Earnings Call Transcript
Mastercard Inc (MA)
Earnings Call Transcript - MA Q2 2023
Operator, Operator
Good morning. My name is Audra, and I will be your conference operator today. I would like to welcome everyone to the Mastercard Inc. Q2 2023 Earnings Conference Call. Mr. Devin Corr, Head of Investor Relations, you may begin your conference.
Devin Corr, Head of Investor Relations
Thank you, Audra. Good morning, everyone, and thank you for joining us for our first quarter 2023 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. So starting with the big picture. Our momentum continued into the second quarter with net revenue up 15% and operating income up 16%, both versus a year ago on a non-GAAP currency-neutral basis, once again demonstrating the strong fundamentals of our business. Consumer spending has remained resilient with spend on experiences and travel remaining a focus. On the macroeconomic front, we continue to monitor a number of factors. First, the overall labor market remains strong, including wage growth, and consumers continue to be supported by credit and savings. These are key factors of consumer spending. Second, the efforts of central banks to curb inflation are showing signs of progress. Despite this, inflation remains elevated, and we are in a period of tight monetary policy across many countries. Economic growth will continue to vary country by country and sector by sector. Looking at our switched volume trends. Domestic volume growth remains healthy. We continue to see strength in travel and entertainment with some recent moderation in both inflation and spending in select international markets. Cross-border travel continues to show strength, reaching 154% of 2019 levels in the second quarter. We remain well positioned to capitalize on this trend with our travel-oriented portfolios and our initiatives in areas like loyalty and marketing. Cross-border card-not-present excluding travel continues to hold up well. We're monitoring the environment closely and are ready to adjust investment levels as appropriate while maintaining focus on our key strategic priorities. As a reminder, these priorities are: one, expanding in payments; two, extending our services; and three, embracing new networks. First, we're expanding in payments by continuing to win deals with a diverse set of customers, powering growth and acceptance, capturing a prioritized set of new payment flows, and exploring new ways to ensure payment choice by leveraging multiple alternatives, including card rails, ACH, blockchain, and open banking. Back to the top of this list. We are winning deals across the globe through a combination of our innovative products, differentiated services, and our solution-selling approach. I'll share a few examples from each region. Let's start in Europe, where we announced a significant win with UniCredit across all card products. We expanded our partnership and put in place a first-of-its-kind, single-card, multi-market strategy spanning 13 banks, 12 markets, and 20 million cards. UniCredit selected Mastercard due to our innovative digital capabilities, shared focus on sustainability, and proven ability to support their client needs. In Germany, the previously announced conversion of approximately 10 million of Deutsche Bank's credit and debit cards to Mastercard has now started. These wins build on our prior success in the U.K., where there are now 16 million NatWest Debit Mastercards live in market. When combined with the Santander and First Direct migrations, approximately 27 million debit cards have now shifted to Mastercard across these three portfolios in the U.K. Turning to North America. Mastercard will partner with Fiserv's money network for all U.S. state and federal government benefit and wage disbursement debit programs. Up north, Coast Capital, Canada's largest Federal credit union will be converting their consumer and small business portfolios to Mastercard. The partnership highlights our shared commitment to local communities with issuance through Collabria Financial Services. In addition, we have a new agreement with Tim Hortons, the largest quick-service restaurant brand in Canada. Tim Hortons will launch a new Mastercard credit card and will be using a broad set of Mastercard's digital, analytics, and fraud services and technologies. Our relationship with Santander in Latin America continues to grow. In Mexico, we established a long-term exclusive deal with Openbank, their new digital bank. We also renewed the Fiesta Rewards co-brand credit card, Santander's key offering within their consumer portfolio. In Brazil, we will be Santander's exclusive partner across their commercial portfolio. And we've expanded our partnership with fast-growing Sicredi, one of Brazil's largest credit unions. In Asia-Pacific, we've extended our relationship with Standard Chartered Bank, which will enable us to grow our consumer credit presence across key markets in the region. We've also expanded our partnership with HSBC through the launch of the Travel One Card in Singapore, Malaysia, and Vietnam. Travel One will provide instant in-app rewards redemption powered by the Mastercard Rewards system. With all of these cards, people do need a place to use them. We continue to power growth and acceptance by establishing new partnerships and scaling new technologies. This quarter, we announced partnerships with both Alipay and WeChat Pay to enable international travelers to easily link any Mastercard credit or debit card to Alipay and WeChat Pay digital wallets. The partnership allows visitors to make payments with tens of millions of QR code merchants across China. I just returned from China, where I saw firsthand how this is helping international travelers shop and pay in more places in a simple way. It's like paying like a local. And this will be valuable as inbound cross-border travel to China improves from approximately 50% of 2019 levels in the second quarter. In the online environment, we are scaling our Click to Pay capability to enhance the guest checkout experience. Click to Pay transactions grew over 70% year-over-year in the second quarter, and the technology is now live in 30 markets. In the quarter, we added Chile, Bahrain, and Slovakia. NatWest Group became the first bank in the U.K. to go live with Click to Pay push provisioning for cardholders. Shifting to New Payment Flows. We are making tangible progress in this area. In commercial point of sale, we've extended our partnership with Brex to support the international expansion of their commercial portfolios. We expanded our relationship with myPOS, continuing to drive new merchant acceptance across more than 30 European markets while also migrating their small business debit portfolio to Mastercard. We've established an exclusive partnership with Australian lender, Grow Finance, to introduce credit cards to their small business customers later this year. In B2B accounts payable, we remain the market leaders in virtual cards. We continue to drive growth by tapping into new use