Mastercard Incorporated

Operator: 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. Q1 2026 Earnings Conference Call. [Operator Instructions] Mr. Devin Corr, Head of Investor Relations, you may begin your conference. Devin Corr: Thank you, Julianne. Good morning, everyone, and thank you for joining us for our first quarter 2026 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 facts that could affect future performance are summarized at the end of our earnings release and in our recent SEC filings. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach. Michael Miebach: Thank you, Devin. Good morning, everyone, and thank you for joining us. We are a quarter into the new year. Much has happened but so much opportunity lies ahead. You've seen the release this morning so let's get into the highlights. Building on 2025 momentum, '26 is off to an excellent start. Net revenue growth was up 12% and net income up 15% in the first quarter on a year-over-year non-GAAP currency-neutral basis. Looking at the macro picture, the economic foundation remains generally supportive with healthy underlying consumer and business spending. However, the backdrop remains uncertain, driven by geopolitical tensions, which has put some pressure on cross-border travel. . Overall, labor markets continue to be balanced and wages are still outpacing inflation in most major markets. As we've done consistently, we are monitoring the situation in the Middle East and the global economy, and we will adjust as needed. Quarter 1 results were supported by the healthy spending I noted, and of course, our team's strong execution. But above all, this quarter continues to reflect the strength and resilience of our network. We have built and diversified our network over decades, navigating and innovating through every cycle. It's a foundation spanning 4 pillars: one, unparalleled global reach, we have hundreds of millions of acceptance locations and digital access points across 150 currencies. The last 5 years alone, we have grown acceptance locations maybe 70%. Mastercard powers payments when and where you need us. That scale brings participants into a single network where the more activity that flows through it, the more data is available and the more valuable it becomes for everyone, that drives the ability to capture and extend the secular opportunity; two, our franchise rules. Our franchise helps our network operate with consistency. The rules bring trust and protection for all participants, ensuring transactions are secure, merchants are paid, disputes can be resolved and people have 0 liability to unauthorized transactions. That trust allows global acceptance at scale; three, best-in-class technology. We invest to make payments faster and simpler. Core card network upgrades are already delivering faster transaction flow and near real-time settlement. These capabilities are live in South Africa today already driving new wins and incremental switching. And we look to extend into other markets over time. And remember, our payments infrastructure goes well beyond cards, including a counter account and we're now further embedding digital assets. Fourth, our differentiated value-added services and solutions, powered by data from our networks and AI, we have curated unique services that make the network secure, drive more payments and help our customers make smarter decisions. And many of these services are tied to and brought to market through the network. That's our virtuous cycle, strengthening the franchise and improving outcomes for customers. It's that strong foundation that uniquely positions us to power and protect tomorrow's digital economy even as innovations emerge and the macro environment changes. It's our differentiated services powered by our data and how we approach partnerships that underscore why customers continue to choose Mastercard. So let's take a moment on recent key innovations, agentic e-commerce and stablecoins. On agentic, the ecosystem continues to evolve. Our payment solutions are ready and we are engaged shaping what comes next with key players, including Google, Microsoft, OpenAI and other partners across the ecosystem. We're deepening our partnership with OpenAI, reinforcing their use of Mastercard Agent Pay, working to enable agent-to-agent payments and collaborating to embed our services across their solutions while using their tools as an enterprise customer. I'm also happy to share that nearly all Mastercards around the world are now enabled for Mastercard Agent pay. And we continue to develop our agent-related services. In quarter 1, we launched verifiable intent, a tamper-resistant record of what a user authorized when an AI agent acts on their behalf. In fact, the FIDO Alliance is now using it as a foundation for setting security standards in this space. And earlier this month, we announced a partnership with Craftsman, a leading blockchain infrastructure platform. Craftsman will integrate Mastercard Agent Pay and verifiable intent to enable secure Mastercard transactions AI agents in its ecosystem. This will initially launch on the Open Claw platform with plans to expand. There's a lot of moving pieces. But as agent-driven comms gains traction, our network is there with tokenized credentials powering the payments, bringing the security and trust and reach that everyone is looking for. It's very clear there is even more incremental opportunity in transactions and in services over time. On to stable coins, another rail to complement and expand our network. We leverage our existing card rails to make it easier for people to spend their digital asset holdings with cards. In quarter 1, we saw spend growth continue at a healthy clip across