Mastercard Incorporated (MA) Q2 2016 Earnings Report, Transcript and Summary

Good morning. My name is Blair, and I'll be your conference operator today. At this time, I would like to welcome everyone to the MasterCard Second Quarter 2016 Earnings Conference Call. After the speakers' remarks, there will be a question-and-answer session, and instructions will follow at that time. I'd now like to turn the call over to Barbara Gasper, Head of Investor Relations. You may begin. Barbara L. Gasper - Executive Vice President & Group Executive: Thank you, Blair. Good morning and thank you all for joining us this morning. We apologize for the delayed start. It appeared that we had a lot of people dialing in at the very last minute and we didn't want to start the call with a lot of people still not connected, so thanks for your patience. And thanks for joining us this morning for a discussion about our second quarter 2016 financial results. With me on the call today are Ajay Banga, our President and Chief Executive Officer, as well as Martina Hund-Mejean, our Chief Financial Officer. Following comments from Ajay and Martina, the operator will announce your opportunity to get into the queue for the Q&A session. Up until then, no one is actually registered to ask a question. Even if you think you have already dialed into the queue for the Q&A, you will need to register again following our prepared comments. 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 at mastercard.com. Both the release and the slide deck include reconciliations of non-GAAP measures to their GAAP equivalents. The release was attached to an 8-K that we filed with the SEC earlier this morning. A replay of this call will be posted of posted on our website for 30 days. And 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 SEC filings. With that, I will now turn the call over to Ajay. Ajay Banga - President, Chief Executive Officer & Director: Thank you, Barbara. Good morning everybody. Our business continues to perform well. We are very pleased with our strong results this quarter. As you could see from the release on a currency neutral basis, and excluding that special items related to litigation, we reported both net revenue and EPS growth of 14%. Martina is going to get into the financial details, so I'm going to talk a little bit about the global economy first, and frankly, other than the Brexit vote, very little has changed since the last quarter. The United States economy is still holding steady. Consumer confidence up slightly, stable job growth, lower inflation, and frankly, prior to the Brexit vote, many parts of Europe were showing steady signs of improvement in both consumer confidence and unemployment. And you know, while it's still too early to predict the full impact of Brexit, we will obviously watch that situation very carefully. The outlook for Asia remain cautious. We've got a prolonged slowdown in China, a weaker than expected recovery in Australia. India continues to be a bright spot. Both consumer and business sentiment there remains strong. In Latin America, Brazil is still in a deep recession but interestingly, a modest increase in business confidence is beginning to show signs that the economy may be reaching a bottom. In Venezuela, economic conditions continue to deteriorate but Mexico is in a steady growth path. It's been driven by solid consumer spending and low unemployment. And so as a result, it's likely we're going to remain in a period of economic and political uncertainly, at least for the near term. And having said all of this, our business continues to grow. Our fundamentals remain strong. We are seeing double digit volume and transaction growth across most of our markets, and we continue to win deals by differentiating ourselves with services. Now I wasn't on the call last week that Martina and team had on VocaLink, so let me just quickly share my views about the planned acquisition of VocaLink. The deal is an important component of our strategy to participate in all forms of electronic payments and to enhance our services for the benefit of our customers and our partners. And VocaLink itself is very interesting to us for a couple of reasons. First, when you look at all payment flows in the world's top 50 countries, and this is not just retail payments, ACH represents about 50% of that total. And the potential of Fast ACH is growing, especially given that it is being promoted by a number of regulatory bodies in Europe, the United States and in other parts of the world. Second, we believe that VocaLink is the best asset in this space, from both a technology standpoint as well as having a very talented group of people who are respected across the industry. Beyond the opportunities available in their primary UK market, they have been successful in operating and licensing their Fast ACH technology in other markets, in Sweden, in Singapore, in Thailand. They're also the primary supplier of Fast ACH technology to the Clearing House in the United States. And finally, the ability to see both card and ACH transactions would enable us to offer an even broader range of data analytics and other services to our partners. Our card network is empowering our growth in both consumer and commercial payments for many years. And with this acquisition, we will now have a new set of capabilities to capture additional opportunities in B2B, in P2P and government payment flows, regardless of what payment rails are used. So that's VocaLink. Let me move on to a brief update on China. In June, the People's Bank of China released the final regulation of foreign card networks to operate domestically in China. We are currently working through the requirements. We need a much better understanding around their national security and cyber security standards before we determine how best to proceed. We got to weigh whether we can apply for a license alone or with a business partner. It's all connected to this deeper understanding. Meanwhile, what we are doing is we're continuing to work on building out our technology on the ground as well as working with our Chinese customers on new issuance and broadening acceptance. So moving on from there, a couple of recent developments on the legal front. In the United States, the Brooklyn District Court's 2013 approval of the US merchant class action settlement as you know was overturned by the Court of Appeals in late June. And obviously, we're disappointed by that decision. Charlie [Scharf] and Visa reviewed it in some detail on their earnings call last week, so I'm not going to rehash the same details. The case will be sent back to the District Court, where we expect the first order of business to be to appoint counsel for the injunctive relief class. MasterCard will then work with all parties to see if we can find ways to reform the settlement in line with the Court of Appeals decision. And as you'd expect, our focus on that work will be on rule changes and the scope of the release, which were the issues in the Court of Appeals decision, not the money damages. On the money damages, note that our financial exposure remains capped at 12% of any settlement or judgment under the agreements we entered into with the bank defendants and with Visa in 2011. Additionally in July, a