Mastercard Incorporated (MA) Q2 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 MasterCard Earnings Call. My name is Modesta, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Barbara Gasper, Head of Investor Relations. Please proceed.

Thank you, Modesta. Good morning, everyone, and thank you for joining us today, either by phone or webcast, for a discussion about our second quarter 2011 financial results. With me on the call today are Ajay Banga, our President and Chief Executive Officer; Martina Hund-Mejean, our Chief Financial Officer; and Chris McWilton, President of the U.S. Market. Following comments from Ajay, Chris and Martina, we will open up the call for your questions. This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website, mastercard.com. The earnings release and slide deck have also been attached to an 8-K that we filed with the SEC earlier this morning. A dial-in replay of this call will be available for 1 week, through August 10. Finally, as set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance are summarized at the end of our press release, as well as contained in our recent SEC filings. With that, I'd now like to turn the call over to our President and CEO, Ajay Banga. Ajay?

Thank you, Barbara. Good morning, everybody. As usual, Martina will get into the details of our results but let me just start with some high-level comments. In the second quarter, we saw net revenue growth of 22.1%, 18% actually on a constant currency basis, driven by hiking growth rates and GDV, cross-border volume and process transactions. This help fuel operating income growth of 23.3%, net income growth of 32.8% and an EPS growth of 36.4%. So we delivered another quarter with strong results including record quarterly GDV, over $800 billion and our third consecutive quarter of double-digit volume growth. Within our geographies, the strongest growth remained in Latin America and the Asia-Pacific, Middle East, Africa region. In Europe, consumers continue to spend domestically and abroad. In the United States, we posted our strongest quarterly volume growth since the fourth quarter of 2007. This was led by Debit, which is benefiting from the roll-on of new business wins, as well as continued strength in promotional credit. Consumer credit growth in the United States remains positive and was up slightly over the first quarter, but year-on-year is strong as either of debit or commercial credit. On the other side of the strong growth is what we are all seeing in the global economy. In Europe, consumer sentiment is lower than it has been in recent months, again, not surprising given the sovereign debt issues and concerns around the economic growth that persists in sovereign markets in Europe. And of course, we have our own issues here in the U.S. The economic signals remain mixed, unemployment remains above 9%, the housing market remains relatively weak, both are likely contributing to consumer sentiment in the United States being at its lowest level in 2 years. Our SpendingPulse data shows that retail sales growth x auto and gas has remained above 6% over the last 4 months, including July. However, much of this increase is likely driven by inflation, given persistently higher prices for gas and other commodities And of course in addition, easier year-over-year comparisons might be fueling some of this percentage growth given the significant slowdown in spending we saw during the summer months of last year. Latin America and Asia on the other hand seem to have a brighter picture, both in terms of economic performance and consumer sentiment. But even there, given the nature of the global economy, the second half of the year could well be more measured than the first half, in terms of economic indicators. Overall, it feels like the global economy is still struggling to get back on solid footing. But as I said earlier, consumer spending appears to be holding up through this volatility. With this as a backdrop, we remain cautiously optimistic about our business. I'm sure that you're all keen to hear about the debit business so we've got Chris McWilton, the President of our U.S. region to talk to you. Chris?

Thank you, Ajay. A little déjà vu. It's been awhile since I've been on an earnings call but good to be with you on the phone today.

Be careful what you wish for.

Over the last several quarters, the Durbin Amendment and its potential impact on our business and our customers has been top of mind for us, and I'm sure many of you on the phone today. With the Fed issuing its final rule in late June, there's now greater clarity and we're moving forward with our strategy, based on scenario planning and making the necessary operational changes. I really doubt we'll be able to answer all of your questions on today's call because there's still a lot of moving pieces that need to play out. But I think it's important to share with you what we can today. The exclusivity provisions of the Durbin Amendment were designed to provide merchants with the ability to direct the routing of debit transactions over competing networks. Therefore, it is not surprising that large merchants are looking for incentives from the networks for routing preference. At the same time, acquirers for smaller merchants see themselves as directing routing to debit networks when there are multiple PIN marks on the card. They, too, are seeking incentives for routing. And finally, issuers are looking to reduce the cost, complexity and uncertainty of maintaining multiple PIN network functionality on their debit cards. They will need to decide whether they put 1 exclusive PIN mark on their cards or maintain multiple marks. We're confident that the superior value proposition our PIN debit offering brings will result in more U.S. debit cards with our mark in them. Remember, that Maestro is the only globally interoperable PIN POS network, accepted at more locations globally than any other brand. Until those PIN mark decisions are made, it is difficult for anyone to predict what kind of PIN debit shares shifts might occur among the networks. It is also tough to know how…