our crypto co-brands as cardholders gain access to our acceptance, protection and so on. This quarter, OK X, a leading global crypto exchange is expanding its Mastercard crypto card program into Europe. And remember, we also enable purchases of digital assets using Mastercard, and we allow stablecoin settlement, and we integrated stablecoins into Mastercard move, but we also see a broader need to connect stablecoin rails to fee out rails. This digital asset scale, complexity grows, the need for interoperable, reliable and trusted infrastructure grows. That is why we are excited about our planned acquisition of BVNK. We do not see a change in how consumers pay. Cards continue to deliver a seamless experience. But given the speed, 24/7 availability and programmability, we see clear potential for stable coin technology, especially when paired with our network and use cases like payouts -- me-to-me and cross-border B2B payments. BVNK has leading technology that serves us as an important enabler to send, receive, convert and hold stable coins. They also directly address the interoperability challenge in digital assets. They bring together liquidity providers, stablecoin issuers, market makers and more. BVNK also holds important hard-to-get licenses and offers critical compliance and regulatory tooling. So when you bring together the strength of our network, and you add continuous innovation, including most recently in agentic commerce and digital assets, you see continued leadership in payments. And that fuels the virtuous cycle across our 3 strategic pillars: Consumer Payments, commercial flows and value-add services and solutions. Let's take them one by one. Turning to the first pillar, consumer payments. I'll start with 2 exciting portfolio wins that reinforce the enduring value of Mastercard across the globe. One was CIB in Egypt. Our partnership will expand meaningfully with new markets and services. This includes the conversion of an affluent portfolio and the expected issuance over 5 million new Masters over the term of the deal. The second is a renewal and expansion of our partnership with Westpac, one of the largest banks in Australia putting Mastercard in the hands of more Westpac customers than ever before. We also continue to see strong momentum in the affluent space as issuers look to differentiate and deepen relationships with high-spend customers. Since launching World Legend last year, U.S. World Legend cards has demonstrated higher overall spend and more than 3x higher cross-border spend on an average monthly basis compared to the U.S. World Elite portfolio. Two growing value propositions that ring true to the segments they were designed for. Still early days in bringing World Legend cards to market but very encouraging. Our affluent value proposition, including the new globally connected Mastercard collection is resonating around the globe. In North America, our new World Legend has been launched by Rogers Bank with Safra National Bank to launch in the coming months. And Mastercard will now be the network of choice on the new United Airlines Canada co-brand program. In Latin America, Bancolombia and -- in Brazil are also launching new World Legend portfolios and we are excited to partner with Aeromexico in bringing their whole brand to Mastercard. And in Asia, HSBC Hong Kong is launching a set of affluent products, including World Legend. And in Indonesia, Bank Mandiri is launching a new private banking card in the super affluent segment. These card wins reinforce the importance of offering payment choice. We continue to scale Mastercard One credential a single Mastercard credential linked to multiple funding sources such as credit, debit and installments. We're launching with SoFI, it's SoFI Smart Card. And through partnership with Fiserv and Blossom Mastercard One credential will be more easily accessible to community banks and credit unions. Now turning to the second pillar, commercial and new payment flows. We continue to deliver value by building on our strengths. In the U.S. alone, small business fuel nearly half of GDP. We're proud to say that the U.S. Amazon small business co-brand card issued by U.S. Bank, will move to Mastercard. That is very exciting. These partners are value in Mastercard's differentiated SME offerings, including easy savings, analytics tools and our overall partnership approach. There's so much potential in commercial, and we are doubling down in segments where we already lead. Fleet and distribution continue to be long-standing strength for Mastercard, especially in the U.S., where we are the partner of choice for most of the industry's largest sweet players. This quarter, we added multiple new U.S. partners in this segment, including free, which enables card-based invoice payments for wholesale food distributors. And we are extending our capabilities outside of the U.S., where our expertise in the space helps secure ride, a European digital fleet and in-car payment system operator, converting its close-loop free program to open loop Mastercard. On B2B travel flows, issuers continue to select Mastercard for seamless B2B travel payments using virtual cards, for their online travel agency customers. While external events might drive slower growth in the short term, we have long-term conviction in the space and continue to pursue it given the sizable opportunity. This quarter, we signed high note in the U.S., Travelsoft and Juniper in Europe; and Bulla in Brazil, further securing commercial travel as an area of strength. At the same time, Mastercard move continues to scale, power financial institutions with the ability to offer near real-time money movement with transparency and with access to our more