UK court issued a decision in one of the UK merchant suits seeking interchange damages. That court awarded Sainsbury's a portion of the damages it had been seeking, and that amount, along with anticipated legal fees and costs, was taken as a charge in the second quarter. That's the special item you see in our results. Although we don't believe the retailer suffered any damages, they're gratified by several aspects of the court's decision. Just one example, the court recognized that an appropriate level of domestic interchange is substantially higher than the 20 and 30 basis points imposed by the European interchange fee regulation that went into effect last December. So, now let's move on to some of our recent business activity. And during the quarter, as normal, we signed a number of new deals and renewals supporting the expansion of our business around the world. I'm going to run through a few examples. We continue to make progress in our US consumer business. Recent highlights include the renewal of our partnership with Huntington National Bank across their debit, credit, and commercial businesses, expanded acquisitions of new consumer credit accounts with several of the largest banks in the market. In addition, we had important wins in the cobrand space, including American Airlines, where Citi and Barclaycard will both be the issuers, as well as InterContinental Hotels, Bed, Bath & Beyond and some others. We also renewed, just announced yesterday here actually, our consumer credit cobrand with PayPal, an important component of our overall relationship with them, which as you heard from Dan Schulman on his call, we're all actively seeking to expand. We continue to drive our commercial business forward. One of the most important verticals for us is travel, and now in addition to our relationship with eNett and Travelport that we've talked of in previous calls, we just signed a new global deal with Amadeus, a leading travel technology company. Today, travel agencies make more than $300 billion in annual payments to airlines, hotels and other travel providers, largely via bank transfers and checks. What this agreement does is it combines Amadeus's new B2B Wallet and virtual payment technology with MasterCard's commercial card capabilities. We will provide travel agencies and travel providers with a fast, secure and automated way to pay and get paid. We continue to perform well outside of the US. In Canada, we signed two new issuer deals, renewed four issuer and cobrand deals, including MBNA which is a division now of the Toronto Dominion Bank and President's Choice Financial which is part of Loblaws, which is one of the largest retailers in Canada, which by the way, included exclusive issuance. In Europe, we are pleased to sign an expanded agreement with Yapi Kredi, one of the market leaders in Turkey, for a larger portion of their credit portfolio. Prior to this deal, most of their credit business was with a competitor. In addition to the deals I mentioned previously, we are continuing our momentum in the core brand space globally. We are very excited we renewed our partnership with Wal-Mart in Canada, and also signed a new agreement with them in China. We have partnered with Axis Bank in India, as well as Miles & More, one of the largest global frequent flyer rewards programs to launch India's first multi-currency cobranded prepaid card that supports up to 17 currencies to facilitate both domestic and international card usage. Finally, you've heard us say many times how we've been successful with using services as a key strategic differentiator for winning deals. As one example of this, we're happy to have renewed a long-term debit agreement with Bendigo and Adelaide Bank, one of Australia's largest retail banks, includes commercial cards and a flip of the majority of their consumer credit business. And that deal includes a full complement of our services, consisting of Advisors, Loyalty Solutions, and our suite of safety and security products. We signed a deal with CartaSi, one of the largest card issuers in Italy, to begin issuing debit cards, as well as to use Advisors Consulting Services. You'll hear a lot more from us about how we're differentiating with services at our upcoming Investor Day in September. So moving on to our digital strategy, you know we have long said this is a marathon not a sprint, but we've made some significant progress this past quarter, and there's more to come. So about two weeks ago, we announced an important industry milestone when we became the first network to deliver a digital payment service across all devices, all channels. With MasterPass, consumers can now decide how and where they prefer to shop whether that's in-app, online, or in-store, using a bank-branded offering from the issuer of their choice, knowing that their payment information is protected by our technology. We've also previously talked about our digital-by-default strategy, which enables issuers to auto-enroll card holders onto the MasterPass service through their online banking app without any additional effort by the consumer. We're very pleased that more than 80 million accounts will be automatically enabled by the end of this year, 80 million, as the service has begun to roll out globally, starting with Europe and Asia, and later this year in the United States with Bank of America, with Citibank, and Capital One. Further, issuers can use MasterPass to differentiate their own wallet offering by using our open APIs to integrate other services from us such as purchase alerts or paying with points, or services that they have developed themselves. And lastly, in terms of geography, including the recent expansions to Greece, Switzerland, Colombia and Ukraine, we are now live in 33 markets. From an acceptance standpoint, MasterPass is currently available at hundreds of thousands of merchants, online and in-app. We are pleased to have recently added IKEA. We will soon be adding Saks, Lord & Taylor and the Cheesecake Factory as more examples. With the introduction of NFC capability, consumers will now be able to use MasterPass at the more than 5 million merchant locations in 77 countries that accept contactless payments today. Contactless will first be available to Android device owners in the United States later this month with a global expansion to follow shortly thereafter. And that moves our last topic is tokenization technology. The MasterCard Digital Enablement Service, or MDES, we continue to make solid progress around making transactions more secure for MasterPass, which by the way is already enabled for contactless transactions with online and in-app to follow, but also for our digital partners. Most recently, we helped Android Pay expand to Singapore, as well as Apple Pay's move into Canada, Hong Kong, Switzerland and France. In addition, we're also pleased to be partnering with Microsoft on the launch of their cloud-based mobile wallet solution for Windows 10-compatible devices. All these examples illustrate our continued commitment to deliver secure consumer payment experience to our cardholders using the mobile device of their choice. So with that, I'm going to turn the call over to Martina for an update on our financial results and operational metrics. Martina?