Thanks, Chris. So while all of this going on in the U.S., we remain focused on executing our growth strategy around the rest of the world. That's why I'll take a moment to highlight a few recent news items. Let's start with Prepaid. So early in the second quarter, as you know we've completed the acquisition of the Card Program Management business of Travelex, which we are now bring in Access Prepaid worldwide. But of course we are in the midst of converting non- MasterCard branded portfolios in their book. But in addition, I'm pleased to say we have signed our first new access prepaid deal since the close it's for Ryanair , Europe's leading low-cost airline. We will be the Prepaid Card Program manager in 5 markets with issuance beginning this year itself. In the U.S., we launched 2 MasterCard general-purpose reloadable card programs into Walmart's 3,500 U.S. stores. The program is based from consumer insights from targeting that we actually brought proactively to Walmart. In the spring, with our partner at SunTrust, we'll launch the SunTrust Campus card. This integrate is 2 ID card with a MasterCard reloadable Prepaid Card. Another example, the Turkish Post Office, which is one of the largest government institutions that performed financial services, has now signed a contract with us to issue cobranded credit, debit and prepaid cards under the MasterCard and Maestro brands. Also during the second quarter, we signed a new multi-product agreement with Swedbank, one of the largest issuers in the Nordics and Baltics region. The Debit MasterCard portion of this agreement will significantly increase our Debit footprint in this region, where the Debit category is growing 4x faster than Credit. The agreement does include commercial and consumer credit as well, and we expect the results of the deal to…

Thank you, Ajay, and good morning, everyone. Let me begin on Page 3 of the deck, which shows our reported results versus last year's second quarter. As you just heard, we had a terrific quarter. Net revenue grew over 22% driven by very strong volume and transaction growth across our base business, as well as the addition of new deals. Acquisitions contributed about 3 percentage points to this growth, resulting in a very robust top line growth rate of 19%, excluding acquisitions. Total operating expenses were up 20.8%, which included about 7 percentage points of expenses coming from the inclusion of acquisition. Therefore, expense growth, excluding acquisitions was 14%. Overall, foreign exchange contributed roughly 4 percentage points to both net revenue and operating expense growth. Operating income was up 23.3%. This resulted in an operating margin for the quarter of 53.1%, up from 52.6% in last year's second quarter. Bottom line, we delivered net income of $608 million, up 32.8% and diluted earnings per share of $4.76, up 36.4%. So over the next couple of slides, representing the operational metrics for the second quarter of 2011 compared to the same quarter a year ago. On Page 4, you can see the worldwide growth dollar volume, or GDV, was up 16.4% on a local currency basis or 23.6% on a U.S. dollar converted basis. As Ajay said, this is the first time quarterly GDV has exceeded $800 billion. This is driven by the highest quarterly growth rate we have seen in more than 4 years. U.S. volume growth was 9.9%. And across the rest of the world, volume growth was 19.9% on a local currency basis, including almost 25% growth in both APMEA and Latin America. Worldwide credit volume grew 13.3% on a local currency basis, which breaks down into 5.3%…

Thank you, Martina. We're now ready to begin the question-and-answer period. [Operator Instructions] Operator?

[Operator Instructions] Your first question today comes from the line of Sanjay Sakhrani with KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.: Ajay or Chris, could you maybe just talk about from your conversations with bank issuers, what they're thinking about that 1 mark or 2 marks on the back of the card and kind of the pluses and minuses when thinking through that decision? And then maybe just, are they thinking of other alternatives, in terms of card products other than debit cards, maybe something along the lines of credit to offset some lost debit economics?