than 17 billion endpoints. This quarter, we extended our connections with Bank of Shanghai supporting SME trade, international tuition and remittances into and out of China. We will now further penetrate U.S. insurance disbursement flows with a renewed agreement with One Inc. and recently introduced an AP Mastercard move will now power Mastercard Global Commerce Suites for small business. This solution helps bank support small business cross-border money movement needs by bringing together payments with collections and expense management in one solution. Turning to value-add services and solutions. Demand remains high and we continue to drive strong growth. VAS is built on our data curated into differentiated products and ever alongside our payment network. The combined proprietary global real-time transaction data with petabytes of permission data from our services and solutions. That scale and quality of our data power smarter insights, stronger for tools and better outcomes for customers, especially in an AI-driven world. In March, we announced a new foundational generative AI model, leveraging capabilities from NVIDIA. Trained on our vast data sets that will help anticipate behaviors being the scope of traditional models, spotting unusual activity, predicting where a cardholder may spend next and signaling shifts in consumer behavior. These insights can then be embedded across our products or power new use cases. This early-stage work is very exciting. It's not just about the future. Our services are already helping customers solve real needs today, including with many solutions that are unique to us. You've seen how Mastercard has modernized dispute resolution over the years. That innovation continues to provide value and trust to our customers. Dispute resolution includes our unique network tools powered by Ethoca that help connect issuers and merchants post transactions. Collectively, Ethoca products grew around 25 plan year-over-year last quarter. Checkout.com will embed Ethoca alerts into their global digital experience enable merchants to enroll directly in precharge-back dispute resolutions. This is also a great example of one-to-many distribution. Inflation customers as consumer clarity enhances merchant details and cables receipt visibility, curbing friendly fraud, which third-party research estimates, cost issuers and merchants in the U.S. over $100 billion annually. Elsewhere, Westpac and Capitec will now leverage some of these network agnostic services as well as subscription management capabilities from MENA. Cybersecurity is mission-critical. And the stakes keep rising. As you know, we acquired Recorded Future in 2024 a leader in this space. Last year, we launched Mastercard Threat Intelligence, bringing Mastercard and recorded future capabilities together. In a short period of time, more than 500 customers are already engaged using the product, partners have taken down malicious domains responsible for the payment card -- impacting over 10,000 e-commerce sites. That's tangible value. In Open Finance, we power use cases from account opening and smarter lending to simple account-to-account payments and better cash flow visibility for small businesses. We continue to see traction across all. In health care, Optum Financial initially deployed our account opening verification services for HSA accounts, and they are now expanding into additional account types. Webster Bank's HSA Bank elected Mastercard Open Finance to support both identity verification and account linking, making onboarding increasingly seamless for its members. And that brings me to consulting and marketing services. offerings we have been growing for many years, built around payments expertise and fueled by our unique data to solve customer problems. We're enabling highly targeted insight-driven actions that generate measurable ROI. This is evident. Nearly 3/4 of our customers from 2024 returned to use these services again last year and increased their usage by more than 20% year-over-year. In fact, many customers embed these services within customer business agreements. DCBA linked services directly support growth, drive payment volume, increased customer acquisition and so on. Separately, this quarter, Intesa Sanpaolo expanded its services partnership with us to boost card penetration and usage, combining advanced analytics and portfolio optimization with always on marketing across both Intesa and its digital bank Easy Bank. Now that's a lot to fit into 1 quarter, but all these examples reinforce how we continue to execute and deliver on a proven strategy. We are a strong global network, deeply leveraging proprietary data extended through innovation, scale through partnership, diversified through our products and services. Thank you for your continued trust and partnership. And with that, I'll turn it over to Sachin. Sachin Mehra: Great. Thanks, Michael. Turning to Page 3, which shows our financial performance for the first 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 12%, reflecting continued growth in our payment network and our value-added services and solutions. Operating expenses increased 9% and operating income was up 13%. Net income and EPS increased 15% and 18%, respectively, driven primarily by the strong operating income growth in the quarter. EPS was $4.60 which uses a $0.10 contribution from share repurchases. During the quarter, we repurchased $4 billion worth of stock and an additional $1.7 billion through April 27, 2026. This quarter, we accelerated the pace of our share buybacks given current valuation levels and our strong conviction in our long-term growth potential. Now turning to Page 4, where I'll speak to the growth rates of