Mastercard Incorporated (MA) Q2 2025 Earnings Report, Transcript and Summary

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Inc. Q2 2025 Earnings Conference Call. [Operator Instructions] Mr. Devin Corr, Head of Investor Relations, you may begin your conference.

Thank you, Julianne. Good morning, everyone, and thank you for joining us for our second quarter 2025 earnings call. With me today are Michael Miebach, our Chief Executive Officer; and Sachin Mehra, our Chief Financial Officer. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data and the slide deck that accompany this call in the Investor Relations section of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency-neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non- GAAP measures to GAAP reported amounts. Finally, as set forth in more detail in our earnings release, I would like to remind everyone that today's call will include forward- looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and discussed in further detail in our recent SEC filings, including our most recent 10-K. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach.

Thank you, Devin. Good morning, everyone. The headline this morning is, we delivered another strong quarter with our financial results exceeding our expectations. Second quarter net revenues were up 16% and adjusted net income up 12% versus a year ago on a non-GAAP currency-neutral basis. This is all underpinned by our winning strategy, diversified business model and a relentless focus on executing against the priorities that fuel our growth algorithm. I will share several compelling examples on that today. But before I do, I will provide a few observations on the macro environment. Consumer spending remains healthy. Supported by low unemployment and wage growth that continues to outpace inflation. This is true across both affluent as well as mass market consumers. While macro uncertainty remains due to government actions and geopolitical tensions, overall, we remain positive about our growth outlook as the fundamentals that support consumer spending have been strong. With that as a backdrop, let's get into the details of the quarter. We continue to deliver a steady drumbeat of significant wins with leading merchants and retailers. I'm thrilled that we have extended our exclusive partnership with American Airlines, one of the world's largest credit co-brand portfolios. Our services continue to set us apart. American will leverage our advanced analytics, loyalty, personalization and security solutions to optimize their card proposition and enhance their industry-leading travel rewards program. We're also partnering with OnePay, a leading consumer fintech platform and Synchrony to launch a new credit card with Walmart that will be available to consumers across the U.S. And we're expanding our relationship with Uber, extending our exclusive Uber Pro card portfolios in the U.S. and Canada. We will also launch new programs in additional markets, including the U.K. as part of our global partnership. As you look around the world, it's clear that leading merchants see tremendous value in partnering with Mastercard. We're also winning with fintech's Buy Now, Pay Later providers and marketplaces. With PayPal, we extended our card issuing partnership in the United States. We also signed new credit and debit issuing agreements in the U.K. and Germany, and we are excited for PayPal's recently launched contactless mobile wallet in Germany. I just love doing things in Germany. In the Buy Now, Pay Later space, we signed an exclusive prepaid and credit card issuing deal with Afterpay in Australia. In Argentina, we renewed our consumer prepaid deals with e-commerce and fintech platform, Mercado Libre. We're also partnering with them to launch new credit card programs in that market. And we renewed our partnership with Sicoob, one of the largest credit unions in Brazil across credit, debit and commercial. In addition to winning deals, we are capitalizing on the significant volume and transaction opportunity in consumer payments. By expanding acceptance, transforming the checkout experience opening new verticals, leveraging alternative distribution channels and launching innovative new capabilities. I'll give you a few examples for each of these five dimensions. Starting with acceptance. We continue to leverage our contactless technology to drive open-loop acceptance in the transit space. Our momentum here continues. In the second quarter, over 60 new public transport operators helped on board to accept cards from Ventura County, California, to Taichung Metro in Taiwan. We're also opening transit acceptance in China. This quarter, we launched Tap to Pay in the Shanghai Metro which followed our successful launch in the Beijing Metro last year. In a QR-based ecosystem, this represents an important evolution toward a multiform factor market that includes NFC technology. We're also transforming the online checkout experience by driving adoption of capabilities like tokenization, Click to Pay and payment passkeys. We have significant momentum towards our 2030 vision to transform online checkout into a single-click experience. In Europe, over 50% of e-commerce transactions are now tokenized. And for Click to Pay, Commonwealth Bank of Australia and Westpac are automatically enrolling cardholders over the coming months, bringing mass market adoption in Australia. Issuers around the world are committed to removing manual entry by also making Click to Pay a core card benefit, including NatWest, Standard Bank, Bank Vostok in Ukraine and others. And on the acceptance side, the number of Click to Pay transacting merchants was up 4x in the first half of 2025 versus a year ago. We're also focused on driving acceptance in new verticals that have not historically been well penetrated by card. Insurance payments are a great example. Significant flows, strong consumer demand in a vertical that has undergone a digital transformation in recent years. However, card penetration is far lower relative to other carded categories. We are attacking this opportunity through new agreements with partners like Adyen, Checkout.coms Stripe, Transcard and Worldpay. These partners will focus on enabling consumers to pay their insurance premiums. They will support claims disbursements to policyholders, and they will facilitate B2B payments from insurers to vendors providing services for these clients. Next, we're tapping into alternative distribution channels. For example, we are enabling stored value wallets around the globe, our partnership with Alipay in Hong Kong and GCash will enable 36 local e-wallets to extend their use for cross-border through the international Alipay plus wallet gateway And Mastercard credentials automatically added to the wallets, allowing any stored value to be spent by a simple tap anywhere Mastercard has accepted around the globe. This is again a huge road of confidence for NFC. Let's look at other areas where we are creating and deploying smart and engaging consumer experience that drive brand preference and incremental spend. First stop, we're providing offerings that meet the unique needs of each individual cardholder. In Canada, we partnered with CIBC to launch the CIBC Adapta Mastercard, which automatically applies additional rewards against your top three spending categories each month. It also includes our innovative touch card functionality, which allows cardholders including the visually impaired to easily distinguish the card from others in their wallet. Next, affluent cardholders. On average, they spend over 2x more per card and up to 3x more on cross-border. We're elevating our affluent value proposition with the Mastercard Collection, a comprehensive set of premium benefits created to drive top-of-wallet behavior, that's paired with the expansion of our world product suite in the newly created world Legend Mastercard, our