Thanks, Ajay, and good morning everyone. So let me begin by giving you some highlights on the second quarter, starting with page three, where you see the difference between non-GAAP reported and currency-neutral growth rates for this quarter. So these figures exclude the impact of the special items taken in both this quarter and the previous quarter related to the judgment issued on Sainsbury's and the settlement we made with Tesco, the two largest merchants involved in the UK merchant litigation. I'd like to point out a few items using the currency-neutral growth rates. As Ajay said, net revenue growth was 14% for the quarter, coming in a bit higher than our expectations. Operating expenses grew 13%, primarily due to continued investments to support our strategic initiatives, as well as higher legal costs, of which the majority are not likely to recur. We saw a higher tax rate than in the year-ago quarter due to the non-recurrence of a discrete US foreign tax credit from which we benefited in the second quarter of 2015. And with all of that, EPS was $0.96, up 14% year over year. Share repurchases contributed about $0.03 per share, and as of July 21, we have $2.7 billion remaining under our current authorization. And lastly, cash flow from operations was $1.1 billion, and we ended the quarter with cash, cash equivalents and other liquid investments of about $6.4 billion. So let's turn to page four, where you can see the operational metrics for the second quarter. When comparing these numbers to the last quarter, just remember, the first quarter saw about a 1 PPT benefit from leap day, which explains most of the differences. Our worldwide gross dollar volume, or GDV growth, was 11% on a local currency basis, down 2 PPT from last quarter. Overall, our US GDV grew 8%, made up of credit and debit growth of 7% and 8%, respectively. Total US GDV had less than 1 PPT headwind from lower gas prices. Now outside of the US, volume growth was 13% on a local currency basis, and that's about down 2 PPT versus last quarter, with low to mid teens growth in each region. And beginning on June 9, as a result of the new EU regulations, our volume numbers reflect the absence of domestic co-batched volume that we do not process, particularly in France. In the second quarter, we saw an impact of 1 PPT on worldwide volume growth, and a 3 PPT impact to European volume growth. The impact will become more pronounced over the next year, and this has been contemplated in all of our forward guidance. Cross-border volume grew 10% on a local currency basis, slightly lower than the 12% we saw in the first quarter. Let me turn to page five, and here you can see processed transactions grew 14% globally to $13.7 billion. And that's a very similar increase from what we saw in the first quarter. And globally, the number of cards grew 7% to 2.3 billion MasterCard and Maestro branded cards issued. On page six, here you see some highlights on a few of the detailed revenue line items. Unless otherwise stated, the growth numbers I call out, both here and on the next slide, are all on a currency-neutral basis. So as I've said, net revenue growth was 14%, a bit stronger than we expected. We saw continued strong volume and transaction growth plus a higher contribution from some of our services businesses. Rebates and incentives grew 23%, primarily due to higher volumes, as well as some deal renewals. Looking quickly at the individual revenue line items, domestic assessments grew 10%, while worldwide GDV grew by 11%, and the difference is primarily due to mix. Cross-border volume fees grew 14%, while cross-border volume grew 10%. The 4 PPT gap is due to a number of pricing actions partially offset by a higher mix of intra-Europe activity. Transaction processing fees grew 21%, primarily driven by the 14% growth in processed transactions, as well as some pricing. And finally, other revenue grew 25%, driven by primarily by services such as Advisors, APT and our safety and security product offerings. Moving now to Page 7. Here you can see that total operating expenses after excluding special items increased 12% in the quarter or 13% on a currency-neutral basis. Our APT acquisition contributed about 1 PPT to these growth rates. In addition, 5 PPT was due to higher legal costs. As I already said, the majority of these aren't likely to recur. So the remaining 7 PPT was primarily due to higher personnel costs related to our continued investments in strategic areas such as digital, data analytics and geographic expansion. Also, our data processing expense growth is normally in line with transaction growth. However, this past quarter, the growth was higher due to the fee we now pay to NSPK for processing domestic Russian transactions. Let me turn to slide eight, and here we can discuss what we have seen in July through the 21st, where most of our drivers are up from the second quarter. The numbers through July 21 are as follows. Starting with processed volume, we saw global growth of 11%, slightly lower than the 12% we saw in the second quarter. In the US, our processed volume grew 8%, down 1 PPT from the second quarter, with slower growth in credit but higher growth in debit. Gas had less than a 1 PPT negative impact on our July growth, and that's very similar to the second quarter. And processed volume outside of the US grew 15%, up a bit from the second quarter, primarily driven by Europe and Latin America. Globally, processed transaction growth was 17%, up 3 PPT from what we saw in the second quarter. Processed transaction growth outside the US was up 1 PPT, with increases in Europe and Latin America, and the US growth was up 6 PPT, driven by new opportunities of PIN routing. With respect to across border, our volumes actually grew 14% globally and that's up 4 PPT from last quarter, with faster growth in Europe. We also saw faster growth in Middle East/Africa, which was likely related to the timing of Ramadan. So now looking to the full year of 2016, there's really no change in our business outlook from what we discussed with you in our earnings back in April. Currently, we don't anticipate any significant impact from Brexit this year. However, foreign exchange headwinds will continue to be with us in 2016 although they continue to moderate from the recent past given current FX rates. Our underlying business fundamentals remain strong and we will continue to run the company for growth, both on the top and bottom line, as well as balancing our investments with astute expense management. As we look at full year 2016 and after factoring in our currency-neutral methodology, we continue to expect to be at the low end of our three year revenue growth range. When you model on an as-reported basis, you will need to adjust for the impact of all currencies, and at current rates, we estimate that that would mean about a 2 PPT headwind to net revenue growth and the bottom line, which is less of a headwind than what we said on our April earnings call. Now let me call out a few other items that you should consider when modeling 2016. For rebates and incentives, we now expect to see growth of about the same as the 20% as-reported growth rate we saw in 2015 after factoring in the impact of the new American Airlines cobrand renewal. On expenses, we continue to expect total operating expense growth in the high single digit range for our as-reported results excluding special items. On a currency-neutral basis, we continue to expect low double digit growth. Be mindful that we're ramping up our efforts on MasterPass which impacts G&A and A&M, particularly in the third quarter. You should now assume a tax rate of slightly less than 29% for 2016. And finally, on the subject of share repurchases, now while year to date we have bought back about $1.8 billion, most of that occurred early in the year, as we were out of the market for most of the second quarter given the pending VocaLink transaction. As I said last week, once our trading window opens in early August, we expect to continue our repurchasing activity. So now let me turn the call back to Barbara to begin the Q&A session. Barbara? Barbara L. Gasper - Executive Vice President & Group Executive: Thank you, Martina. We're now ready to begin the question and answer period. In order to get to as many people as possible, with ask you that limit yourself to a single question and then queue back in for additional questions. Blair?