cases. For example, we established an exclusive partnership with EasyTransfer in Greater China. This competitive flip leverages our virtual card capabilities to support cross-border tuition payments for international students. We’re also making it easy for buyers and suppliers to integrate virtual cards into the technology platforms they already use. Building on our prior announcements with SAP and Coupa, we've recently partnered with GEP to integrate our virtual card technology into their payables platform. On the supplier side, we launched Mastercard Receivables Manager with Billtrust. The solution streamlines the processing of virtual card transactions for suppliers and automates the integration of reconciliation data into accounts receivable systems. This is a great solution. It builds on partnerships with companies like Boost Payment Solutions, who have been working closely with Mastercard to expand and optimize commercial acceptance. Finally, in new flows, we continue to deploy our disbursement and remittances capabilities in new ways and across new geographies. In the U.S., we partner with the top sports gaming processor, Interchecks, who will make Mastercard Send available to gaming operators for payouts. Careem Pay, one of the largest digital wallets in the UAE, will use Send to top up their wallets using Mastercard. On the cross-border front, we partnered with Al Fardan Exchange in Qatar to facilitate remittance services and support cross-border travel. Our work in real-time ACH continues to support these new flows. Our circular approach has been to expand our infrastructure reach into new markets. Going forward, we will be focusing on delivering and scaling in the markets we already serve while building applications and services in these key locations, in line with our overall strategic and financial objectives. In blockchain, we're introducing the Mastercard Multi-Token Network, MTN. MTN is a set of foundational capabilities designed to make transactions within digital asset and blockchain ecosystems more secure, scalable, and interoperable. We believe in the potential of blockchain technologies. However, regulated money, such as bank deposits and Central Bank Digital Currencies (CBDCs), need to be part of the solution, and they should interoperate with traditional systems. We can help with that. MTN is the natural evolution of the work we have already done in this space. The initial sandbox will kick off in the U.K. this summer. Now turning to services. Our services inform the decision-making of our customers. They help them create stronger connections and greater loyalty. Payments and services reinforce each other, multiplying our impact and the value we deliver to all our partners. Our services help drive many of the wins I mentioned earlier. Here are a few additional examples. We recently launched our Consumer Fraud Risk solution, which leverages our latest AI capabilities and the unique network view of real-time payments I just mentioned to help banks predict and prevent payment scams. AI is a foundational technology used across our business and has been a game changer in helping identify such fraud patterns. We've partnered with nine U.K. banks, including Barclays, Lloyds Bank, Halifax, Bank of Scotland, NatWest, Monzo, and TSB to stop scam payments before funds leave a victim's account. TSB, one of the first banks to adopt the solution, indicated that it has already dramatically increased its fraud detection since deploying the capability. We're combining our loyalty, consulting, analytics, and identity services in different ways to help our customers capitalize on the travel recovery. This quarter, we extended our broad-based partnership with Expedia Group. Together, we will combine Mastercard's loyalty solution with Expedia's extensive travel supply to enable Mastercard cardholders to book travel using loyalty points. We also partnered with Thomas Cook in India to issue prepaid cards for international travel. The proposition includes cardholder access to over 450 cross-border travel offers through Mastercard Travel Rewards. Earlier this month, I met with our partners at Deutsche Bank and Lufthansa in Frankfurt. We resigned our long-standing partnerships with Lufthansa Group for its Miles & More loyalty program and welcomed Deutsche Bank as the new issuing partner. In this enhanced relationship, you will see a combination of our loyalty solutions, personalization capabilities, and digital user experiences help the partnership take off to the next level using airline's peak. We're also leveraging our personalization and Test & Learn capabilities to help our partners across the ecosystem enhance the customer experience and improve acquisition and conversion rates. For example, we combined Dynamic Yields personalization capabilities with our marketing services to drive digital customer acquisition for Ecobank in Nigeria. In addition, HP Inc. has partnered with us to deploy personalized bank content for their consumers across Canada and Europe. On the merchant side, we are working with 7-Eleven in Australia using our Test & Learn capabilities to support their rollout of new store concepts and evolve its food and beverage offerings. Our third strategic priority area is embracing new networks with a focus on open banking and digital identity. We continued to make progress in open banking and established a series of new and expanded collaborations this quarter, including ones with Freddie Mac, Algon based out of France, and Dapi in the UAE. These entities will leverage our smart and consumer permission data to drive increased financial inclusion and make digital interaction simpler and safer. Turning to digital identity. We're driving adoption across several new verticals, including travel, ticketing, retail, and financial institutions. Travel provider FlightHub is using our identity solutions to help travelers book their next adventure. Sports teams across the U.S., including the New Jersey Devils, use these solutions to enable fans to buy tickets while reducing fraud on ticketing platforms. Major League Baseball used our NuDetect technology to ensure that All-Star votes were authentic for this year's All-Star game. In retail, we partner with IKEA, who is using Ekata to help reduce friction and fraud. Financial institutions like Greenwood, a digital banking platform for Black and Latinx communities, are using our capabilities to authenticate consumers in real time, making financial empowerment a reality for more people. So in summary, we delivered another strong quarter of revenue and earnings growth, supported by resilient consumer spending, particularly in travel and experiences. Our strong deal momentum continues with new wins and expanded relationships powered by our services across a range of partners, including UniCredit, Fiserv, Tim Hortons, Brex, and many more. Our differentiated capabilities, diversified business model, and focused strategy position us well to capitalize on the significant opportunity ahead. Sachin, over to you.