most prestigious consumer card is now available to banks globally. This first launch this month with the Citi Strata Elite card. And finally, we're providing greater flexibility for consumers. We've deployed the Mastercard One credential as a network level capability worldwide. Enables issuers to offer a single digitally connected credential to give consumers flexibility as to how they want to pay, debit, credit, prepaid, installments or stablecoin all through their banking app. And as Raj and Jorn explained in detail in our recent call on the Agentic Commerce and Stablecoins, we're leaning into open up and drive new opportunities for our network in these spaces. If you didn't have a chance to join, I encourage you to listen to the replay. Today, I reinforce a few key points. First, Agentic Commerce. We see this as an exciting opportunity across consumer and commercial flows to shop with merchants easily and securely. We are scaling Agent Pay globally, leveraging our capabilities to extend the trust of the Mastercard brand. It enables us to support a new way for consumers to transact. It gives us yet another capability that sets us apart from domestic and alternative payment systems, and it provides a way for us to drive switching and sell more services. And as to stablecoins, we see this as another currency. We also see it as additive to the network with opportunities for us to provide the on and off ramps from fiat to stablecoin to partner with [ advice ] and wallets to bring interoperability bring relevant services, bring global reach and trust to the specific use cases. With new technologies, we always embrace innovation. We offer choice and extended network to new partners, and we're doing the same thing here. We will bring our reach, ubiquity and trust to Agentic Commerce and stablecoins and will provide an environment for our partners to innovate upon. That is the Mastercard way. Now turning to commercial payments. We're driving growth by launching differentiated capabilities, scaling our industry-leading virtual card solutions and expanding small business card distribution through new and expanded partnerships. In terms of new capabilities, the small business navigator provides U.S. entrepreneurs access to cybersecurity solutions, insights and analytics and partner tools to support more efficient and effective operations. Through the platform, Fiserv's Clover is partnering with us to offer SMEs discounted point-of-sale capabilities and Square is providing tailored educational programs to help small business thrive. In the fleet space, several leading U.S. issuers, including Corpay, are deploying our new capability integrate fleet cards into digital wallets. For the first time, fleet managers can now instantly issue and manage digital cards, while drivers will be prompted to provide key data like a dominant readings which he have to pay at the pump. When it comes to invoice payments, we continue to scale our proprietary virtual card technology by making it easier for issuers and technology platforms to integrate our capabilities. We are now live with eight leading B2B platforms, including Coupa, Cvent, GEP, HRS, Navan, Oracle Fusion Cloud, ERP and, SAP Taulia, several more in the implementation. On the supplier side, our Receivables Manager platform is now available globally. It's being deployed through partners like Elavon, Run Payments and Easy Pay to streamline virtual card acceptance and payment reconciliation. We're also driving small business and card distribution through a series of new and expanded issuer and marketplace partnerships. We've enhanced our exclusive relationship with Payoneer through a suite of services designed to accelerate growth of their small business customers across Europe. We're partnering with e-commerce marketplaces like FoxCommerce, who will distribute prepaid business cards to their merchants so that they can make and receive payments on cards across several countries in Africa. Shifting to disbursement. We continue to see strong growth in our Mastercard move capabilities with year-over-year transaction growth of over 35% in quarter 2. We're focused on penetrating a wide range of new and existing use cases. For example, in the disbursement space, we partnered with Jack Henry to distribute Mastercard move to thousands of community banks through their rapid transfer solution. We've expanded our relationship with New Way, who will leverage Mastercard move to enable Canadian businesses to facilitate near instant payouts to Mastercard debit and prepaid cards. And staying in Canada, BMO Canada is expanding the use of our cross-border services in about 20 additional corridors. Moving to our third strategic pillar, value-add services and solutions. We continue to leverage the power of our data and product capabilities to differentiate payments and capture adjacent revenue opportunities. We do this by penetrating existing customers, diversifying into new customer types, targeting new buying centers, leveraging B2B partners for distribution and deploying new services. Our use of experience and full suite of products helps us build fit-for-purpose solutions for clients. We're seeing this in practice with several large customers. For example, we've partnered with Garanti BBVA to support multiple strategic initiatives, including revamping their digital wallet, optimizing collections and boosting credit card sales across digital channels. And we've partnered with Deutsche Bank to use our open banking capabilities to grow account-to-account payments across Europe. These services deliver significant value in their own rights, but they are even more powerful because of the linkage to payments that fuels our virtuous cycle. We also continue to capture payment adjacent opportunities and win business with customers beyond issuers and acquirers. We're leveraging our test and learn capabilities with partners as diverses Lufthansa, an ad tech company believes to help them conduct scalable sophisticated testing in areas such as media measurement, operations and marketing. Our range of capabilities also enables us to expand into new buying centers with existing customers. For example, the credit risk team at Stone, one of the largest acquirers in Brazil plans to leverage our small business credit analytics product to enhance the accuracy of its credit offerings to SME clients. We're also leveraging B2B channel partners to distribute our services at scale. Solidgate, a payment processing platform in EMEA used by merchants over 150 countries will use identity insights for transactions to help reduce fraud and increase acceptance. Finally, we continue to develop new services. We just announced Mastercard account-to-account protect, which will combine our cutting-edge fraud prevention technology with a new dispute resolution framework to safeguard consumers when making account- to-account payments. Deploying services like this across account-to-account rails is a major step forward as it helps us grow our addressable market. While also further protecting our customers and the ecosystem. We're starting with customers in the U.K., including at West, Santander and Monzo to bring this to global account overlay to other markets later this year. We remain enthusiastic about our future growth potential for services. Our breadth of data, network of partners, unique product capabilities, strong customer relationships and our incredible challenge will help us to continue to differentiate and provide us with substantial runway for growth. So with that, that was a lot. I will wrap it up. In summary, we delivered another very strong quarter despite an uncertain backdrop, there is significant opportunity ahead. The fundamentals of our business are strong. Our proven growth algorithm and differentiated solutions position us to deliver and win as we have demonstrated time and time again. Sachin, over to you.