our key volume drivers for the first quarter on a local currency basis. Worldwide gross dollar volume, our GD increased by 7% year-over-year. In the U.S., GDV increased by 4% with credit growth of 8% and debit growth of 1%. Excluding the impacts from the migration of the Capital One debit portfolio, our U.S. debit GDV growth would have been 7%. The migration of the debit portfolio is now basically complete. Outside of the U.S., volume increased 9% with credit growth of 9% and debit growth of 8%. Overall, cross-border volume increased 13% globally for the quarter, reflecting continued growth in both travel and non-travel related cross-border spending. As one would expect, starting in March, we began to see some impact on cross-border travel from the conflict and the Middle East. Turning now to Page 5. Switched transactions grew 9% year-over-year in Q1. Excluding the impacts from the migration of the Capital One debit portfolio, our Switch transaction growth would have been 10%. We continue to drive contactless penetration, which in Q1 stood at 78% of all in-person with Switch purchase transactions. This is up 5 ppt since the same period last year. In addition, card growth was 5%. Globally, there are 3.7 billion Mastercard and Maestro-branded cards issued. Turning to Slide 6 for a look into our net revenue growth rates for the first quarter discussed on a currency-neutral basis. Payment Network net revenue increased 8% 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 18%, primarily driven by growth in our underlying drivers, strong demand across security solutions, digital and authentication, business and market insights and consumer acquisition and engagement 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 6%, while worldwide GDV grew 7%. The difference is primarily driven by mix, partially offset by pricing. Cross-border assessments increased 18%, while cross-border volumes increased 13%. The 5 ppt difference is driven primarily by pricing in international markets. Transaction processing assessments were up 15%, while Switch transactions grew 9%. The 6 ppt difference is primarily due to favorable mix and pricing, slightly offset by lower revenue from FX volatility. Other network assessments were $277 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 9%. The growth in operating expenses was primarily driven by increased spending to support various strategic initiatives, including investing in our infrastructure, geographic expansion and enhancing and delivering our products and services as well as the increase in foreign exchange activity-related expenses within the quarter. Turning now to Page 9. Let me comment on the operating metric trends for Q1 and the first 4 weeks of April. As we look across Q1 and April, growth rates of our operating metrics were impacted by timing of holidays, namely Ramadan and Easter. March would have seen the benefits from the timing, while February and April saw a negative impact. Looking at the Q1 operating metrics on a sequential basis. Switch metrics were generally in line with Q4 and underlying spend remains stable. Of note, U.S. Switch volume was flat sequentially as the strength in consumer and business spend offset the impact from the migration of Capital One's debit portfolio in the quarter. Excluding Capital One, on a like-for-like basis, U.S. Switch volume growth was over 1 ppt higher in Q1 as compared to Q4. Now on to Switch transactions. Excluding the migration of the Capital One debit growth -- sorry, excluding the migration of Capital One debit, growth was generally in line with Q4. Moving to our cross-border metrics. Our overall cross-border volume remains healthy with growth at 13% in the first quarter. Cross-border card not present ex travel grew at 18% and remained strong. And the sequential decline in cross-border travel was due primarily to the conflict in the Middle East and portfolio shifts. Now looking specifically at cross-border travel for the first 4 weeks of April, the sequential decline from Q1 is due to an acceleration of the impact of the conflict, the portfolio shifts and the negative impact from the timing I just mentioned. None of these factors relate to any fundamental change and underlying consumer and business spend remains healthy. Turning to Page 10. I wanted to share our thoughts for the remainder of the year. We delivered another solid quarter, fueled by the strength of our payment network and value-added services capabilities. Despite elevated geopolitical risks, the macro economy has remained largely supportive with healthy underlying consumer spending and the fundamentals of our business remain strong. With that said, we are operating in a period of heightened uncertainty, magnified by the ongoing conflict in the Middle East. Since the outbreak of the conflict at the end of February, we have seen restrictions on travel and a reduction in the world's energy supply. And as I noted earlier, we are seeing impacts from that in our cross-border travel metrics. But let's take a step back. We are a global company, and we are heavily diversified across geographies, products, consumer segments, services and so on. This diversification reduces concentration risk while enabling us to deliver consistently on solid top line and bottom line growth. So while the conflict in the Middle East is a headwind, our global diversified business positions us well to sustain growth, both in the short and long term. We are confident in our strategy, delivering value to our customers and partners across the globe and innovating to power the next wave of digital payments. As we look at Q2 and the full year, our base case assumes underlying consumer spending remains healthy outside of