[Operation Instructions] And the first question comes from the line of Craig Maurer from Autonomous. Your line is open.

Yeah, hi. Thanks. Two questions. One, if you could provide us your thoughts for the industry regarding the deal Visa signed with PayPal. And secondly, if you can comment if there was any disruption in volume in Europe related to any of the geopolitical problems there, terrorism, so on and so forth. Thanks. Ajay Banga - President, Chief Executive Officer & Director: Yeah. Hi, Craig. So a little bit about both. The second one is a more transactional question and I can tell you that places like Turkey and other such locations, there's no doubt that the impact of some of this activity in terrorism does impact what's going on there. Our cross-border growth to Turkey is down significantly compared to last year. Cardholders from Germany, Russia, Sweden and the US are not traveling there with the same level of frequency as they were clearly. We're also closely watching travel to other markets, France and so on. Interestingly, in the UK, we're actually seeing an increase of inbound cross-border spend. So it's kind of bouncing around but specifically in a couple of countries that got impacted by terrorism, there's no doubt that it causes some angst in cross-border trends. Having said that, remember what Martina said, right now, our cross-border volumes for the first few weeks of this quarter, it's only a few weeks, are up compared to where we were last quarter. And in fact, Europe is one of the contributors to that being up. So the part about Visa and PayPal. I've said this a few times to a number of you when I've met you. Back in June of 2013, we had implemented a new approach to digital wallet operators that applied to all staged wallets, and by the way not just PayPal, so I want you to understand that, with the intent of bringing consistency and transparency to the system. Transactions should flow through with clear data flowing through. The brand of the bank and the network should be visible to the consumer and the merchant. There were many reasons for us to be thoughtful about that digital wallet operator principles. We're still exactly where we were with those principals, and I think what I'm really pleased to see through a constructive dialogue with Dan Schulman and his management team at PayPal, that PayPal is actually working to resolve some of those concerns we all had around the lack of transparency around these staged wallets as well as ACH clearing. And that's what you saw in the announcement that he and Charlie made a few days ago. And if you heard Dan mention on his earnings call, they're in discussions other than the payment space to work with similar concepts or somewhat different but in the same space. We've worked with PayPal for many years. We have a good working relationship with them on a wide range of opportunities. I just told you we just renewed our credit cobrand portfolio with them, in fact yesterday. And so that gives you a sense of the manner in which PayPal is trying to work with the industry. I think this is actually a good thing for PayPal and for the industry, because at the end of the day, providing consumers the ability of having seamless, simple ways of paying is good for all of us. Everything's better than letting them use cash, and that's where we're all headed.

The next question comes from the line of Tom McCrohan from CLSA. Your line is open.

Hi. Ajay, when you talk about China and some of the security standards, are you referring to the EMV standard that China adopted and it being different from what's been embraced around the rest of the world? Ajay Banga - President, Chief Executive Officer & Director: No, actually that's a tactical problem that actually at the end of the day creates costs and implications for solving for the way chip cards work in China and Chinese chip cards work outside of China. It's solvable. It's not the best thing to do but it's solvable. What I'm referring to is that they recently, in their policy regarding the opening up of the market for people like us to come in, they put in a couple of clauses around complying with their new national security and cyber security policy. The little challenges of the new national security and cyber security policy has not yet actually been passed into a form that is visible to us in a document that we can say, okay, got it, got it, got it, do this, do that, we're okay. It's not in that form. So we're a little bit of in-between territory, between understanding that they want to have a thoughtful national security and cyber security policy, which they're entitled to, but we don't understand the implications for us in terms of operating a network on the ground. So whether we operate with our own license or we operate in a JV with somebody else or we do some other creative thinking around this will all depend on clarity of these kinds of elements that they've put into the policy they've recently announced. That's what we're trying to sort out. Meanwhile, there's a lot of stuff to do for us in China. We are continuing work on issuance, continuing work on building out acceptance, where we've been continuing some work on basic technology development so that when we get clarity on this, and Martina and I are confident we understand what we're signing up for, then we can move forward relatively quickly from that space. So it's kind of one of those in-between spaces. Barbara L. Gasper - Executive Vice President & Group Executive: Next question, please.