Thanks, Michael. Turning to Page 3, which shows our financial performance for the second quarter on a currency-neutral basis, excluding where applicable special items and the impact of gains and losses on our equity investments. Net revenue was up 16%, reflecting continued growth in our payment network and value-added services and solutions. Acquisitions contributed 1 ppt to this growth. This growth was ahead of expectations, primarily driven by higher-than-expected revenue from FX volatility. Operating expenses increased 14%, including a full ppt increase from acquisitions. And operating income was up 17%, which includes a 1 ppt headwind from acquisitions. Net income and EPS increased 12% and 14%, respectively, driven primarily by the strong operating income growth, partially offset by a higher effective tax rate due to the impact of the global minimum tax rules, which came into effect at the start of this year. EPS was $4.15, which includes a $0.09 contribution from share repurchases. During the quarter, we repurchased $2.3 billion worth of stock and an additional $1 billion through July 28, 2025. Now turning to Page 4. Let's first look at some of our key volume drivers for the second quarter on a local currency basis. Worldwide gross dollar volume or GDV increased by 9% year-over-year. In the U.S., GDV increased by 6% with credit growth of 6% and debit growth of 7%. This growth was impacted by the lapping of the citizens debit portfolio migration to Mastercard, which commenced in Q1 2024. Outside of the U.S., volume increased 10% with credit growth of 9% and debit growth of 11%. Overall, cross-border volume increased 15% globally for the quarter, reflecting continued growth in both travel and non-travel related cross-border spending. Turning to Page 5. Switch transactions grew 10% year-over-year in Q2, both card-present and card-not-present growth rates remain strong. Card present growth was aided in part by an increase in contactless penetration as contactless now represents 75% of all in- person switched purchase transactions. In addition, card growth was 6%. Globally, there are $3.6 billion Mastercard and Maestro-branded cards issued. Turning now to Slide 6 for a look into our net revenue growth rates for the second quarter discussed on a currency-neutral basis. Payment Network net revenue increased 13%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives. Value Added Services & Solutions net revenue increased 22%. Acquisitions contributed approximately 4 ppt to this growth. The remaining growth was primarily driven by demand for our consumer acquisition and engagement services, growth in our underlying drivers, the scaling of our security and digital and authentication solutions and pricing. Now let's turn to Page 7 to discuss key metrics related to the payment network. Again, all growth rates are described on a currency-neutral basis, unless otherwise noted. Looking quickly at each key metric. Domestic assessments were up 9%, while worldwide GDV grew 9%. Cross-border assessments increased 15%, with cross-border volumes also increasing 15%. Pricing in international markets was primarily offset by mix as lower-yielding intra-Europe cross-border volumes grew faster than higher-yielding ex intra-Europe cross-border volumes this quarter. Transaction processing assessments were up 18%, while switched transactions grew 10%. The 8 ppt difference is primarily due to revenue related to FX volatility and favorable mix. Other network assessments were $260 million this quarter. Moving on to Page 8. You can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 14%, which includes a 4 ppt impact from acquisitions. Excluding acquisitions, the growth of total adjusted operating expenses was primarily driven by increased spending to support various strategic initiatives, including hardening of our technology infrastructure, diversifying our geographic footprint to further capture the secular trend, enhancing our products and delivering our services. Turning to Page 9. Let me comment on the operating metric trends. Overall, we continue to see healthy consumer and business spending and metrics were generally in line with our expectations. Starting with Q2. I will discuss the operating metrics on a sequential basis adjusting for the leap year and the timing of Easter and other holidays. Switched volume growth was impacted by a number of smaller factors, including tougher comps primarily due to the lapping of portfolios won in 2024, and the timing of social security payments and the mix of calendar days and lower gas prices. Switched transaction growth remained relatively stable. As it relates to cross-border, underlying growth remains strong. Let's double- click on cross-border travel growth. As mentioned in our last earnings call, we saw some moderation in select Middle East and Africa markets, primarily due to tougher comps, enforcement of Mastercard rules and a ratcheting up of geopolitical conflict late in the quarter. We also saw some lapping of portfolios one in 2024. Cross-border card not present ex travel growth remained strong. Now looking at the first four weeks of July, switch volume, switch transaction and cross-border card-not-present ex travel growth remained stable. For cross-border travel growth, the sequential decrease is primarily driven by the timing of Easter as well as the continuation of the impacts I mentioned earlier. With all of that being said, our overall cross-border volumes continue to grow well in the mid-teens range. This is supported by strong underlying consumer spending and a diversified portfolio across geographies and travel and nontravel spend. Turning now to Page 10. I want to re-share our thoughts for the remainder of the year. The headline is that our business remains strong and consumer spending remains healthy. The macroeconomic environment has been supported with low unemployment rates and for the most part, wage growth continuing to outpace the rate of inflation. That said, ongoing geopolitical and economic uncertainty remains. With global policy shifts ongoing, we remain agile, monitoring developments and we stand ready to adjust as needed. In this period of heightened uncertainty, what remains clear is that we have a well-diversified business across geographies, products and services and discretionary and nondiscretionary spend categories. And we remain laser-focused on the execution of our strategy, as Michael said, while maintaining a disciplined capital planning approach. Now turning to our expectations for the full year 2025. Our base case for the remainder of the year assumes continued healthy consumer and business spending. Given the strong first half results, we are tightening the full year net revenue outlook range to the high end of the range we shared with you at the time of our Q1 earnings. We now expect net revenues to grow at the low teens range on a currency-neutral basis, excluding acquisitions. Acquisitions are expected to add 1 to 1.5 ppt to this growth for the year while we now estimate a tailwind of 1 to 2 ppt from foreign exchange. From an operating expense standpoint, we continue to expect growth to be at the low end of a low double-digit range versus a year ago on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to increase the OpEx growth rate for the year by 4 to 5 ppt, while we expect a headwind of 0 to 1 ppt from foreign exchange. Now turning to the third quarter. Year-over-year net revenue growth is expected to be at the high end of a low double-digit range on a currency-neutral basis, excluding acquisitions. Acquisitions are forecasted to add 1 to 1.5 ppt to this growth rate, and we expect a tailwind of 1 to 2 ppt from foreign exchange for the quarter. From an operating expense standpoint, we expect Q3 growth to be at the low end of a low double digits range versus a year ago, again, on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to add approximately 5 ppt to this OpEx growth, while we expect a headwind of 0 to 1 ppt from foreign exchange for the quarter. Other items to keep in mind, on other income and expenses, in Q3, we expect an expense of approximately $130 million, given the prevailing interest rates and debt levels. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. Finally, we expect our non-GAAP tax rate to be in the 20% to 21% range for both Q3 and the full year based on the current geographic mix of our business. And with that, I will turn the call back over to Devin.