the impact of the conflict in the Middle East. We assume the conflict ends in Q2 and the related headwinds will be largest in Q2 and then progressively recover as we move through the second half of the year. As it relates to our expectations for the second quarter of 2026, year-over-year net revenue growth is expected to be at the low end of low double digits range on a currency-neutral basis, excluding inorganic activity. This includes our current estimates for the impacts from the conflict in the Middle East, without which we would have expected Q2 growth to be generally in line with the first quarter on a currency-neutral basis. We expect minimal impact from a disposition that we anticipate to close within the quarter and a tailwind of approximately 1 to 2 ppt from foreign exchange. From an operating expense standpoint, we expect Q2 growth to be at the low end of low double digits range versus a year ago, again, on a currency-neutral basis, excluding inorganic activity. We anticipate a 0 to 1 ppt benefit from the disposition while foreign exchange is forecasted to be a headwind of approximately 0 to 1 ppt for the quarter. On other income and expense, in Q2, we expect an expense of approximately $150 million. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics. This higher sequential expense is primarily driven by the following: first, Q1 came in better than expected, aided by a few onetime items. We do not expect these to repeat in the second quarter. Second, we expect lower cash balances and higher debt levels in the second quarter. Cash balances tend to be seasonally lower in the second quarter. And as I noted earlier, we have accelerated the pace of our share repurchases. And lastly, a onetime unfavorable impact from the disposition I mentioned earlier. As it relates to our expectations for the full year 2026, net revenue growth remains at the high end of a low double-digit range on a currency-neutral basis, excluding inorganic activity. We anticipate minimal impact from the planned disposition and a tailwind of approximately 1.5 ppt from foreign exchange. From an operating expense standpoint, we expect growth to be at the low double digits range versus a year ago on a currency-neutral basis, excluding inorganic activity. We expect a 0.5 to 1 ppt tailwind from the disposition and a headwind of 0.5 to 1 ppt from foreign exchange on a full year basis. And finally, we expect a non-GAAP tax rate in the range of 20% to 21% for both Q2 and the full year. As a reminder, the Q1 tax rate was lower primarily due to discrete tax benefits including those related to share-based payments. And with that, I will turn the call back over to Devin. Devin Corr: Thank you. Julianne, you may now open up for questions. Operator: [Operator Instructions] Our first question comes from Will Nance from Goldman Sachs. William Nance: Michael, I wanted to ask on the VAS strategy and the growth you've been putting up there. I think there's been a focus on how you differentiate yourself with the strategy. And I think historically, Mastercard has been very forward leaning on embracing new networks and things like A2A payments. Can you talk about the evolution of that strategy maybe in the context of the planned divestiture and how some of these types of activities fit into the broader strategy around VAS? Michael Miebach: Right. Well, great question. So we've always believed in consumer choice when it comes to payments and business choice when it comes to payments. So it's clear that cards is a great answer for P2M, but it's not the answer for everything so a set of dedicated use cases and a lot of volume out there for us to go after to apply our service. So that was originally the idea to go into a what we called at the time, a multi-rail proposition account to account. So you know that history, acquisition of VocaLink and so forth and various other real-time payments assets around the world, and then we exported the stack to run about 12 subsystems around the world right now. So that strategy still holds. There is no question about that because real time is very much in focus. A lot of governments choose real-time payment systems to go and facilitate payments of all types across their respective markets, where a known and respected partner in this space. So strategy hasn't changed. We're really evolving is to ensure that we find more and more services that we can apply to these payments. So the franchise rules are different in that space than they are in a card space. But something like cybersecurity is particularly in focus as the counter account fraud and account scams are rising, our counter account protect solution, as being an excellent example of how we found a way where we can rally a market and drive value for us and for the market. So cybersecurity is in focus. Generally, this gives us a seat at the table with government in the current world where more countries are inward looking for more resilient infrastructure that puts us also in a very unique position. So strategy continues where we said we're not looking in to grow a lot more new geographies because we're in the markets that we want to be at. United States, U.K., Thailand, Philippines, large economies where this business runs at scale and very profitably for us. Sachin Mehra: And Will, it's Sachin, very quickly, I just want to clarify because you alluded to the disposition, the disposition I referred to in my commentary relates to Session M, which is our loyalty business, which is 1 of the acquisitions we had done a few years ago, and that's the sale which was announced, I guess, a couple of months ago. So that's what I was referring to in... Michael Miebach: And I glanced over that other market