthy rate and have helped diversify our revenue base. In terms of the macro environment, domestic spending levels have continued to improve, entering the growth phase this quarter, supported in part by fiscal stimulus and the rollout of effective vaccines. The pace of vaccinations has been uneven, however, and as a result, we expect the pace of recovery to vary from country to country. As Michael said, we do believe there is significant pent-up demand for travel and are already seeing domestic travel improve. In terms of cross-border, we believe that in the second half of the year, we will see additional borders open, particularly between those countries with low infection rates and/or advanced vaccination programs. Turning to the second quarter. If spending levels continue on their current trajectory, we would expect Q2 net revenues to grow around a low to mid-20s growth rate year-over-year on a currency-neutral basis, excluding acquisitions. It is important to point out that this is just one potential scenario, which could be impacted by factors, such as more restrictive measures being put in place because of rising infections or the opening or closing of borders. In terms of operating expenses, we continue our disciplined expense management approach, while furthering our strategic imperatives and keeping an eye on top-line growth. As we progress through the growth phase of the pandemic domestically, we will look to increase our investments in key areas such as digital, cybersecurity, data analytics, B2B, and our multi-rail solutions, as well as begin to increase our advertising and marketing-related spend. For Q2, we expect operating expenses to grow at a rate in the low 20s versus a year ago on a currency-neutral basis, excluding acquisitions. As a reminder, we are now beginning to lap the spending actions we took last year as the pandemic hit. With respect to acquisitions, we are pleased to have announced the planned acquisition of Ekata and have now closed on the transaction with Nets, and expect acquisitions will contribute about two to three percentage points to revenue in Q2 and for the year. Similarly, acquisitions will contribute approximately nine to ten percentage points to operating expense growth in the second quarter and eight to nine percentage points for the year. As a reminder, we discretely disclosed the impact of acquisitions for the year in which they close and the subsequent year, after which time we do not split them up. Other items to keep in mind: Foreign exchange is expected to be a two to three percentage point tailwind to net revenues and a three to four percentage point headwind to operating expenses in Q2. On the other income and expense line, we are at an expense run rate of approximately $115 million per quarter, given the prevailing interest rate environment. This excludes gains and losses on our equity investments which are excluded from our non-GAAP metrics. And finally, we expect a tax rate of approximately 18% to 19% for the year based on the current geographic mix of our business. And with that, I will turn the call back over to Warren.
Warren Kneeshaw, Head of Investor Relations
Thank you, Sachin. Denise, we're now ready for questions.
Operator, Operator
Your first question comes from Harshita Rawat with Bernstein. Your line is open.
Harshita Rawat, Analyst
Hi, good morning. Thank you for taking my questions. Michael, can you elaborate on the Ekata acquisition and your broader digital identity efforts? Digital identity has so many problems today seeking solutions and is something you've been looking at for quite a while. So, can this be a long-term adjacency for your business? And how does it fit in with what you're doing with open banking at Finicity? Thank you.
Michael Miebach, CEO
Yes. Hi Harshita, thanks for the question. So, we're excited about Ekata. And it is a continuation of what we have been doing in digital identity. So, clearly, it's a non-sustainable path forward in a more digital economy to have even more passwords, so that's pretty clear. So, identity is one pillar in our overall security strategy. We needed to strengthen up here. We started that activity with a pilot that we launched in Australia about a year ago that is now going live in partnership with the Australian telecom Optus, where we are introducing a reusable digital identity. What Ekata does is it accelerates our efforts because Ekata has access to verifiable data points that allow us to establish an identity. As I said earlier, they can in near real-time produce very accurate identity scores. It comes along with a set of established global customers, digital merchants, cryptocurrency chains, financial institutions, and so forth. So, we were on the track. Ekata is accelerating our efforts. It sits right into our existing set of cyber solutions. It's at the start of the transaction. It's at the end of the transaction. And in between, we have our decision intelligence and various other transaction-focused solutions. So, it's a full package. It sets us apart. And as you can appreciate, you link this back to open banking as you asked the question, we are going beyond the payment transaction and such. You need identity solutions for data transactions just as much as you do for digital identity use cases.
Harshita Rawat, Analyst
Great. Thank you.
Operator, Operator
Your next question comes from Jason Kupferberg with Bank of America. Your line is open.
Jason Kupferberg, Analyst
Yes, two quick ones for me. First off just anything you can tell us in terms of second quarter expectations on rebates, whether it's relative to last quarter or last year? I know you had given us a little bit of help on that for the first quarter. So, I'd love to hear your thoughts on Q2. And then just wondering if we can get a quick comment on OpEx. I mean I know that on an organic constant currency basis, the second quarter OpEx is growing about in line with net revenue. So, is that kind of the right general model to think about in the second half as well if the recovery progresses in line with your base case or does the second quarter have more catch-up OpEx spend in it? Thank you.