Thank you, Sachin. Thank you, Michael. Julianne, you may now open the call for questions.

[Operator Instructions] Our first question comes from Sanjay Sakhrani from KBW.

Sachin, you mentioned the lapping up portfolios, obviously, citizens in the first quarter I guess, like as we move through Q2, was there a more prominent impact? And I guess as we look towards the back part of this year, are there further lapping of other deals? And then just on Capital One and Discover, I know they kind of talked about the transition happening next year now. So I assume like is that just not in your numbers for the remainder of this year in terms of the migration of the debit portfolio?

Thanks, Sanjay. So let me take both your questions there. So as it relates to lapping, just a quick reminder, it's more than just the Citizens portfolio, right? I mean we won the Citizens portfolio last year. We won the Wells Fargo small business credit portfolio last year. And these are the two big ones in the U.S., but there were several other wins which we had across the globe as well. But specifically to your question as it relates to the impact of lapping the year-over-year growth metrics, just as a reminder, the Wells Fargo portfolio converted in Q2 of last year. The Citizens portfolio started conversion in Q1 and then ramped up in Q2 of last year. So what you should expect is that the lapping impact has gotten more pronounced in Q2 and then we'll continue through in Q2 -- Q3 and Q4. So there is going to be continued lapping, not only on account of those portfolios, but other portfolios as well. So that's kind of to your first question. On your second question on Capital One, look, I mean, at the end of the day, as I mentioned in prior earnings calls, we've taken our best estimate into consideration as it relates to the migration of the debit portfolio with Capital One. And we continue to -- our current guidance to you still assumes our best estimates around that. Obviously, the transaction is now complete. Conversions have actually started. They're still ramping up. So it still takes some time before the conversions actually come into play. I also want to just remind you sequentially how this works, right? And so the new cards are issued, the new cards going to the hands of consumers. At the same time, the old cards are still there. The Mastercard-branded cards are still alive and well. And so we take our best estimates as to how volumes will roll off. Overall, I would tell you, we expect that the ramp-up in terms of the volume declines will increase as the year progresses. We expect this year the net revenue impact to be minimal to our overall company's net revenues. Vast majority of the impact we expect to feel will be next year.

And at the same time, we continue to expect a strong partnership on the credit side and the services side. So it's not only about rolling off. It's also about continuing to build our business with Capital One.

Our next question comes from Darrin Peller from Wolfe Research.

When we look at some of these wins, I just want to dive in a little deeper onto the value-added services that you're calling out as the most differentiating. Obviously, your competitors also call out value-added services. So when considering what you think stands out, and then sort of as an add-on to that, the pricing dynamic, we've seen really good pricing for value that you've shown in your numbers now and it seems to be somewhat -- I think it went in fact a lot of them went in July and October last year. Just touch on those, the areas you're finding the most pricing power and if we can expect more of the same over the next 12 months?