Sure, Sanjay. What the issuers are thinking about with the place and the marks would be adding a functionality of PIN debit on the back is to do a number of things and I mentioned these in my remarks. One is there's operational complexity with maintaining multiple PIN debit functionality. You have to maintain, we call them, pipes or communication lines into the different networks, so there's some added complexity to that. The other thing they're thinking about is just the fact that having multiple marks on the cards does feed some additional routing ability to the merchants. So in addition to being able for the merchant to route between signature and PIN, they now have the ability to route with multiple marks on the card between signature and perhaps one or more PIN marks. So there comes with that a level of uncertainty and a level of preferences given to the merchant in their routing consideration. So they're thinking through that. Obviously, they're also thinking through, in addition to products they're thinking through how they price for the different services that the deposit holders have with their institutions, whether that's annual fees for checking accounts, whether it's fees for the debit cards themselves reducing perhaps the cost base of their products by perhaps limiting their usage to just the United States. Some of them are considering limiting the amount that can actually go on a debit card, limiting the transaction amount, et cetera. And of course, they're looking at credit again as write-off rates start to moderate as we come to the economic cycle. Credit again is beginning to look a little bit more attractive as a revenue replacement.

Your next question comes from the line of Rod Bourgeois with Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: Yes, can you just give us the numbers on how much your revenue and volume growth and maybe even transaction growth, to what extent it benefited from the portfolio conversions of SunTrust and Sovereign in the quarter?

Rod, it's Martina. At this point in time, we just have a little bit of a better benefit when you combine both the debit deconversions, the 2 portfolios that we had actually lost in the United States as well as the add-on of the several portfolios that we actually won. So there was a slight benefit and we are really expecting to turn the corner in the third quarter. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: For just so we can quantify the impact on the acceleration, can you tell us what the benefit was from SunTrust and Sovereign?

No, Rod, we are not breaking those numbers out. As I said, there was a slight benefit in total. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: Okay, and then just a couple of quick clarifications. Can you specify where the 2 points of pricing came from? Was that from the merchant acquired fee increase lingering from April of 2010? And then I just want to make sure I heard you correct. I think you might have said that U.S. transaction growth was negative in the month of July, but I want to make sure I heard that right.

No, so first of all on your last question that was July of 2010, when actually U.S. GDV growth was negative. And with respect to your first question from the 2 percentage points of pricing, you had about 50 basis points in there which was really a lapping impact from the price actions that we took back in April of 2010. And then the remainder was really a lot of diversified small pricing actions all around the globe, so there's no one particular big impact from any particular action. Rod Bourgeois - Sanford C. Bernstein & Co., Inc.: And then just the final thing, will some of those small pricing effects continue over the next year or are they largely anniversarying at this point?

No, you have a number of them that were actually implemented in January of 2011 and a couple that we implemented in April of 2011. So you'll have, for the rest of the year until the first second quarter of next year, you'll have a bit of a benefit there.

Your next question comes from the line of Glenn Fodor with Morgan Stanley.

Question for Ajay, TransUnion recently put out an analysis suggesting consumers have been on a trend of aggressively paying down credit card balances. I just wonder what you think this could mean for the trajectory of the U.S. credit growth over the next 1 to 3 years? I mean, does it imply there's a lot of dry powder now for spending or do you think this reflects the cultural shift away from credit and then continue on, on this point? Do you think the U.S. credit market can realistically get to, say, high single-digit growth in payment volumes again or it's mid-single digit about what we should think about?