The next question comes from the line of Moshe Orenbuch from Credit Suisse. Your line is open. Moshe Ari Orenbuch - Credit Suisse Securities (USA) LLC (Broker): Great. Thanks. I was wondering if you could kind of address the comments you made about US debit accelerating in July. I think Visa had made some comments about seeing the mirror image of that, some deceleration. Are there actions that you're taking that are causing that or is it decisions of individual acquirers or merchants? Anything you can kind of add to that discussion? Ajay Banga - President, Chief Executive Officer & Director: Well, if you heard us saying we're going up and the other ones are reducing, that's just the differential impact for both of us. So I don't know how to comment on that one. I'm not saying that you're getting a great change in underlying consumer secular spending towards debit. Don't conclude that. In fact, that's not at all what we are talking about. This is all to do with PIN routing and working on PIN transactions. And as I think I've told you a couple of calls ago, maybe a few before that, this stuff will move around a little bit and bounce around as merchants move the different routing in their routing tables depending on what's working for them. And it's not just about pricing. It's also about speed of approval. It's about many different things that they look at. Most of the bigger merchants have a very sophisticated and quite thoughtful way of deciding their routing tables, and we keep working with them. And so some quarters are better, some quarters are a little less good. What you're seeing currently is a better period.

Yeah and having said that, when you look at our three weeks July numbers, where I said that the US transactions are actually up by 6 PPT, actually what is happening is that we have more of an opportunity to actually get routing for merchants because we happen to be now on more cards. Ajay Banga - President, Chief Executive Officer & Director: Back of the cards.

On the back of the cards. Ajay Banga - President, Chief Executive Officer & Director: Yeah. Moshe Ari Orenbuch - Credit Suisse Securities (USA) LLC (Broker): Great. Thanks very much.

Your next question comes from the line of Darrin Peller from Barclays. Your line is open.

Thanks guys. Nice job. Just want to touch on specifically the pricing changes that went into effect to allow the transaction fees to increase, or I think you said it was around 7 points faster than the actual transactions, similar with cross-border outpacing volume growth. Was it yield, all yield improvement on price, or was there also a mix element to it? And then just maybe on pricing trends going forward. Thanks guys.

Yeah so, Darrin, I mean we said in the cross-border line as well as in the processed transaction line and those fee lines that we had some pricing actions. And it really was what I would call moving around the deck chairs in a number of countries, which allowed us net-net to take some price. In terms of actually anniversarying those kind of prices, about 50% of those actions have anniversaried now with the second quarter, and the other 50% of those actions will be anniversarying by next year. And by the way, this is nothing different than what we had called out in the last quarter. So this is just the normal run rate that happens from time to time.

All right. Just as my follow-up, any early sense on impacts from Europe with regard to Visa Europe deal?

Look, it's very, very early, okay. They just about closed the transaction, and having said that, we obviously have prepared our group and our sales teams to make absolutely sure that we are with our clients and that we do all of the actions that we need necessary. But it's extremely early. You see that Europe is actually growing still very nicely in the mid teens from a volume point of view. So I don't think we have anything to add at this point. Ajay Banga - President, Chief Executive Officer & Director: Just one extra comment on pricing, and I know your question was about two specific line items in the thing, but overall for us in the second quarter, pricing contributed a little less than 1 percentage point to our net revenue growth. And that's kind of just so you know the whole picture.

All right. Makes sense. Thanks, guys.

Your next question comes from the line of Chris Brendler from Stifel. Your line is open. Christopher Brendler - Stifel, Nicolaus & Co., Inc.: Hi. Thanks. Good morning. Another question on Europe, if I could. I think, Martina, you just said that the volume growth in Europe, excluding the change in France, was mid-teens. Make sure that's right.

It's including, Chris, including. When you look all of the volume, the GDV volume in Europe, it's still in the mid teens range. Christopher Brendler - Stifel, Nicolaus & Co., Inc.: Right. Okay. But you reported 8.8% because of the change to the co-batch transactions in countries like France?

Exactly. Christopher Brendler - Stifel, Nicolaus & Co., Inc.: Okay, great. So that's more than double what Visa Europe has now disclosed, or Visa has now disclosed their European segment is growing. And the question I keep getting from investors that I'm hoping you could try to shed some light on is, there's been some discussions about yields and the difference in yields between MasterCard and Visa and that Visa will be potentially raising some of their yields. And I just want to talk about, if you maybe could just refresh our memories, like how are you driving these market share gains, growing more than double the rate of Visa Europe at this point despite the higher perceived pricing levels? What I've been telling folks is it's actually not that different if you get down to the bank level. You're actually closer to apples-to-apples on a pricing basis. Maybe just give us some of your thoughts on that current dynamic and how it might change with Visa Europe now being part of Visa. And also, does VocaLink play into your strategy of competing against Visa Europe? Thank you.