All right. So let me kick this off with the answer on the first part here on the VAS portfolio. So when I look across the portfolio, I think the first thing to say, it's a very carefully curated portfolio. This isn't a set of single pearls on a strain. So this is really before during after transaction, how we can bring value around the payment transaction and then even beyond that, when you think about topics like cybersecurity. So carefully curated first point to know. When you think about it over the arc of time, we have been particularly focused over the past decade or so on security solutions. So that's certainly a standout from a differentiation perspective. We've also been incredibly focused on leveraging our data to drive better engagement solutions for our customers. So if you think in a more digital world, your cyber risk will go up. That's why cybersecurity is at the focus of what we're doing. And in a more digital world, consumer engagement gets harder and harder, and you need better technology and better differentiation to drive through the clutter. So if I take some specifics out of both of these portfolios. First of all, on the cybersecurity side, the stakes are getting higher and higher. The fraudsters are using latest technology, using Artificial Intelligence, generative AI to power their solutions to break through on the fraud side, on the cybersecurity side, and we're doing exactly the same. So I mentioned this in previous calls, Decision Intelligence Pro is leveraging data out of all sources of the Internet, putting it through a generative AI engine for us predicting frauds. Instead of preventing fraud, we're going to predicting fraud, which is the latest stage of this. This kind of game, and this is a clear identifiable value for our customers that are very happy to pay for. And here, we are right at the second point of your question on pricing for value. On the customer engagement side, it's very similar. Our personalization engine through our Dynamic Yield acquisition continues to be providing outstanding value to our customers to really drive that personalized solution let's say, you're a retail bank and you want to drive new account growth, you need a personalized solution right channel, right context do that. That's what personalization through Dynamic Yield does for us and for our customers in a way better than anybody else out there. You find us in the top quadrant of the Gartner Magic -- what is that called? A Quadrant thing, whatever, the top Quadrant. So they are really good at that. So a couple of examples. So in a world with some uncertainty from a macroeconomic perspective, the desire for our customers to make sure that they got full focus on the fraud line in their P&L to drive their top line with better acquisitions that allows us to say, here is an outcome that you can see that you will see in your P&L, and that gives us power to price for that because we are pricing for that exact value. So that's what I would say. It's a very differentiated proposition across the industry. We've been at it for a decade, and we're going to continue to push that forward.

Our next question comes from Harshita Rawat from Bernstein.

Michael, I want to ask about commercial POS, which you've sized as a $16 trillion opportunity and cards only having about less than 10% market share. You have a very good business in the U.S. And I know you talked about this in your prepared remarks for a little bit, but maybe expand upon how you're taking this business international and the momentum you may be seeing there? It seems like this is quite a kind of medium-term to near-term opportunity for you?

I couldn't agree more, Harshita. The medium -- short- to medium-term opportunity very much out there in the commercial POS space, there's still so much cash out there. There's so many checks out there. And there's been so many almost virgin markets where issuers where companies just haven't focused on this. So that is not new news. This is why we put out the market sizing as we did at our Investor Day. So this is significant. The way to go to market on that is really to build those issuer relationships. We have the product construct today. It's not about building new products in this space. So we have that. It's really finding the partners out there finding the marketplaces that focus on small business to drive that business. you take another lens that this is not just about small business. I mentioned in my comments -- in my comments earlier, there is a fleet card business, which we're the leader in this business. That's again, it's a leading product. And we're differentiating on that. We're pushing that around the world as well as other -- in other regions, this starts to come in focus. So the whole wave of digitization and pressure on profitability, the rebalancing of supply chains, companies are looking for solutions that make running their business easier and this is where this comes in. For example, it's very much about being paid faster as a small business. That's what cards does for them, and that is a very helpful thing. So overall, it's a pretty clear go-to-market. It's not rocket science, but we are differentiated on some of our solutions of fleet card and so forth and we've been added in a long time. We have now staffed this all up around the world with SME-focused specialized teams and product teams around the world. We're taking this very seriously, which is why you put out a very ambitious growth target to penetrate that SAM that we shared at the Investor Day with you.

Next question comes from Tien-Tsin Huang from JPMorgan.

Nice results here. Just on the upside in the quarter on revenue. It sounds like it came from FX volatility and strength in value-added services. Just wanted to confirm that and understand what's performing better than expected given pretty steady spend trends? And then quickly for Michael, if you don't mind, just are you -- any update on performance of Recorded Future? Any surprises there half a year end?

I'll take the first part of your question. You nailed it. It's -- the upside in Q2 was primarily driven by FX volatility. We had solid performance across the business. I don't want to make this only about FX volatility, right? At the end of the day, right, our payment network net revenues just performed. Our drivers continue to perform the strong consumer and business spending taking place. Our Value Added Services and Solutions continue to perform. So all of that kind of is the bedrock, which allows for the strong performance overall. But the delta, which you're talking about in terms of potential upside came through primarily from higher FX volatility. I will say on FX volatility, that was in the early part of the quarter. That was mostly in April, a little bit in May in terms of the higher levels. it has come back to what would be the historical levels of FX volatility. So God don't knows where that's going to go for the rest of the year, but that's really what's driving that.

And on Recorded Future, if I can just remind everybody, thank you for the question, Tien-Tsin. So world's largest threat intelligence company, 1,900 customers, 75 countries, so very significant. You see a lot of Fortune 100 companies in there as well as G20 governments. So it's an excellent mix based out of Boston, we love them pre our acquisition. We already started -- we had a partnership with them on a couple of products. We launched a few things there. Now we are in post acquisition stage. So we've hit the ground running. It is still very early days, obviously, but we're already putting out more products with them. Malware Intelligence is one that I called out in the last quarter around this. The beauty here is, they have a lot of data, which they get from all sources of the internet, as I mentioned earlier. At the same time, we have a lot of data. The combination of that is the magic sauce here. The effectiveness of us to help our customers predict to understand targeted threats. If you are a company and you're trying to defend against cybersecurity and you're doing it in a very broad fashion that is very expensive. What Recorded Future, what Mastercard is now helping our customer with is identifying where the threat vectors actually are. So you can be much more targeted in your response. That is, first of all, more effective from reducing cybersecurity risk. At the same time, it's more effective from a cost perspective. So that's a really winning proposition. We're excited about that. The teams are putting these -- are very busy on the product side to put this out. At the same time, there's obvious synergies of Mastercard's reach with our clients to take these differentiated products and take them to the market. At the same time, we have a whole set of security solutions that we can sell, and we want to sell and we will sell into the 1,900 customers and the new customers that they will gain. So this is a very natural extension of our multilayered security solution strategy to go into Threat Intelligence, which is now the state-of-the-art.