Sachin Mehra, CFO
Thanks, Michael. So turning to Page 3, which shows our financial performance for the quarter on a currency-neutral basis, excluding special items and the impact of gains and losses on our equity investments. Net revenue was up 15%, reflecting resilient consumer spending and the continued recovery of cross-border travel as well as the continued growth in our value-added services and solutions. Operating expenses increased 13%, including a minimal impact from acquisitions. Operating income was up 16%, including a minimal impact from acquisitions. Net income and EPS increased 11% and 14%, respectively, both reflecting a sizable discrete tax expense this quarter related to foreign tax legislation enacted in Brazil. EPS of $2.89 includes a $0.22 reduction due to the discrete tax expense I just mentioned and a $0.08 contribution from share repurchases. During the quarter, we repurchased $2.4 billion worth of stock and an additional $497 million through July 24, 2023. So let's turn to Page 4, where you can see the operational metrics for the second quarter. Worldwide gross dollar volume, or GDV, increased by 12% year-over-year on a local currency basis. In the U.S., GDV increased by 6% with credit growth of 8% and debit growth of 3%. Outside of the U.S., volume increased 16% with credit growth of 14% and debit growth of 17%. Of note, we have now completed the NatWest debit migration in the U.K. Overall, cross-border volume increased 24% globally for the quarter on a local currency basis, reflecting continued improvement in travel-related cross-border spending. While this is sequentially lower versus Q1, this is due to tougher comps as we opened up post-Omicron last year. When you look at the trend versus 2019, you see continued strength. For example, cross-border travel is at 154% of 2019 levels in Q2, which is up 6 percentage points from the prior quarter. On the same basis, cross-border card-not-present excluding travel continues to hold up well in relation to 2019 levels, up 2 percentage points from the prior quarter to 210%. Turning to Page 5. Switched transactions grew 17% year-over-year in Q2. Both card-present and card-not-present growth rates remained strong. Card-present growth was aided in part by increases in contactless penetration as contactless now represents over 60% of all in-person switched purchase transactions. In addition, card growth was 8%. Globally, there are 3.2 billion Mastercard and Maestro-branded cards issued. Turning to Slide 6 for a look into our net revenues for the second quarter, which came in above our expectations. As a reminder, earlier this year, we revised our disaggregated revenue disclosure. Net revenues are now broken down into two new categories: payment network and value-added services and solutions. Now getting into the numbers described on a currency-neutral basis. Payment network net revenue increased 15%, primarily driven by domestic and cross-border transaction and volume growth and also includes growth in rebates and incentives. Payment network net revenue was higher than anticipated primarily due to higher revenues related to foreign exchange volatility and the timing of planned deal activity. Value-added services and solutions net revenue increased 16%, primarily due to the continued healthy growth of our Cyber & Intelligence solutions driven by our underlying growth and the demand for our fraud and security solutions, as well as strong demand for consulting and marketing services, which was partially offset by other solutions. Now let's turn to Page 7 to discuss key metrics related to the payment network, again described on a currency-neutral basis, unless otherwise noted. Looking quickly at each key metric. Domestic assessments were up 11%, while worldwide GDV grew 12%. The difference is primarily driven by mix. Cross-border assessments increased 29%, while cross-border volumes increased 24%. The 5 percentage point difference is primarily due to favorable mix as higher-yielding ex intra-Europe cross-border volumes grew faster than intra-Europe cross-border volumes this quarter. Transaction processing assessments were up 16%, while switched transactions grew 17%. The 1 percentage point difference is primarily due to lower revenues related to foreign exchange volatility compared to the prior year. Other network assessments related to licensing, implementation, and other franchise fees were $270 million this quarter. As a reminder, these other network assessments may 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 13%, primarily due to increased spending on personnel to support the continued execution of our strategic initiatives. Now turning to Page 9. I want to share our thoughts on the remainder of the year. Let me start by saying that our business fundamentals continue to remain strong as overall consumer spending remains healthy and we continue to deepen our relationships with partners across the globe. Domestic spending patterns have broadly normalized post-pandemic. Cross-border travel continues to grow at a healthy pace, now above 150% of 2019 levels. While the travel recovery has progressed well in most regions, there remain pockets of opportunity, notably into and out of China. We remain well positioned to capitalize on this continued