Probably a not a good guy to give you the last part, as in high single-digit versus mid-single digit of the long-term because it's a little difficult to predict that level of activity today. But I would say this to you, the down payments, the increased payments on that card balances that you read about are comprised of 2 things. One part is actually if we take the gross numbers, is the level of write-off, there are number of banks in the United States that had to take over the last few years and that tends to decrease the total outstanding in their system by a fairly large amount. You've got to just keep that in mind we are looking to total number, otherwise you could mix up the write-offs with the actual change in consumer behavior. Then there's the actual numbers of what consumers are doing with higher spending. I mean, spending rate these days and the spending rate are very different from what they were 3 years ago. In fact, a year back, the U.S. savings rate were up to 6%, 7%. They went back down to 4.5%, 5% recently released numbers. Although I'd wait to make sure those are very accurate, sure that about 5%, 5.5% of consumer savings is what you're seeing. So they're all that transfer into a secular changing in the behavior towards credit. I don't think you can jump to that conclusion yet. And the consumer, they're rebalancing their balance sheet are going through somewhat uncertain time, I think those that are unemployed for quite a while now, are not quite clear how they'll get back to employment, but I do believe that those who are employed have a lower fear of an impending unemployment event on the horizon for them. And so you've got 2 kinds of consumers even in that list. That is all that's put together would lead me to conclude that I wouldn't come to a set of conclusion that says that secular change in credit is happening. I just wouldn't get there yet. I think that with the advent of all these rules in debit, as somebody asked earlier, I think it's Rod, I think you will find banks trying to relook at their ability to generate revenue, given that their credit cycle has changed in tone for a number of the banks. And I think that itself will drive a new form of offers and promotions and willingness to take on risk with the banks over the next couple of years. Some of them, by the way, have already been doing that for the last year or so already. So it's a mixed bag. I would just tell you don't conclude that secular change is happening. That's too early.

Your next question comes from the line of Jason Kupferberg with Jefferies.

I just wanted to pick up on some of Chris's comments earlier, in terms of the post-Durbin world here. Have you guys been asked by any of your issuer customers to revisit or renegotiate their contracts at this point? And if so, how far are you into that process and have you been able to obtain extensions on any of these contracts as part of those negotiations? Because I think in the past, you guys have said that you have 1 big contract renewal in each of the next 3 years. And then if you can also just tack on to that any quick update you might have on the merchant litigation, that would be great.

We're limiting our discussions to issuer contracts just to compliant specifically with the Durbin regulations. So in situations where we have exclusivity provisions, which is fairly limited on our debit card base or the computation of, or the incentives that go into the computation of the netzero calculation, which I'm sure some of you are quite familiar with, make them into play. So we would have to discuss with our issuers changes in terms and conditions around that. But as we said before, we do not have material average change clauses in our contracts, and we believe that the value we provide of our debit network is consistent with the pricing we have in place today. So we think we're in pretty good shape from a pricing pressure standpoint with those little debit contracts with the exception of having to work through the netzero calculations. And for an update on litigation, I'm going to defer to Barbara because that's not my area of expertise.

Before we get to that, I just want to add on one thing, Jason. When we actually quote that we have contract renewals in -- 1 big contract renewal in each of the next 3 years, that was not limited to the United States. That was a global statement, okay, so, it is all of our business globally.

And on the merchant litigation, there is nothing new compared to what we've written in our public disclosures. This stuff has been carrying on for years. There's a trial date scheduled for September 2012. They're all in mediation, which is a lot of fun as you can imagine. We've made substantial progress in negotiations with the individual merchant plaintiffs, about [indiscernible] -- we've got no such comment to make about the class merchants. And since the individual merchants represent less than 5% of the purchase volume of the class, I really don't know where this mediation will go right now, so it's still out there. All we have is the judgment settlement sharing agreement that we've already announced with you last earnings that I remember.

Your next question comes from the line of Craig Maurer with CLSA. Craig Maurer - Credit Agricole Securities (USA) Inc.: Following on your discussions in Netherlands, I was wondering if the problems that European banks are having might be hastening negotiations to outsource processing and move on to Maestro and whatnot to comply with separate banks?