So first of all, when you look at our overall pricing in Europe versus Visa Europe, you are absolutely right that our pricing is higher when you look at it all accumulated together. It's not quite at the level where our global pricing is. It's lower because, as you know, in every geography and in the country, it depends in terms of whether we just were to be able to license our brand so that we get the volume assessment and whether or not we actually get to see the transaction from a processing point of view. All of you guys know in Europe we process about 40% of our transactions only. And lastly, in terms of what kind of services we are actually delivering to the client, when you look at the largest client, I have to believe that we have very similar pricing to Visa. It might be different in terms of when you look at the medium and then the smaller clients. Now having said that, what Javier [Perez] and his team have done in a really great way is using the global capability of MasterCard with all the products and services that we have around the globe, to be bringing that in a seamless fashion to our European clients. And that's what they really like to see, right. And this is what did not happen with our competitor, given that there were two different companies and given that we are generally the smaller company. I always have to say that we have to put more points on the board. That means we have to rise higher in order to make sure that the customer gets that differentiated product and service that they're seeking in order to basically address their pain points and have fantastic products for their consumers. That's how our team is winning every day in the market. Ajay Banga - President, Chief Executive Officer & Director: And your question on VocaLink, I think you should remember like I said, VocaLink is not about competing with Visa Europe, by the way. VocaLink is about us wanting to be real players in every aspect of electronic payments and the way they're developing. And the reality is that today, across the world, 50% of payments, not just retail, are ACH. But within that, what's really interesting is the opportunity to grow Fast ACH, and VocaLink is one of the few players that has not only an outstanding Fast ACH platform implemented in the UK, but also implemented in other countries and most of ACH tends to be local. VocaLink's demonstrated an ability to take that Fast ACH platform and make it globally adaptable. And you can imagine the possibilities of that over the next decade. So I really want you to think about us doing the VocaLink transaction, if it all works out, once we're through all the regulatory steps, our strategic intent is to play across all aspects of these payment rails for individual consumer-to-merchant payments but also B2B, P2P and government payment flows. And that's how we see our footprint growing over the years. Christopher Brendler - Stifel, Nicolaus & Co., Inc.: Great. Thank you so much for the color.

The next question comes from the line of Jason Kupferberg from Jefferies. Your line is open.

Hey guys. Just a question about the full year 2016 top line outlook. I know you said that you're reiterating to be at the low end of the three year target, which is low double digit. So I'm going to call it 10% to 11% for argument's sake. You're running at 14% through that first half of the year. So can you just remind us what might lead to the decel? Or are you just being conservative on macro? I guess you've got USAA will be deconverting at a faster rate, and maybe some lapping of acquisitions. Just wanted to have the pieces there.

So, Jason, excellent question.

Thank you, Martina.

Well listen, there are kind of three factors that are contributing to the deceleration on the growth rates for the second half, which would land us pretty much in the same place, as I've said at the beginning of the year, which is the low double digit number. The first one is we have anniversaried the acquisition of APT. Right, and we said all along that was about 1 percentage point. So that is going to come out. Secondly yes, we do have on the USAA credit portfolio, it's rolling off very fast, okay. So we will have a more significant impact in the third as well as in the fourth quarter. And then thirdly, you just heard us that we actually renewed American Airlines and starting with the third quarter, we will have more rebates and incentives coming into that line item.

Okay. That explains it. Barbara L. Gasper - Executive Vice President & Group Executive: Next question, please.

The next question comes from the line of Sanjay Sakhrani from KBW. Your line is open. Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc.: Thank you. Good morning. Ajay, can you talk about where you are with the future pipeline of M&A? You guys have been decently acquisitive, and I guess going forward, should we expect you guys to digest some of these acquisitions? Ajay Banga - President, Chief Executive Officer & Director: So I don't have any indigestion right now, just to be clear. We've been digesting the other ones in the past, and it's actually helped us build out a lot of capabilities. You know, it's not a coincidence that our other revenue line is growing at the rate it's been growing for quite a few quarters. It's not a coincidence. And remember, after a year when you anniversary an acquisition, it comes into the base. After two years, the entire P&L comes into our base. So we're quite disciplined about tracking ourselves against it. Some of the acquisitions do better than what we thought we could do with them. Some of them don't do as well. That's just the reality of what we're trying to go through. But in the process, we've built out a decent capability in data analytics and information services. We've added to our capability in loyalty and rewards. We've added to our capability in technology and connectivity for e-commerce and gateways, as well as to connect to bank accounts around the world, even before the VocaLink acquisition. So that's kind of what we're trying to do. I honestly, at any point of time in any quarter, I think Martina and her team are working on a number of possible acquisitions. What tends to happen is 2%, 5%, 6% of them show up at any level of second level analysis. By the time we are done, one out of many gets done. So it's tough for me to tell you that I have two next quarter or three in the fifth quarter, I'm not going to do all that. I am just focused on, first of all, getting the ones we're already doing to keep doing well. Second, we've got to work really hard between now and the next few months to get the VocaLink acquisition through all of the processes of regulatory approval and get our company to be an excellent player in the ACH and Fast ACH game, first with a responsibility to the UK, because we are going to be a large player there in terms of this, but also with the ability to see how we take it elsewhere. You know, our priorities remain in the area of loyalty and rewards, in the area of data analytics and information services, in the area of safety and security. At some degree, all of this depends on us being able to see more transactions, to be able to see and handle and touch more transactions. Processing access are very helpful in that space, so we tend to play through these as we go along. And I, you know honestly, I think Martina has done great working with me because she's looking at a few deals all the time. This is probably not a great sartorial comment but that's true. Barbara L. Gasper - Executive Vice President & Group Executive: Next question, please. Sanjay Sakhrani - Keefe, Bruyette & Woods, Inc.: Thank you.

Your next question comes from the line of James Schneider from Goldman Sachs. Your line is open. James Schneider - Goldman Sachs & Co.: Good morning. Thanks for taking my question. I was wondering if you could give us a little bit of an update on the European acceptance landscape. I think you talked last quarter about how you've been given an update on what you've seen due to the European interchange cuts in terms of merchant acceptance. Obviously we're seeing some increased volume growth there. So any way you can parse out how much of that might be due to the interchange reg changes, and how much of that is just better economic activity or other factors?