growth with our travel-oriented portfolios and related service offerings. Cross-border card-not-present excluding travel continues to hold up well. While we are monitoring a number of macro and geopolitical factors, our base case scenario for the year continues to assume consumer spending remains resilient, buoyed by a strong labor market that reflects current spending dynamics and the ongoing recovery of cross-border travel. For the year, our outlook is broadly unchanged. We expect net revenue growth for the full year 2023 to remain in the low teens range on a currency-neutral basis excluding acquisitions and special items. As a reminder, this growth rate would have been approximately 1.5 percentage points higher if you exclude Russia-related revenues from 2022. Foreign exchange is expected to be a tailwind of 1 percentage point for the year, and we expect a minimal impact from acquisitions. Our expectations for operating expense for the year are also unchanged, with growth expected to be at the high end of a high single-digit rate on a currency-neutral basis excluding acquisitions and special items. Acquisitions are forecast to add about 1 percentage point to this growth, and foreign exchange is expected to be a headwind of approximately 0 to 1 percentage points for the year. As Michael mentioned, we are prepared to proactively adjust our operating expenses if we see meaningful changes to top line growth. With respect to the third quarter, year-over-year net revenue is expected to grow at a low double-digit rate, again, on a currency-neutral basis excluding acquisitions and special items. Coming off a strong Q2, this sequentially reflects a lower anticipated contribution to growth from revenues related to foreign exchange volatility. Foreign exchange is expected to be a tailwind of approximately 3 percentage points, and acquisitions are not expected to have much of an impact for the quarter. From an operating expense standpoint, we expect Q3 growth to be at the high end of a high single-digit rate versus a year ago on a currency-neutral basis excluding acquisitions and special items. Acquisitions are forecast to add approximately 0 to 1 percentage point to this growth, and foreign exchange is expected to be a headwind of approximately 1 to 2 percentage points. Other items to keep in mind: first, on the other income and expense line, we forecast an expense of approximately $90 million for Q3. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Second, we expect a non-GAAP tax rate of between 18% and 19% for Q3 and Q4 based on the current geographic mix of our business and the recent U.S. tax guidance that allows for more tax credits to be claimed related to 2022 and 2023. And with that, I will turn the call back over to Devin.
Devin Corr, Head of Investor Relations
Thank you, Sachin. Audra, we are now ready to begin the question-and-answer session.
Operator, Operator
We'll take our first question from Tien-Tsin Huang at JPMorgan.
Tien-Tsin Huang, Analyst
Just want to ask on the UniCredit win there. That was a nice one just outside of the top 10, it looks like, in Europe. So you mentioned a multi-market strategy is what they're going after, and I heard sustainability also as a reason for the win. I'm just curious, thinking about this as a case study, is this a new trend? Why are they employing the strategy now in the wake of a lot of the macro uncertainty, open banking, and there was a lot of talk about pan-European schemes and whatnot? So I'm just wanting to study this a little bit and if there's any comments on timing and pricing as well.
Michael Miebach, CEO
Right. Tien-Tsin, thanks for the question. So this is a fantastic win. We're excited about that. As I laid out, it's very unique. This is a pan-European bank, cutting across 13 banks in 12 markets. It's a wide strategy. Therefore, it's a single card, multi-market and it cuts across a lot of our digital capabilities. I think the breadth of our offering on the digital-first side as well as our services are a key aspect of us winning this particular portfolio. The sustainability part, we see this across a whole range of customers who are looking at climate as the question of the century to solve what can be done, the consumption question in the context of payments. There's so many angles to it. Our Priceless Planet Coalition on tree planting itself plays into that. So that is particularly important to UniCredit. So here again, we had a meeting of the minds. In the end, it comes down to as part of the migration, and you alluded to this in your question, do we stand ready to serve their needs from day one as the migration starts. We have proven this with Deutsche Bank, we've proven it with NatWest and so forth. So this is something that is not new to us. So we're excited to see this unfold over the near future.
Operator, Operator
We'll go next to Harshita Rawat at Bernstein.
Harshita Rawat, Analyst
Michael, I want to ask about FedNow, which is now finally launched. I know you've commented on this before, and it's very early days and far from any sort of ubiquity or potential retail payment use cases. But you've had also a lot of experience working alongside real-time payment rails owning some TAM. So how are you thinking about FedNow and the risks involved?