Next question comes from Trevor Williams from Jefferies.

On cross-border volumes, Sachin, I heard the call outs on the Middle East and the portfolio lapping. But outside of Q4 last year, cross- border has been consistently slowing. I mean you're at I think 12% ex century Europe growth in July, with the mix you have today between travel and e-commerce, I'm just curious kind of what you guys view is the right normal level of growth for each of those two buckets? And then for the overall. So I'm just trying to get at kind of if we assume a stable macro, what you guys think the floor should be for cross-border volume growth?

Yes, Trevor. So look, I mean, we do not put out long-term guidance as it relates to cross-border. But what I will share with you is the following, which is let's just step back and think about our cross-border portfolio and think about the fact that it is not concentrated to any single corridor last earnings call, I kind of shared with all of you that -- there is no single cross-border corridor pair, which represents -- represented greater than 3% of cross-border volume in 2024. So there is a high degree of diversification, which we've got. So we're not necessarily susceptible to big swings in any one jurisdiction. But it's important to note that this diversification is by design as opposed to happen stance. Point number one. Number two, the base proposition of cross-border is something which is very valued by consumers even today and consumers as well as businesses. And so that continues to grow pretty well. Number three, there's great diversification, which is there between travel and non-travel. And you can see that because at the end of the day, by having that diversification, you're still seeing pretty good overall cross-border volume growth, notwithstanding the fact that travel has actually been impacted a little bit by the factors which I kind of talked about. And just a few data points for you. Our cross-border travel volumes represent roughly 60% of total cross-border volumes. Our cross- border non-travel, what we call cross-border card not present ex travel is about 40%. So it's pretty good and well diversified. And you can see the card not present ex travel cross-border is growing at roughly about 20% there. So my overall kind of message to you is high level of diversification, strong value prop and the business continues to perform well. And the reality is, I can't really tell you as to where this is, but it has been growing at a rate faster than our overall growth rates for GDV. You've seen that come through. And that's really where I feel like we are best positioned to continue to capitalize. Our company remains very focused not only to win the right portfolio, but to drive the best optimization of our existing portfolios, and that's what we'll continue to do.

Our next question comes from Dave Koning from Baird.

Maybe on client incentives. One thing we just noticed for many years, client incentives grew faster than revenue. But the last three quarters, they've actually been growing the same or even a little slower in some cases. I'm wondering, is this a new trend? Or maybe how should we think about this and what's happening?

Sure. So Dave, here's what I'd say. I would say that as part of our last call, I had mentioned that we expected the cadence of our rebates and incentives as a percentage of our payment network assessments to start to pick up in the second half of the year. And so if I would tell you sequentially, I would tell you that in Q3, we expect rebates and incentives as a percentage of our payment network assessments to be sequentially higher compared to Q2. The point really is the market is still a very competitive market. We continue to be very active in that market. We have a very strong pipeline of deals. Nothing has changed as far as I'm concerned in terms of how we're approaching the market and what we're doing in terms of trying to win the right portfolios. And I'll emphasize, this is not about winning every portfolio, this is about winning the right portfolios. A little bit of what you're also seeing in the contra ratio, the rebates and incentives ratio, we're talking about in the second quarter is being driven by the fact that the denominator, which is our payment network assessments has been impacted or has been helped by higher FX volatility level. So when you take those ratios into consideration, you got to factor that in as you think about what this looks like on a going-forward basis.

Next question comes from Will Nance from Goldman Sachs.

I wanted to ask about some of the consumer data fees that some of the large banks are talking about applying, I guess, specifically, how are you thinking about the impact of those fees on Finicity and then big picture, as a consumer who relies on a lot of these services that use Finicity and other vendors, to aggregate the data. How am I and other consumers better off from the banks kind of charging you and other data providers for access to their data?

Right. Well, this is a great question. An important topic. You've heard us talk about open finance for years, even before the acquisition of Finicity. So this whole idea that a consumer can use their data footprint to avail better services in the finance space and you go from open finance to open data in any other space. I think it's a good notion and that generally resonates and will not go away. You see this -- see it in Europe, where we're very active in the open banking, open finance space in Australia and here in the U.S. So this more recent conversation, I mean, we've all seen -- we see the coverage on this, no, we don't really have full visibility here on what is being specifically considered by a number of banks. I can tell you, Chase and other banks are fantastic partners of ours. So that's for sure true. So we'll have to see where this goes. Our fundamental belief that consumer consented data and their ability to share that is very important, and that will be a winning proposition over time. various economic considerations out there that are being discussed in the coverage, that will have to be figured out, but it's not something that we have been engaged in at this point. So we'll see. We have to work it through. Fundamentally an important space, and you should be able to do exactly what you just said with it.

Our next question comes from Rayna Kumar from Oppenheimer.