Sachin Mehra, CFO
Thanks, Jason. So, let me take your rebates and incentives question first. Look, I mean rebates and incentives are really dependent on the timing of deals and how the volume and mix plays out. Having said that, we expect rebates and incentives as a percentage of growth to be up sequentially as domestic spending recovers and new and renewed deals come online. I think you're aware that our domestic volumes are more indexed. Our rebates and incentives are more indexed to domestic volumes. They are less indexed to cross-border. So, depending on how that volume mix plays out, things might move around. But generally speaking, we expect rebates and incentives as a percentage of growth to be up from current levels pretty much for the remainder of the year as volumes recover. On your second question around OpEx, look, as we look forward, we see positive momentum in the drivers that impact our top-line growth and we will increase the investment we put forward towards our strategic priorities. And these are essentially the ones we've talked about: growing our share of core payments, ensuring that digital experience for our customers, driving a broader set of services capabilities, executing on our digital strategy, as well as our B2B strategy. As we do this, we will keep an eye on both the top-line and the bottom line. And we will basically be very focused on making sure that we are making investments to drive the long-term growth of our business. And that's kind of the essential thing I'd like to leave you with, which is we will continue to stay disciplined from an expense management standpoint. We see domestic spending transitioning towards the growth phase, which gives us confidence that vaccines are effective and they're being deployed at scale. So, we will keep an eye on all those metrics, and we will look to invest in the business to drive that long-term growth objective that we're talking about.
Jason Kupferberg, Analyst
Okay. Thank you.
Operator, Operator
Your next question comes from Darrin Peller with Wolfe. Your line is open.
Darrin Peller, Analyst
Hey everyone. Looking at the structural improvements affecting the business post-pandemic, it appears there could be several hundred basis points of additional earnings potential in the long term from the various factors mentioned. Can you share your thoughts on the areas you're most excited about that have shifted towards increased spending compared to pre-pandemic? Additionally, can you comment on whether the current investment levels, either as a percentage of revenue or as a total dollar amount, will allow for more operating leverage if we see improvements from better structural conditions? Thank you.
Michael Miebach, CEO
All right. Darrin, let me start off with the structural changes. I mean, that's the key question here. What makes a trend? What will stick? We have over the last 14 months on a monthly basis helped consumers around the world, small businesses around the world. The input that we're getting from this research remains unchanged. Fundamentally starting with increasing consumer confidence, spending is going up. When you look at the way how people spend, what we're hearing is that when the pandemic subsides, 70% of people are saying, I'm going to continue to use more online commerce than I have before the pandemic. Almost 70% is saying the same thing for digital banking. Almost the same number says more for contactless. Then you look at the other side of the coin, about 60% of people are saying, I will actually use less cash. We believe these trends of elevated online spending will prevail, maybe not at the same levels, but they will be elevated. At the same time, we're already seeing that in countries where strong vaccination programs are there and social distancing measures are reduced, that the spend in store is coming back. People want to go and spend at the local restaurant or support the local shop in their local main street. The good thing is, we're ready for both with our solutions. This is around changing consumer behavior as we turn out of this situation. Then you look at what's going on. With this push towards a more digital economy, we're seeing there's more data around. The thirst for data analytics is increasing. Our services teams can't be running fast enough to satisfy that thirst. If you look at more data and an increasing cyber footprint, our cyber solutions are going to be a continuing trend. Earlier we talked about our multi-rail strategy and what we're doing there. I talked about Europe and being the local partner, as government is interested in payments, particularly real-time payments and crypto central bank digital currency. This whole trend of government leaning in is going to be important. Our focus on our government vertical is going to help us there. There's a real push to digitize supply chains, make them more flexible. And of course, this relates to payments as well and the associated data flows. B2B should also see a push out of this as we turn out of the pandemic. It's a shifting picture. Darrin, I agree with you that there are a lot of things to feel positive about in terms of our strategy is on point for all these drivers, and that's why we're increasing the investment behind these. I'll turn the second half of the question over to Sachin.
Sachin Mehra, CFO
So, Darrin, just the one thing I'd point out is, you can see this in the slide deck we've shared with you. For example, if we look at cross-border and cross-border card-not-present excluding travel, that has been indexed back to 2019 and is showing pretty healthy growth rates. As we come out of the pandemic, we expect a large portion of that to stick. On the flip side, when you look at cross-border travel-related indexation levels, they're running at about 40%. So, if you believe that travel comes back, and we do, we see structurally the opportunity for upside growth coming from that as well. Just bringing the whole picture together to add to what Michael was saying lends directly into your operating leverage question.