So, Jim, I do have to say, and I just came back from another trip in Europe, there have been quite a bit of changes on the merchant acceptance landscape because of the lower interchange fees. And as you might remember all during the last couple of years leading up to the changes that came in last December of 2015, we were hoping that that would actually change the view of some of the merchants to be able, or be wanting to accept card payments, because quite frankly, no card payments are a heck of a lot cheaper than what you have to do with cash, right. And so we're seeing fairly large-scale changes coming through with some very large merchants, so that's what we're seeing first. So for instance, a grocery store like ALDI, which is a very a gruffy discount store – they don't even have shelves in their store – you grab actually goods out of the boxes that they just rip open. They finally are actually opening or have opened card payments. And there are a number of those large retailers who are now willing to do it. And we see it pretty much in every European country. What we haven't seen yet as much as movement is on the smaller merchants, and that's obviously where there's a lot of work that we still have to do. And we're hoping that that will continue to allow us to change the secular trend in Europe which, outside of the UK, right, in the UK a lot is already electronic side, but in the rest of the Europe, in the Continent, I always call it that this is still an emerging country for us. That will help us on the secular trend from cash and check to electronic forms of payments and will help our numbers over time. James Schneider - Goldman Sachs & Co.: Thank you.

Your next question comes from the line of David Toget from Evercore. Your line is open.

Thanks. Good morning. Martina, you called out the impact of the separation of scheme from processing in Europe effective June 9. I'm wondering about another major provision that went into effect June 9, particularly the new merchant routing provisions. Could you comment on the opportunity to gain processing share, particularly in large markets like France and Germany as routing opens up outside of these local payment monopolies?

Yeah. So I think that all of these changes in the regulation actually do help us over time to be doing more processing in Europe. As I just said to a prior question, is we do about 40% of MasterCard's transactions in Europe being processed by our own network. Now, with the separation of the scheme and the switching unit, our processing unit, that processing unit is actually free to go in a differentiated way to the market and to be hopefully getting even more switching opportunity from all of the local players, be it the banks or be it the merchants, and I think the merchant routing rules just play into that. Just remember, when you go back to SEPA, that was implemented back in January 1, 2008. It opened the kimono a little bit, and we were able to move our processed transactions from I think, Barbara, it was in the mid teens or low, mid, no mid 20s, I think low 20s. Barbara L. Gasper - Executive Vice President & Group Executive: Low 20s.

Something like that, going up to the 40% range. I think this is just the next click from a regulatory point of view, which allows us to work with those kind of companies to move up more from a transaction basis. Ajay Banga - President, Chief Executive Officer & Director: And just to add to what I said to Sanjay a little while ago on services, why does this all matter to us. Of course there's a revenue impact in the beginning of new process, more transactions, but the most important thing is all our services are built off our core payments capability. We're not building services that don't connect back to our core payments. Those core payments require us to be able to see transactions, whether it be debit, credit, prepaid or commercial transactions. That's why VocaLink is also important. The more we see transactions, the more we can do with them, and the more we can help build yet another strong revenue stream for this company for the next decade. That's kind of what we're trying to do.

Thank you very much. Barbara L. Gasper - Executive Vice President & Group Executive: Operator, next question.

Your next question comes from the line of Bill Carcache from Nomura. Your line is open.

Thank you, good morning. Ajay I wanted to follow up on your comments about the constructive dialogue taking place with PayPal. First, is it reasonable to expect you that guys will, you've mentioned the staged digital wallet fee and the rationale behind it previously, but is it reasonable to expect that you guys would eliminate that now? And then secondly, does the tone of the discussions that are taking place around you lead you to think that it's not just you guys and Visa but perhaps your issuing bank partners that may get on board with promoting PayPal? And finally along those lines, can you help us think through what the exclusivity element of the Visa agreement with PayPal would mean for MasterCard's issuing banks? Ajay Banga - President, Chief Executive Officer & Director: So the last one first. I can tell you that I'm not clear that I understand enough about what exclusivity Visa signed with PayPal, because we're not encountering any difficulty while talking to PayPal in that space. So I don't know exactly what the nature of that exclusivity is. You got to ask PayPal or Visa, because I'm pretty clear that we've got enough good conversations going on, not just now but for a little while. Obviously there's stress between these conversations, right. I mean, our digital wallet operator rules, when they went into place in 2013 were not replicated by others. Ours were. We made our position clear at that time that we wanted to have a clear, transparent, fair methodology in this digital wallet development. It's been sometimes good, sometimes stressful, but constructive. And my view always has been that it if PayPal wants to, or anybody else like that, a digital wallet operator wants to use to our rails of credit and debit to be able to build their own model, then they can't just use our rails when it suits them, and use another rail to go around us and the banks when it suits them. There's got to be a more constructive partnership. So yes, we have a constructive partnership on cobranded cards that, yes we do. We've had it earlier. We've renewed it again literally yesterday. So that tells you that that partnership has depth beyond one signature or one contract with somebody or the other. But also we've all been discussing the whole aspect of how does digital wallet operator systems work. Now, if PayPal's methodology of operation from what I've learned from their announcements of Visa, if they reflect what our digital wallet operator policies put into place, oh yeah, then any fee they make from them will go away because the fee is not meant to be there if they're doing what's in the policy. But I can tell you that that fee is de minimis. We are not trying to use a fee to get them to change their policy. The fee was used to manage through all the difficulties that their policies were creating in terms of data and transaction management. So let's just be clear about what this is all about. This is not about forcing them to do anything. This is about our perspective of how the marketplace should develop, transparently and openly to merchants, to consumers, to banks, to PayPal and to all of us. That's what we're trying to build. So I think it's a constructive dialogue. I think PayPal is very much a part of that dialogue. And this could all end up in a good way for the industry as a whole, for banks, as well as for networks, as well as for PayPal. But will there be changes in the dynamics of the economics for a bank versus a network versus a PayPal? Everything to do with digital changes those economics. But that doesn't mean they're bad. It's just taking out other transactions and growing in volume as well. So I have a sort of generally positive view about where this is going.