Just based off of some of my recent channel checks, it looks like that picks in Brazil is being used by almost everyone there. Can you give us an update on your progress in gaining market share in regions that have strong at [ A/A ] players like Pix in Brazil and UPI in India? And what strategies and products are you employing to capture the cash transition in these countries?

All right, Rayna. Great question. And certainly, a topic that we have been focused on, I'll give you some examples in the prepared remarks, what sets apart and winning against domestic schemes and so forth. So we continue to try to differentiate our product set. You asked specifically about Brazil and in countries like that. So maybe that is a good opportunity to just illustrate what I just said a little more in the context of Brazil. So here is a system that has been put out very much with one focus in mind, which was to address some financial inclusion aspects and has been very successful at that. At the same time, we have strong partnerships in the Brazilian markets with banks, with fintechs across the board, and we've been driving our business to put better solutions into the hands of consumers, and that is always a focus of all consumers. So consumers that graduate into the Brazilian digital economy through Pix, you could see them over time, graduating into our product set that we provide on the card side, et cetera. Now what we've also been doing is that you have to be very laser-focused on how you compete. And one thing that we just as an industry had and as a company, wanted to do a better job on is make sure that we have the latest state-of-the-art solution for online transactions in the market. So the debit platform in Brazil, we have completely revamped and put out a new set of solutions out there that now to -- Pix is also enabling consumers with their solution and we wanted to make sure that we have a competitive product, which we now have in the hands of the banks in Brazil. So that continues. Pix is innovating on various other things Buy Now, Pay Later and so forth. And so are we. There is an excellent solution out there in the market already on installment payments. So that is very competitive as far as we can tell. There's a recurring payment solutions that Pix is considering, and that's great, and we're seeing the benefit in that, and we have for a long time, and there's a very strong proposition, particularly on credit cards that are on file in the market, which allows us to win and continue to drive this business. The business continues to see very healthy growth rates for us in Brazil. So from that perspective, I think it's just our general approach provide choice, partner wherever we can compete effectively in the market. So that's the game. And it's a similar game in India on UPI. We always look to partner wherever we can and otherwise have a good solution out there for our partners. So I see tremendous opportunity in the overall growth. This is a very effective digital economy in Brazil that continues to grow at strong rates, and we're a big player there.

Our next question comes from Craig Maurer from FT Partners.

Question quick one on Pillar 2. The administration has been talking about reaching deals with certain countries to eliminate the Pillar 2 issues for U.S. companies. Any thoughts on that would be helpful. And if we can go back to your digital identity and auth solutions, it's our view that financial services due to the high regulatory requirements in this space will be leaders in this category. Can you talk about what segments you're seeing the most growth or most demand from? We hear a lot about crypto companies requiring digital auth solutions and others. So digital identity solutions. So if you can comment a little there, that would be great.

Yes, Craig, why don't I take your question on Pillar 2 first. So look, I mean, we've seen the same news you're seeing as it relates to some dialogue around potentially having an exception for U.S.-based multinationals from the impact of Pillar 2. The reality is there's a lot of work still to be done between where we are today to that being realized. And let me just spend two minutes on this, right? At the end of the day, the way it works is if there's going to be any changes in terms of having any exceptions for U.S.-based companies from Pillar 2. That's got to happen, not only in the nature of the OECD countries agreeing upon it. But every individual country, which has enacted legislation already to implement Pillar 2 has to now reverse the impact of that legislation. So this is really, really important because the reality is there's work between when the announcements made, when there's clarity given as to how it's going to be implemented to the actual implementation of that. So I guess the best way to describe this is there's been local legislation, let's say, past in Singapore, which would say that we, as a company, now pay a 15% tax rate in Singapore, right? Earlier, we had an incentivized tax rate out there. We now pay starting 2025 a 15% tax rate there. There has to be a change in legislation locally to take place to reflect what you just alluded to in the nature of this exception for U.S. multinational countries. That being said, it's not only about Singapore. It's also about other countries who have actually put in this legislation who have to change it because there was a component of Pillar 2, which is called UTPR, which basically entitled other countries in the chain to collect taxes to the extent that they were not topped up at 15% as a result of a particular jurisdiction. So for example, if Singapore changes legislation and took the tax rate down again. That doesn't mean we'll get the benefit of the lower tax rate. It's because all the other countries are now entitled to true up the gap between what Singapore's rate is and the 15% rate is. So all of those countries have to reverse that legislation before we start to see the impact of that come through. A complicated topic. Happy to talk in more detail if you like afterwards.

Good. And on ID, this is -- if you think about a tech stack and elements of the tech stack for the digital economy. So we look at this and say, we're powering the digital economy, we're powering digital commerce and digital identity is a fundamental element of what needs to happen in that kind of world. So who's behind the transaction, who is at the other end of the transaction, and that is not just about payment exactly to your question. This is about onboarding on anything. It could be a merchant onboarding a consumer. Today, the thing I'm going to send you an e-mail and you confirm that, that is not identifying your consumer. All things can go wrong on that. So digital identity, proper digital identity is really critical. Now the gain of digital identity is getting harder and harder with technology. I was talking earlier about cybersecurity risk and so forth. So the stakes are increasing, you got to get better at it. The good thing is we've been at this for a long time. And this is initially around Mastercard payments and transactions, but we have very specific examples out there. For example, you heard us talk about in the open banking space. Are we taking a digital identity solution, coupling that with open banking connectivity to make it clear that the data can actually be a safe exchange in a very safe fashion. I gave you one of my favorite use cases in this, and this is MLB, Major League Baseball. So if you want to vote for the All-Star game, what is happening is that our identity solutions behind it. This is actually you voting and not your brother and your cousin and so forth. So there's a whole wide range of use cases that go way away from our core business into a whole new set of new cases. So it's really an enabler of the overall digital economy, and you see us -- if you draw concentric circles around the transaction -- the payment transaction being in a center, we try to play further and further out to be truly powering the digital economy.