Michael Miebach, CEO
Thanks, Harshita. Yes, we're all monitoring what FedNow is doing. They are now going live. This is clearly a milestone, a good opportunity to look at this topic again. Yes, our view on this really hasn't changed. In the end, it comes down to what problem you are trying to solve. What are merchants looking for? Merchants are looking for reach to consumers. So scale matters. What are consumers looking for? Consumers are looking for safe ways to pay in a predictable fashion, ubiquity available. Those are all factors that haven't changed with this launch. We built that acceptance. We have a brand, the two interlocking circles that represent trust, so that addresses a lot of what merchants and consumers are looking for. We strengthened the proposition over years: contactless, Tap on Phone, buy now, pay later, Mastercard Installments, Click to Pay, and so forth. So that's good. The Mastercard debit proposition is strong, and we keep evolving that. It's well understood now. FedNow is launching. So as we look at that, we will obviously continue to compete and offer our services to our banking and issuing partners. At the same time, in our experience, to your question, we have stayed close to these systems in various other countries, ultimately partnering with most of them. So here, we'll have to see where it goes live. Just because it's live doesn’t mean that it is broadly available yet. It is early days, as you said. It doesn't have features. It doesn't have a consumer platform as such. You can't access it through your mobile banking app. All of that is what our solution today provides. So we have to see where it goes. Head-on competition by the mindset of partnership where and when it makes sense for us and where this goes. It is important to say that we do have solutions for these systems. If you look at the Chase Pay by Bank solution that we put into the market, that is exactly leveraging these kinds of flows that would run across these systems, generally B2B-focused. Some non-card penetration verticals run across these particular systems. We see that as an opportunity. The Chase Pay by Bank app will be one of those ways to approach that. We've done similar kinds of solutions in the U.K., in Europe, and so forth. So more to come. We'll stay very close. At this point in time, I think we have a better solution in the market.
Operator, Operator
We'll go next to Sanjay Sakhrani at KBW.
Sanjay Sakhrani, Analyst
I had a question on the Fed routing rules on debit. I guess the card-not-present transactions went through in July. I'm just curious sort of how you see the opportunity there. It would seem like you're in a good position to take some share.
Michael Miebach, CEO
Right. So the clarification came to networks available as of July 1. So we put that in place and we said we would, and we're ready to do that. It's still early days. We have to see where that goes. But as you rightly said, Sanjay, we stand ready to compete. We will be looking for opportunities, and I'm sure we will find them.
Operator, Operator
Next, we'll go to Lisa Ellis at MoffettNathanson.
Lisa Ellis, Analyst
Michael, in the prepared remarks, you highlighted that with Mastercard's real-time ACH strategy, you're sort of in the phase of transitioning from building out infrastructure to focusing more on building applications and services. Just taking a step back, it's always been a big differentiator for Mastercard that you own infrastructure in fast ACH with Vocalink and Nets' Corporate Services. Can you just comment a bit on the move over the last 6 or 7 years? How has that helped differentiate Mastercard in terms of being able to capture account-to-account network payments, new flows, etc.?
Michael Miebach, CEO
Thanks, Lisa. When the trend of real-time payments began around 2016 and 2017, and we invested in Vocalink, our goal was to establish a presence in infrastructure application services. It was important for us to gain credibility and assemble the right talent to engage in this trend from the outset. Fast forward to today, we have developed a strong and distinct position in real-time payments, operating in 13 of the top 50 GDP countries where we manage real-time payment infrastructure. Our strategy has focused on engaging in the key markets rather than forcing our way into less relevant ones, and we believe we have successfully achieved that. Now, our focus is on expanding our scale and leveraging our infrastructure position. The business of managing these systems in these markets offers strong appeal. As mentioned earlier, we aim to create a suite of applications and services that build on this foundation. An excellent example is the anti-scam solution we developed in the U.K. with non-U.K. banks, demonstrating how our expertise allows us to bring multiple banks together for a comprehensive market solution. While not every solution will be market-wide, there will definitely be tailored offerings for individual customers. We are confident in our capabilities in this area, which is not going away. As more government payment systems emerge, there will be an increasing demand for real-time payment solutions, and our long-standing experience ensures we will have a prominent role in that space.
Operator, Operator
We'll move next to Darrin Peller at Wolfe Research.
Darrin Peller, Analyst
Could we touch on value-added services for a moment? I mean it's been a good tailwind for some time. I think it grew just about 1 point below transactions this time around. And you mentioned strength in cyber and some other categories that were offsetting others. So I’d be curious to get a little more detail as to what were the strengths and weaknesses of value-added services now, including the others. And then more importantly, just how much room do you think you have across those different categories to keep that growth alive and cross-sell well into your meaningful payments business?
Michael Miebach, CEO
Right. Let me start, and then Sachin can add a bit around the various dynamics around growth rates and so forth. As I said in the prepared remarks, payments and services complement each other. The strategy is the combination of both, and we extend that into new networks. That’s the starting point. We remain convinced that is a key reason that all those wins I just talked about earlier are happening — central to our strategy. Our services in aggregate continue to grow faster than the core. We like that. We want to continue to do that. There’s a whole range of services to choose from. We could do many things. We have fine-tuned our strategy when it comes to processing because we didn’t feel that was such a differentiator. But we felt that cybersecurity in a world that is rapidly digitizing is going to drive the biggest demand, and we’re seeing that coming through in the numbers when I look into our Cyber & Intelligence business, which grows at a very healthy clip. If you think about our Data & Services business — here, we keep building out the value chain; it’s a vertically integrated value chain where we have Test & Learn, we have loyalty, and you go all the way into personalization before, after, and during the transaction, helping our customers run a better business. I don’t see an end to the demand. In fact, that is key to our segment diversification strategy. Running at a healthy pace; I don’t see any moderation here. This will continue to grow. You should see us continue to build out across the key aspects of services in cybersecurity and data analytics insight. So we love this business, and we’ll continue to nourish it.