Hi, Craig. It's Ajay. I don't think that I've yet to -- that I can say that they are hastening any of those discussions. Europe tends to move at a glacial pace because of the complexity of the number of banks, the country rules and the EC rules. That's a fairly complex needle to thread your thread through. So you should not expect dramatic moves up and down. Having said that, the breakthrough we have in The Netherlands was very welcome and very helpful. In fact, our European processing volume that we now see was up this quarter over 100%. Whereas if you remember the last earnings call, I talked about over 40-odd percent. So in a sense that is an improvement in that number, it's caused largely by this Netherlands piece. There are lots of negotiations going on with a number of banks, but don't conclude it's because of any reason. This work has been going on for years.

Your next question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang - JP Morgan Chase & Co: Great results, happy to see you're investing as well. I guess I'll ask about Visa's network participation fee, what the implications would mean for Mastercard. I'm asking because it's a pretty drastic change in how acquiring fees are going to be billed, so I wonder if Mastercard needs to match that?

Tien-Tsin, it's Chris. At this point in time, we don't see a need to match it. As I said in my comments, we're going to be very thoughtful and very surgical in how we approach the opportunities in PIN and signature debit as it unfolds under Durbin. As I mentioned, there's a lot of moving parts that need to be sorted through and to put in place a sort of a blanket across the board. Network participation fee, I think, suboptimizes our economics when it comes to grabbing some of this opportunity. So we are going to be looking perhaps at specific acquiring relationships. We're going to be looking at certain verticals of merchants and certain categories of merchants that we believe will provide the best market share increase for the best economics. I mean our objective is not to go out there and buy every PIN transaction that exist in the U.S. today, to do it in a very thoughtful way with more precise economic tactics than a network participation fee.

Tien-Tsin, this is Ajay. When this regulation came out we've been working our way through different situations. The basis of everything we've looked at is that we have a lower market share and our position, therefore, is different. We don't need to defend as much as find ways to find the chinks in the place that we could build and capitalize on. And that's the reason we're looking at it rather than doing any blanket pricing or blanket efforts for acquirers or for merchants, large or small or for issuers large or small. We still think our benefit comes from being flexible deal-by-deal and thoughtful deal-by-deal because of where we stand, versus some of our large competitors, who, I think are doing things that are appropriate for their market position.

Your next question comes from the line of Don Fandetti with Citigroup.

Ajay, your growth in regions, such as Asia continues to be very strong. I was curious if you think you're still in a market share gain mode, or work suggest that you are. I just wonder if you could comment on some of the regional networks from a competitive standpoint, maybe talk about comp, how you see them, is there a merchant actually a benefit for you or does it become [indiscernible]?

Don, we are still very much keen to make sure that not only do we benefit from the secular growth of spending on electronic payments and the move from cash to electronic payments and frankly the benefit of growing middle classes and global traveler region like Asia. We want to benefit from all that. But we also have a game to play, to pick up back some of the market share we'd like to have in Asia, compared to our competitors. So it's a mix of both things that are going on the ground and our results actually are benefiting from both substantially in Asia. Now CUP. CUP is a very interesting circumstance. CUP as you know, domestically in China has a State-mandated position that is very calendar rules and construct. And that's a play that global companies like us cannot play in the domestic processing business. So what we are focused on, on the other hand, is the increasing capability of affluent and middle class Chinese to be spending money outside of China, and of course, more inward travel into China of Mastercard holders like ourselves and that's where our entire arrangement with CUP is constructed. It's constructed on improving MasterCard acceptance in China for people like you and me. It's constructed on improving CUP acceptance outside of China both physically and e-commerce space and but in return for revenue in both these examples. So we make some money by facilitating that acceptance. They make some money by facilitating our acceptance but at all cross-border. Domestically as of now, it's still a very close marketplace that's something that I have no idea when it'll change. I don't know what I could tell you about that portion. I'm just focused on the nondomestic portion of our relationship with CUP.

Your next question comes from the line of Bruce Harting with Barclays Capital.