Our next question comes from Nate Svensson from Deutsche Bank.

I wanted to ask on the U.S. consumer here. So on the month-to-date trends, the step-up in volume growth in the U.S. stood out as relatively stable versus 2Q, but a step up from 4% in June to 8% in July. I was hoping you can dig a little more into the trends you're seeing there. It could be a day's mix thing online promotional activity, but wondering if there's anything else under the hood you're seeing that might explain the acceleration? And then I know you called out stability in mass market versus affluent consumers, but any verticals or areas of spend where trends have evolved here?

Okay. Sure, Nate. So why don't I take your question. So your -- the impact on that 4% you're seeing in June is being driven by the mix of calendar days as well as the timing of social security payments. which is something just -- which actually varies between June and July. That being said, I will say what we're seeing in the first four weeks of July is strengthen the U.S. consumer. I mean, there's no hiding from that, right? The reality is, and again, four weeks don't make the quarter. That's -- I mean, that's one thing which we've just got to keep an eye on. But right now, if I strip out the impact of this timing stuff, there's still underlying trends in the U.S. consumer that we're seeing come through. So I think you want to keep that in mind, and we'll track it closely. We do our best estimates in terms of the guide we provided you to capture what we're seeing in the nature of the latest trends, and that's what I would say as it relates to the U.S. consumer. On your second question on mass versus affluent. Look, overall, what we're seeing is good spending across both mass and affluent. I mean, really, at the end of the day, we're not seeing -- and again, I will be the first to preface that the data we have is our derived data. It's based on our product categories and our product codes, right? That's how we figure out what we think is mass and what is affluent. We obviously are not directly in touch with the consumer. That's our customers who are in touch with the consumer. But based on the data that we see, we're seeing pretty steady trends across both mass and affluent.

Just to add a point on a tangential point here is these kind of questions we get all the time from our customers from governments around the world and we've built a really nice engagement practice for our advisers business and throughout the Mastercard Economics Institute to really these prevalent top of mind questions and what's the consumer doing here? What is the sector doing there and so forth, there's been a really particularly important differentiator for us is that we engage at the highest level on the strategic dialogue with customers, government, et cetera.

Our next question comes from Fahed Kunwar from Redburn Atlantic.

I had a question on pricing, actually. First, specifically on that, I know you called out deepening customer penetration and you called out securities and customer engagement. But how much has pricing been a factor in this quarter versus kind of that being share of wallet and how much more scope is it a pricing going forward? And I guess if I widen that question a little bit, when you think about pricing in your other businesses, CMS or your consumer payments business do you still see pricing potential as you head in to 2026? Or is it remaining or does it stay quite competitive?

So look, I mean, at the end of the day, the way I would actually answer your question is the following: we will have the ability to price for the value we deliver. So long as we continue to deliver the value we're delivering, we will have the ability to price. And that's what we've done historically, and that's what we'll do on a going forward basis. I would say that again, I don't necessarily think about this on a quarter-over-quarter basis. I think about this as, what is the long-term trajectory of our product proposition rollouts and what's the ability for us to price. Sometimes you roll our products earlier, you might actually layer in the pricing at a data point in time. In other instances, you roll out the product and you'll put in the requisite pricing at the same point in time. So all of this is all very strongly tied back to what is the value we're delivering. So to your question about whether we see the potential on a going forward basis, the answer is yes, as long as we continue to do our job, which is to continue to deliver value in the market.

I think we have time for one more question.

Our last question will come from Ken Suchoski from Autonomous Research.

Maybe just a follow up on that pricing question. I mean you took some price, I think, in various parts of the business. I think it was started in 3Q of '24, particularly around tokenization, I think some of the other lines, should we expect to start lapping some of those pricing initiatives in the second half. Maybe you could just remind us how you're thinking about that.

Yes, Ken, I would tell you, first of all, when you say we took price, we like to think about the fact that we delivered value in the third quarter of last year, which allowed us to actually price for the value we deliver. And to your question around lapping, I would say, yes, sure. I mean you would see the lapping effect of that particular value delivery, which took place for which we priced happened in the second half of this year. But again, think about this in the nature of what is the cadence of value we can continue to provide, which will help us to actually bring in more value and more price for us to be able to actually continue to grow ourselves. So the reality is, look, you've got to think about this in the context of when companies put out new products, when companies put out differentiated products, they have the ability to charge for the value they deliver and I'd say that's what we continue to do on a going-forward basis as well.

Right. This is very true. So it's not about taking price, but providing value. And I think the key aspect is who we provide value to. We provide value to our existing customers. But when we talk about our go-to-market and services when we talk our go-to-market for our whole set of payment solutions. It's about new customers, it's about the new buying centers. It's about new market. So our ability where we take and create value is there's a whole sea of opportunity out there. So for us, we continue to do that. That's how we build the business. So if you were asking your question, thinking about is just one wallet, that's not. So our share of wallet is -- the world is the whole global wallet, and we're going to drive value everywhere across the board. All right. Let's close out the call. So thank you very much again for all those questions, your continued support. Obviously, my opportunity to thank the 35,000 people here at Mastercard for driving this value all across and leave you always wishing you guys enjoying the rest of the summer. Thank you very much. Speak to you next quarter.

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