Darrin Peller, Analyst
Okay. All right. That’s helpful. Thanks, guys.
Operator, Operator
Your next question comes from Lisa Ellis with MoffettNathanson. Your line is open.
Lisa Ellis, Analyst
Hi. Good morning and thanks for taking my question. I had a question on crypto specifically related to stablecoins and CBDC. Michael, you called out in the prepared remarks that many governments are using Mastercard's virtual testing platform for their CBDC experiments. Can you describe just, what you're seeing in terms of if governments are looking at implementing stablecoins or CBDCs? What type of public-private partnerships are they considering? Meaning, what type of role or roles could you envision Mastercard playing? Thank you.
Michael Miebach, CEO
That's a great question. Let's discuss CBDCs. In the broader crypto space, we aim to engage with CBDCs, private stablecoins, and facilitate the buying and selling of crypto assets. Specifically regarding CBDCs, I would say it's still early on. Our initial role involves collaborating with governments to determine the right framework and the private sector's responsibilities. Recently, leading central banks, including the ECB and the Bank of England, have proposed a two-tier system where the government issues the currency while the private sector handles distribution. Our potential contribution lies in innovating within that model, exploring what else blockchain technology can achieve beyond just facilitating payments. We appreciate the direction this is heading, and the concept of interoperability is crucial. The real value for consumers and businesses will arise when they can effectively use central bank digital currencies. An example in the Bahamas highlights this, where our Mastercard partner program allows CBDC users to spend at any Mastercard-accepting location, addressing the last mile problem. This requires testing and refinement, which is essential for initiatives like the Bahamas. Our second role involves creating a real-life test environment to iterate on designs and assess functionality, which also involves collaborating with commercial banks to support a two-tier system. Additionally, there are ongoing discussions about what applications could function on this infrastructure. We've mentioned smart contracts, and our investment in blockchain technology is aimed at that. Our advisory team is also engaged in answering questions on blockchain strategies. There are cybersecurity concerns as well, with governments worried about potential vulnerabilities introduced by blockchain. Our cyber solutions are prepared to address these issues. I believe there is a significant role for the private sector, and we can assist both the private sector and government in this endeavor.
Lisa Ellis, Analyst
Perfect. Thank you. Very exciting.
Operator, Operator
Your next question comes from Chris Donat with Piper Sandler. Your line is open.
Chris Donat, Analyst
Hi. Good morning. Thanks for taking my question. Just trying to get a little more specific on the benefits of vaccines and lower case loads for cross-border travel. As we think about the European Union taking steps to allow vaccinated US tourists into Europe, when we think about that corridor of the US traveling to Europe, is that significant enough to move the needle for cross-border, or is it a highly dispersed set of corridors that will take a lot of them coming back online?
Sachin Mehra, CFO
Yes, I can provide some insights on that. Overall, the corridors are widely distributed around the world. Intra-Europe represents a significant share of our cross-border volumes, as indicated by the metrics we’ve provided. The impact will rely on how travel resumes within intra-Europe. However, we acknowledge that intra-Europe volumes yield lower returns compared to other cross-border volumes. The U.S. is certainly an important outbound corridor, but there are several other significant corridors to consider. The Middle East and Africa, along with developments in the Asia Pacific region, are vital as well. For instance, the U.S. to Canada and the U.S. to Latin America and Mexico are also key corridors. What we are focusing on is not just the vaccine rollout but also what governments are doing to create travel bubbles. For example, there are discussions around Australia and New Zealand, as well as Hong Kong and Singapore, and China is working on establishing a bubble. There’s considerable effort underway to determine if there’s enough comfort to reopen borders and ease travel restrictions. Therefore, you should evaluate this from three angles: vaccines, the establishment of border protocols, and the ease of travel for individuals. All three factors are crucial for assessing the recovery of cross-border travel. We see positive indicators in corridors like the U.S. to Latin America, where travel has resumed effectively and cross-border spending has been solid. Similarly, in the UAE, cross-border spending has been strong. It's important to note that much of our cross-border travel volume comes from personal trips, and we anticipate a return to this segment. A key indicator of recovery is the robust return of domestic travel as quarantine measures have been lifted.
Chris Donat, Analyst
Okay. Thanks very much, Sachin.
Operator, Operator
Your next question comes from Bryan Keane with Deutsche Bank. Your line is open.