Sachin Mehra, CFO
Darrin, it's Sachin. A couple of additional thoughts. Michael covered off the strength we continue to see in our value-added services and solutions, and that’s indeed the case. But you got to remember that growth rates move around quarter to quarter in this area. We should all focus on the longer-term trends here. Relating specifically to Q2, when you look at growth rates for value-added services and solutions in Q2 of 16%, I assume you’re looking at the sequential trend here. One point to keep in mind is that there was a 1 percentage point drop in Q2 on account of acquisitions. Q1 had the impact of acquisitions, while Q2 does not have it because it kind of lapped that acquisition period. Another point in my comments is that the strength seen in Cyber & Intelligence as well as some of our Data & Services capabilities was offset by other solutions. It’s really all about what the growth rate trends are for Cyber & Intelligence and Data & Services relative to growth rates for real-time ACH, especially on the infrastructure level. When we talk about 'other solutions,' think about it in the context of real-time ACH, which tends to grow at a lower pace. So, historically, we had only spoken about services. Now we’re talking about value added services and solutions. So in Q2, that services growth rate was more like 18%. Just for reference point.
Operator, Operator
We'll move next to Timothy Chiodo at Credit Suisse.
Timothy Chiodo, Analyst
I want to dig in a little bit on another business that is important to your both your volume and your revenue growth algorithm over the medium term, which will be Mastercard Send. You touched a little bit on some of the cross-border use cases. I believe many of the initial use cases were much more domestic, but it's evolving over time. Maybe you could just dig in a little bit more to some of the cross-border use cases that are really gaining traction.
Michael Miebach, CEO
Right. So Timothy, let me start with that. Our Send business, domestic and cross-border together, that's how we look at it. There’s a big chunk in there, which is cross-border disbursement remittances, as you rightly said. The way that we go after that is by adding new geographies. I gave you three markets that we've added this year, Chile, Bahrain, and Slovakia. So there’s tremendous reach — unparalleled reach in what we have in our cross-border proposition across 100 countries around the world. There are new ways to go after it, and that is through the use cases. Earlier when I was talking about gaming payouts, some of that is domestic, while some of that is international. The whole workers’ remittances piece, Al Fardan in Qatar — those are critical corridors. We specifically go after these corridors, like Middle East into South Asia and so forth. This is pretty methodological. But there's another way which I haven’t talked about in terms of accelerating this business, and that is how we make it easier for customers to onboard with us. The cross-border service express is a pre-packaged solution around cross-border payments that serves as another way for us to accelerate this business. New geographies, new use cases, corridor-specific, great methodology. We have the right assets here across our HomeSend integration, across our Transfast acquisition, the Mastercard proprietary system, and our card reach. So all in all, this is growing at a very healthy pace, and we like this business a lot. We are experts in cross-border in the card side, and we’re building that out here — cross-remittances and disbursements.
Operator, Operator
We'll go to our next question from Rayna Kumar at UBS.
Rayna Kumar, Analyst
Both of you in the past have discussed how B2B remains a large opportunity for Mastercard. Can you talk about what trends you're seeing in B2B payments in this macro environment, how you're progressing against capturing the TAM, and if you're seeing any slowdown in corporate spending as companies potentially tighten their budgets?
Michael Miebach, CEO
Thank you, Rayna. I'm noticing a lot of questions directed towards me, which means that there aren't many questions in the numbers, which is fantastic. I love to talk about B2B. Let me take the lens a little bit broader here on commercial overall. I feel like I'm repeating myself here, but we're choosing priorities because they are growing at a healthy clip; so is the story for commercial, growing at a healthy clip. We’re seeing quarter-over-quarter and year-on-year growth above the consumer sector. There’s particular strength in our international markets business. We’ve sustained elevated levels of growth when we compare this back to 2019, with all the noise of COVID taken out. We have two main focuses in this area: commercial point of sale and B2B accounts payable. Commercial point of sale presents a tremendous total market opportunity; it's a massive TAM that is probably still penetrated with cards today. The way we look at this is, this is not really about building new systems. It’s about penetrating with the tools that we have today, targeting SMEs, corporate travel and entertainment, purchasing, fleet, with our existing capabilities and complementary solutions like smart data and easy savings, and so forth. There is a lot of cash and checks out there, with plenty of opportunities for cards we have today. We leverage that. We built out a separate vertical in the company. We’re focusing hard, and we’re seeing growth rewarding us for that. On the B2B side, this relates to accounts payable and establishing trusted relationships, including invoice payments. This is an even larger TAM with distinct pain points. Companies are looking to automate and digitize these processes and eliminate paper. Our virtual cards are a solution that works effectively here. We're leaders in virtual cards. However, the solution isn't perfect. We've been investing a lot of energy through our product teams to make it better. What I mentioned earlier regarding Receivables Manager is a way to automate the acceptance of virtual card payments, incorporating it into accounts receivable systems while automating it to derive the benefits of virtual cards without some of the manual processes that have existed over the past year. This is a real breakthrough. This business is immensely important for us going forward. We called it out in November 2021 at our Strategy Day as one of our biggest growth opportunities. We feel we are ahead in the market, and we’re seeing healthy growth. This will remain a focus for us.