Just trying to reconcile your terrific volume number printed here and given by Martina through July even with adjustments for acquisitions in SunTrust, et cetera. With the doom and gloom out there, in terms of an emerging recession possibly here and all the problems we read about daily, in Europe, can you get a little more granular with any geographies or maybe give examples, particular strength in Europe, I mean the numbers you're putting up in Europe defy what we read about everyday there. Asia, the numbers the APMEA numbers, I mean, it looks like back in the envelop in a couple of years, those numbers could be as strong as the U.S. in terms of volumes. Is this mostly your war on cash playing out or is this PCE rising in these countries or both? I'm just trying to get a little bit, is the market maybe your opinion on what you're seeing from the bottoms up here, is the market overly pessimistic or is this just the shift to digital payments? And I think the answer is important for your stock could be one of the best to hold if we are going into a recession, if the answer is the war on cash because you'll sustain these growth rates even through the downturn?

Bruce, it's Martina. Really all of the factors that are impacting our growth, you have just quoted, so let me talk a little bit about it. The United States is a bit different than the rest of the world. So let me start with the rest of the world first. When you look at Asia Pacific and in Latin America, as Ajay has already said, there is a significant secular trend going on in terms of people using less and less cash and check in those countries where you have checks, a more electronic forms of payment. In addition to that, all the work that our people are actually doing on the ground, in terms of winning business in helping financial institutions, as well as a number of other companies, as well as governments around the world to be converting really taking advantage of the secular opportunity that is benefiting really our growth. In Europe, you have some of the same going on. There obviously also market share gains impacting in there, but the Europeans are very interesting. You hear in the United States, you hear a lot of doom and gloom when when you go into Europe, you don't hear quite as much doom and gloom. In fact, when you talk to a lot of Europeans and it is August today, they will be all going on vacation still and they might be doing vacation in a little bit of a different way than they have been doing in the past but they're still will be going for 2 or 3 or 4 weeks at times on vacation. So people will be still continuing to spend and because of the secular trend and because our product being readily available in the market, we will obviously benefit from that. United…

Your next question comes from the line of Andrew Jeffrey with SunTrust.

Chris, I realized that it's a strategy that's still evolving and you've made some specific comments vis-à-vis your PIN debit share and desire, I guess, directionally to take share. Can you just talk a little bit philosophically about your willingness to go after routing volume, both in terms of kind of the pricing initiatives you might be willing to take opportunistically as you mention, but also the economics and the ROI considerations? I mean, Martina mentioned that PIN debit economics weren't so hot to begin with, I imagine it'll only get worse post-Durbin. Maybe just a little thought on the puts and takes and MasterCard's willingness to be aggressive versus just sit back and let volume flow your way?

Yes. I think I mentioned in my comments that the PIN debit economics are very thin, pre-Durbin. I think in terms of a couple of cents of transaction, that's sort of a zip code size of revenue yield off these transactions. So you start taking that pre-Durbin and then you start thinking about how much do we pay large merchants to route, how should we pay acquirers to route, and how much do we pay issuers to position ourselves in an optimal space with their routing configuration on the back of their card. It doesn't leave a lot of money left over. So because of that, we're not going at this with a blanket approach to pricing. We, as I mentioned earlier, I think Tien-Tsin asked the question, much more surgical, much more precise in terms of where we think we can play in this space. You have to remember that PIN debit transactions are very inexpensive to start with. They're single message transactions. There are a multitude of PIN networks out there in addition to MasterCard and our big competitor. There are a number of regional PIN networks out there which makes it very competitive. There's a lot of capacity on PIN networks today. So the volume increase that we will see or anybody will see with PIN debit changes will far exceed the revenue implications of that going forward. That's just the way it is and that's why I've said, we are not in the game to go out and buy every PIN transaction we can. We're going to do this in a way that optimizes our economics.

Is there consideration to just say, hey, we don't want to be in the business or it's not, could the economics don't justify your being here?

No. We absolutely want this business but we want in a thoughtful way, want in a way that makes economic sense to us. But we have a great network, we have global acceptance. We'd like to see transactions across our network. It gives us information capability that we otherwise wouldn't have. But we're not going to do it in a way that just doesn't make economic sense.

let me just add to this. Our network is really scalable, right. And we are able to add additional transactions at a very low incremental costs. So from a positioning point of view, from a cost structure point of view, we are obviously in a very good position to be able to pick up deals in a selective manner. But because of all of the things that has to still shake out in the market between the issuers, the acquirers and the merchants, we said that we do believe that there will be opportunity, we're not sure yet how much opportunity. So for us it is really a way of how are we going to go after profitable growth. And then how much are we really going to get that?