Bryan Keane, Analyst
Hi, guys. Good morning. Just thinking about modeling going forward looking at the two-year. In particular, thinking about the lapping of stimulus versus the economic recovery. Sachin, I don't know if you could give us some help on how you guys thought about the impact of those two factors. And particularly, I'm just curious how much stimulus had an impact? Do you think it's having an impact? And then secondly on services, I noticed the strength there. Just curious if that strength is expected to continue as we move forward through this year. Thanks so much.
Michael Miebach, CEO
Modeling is a queue for Sachin.
Sachin Mehra, CFO
What I'd tell you is, based on what we've seen from the stimulus, this round of stimulus has come into the flow from a spending standpoint significantly more rapidly than the last round of stimulus. The dollars spent are not once and done; people are saving. There is a trickle effect that comes over a period of time. It’s our expectation that the stimulus impact will continue to be felt at a declining pace as time goes along because we’ve started to see a lot of that come through in the early part right now. The strength in the numbers reflects this. Regarding services, we had another solid quarter in services. Services continues to do well, driving revenue-generating capabilities while also powering the core effectively. You can see that in the share we’re winning. I’m seeing a strong pipeline from a services standpoint moving forward. So I feel pretty good about our services growth trajectory.
Michael Miebach, CEO
I want to add one point here. There’s the deepening part into our existing customer set and extending our capabilities. There's another vector here: extending into new segments. Throughout the last couple of years, with a number of acquisitions like SessionM or APT, we've found adjacent segments that need these services. As we move into these new segments, it opens opportunities for cross-selling our payment solutions. It works in different ways. Regarding our multi-rail strategy, there's a growth dimension to extending our services across all new flows.
Bryan Keane, Analyst
Got it. Thanks for the help, guys.
Operator, Operator
Your next question comes from Tien-Tsin Huang with JPMorgan. Your line is open.
Tien-Tsin Huang, Analyst
Thank you. Good morning. I want to ask about Nets. Now that you've had it for a couple of months, it was a little different than what you originally agreed to buy. Given that, what are the priorities here, Michael? Both short-term and long-term? It sounds like Europe is clearly part of it. Can you catch us up on your to-do items right now?
Michael Miebach, CEO
Yes. The first thing I would say is it's not entirely different from what we intended to buy. It's certainly different in terms of the expected timeline; it should have been a little faster. That aside, we were excited in August 2019, and we're excited on March 3 when we had Legal Day One and welcomed the team in Copenhagen. I’ll tell you why we're excited. With our existing multi-rail capabilities, particularly in the account-to-account space, we're well-positioned with VocaLink. VocaLink has strong infrastructure capabilities and applications that help us build the services business. What Nets does is it provides additional infrastructure capabilities because it's a significantly customizable high-end solution that works for established markets that have made some journey in real-time payments. Nets is a nimble platform that allows us to deal with smaller markets and obtain more in a shorter period of time. We have complementary assets, which make us a one-stop shop partner when it comes to real-time payments. On the application side, I'm even more excited because we're not just getting technological capability with this purchase; we can bolt onto what we've already done in VocaLink. We’re getting scaled businesses that are live in the market, particularly strong bill payment propositions and volumes with large customer reach in the Nordics and other parts of Europe. We’ve identified Bill Pay as a growth opportunity sometime back in the U.S. and now we’re integrating it with Nets. Then we have the choice of taking our U.S. capabilities into world markets or do the same with Nets. Addressing these areas is a key part of our strategy. Regarding the remedy we had in the context of negotiations with the EU Commission throughout the approval process, it means we will license Nets’ technology to a licensee, allowing us to continue our operations. The package of having infrastructure, applications, and service altogether makes a differentiated proposition, and we were happy to provide that remedy. It pleased the EU Commission and supports the need for us in Europe because it’s essential to be seen as a true European partner.
Tien-Tsin Huang, Analyst
Very complete and clear answer. Thank you.
Operator, Operator
Your next question comes from David Togut with Evercore ISI. Your line is open.
David Togut, Analyst
Thank you. Good morning. Bridging to Tien-Tsin's question, how has the pandemic affected the rollout of account-to-account payments in Europe under PSD2? Account-to-account certainly seems much more akin to debit than credit, and we know debit has certainly accelerated. Any thoughts would be appreciated?
Michael Miebach, CEO
Yes David, that's a great question. Throughout the last quarter calls, we referred to engagements on the government front, and there were aspects that we had to dial down throughout the pandemic because there was no market appetite, but account-to-account was not one of them. We never missed a step there. This was driven by a lot of governments trying to get stimulus money into their citizens' hands, and they couldn't do it fast enough or efficiently enough. The focus on real-time payment infrastructure was significant. I see increasing engagement around account-to-account throughout the pandemic. As for the regulations, you’ve seen the 2-factor authentication move forward. Strong customer authentication has advanced. There is a growth momentum that we believe will continue.