Operator, Operator
We'll go next to Ashwin Shirvaikar at Citi.
Ashwin Shirvaikar, Analyst
Good quarter, guys. Michael, since you said Sachin's not getting enough questions, maybe I’ll ask a numbers question.
Michael Miebach, CEO
Yes, please.
Ashwin Shirvaikar, Analyst
I wanted to understand the operating expense trends for Q3 compared to Q4. It seems like you’re finishing the year with spending slightly above Q3 growth levels. What’s driving that change? Additionally, while I know your spending strategy tends to focus on the long term, are there specific products or services you're investing in that are particularly relevant right now?
Sachin Mehra, CFO
What we shared with you is our thoughts around what we think operating expenses will look like in the third quarter. I think you can back into what our operating expense growth rate is expected to be in the fourth quarter. There’s nothing unusual happening from an OpEx standpoint in Q4. Honestly, if you look at it on a year-over-year basis growth rates, when you back into those numbers, you’ll see there’s nothing really unusual going on there. Broadly speaking regarding OpEx, we continue to remain focused on driving our operating expenses in line with strategic priorities. It’s about ensuring that we’re channeling our capital appropriately to drive growth in the short, medium, and long term. That’s what we’ll continue to do. We are a people business to a large extent because a lot of our tech development revolves around people, as well as sales. Hence, when you see growth rates in terms of operating expenses, I tend to call out personnel as a key line item. The growth comes from people, and they’re the ones who provide the assets that allow us to deliver that revenue. However, there is nothing unusual happening from an OpEx standpoint as we exit the year.
Michael Miebach, CEO
Yes, we keep top and bottom line growth in mind. But there is a tremendous opportunity ahead of us right now. We are using this tailwind that we're currently seeing to continue to invest. You see the list of wins, the growth momentum in B2B, and the growth momentum in services. This is the time to continue to nourish that business and invest, and you will see us do that in a very prudent and disciplined fashion.
Operator, Operator
We'll go next to Dan Dolev at Mizuho.
Dan Dolev, Analyst
Just a quick question on the guidance. Obviously, results were very strong. You exceeded your second-quarter guidance on revenue. What was the thought process of not boosting the guidance for the year?
Sachin Mehra, CFO
So Dan, a couple of thoughts here. Remember, we shared guidance in terms of ranges, and that's what we've shared here as well, right? When you think about ranges, that’s what they are in essence. Point number two is some of the beat we saw in Q2, as I mentioned in my prepared remarks, was driven by what we call the timing of deal activity. We still expect to be active in the markets. We still expect to vigorously compete. I kind of intentionally mentioned that as timing only because we do expect that as the year progresses, we will continue to be active in the market. My other comment is that in Q1, we had modestly increased our thoughts relative to what we had shared right at the start of the year. So when you combine all of that, that’s our thinking behind what we shared in terms of full-year guidance.
Operator, Operator
We'll go next to Bob Napoli at William Blair.
Robert Napoli, Analyst
On open banking, Mastercard has been aggressive in investing in open banking. I'd like some additional thoughts on how that's progressing and how open banking fits into other strategies like embedded finance and Banking as a Service.
Michael Miebach, CEO
Open banking, as you know, we specifically called that out as one of two opportunities in new networks. The trend is here to stay, which is clear. This whole notion of people needing to use their data footprints to avail better financial services is significant. There's a lot more regulation coming around that. PSD3 in Europe is coming out. So this train has left the station. That's good. We're on it. We need to move beyond connectivity. We had a good start. We're well connected here in the U.S. through our Finicity asset and in Europe through our Aiia assets. We’re now very busy building use cases on top of that, which we feel is the future. The initial demand for Finicity was focused clearly on lending-oriented use cases and asset verification use cases. That feels like where the demand is today. To Sachin’s earlier point, we invest where we see demand in the near-term event. So that’s where we're optimizing. You're beginning to see us go beyond these lending use cases with our solutions, such as our Chase Pay by Bank solution here in the U.S. This is using a payment success indicator, which is leveraging open banking data to tell a biller, this is a good time to bill where there is balance in an account. That’s what the payment success indicator does, powered by Mastercard's open banking technology. The near-term use case is clear. That’s working. We're well positioned with our two assets, and we’re busy building out use cases. We’re excited to see Pay by Bank with Chase launch in the third quarter, as we mentioned.
Operator, Operator
We'll take our next question from David Togut with Evercore ISI.
David Togut, Analyst
Cross-border volume growth remains very strong, but on Slide 9, there's clearly a deceleration from April growth through June, especially in cross-border travel. My question is what growth rate in cross-border volume is embedded in your guidance for the second half? Also, can you provide a little more color on what you're seeing in cross-border travel volumes? Any additional texture on what you're seeing by country in Europe. You gave kind of overall data and some thoughts on China.