This is Ajay. And let me tell you that I think part of the confusion that comes in this topic comes from the use of the word economics. When we say economics are thin, what we mean is that revenue economics of a PIN debit transaction, not the profitability economics of a PIN debit transaction. Not the operating margin economics of a PIN debit transaction. So when Chris is talking about revenue, it's crystal clear that it's PIN. That's why he says you may get more volume growth than revenue percentage growth. Yet as he said in his remarks and Martina just said, the cost of processing most transactions incrementally at the margin is very small for our company. So we still think there's enough business there to not only make decent operating margin from if he's in those deals, but also use that incremental data that we get, the incremental transactions that we see to add value to many other products we sell, whether it be inControl, whether it be sort of the express monitoring services or risk, so there's all things that we do with that data. So you've got to just understand that logic of revenue economics versus operating margin economics.

Your next question comes from the line of Jim Kissane with Bank of America Merrill Lynch.

Just a clarification, Martina, what portion of your U.S. volume is from gas? And then a question for Chris, you kind of alluded to the Fed re-evaluating interchange cap, would you have a sense in terms of how often they'll review debit issuer cost and ultimately the interchange cap?

Jim, it's a relatively small portion, obviously, of overall volume. The only thing that we did see in the quarter ticking up and that's totally in keeping with the price change is, actually, is now from 7.5%, we usually said that the volume is gas as part of volume 7.5% is now a little bit over 9%. And then from a transaction point of view though, we're seeing that it doesn't change much. It's around just shy of 16%, 15.8% I think for the quarter.

And with respect to the Fed reviewing interchange caps, our indication is it could be every 2 years, or thereabouts. So that's the time horizon you should be thinking through.

Your final question today comes from the line of Tom McCrohan with Janney Capital Markets.

I was just wondering if MasterCard had a view on allowing bill payments on prepaid cards in light of the new language that prohibits access to funds loaded on GPR cards over the bank on a CA system, and if you can just clarify, did I hear you say that you have a new GPR card that you distribute to Walmart? Can you just clarify that?

With respect to allowing bill pay on the card, that's really the issuers' decision, what they allow the functionality of the card, what are these allowed to do, whether ATM withdrawal, bill pay, direct access to DD&A accounts, whatever the case might be or to fund it. So it's not whether we allow it or not allow it, it's whether once the issuer decided to provide that functionality, whether it qualifies or regulated or unregulated rates. The Walmart program, these were general-purpose reloadable cards, put into the stores at their new financial centers, which you'll see some press around to enable their customers to avail themselves to prepay functionality. And as you know, all their associates in the United States received their payroll on a prepaid card, if they did not have a bank account. So we've had some good traction with that major retailer in the prepaid space.

Ladies and gentlemen, that concludes the Q&A portion of the call. I would now like to turn it back over to Ajay Banga for closing remarks.

Thank you. Let me just leave you with a few closing thoughts. We have delivered really good results for the first half of 2011, due not only to the strength in our base business across all 5 of our regions, but also driven by volume and transactions from new deals. Chris spent some time talking about the U.S. Debit. In a date a year or so before this plays out across all the stakeholders, we remain confident we can increase our share in the U.S. Debit category. We will maneuver to drive the maximum positive impact for MasterCard. Thinking about the business going forward, as I told you, there is economic uncertainty, particularly in the United States and Europe that we need to keep a close eye on. At this point, growth remains relatively strong in Latin America and Asia-Pacific, Middle East, Africa. Through all this, we have not lost sight of the big picture. We remain focused on displacing the 85% of transactions across the globe that are conducted using cash and checks. That is our opportunity. We are executing on our growth strategy to invest in differentiated capabilities and win more than our fair share of this secular shift to electronic payments. With that, we're going to conclude the call. Thank you for your time today.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.