Sachin Mehra, CFO
Yes. I'll make one more additional comment. When we think about account-to-account, there are domestic flows and account-to-account cross-border. We should consider it holistically, including the cross-border categories. We're seeing some decent traction taking place in the cross-border space from an account-to-account standpoint.
Operator, Operator
Your next question comes from Trevor Williams with Jefferies. Your line is open.
Trevor Williams, Analyst
Hey, good morning. Thanks for taking the question. I wanted to ask about yield within domestic assessments, where they held pretty well for most of 2020, but just over the last couple of quarters they have been down about 5% or so. I guess there are a lot of moving pieces with the mix shifting from quarter to quarter with the pace of recovery varying by region. Just any color you could provide on maybe where some of the recent weakness might be coming from and really what needs to happen, whether that's a recovery in certain geographies or anything else you might not be thinking about to get yields in that segment moving back up. Thanks.
Michael Miebach, CEO
Yes. Trevor, your question specifically is around domestic assessment yields, correct? Just want to be sure. We've seen a little bit of recovery in domestic assessment yields in the first quarter relative to what we saw in the fourth quarter. That number moves around and can be affected by a number of factors, particularly the mix between domestic and cross-border volumes as both impact the overall yield metric. Also, there are other moving parts in domestic assessments, card fees and those kinds of things featured in there as well. By and large, I would tell you that between the fourth quarter of 2019 and the first quarter of 2021 our yields have held steady if I take those two endpoints. They bounce around a little bit quarter-over-quarter but have remained fairly stable.
Trevor Williams, Analyst
Okay. Sure. Thank you. Appreciate the color.
Michael Miebach, CEO
Sure.
Operator, Operator
Your next question comes from Craig Maurer with Autonomous Research. Your line is open.
Craig Maurer, Analyst
Yes. Hi. Thanks. Wanted to ask about the material debit wins that you've had in Europe and now in the U.S. with TCF. You're going to obviously be onboarding a significant amount of debit volume over the next two years, which begs the question how do you view the long-term in terms of debit versus credit growth rates? We've seen significant outperformance of debit during the pandemic as it has become the obvious replacement for cash. Do you view the spread between the two versus historical levels as widening significantly over time? Thanks.
Michael Miebach, CEO
Good morning, Craig. Let me take your question then see if Sachin has anything to add. Throughout the pandemic, there was certainly a relative rise in debit over credit transactions. The way I look at this is this is a time of economic uncertainty where people prefer to spend the money they have and have more control over that. This behavior we’ve seen in previous crises is not surprising. With incentives from stimulus payments, debit growth has been significant. The nature of spending with a focus on everyday spend versus discretionary spend further supports this trend. However, it is challenging to predict what portion of this will stick as we exit the crisis. I do think that the crisis-influenced spending will dissipate, and you should expect discretionary spend categories to return as well. We're already observing a return to domestic spending across various categories in the early weeks of April. It’s reasonable to expect a balancing of debit and credit transactions as we move forward. We need to have the best solutions across debit and credit, along with our multi-rail strategy, because the overall payment landscape is changing. That's where the focus is for us.
Sachin Mehra, CFO
Yes, I think Michael covered it. The point I’d want to make is that when you look at financial inclusion, people start with prepaid, then move to debit, and eventually get their foot in the door with credit. This natural evolution will occur with time, and we want to have a balanced portfolio of offerings. We want to win across the board.
Warren Kneeshaw, Head of Investor Relations
Great. Thanks. I see that we've reached the top of the hour. So maybe I'll just turn it over to Michael to see if he has any final comments as we wrap up.
Michael Miebach, CEO
Thanks, Warren. First of all, thanks for your questions. I'd love to go on for a while but be mindful of time. Just the key takeaways bring it all together. We’re back in the growth phase domestically, which is fantastic. We're ready for the return of travel, which will happen in a selective manner in the second half of the year. We are focusing strongly on our strategic priorities. I don’t have to repeat them again. We’re excited about Nets as I just laid out. And we are excited and hopeful that we will close Ekata as soon as possible. All that is good. None of this would happen without our people, and I want to recognize that. It’s been a long 14 months, and our folks are running hard. This momentum we're sharing with you is their doing. With that, I’m going to leave you to it and look forward to speaking with you again in a quarter. Thank you for all your support.
Sachin Mehra, CFO
Thanks everyone.
Operator, Operator
This does conclude today's conference call. You may now disconnect.