Sachin Mehra, CFO
Sure, David. First, let’s start at a high level: the value proposition of cross-border travel remains strong. We have a strong value proposition and robust market presence. As you may recall, when we were going through COVID, while everybody had stopped traveling, we used that opportunity to bolster our position in cross-border. That’s now paying dividends. The fact that we were building and winning portfolios during that time is helping us drive strong growth in both cross-border and travel. Now, regarding trends, I encourage you to look at the right-hand side of Slide 9. You’ll see an accelerating trend in cross-border travel indexed to 2019. For instance, our cross-border travel as a percentage of 2019 was 148% in Q1, 154% in Q2, and 157% in the first three weeks of July. The year-over-year growth rates are affected by tougher comps from last year, which is essential to keep in mind. On a regional level, things are performing well. The beauty of Mastercard is our diversified business model across various dimensions. We’re seeing strong sustained growth in cross-border, both on travel and non-travel fronts, across the globe. We’re realizing healthy growth trends in Asia-Pacific, which we had expected and spoken about. That’s reflected in the numbers. We believe there are pockets of opportunity going forward, especially into and out of China. For instance, inbound travel to China was approximately 50% of 2019 levels in Q2, illustrating the upside potential. Conversely, cross-border travel outbound from China was around 70% in Q2. Both these numbers highlight where future growth opportunities lie. As we continue to drive wins, enhance our proposition, and offer services like loyalty programs, we position ourselves well for future success. We’re in a very promising place regarding cross-border travel.
Michael Miebach, CEO
There is one thing to add that reflects the current market imbalance between demand and supply. There’s still an unlock in airline and airport capacity that will provide a beneficial mix as travel demand continues. Overall, people are excited to be traveling again.
Operator, Operator
We'll go next to Dan Perlin at RBC.
Daniel Perlin, Analyst
I just wanted to dig a little deeper into the commentary around this moderation in inflation and spending, Sachin, that you called out. Particularly, what can you tell us about the downdraft in average tickets during the current quarter? More specifically, are you seeing any discernible signs or indications of trade-down from the consumer that could correlate with slightly weaker consumer spending as opposed to the resiliency that it sounds like you guys are continuing to talk about?
Sachin Mehra, CFO
Sure, Dan. It’s no surprise that you’re all seeing inflation has started to moderate while still remaining at high levels, right? You’re observing this in the nature of spend. We're a nominal value business; declines in inflation would impact. That was an important point to call out. Additionally, I talked about moderation in select international markets. This is not broad-based, right? There are specific markets where — like the U.K. Rising interest rates and high inflation levels will ultimately squeeze consumer spending. That doesn’t necessarily imply that consumers aren’t resilient. They remain resilient on a broader basis. However, at the margin, as, for instance, mortgages are reset, they're getting reset at high interest rates, squeezing what is available for discretionary spending. You may see that trend coming through, which is what we're referencing. To summarize, we’re seeing reductions in inflation and some moderation in select international markets, yet not broadly concerning. This is very much aligned with how we've approached guidance. That said, cross-border remains strong, reflective of what David asked earlier. Overall, we feel good about consumer strength.
Devin Corr, Head of Investor Relations
I think we have time for one more question.
Operator, Operator
And we'll take that question from Bryan Keane at Deutsche Bank.
Bryan Keane, Analyst
Sachin, I want to ask about FX volatility and how it impacts the model. I know cross-border assessment revenue growth was above volume, so it had a positive yield. I think in one of your peers' reports, it was actually negative, and they called out the lack of FX volatility. Just trying to understand how it impacts Mastercard's model.
Sachin Mehra, CFO
Sure, Bryan. When we talk about FX volatility, you see that in our numbers in transaction processing assessments, not in cross-border assessments. It’s tied to the activity of clear and settle. That’s why it sits in transaction processing assessments. When I mentioned that higher growth rate in cross-border assessments relative to volume was driven by favorable mix, that means our inter volumes, which is everything ex intra-Europe, are growing faster than intra-Europe. Inter volumes tend to be high-yielding as compared to intra. That's why you see that positive gap between revenues on cross-border assessments and volumes. The volatility comment I made was tied to transaction processing assessments, where it resides.
Devin Corr, Head of Investor Relations
Thank you. Michael, any closing comments?
Michael Miebach, CEO
Thanks, Devin. The first thing I want to say is that you should all know that Warren sits in the other room and is listening to us. So this is the first time soloed by Devin, and we’re delighted with this next chapter now. As always, I want to comment on all the people at Mastercard who make this happen — the 30,000 of us. I sent them a note earlier today with the results that reflect the value that you all deliver every day. So I just wanted to share that with you. Thank you for your support and questions today, and we’ll talk to you soon. Take care. Bye-bye.
Sachin Mehra, CFO
Thanks, everyone.
Operator, Operator
And this concludes today's conference call. Again, thank you for your participation. You may now disconnect.