Thank you. Ajay Banga - President, Chief Executive Officer & Director: I'm not saying there aren't – and by the way, I'm not saying there aren't hurdles along the way, there aren't roadblocks along the way. Remember, we've been talking with them for two, three years. We don't yet have an announcement to tell you of the kind of transaction that Visa has. So everybody has their own ways of approaching transactions and has their own competitive dynamic and their own way of thinking about where the strategy is going. That's actually okay in an open, competitive market. It's a good thing.

That's very helpful, Ajay. Thank you.

The next question comes from the line of James Faucette from Morgan Stanley. Your line is open. James E. Faucette - Morgan Stanley & Co. LLC: Thanks. I just wanted to ask a couple of quick follow-up relationship questions. And so I think you've made it pretty clear that you want to work more closely with PayPal, et cetera. But from just a process perspective and as it relates to the staged wallet fee, do you have to reach some sort of agreement with PayPal or others that would be subject to that or can they just start passing through the transaction data and hence avoid the staged wallet fee? And then I guess more importantly, as we look at the case with the merchants and the like, your prepared comments seem to indicate that you wanted to pursue an adjusted settlement, et cetera. I'm just wondering if there would be perhaps any benefit to MasterCard to open up the discussions with those groups more widely so perhaps we could address some of the issues that may be evolving out of EMV, et cetera or if you would prefer to keep those two cases separate, if you will. Ajay Banga - President, Chief Executive Officer & Director: So yeah. Let me take the second question first, that way I remember it better. So the second question, honestly, litigation is complicated enough without trying to broaden things. When you already have an agreement between tens of banks, Visa, MasterCard, tons of people at the other end, it doesn't pay to start broadening things. Who knows how this will go? I can't predict because there's other players who all have to come to an agreement. But we'll see. I think we made real progress and we had actually a good deal on the ground, which a previous judge signed off on. But you know what, courts decide what they do. And while we could be disappointed, we've got to abide by it. So we're going to find our way through that working with other folks. I don't think I can tell you which way that'll get resolved. I wouldn't even like to speculate on that. The part about PayPal, I want to make sure you guys don't get focused on some staged wallet fee because that's actually not what this is about. The fee is de minimis. This not a large fee, either for us or for PayPal, by the way. That's not what this is about. It's about a set of rules and policies around what the digital wallet operator rules are. That's what this is. And could PayPal comply with those rules without some master agreement with us? Yeah, they could. But we already have agreements with them on a number of things, and they're not the only digital wallet operator out there who wants to work closer with banks and networks and merchants. My view of this is, if we can collaborate together, if we can make this easier for a consumer in the process and for a merchant in the process, that's a good thing. We should be doing it. Barbara L. Gasper - Executive Vice President & Group Executive: Operator, I think we have time for one last question.

And that question comes from the line of Glenn Greene of from Oppenheimer. Your line is open. Glenn Greene - Oppenheimer & Co., Inc. (Broker): Thanks for squeezing me in. Most of the questions have been asked. I'll just ask Martina an easy one. The other revenue growth, the 25% revenue growth, maybe a little bit of granularity. What's sort of driving that? And is there any acquisition benefit in there, or is that at this point, you would consider that all organic?

What did you say, 25%? Ajay Banga - President, Chief Executive Officer & Director: The other services. Glenn Greene - Oppenheimer & Co., Inc. (Broker): Other revenue. Barbara L. Gasper - Executive Vice President & Group Executive: Other revenue.

Okay. So from an other revenue point of view, you do have the APT acquisition in there. Most of the revenues for the APT acquisition is actually in that particular line item. But I did call out actually not only APT, I called out Advisors. So we actually had a really nice increase in revenue from an Advisors, and this is in our consulting business. And then secondly, I also called out our safety and security products, which are our fraud products and also that had a really nice increase. Glenn Greene - Oppenheimer & Co., Inc. (Broker): But I guess the question is the expectations going forward. How should we think about this as we normalize and get past the APT?

First of all, I'm not going to give you individual line items, but I have said over the last few quarters that these services businesses are starting to produce the kind of growth as our core business. And actually, when you look at these line items, they're producing a little bit higher than our core businesses. So you should be seeing that continuing in some fashion. Glenn Greene - Oppenheimer & Co., Inc. (Broker): Okay, great. Thanks. Ajay Banga - President, Chief Executive Officer & Director: Okay, guys. Thank you for all your questions and I'll leave with you just a couple of closing thoughts where I started. Our business continues to perform well. You see that reflected in our strong transaction and revenue growth. We're executing well against that digital strategy. Our services are continuing to help us differentiate and win new deals. We hope that many of you can join us at our upcoming Investor Day in New York. I think we'll be able to show you the opportunity to hear about our strategic focus areas, but also most importantly, give you a chance to experience the various spheres we're working to create a better consumer experience and shift the future of payments, give you a chance to touch and feel what we are up to. Thank you for your continued support of the company. Thank you for joining us today.

This concludes today's conference call. You may now disconnect.