rumor because we don't comment on market rumors. Operator: Our next question comes from Sanjay Sakhrani from KBW. Sanjay Sakhrani: Sachin, I want to talk about the assumptions on the -- for the outlook on the war ending in 2Q. I'm just curious if you could just elaborate on the assumptions you're making on cross-border. I assume that's sort of where the biggest impact is. And then so where the offsets are that are helping you sort of raise the guidance because I'm sure some other things are outperforming and offsetting it. And then just one follow-up on the portfolio shift point you made. Does that impact cross-border for a year now going forward? I'm just curious if you could just elaborate on that. Sachin Mehra: Sure. So Sanjay, first, I'll kind of kick off by saying we have taken what we believe to be our best estimate as it relates to our base case as it relates to the conflict ending in Q2 because we had to predicate this on some assumption, and that's what we shared with you right here. So let's just start with that piece of it. The impact is most pronounced and assumed to be most pronounced in cross-border travel. That is a correct statement on your part. The second point I'd make there is that the impact would be in our assumptions, most pronounced in the second quarter. And while there will be some impact in Q3 and Q4, we expect that there will be a gradual recovery or progressive recovery, which will take place in Q3 and Q4 based on the assumption that the conflict ends in Q2. So that's kind of 2 things I want to kind of just mention. You also asked a Part 1b question to that, which was what are the offsets. So I think what you're asking is our full year guide, which by the way, on a currency-neutral basis is basically unchanged, right? The increase you're seeing in the full year guide is primarily being driven by a change in FX assumptions for the year. So on a currency-neutral basis, it's unchanged to what I shared a quarter ago. Anyway, notwithstanding the fact -- look, we started the year strong. Consumer spending is healthy. We're executing on our strategy. We had a first quarter which -- where we outperformed our own expectations. So we're off to good start in the year. That obviously provides a little bit of a buffer relative to 3 months ago versus today, notwithstanding the fact that there are other things which have moved around such as impact of the conflict, which is kind of offsetting that as well. So that's kind of component number one, which we've got to keep in mind. The other piece I'd mention is that, look, I mean, as you go through the year, a few things to keep in mind. I think you know this already, Sanjay, is that in Q2 of last year, we had the highest levels of FX volatility. So that creates the biggest headwind in Q2 of this year, right? We have some headwind from FX volatility in Q3, but it's less than what was there in Q2 so that's something to keep in mind. And then in Q4, we had more normalized levels of FX volatility. So the headwind kind of dissipates as you go across the end of the year. So that's kind of the second point. The last point I'd make is that from a value-added services and solutions standpoint, which represents roughly 40% of the revenues of the company, but the business continues to perform. We delivered 18% currency-neutral growth in the first quarter, another solid quarter and we're seeing strong demand for those capabilities. So that's something which, again, as I think about the rest of the year, we'll have to keep on executing, and that's kind of based in the assumptions and the guidance that I've shared with you. Michael Miebach: I can just add one point on that. I think it's a great question, important question. What happens here with the cross-border side is a general shift in spending patterns. So our customers are coming to us and say, "Well, what do you see in your data?" How is spending shifting. Where else is it going? Where do we meet our customers and their customers in terms of solutions that they need. This is something that we took to a science back in COVID because at that time, recovery insights were kind of a key thing. So we now have kind of like crisis insights. Within 24 hours, we had a website up for our customers in the Middle East to say here's shifting spending patterns. Take a look at it, let's work on it together. So this is an opportunity for us to lean in and drive forward, and that will be a compensating factor. Sachin Mehra: And Sanjay, I know you asked the question also as part of your question, 1C was the impact of portfolio shifts. Yes. And you're right. I mean the impact of portfolio shows will stay with us for quarters. Again, every portfolio is a different migration schedule, but that kind of factors in there. You are seeing a more pronounced impact on travel because some of the portfolios were more travel heavy. So that's something to kind of keep in mind. . Operator: Our next question comes from Harshita Rawat from Bernstein. Harshita Rawat: I want to ask about Switch transaction growth, Sachin, Michael. Historically, it used to grow kind of in the low double-digit to low teens range. More recently, the growth has decelerated a little bit to 9%. I know there's 1 ppt of Cap One debit in there. But maybe talk about some of the other drivers within that Switch transaction growth and some deceleration versus history. And then as we think about the high end of low double digit, medium-term revenue objective, maybe talk about the growing importance of valuated services in that algorithm and remind us about kind of your conviction in the sustained strong growth of that. Sachin Mehra: Sure. So on your question on Switch transactions, I think you kind of got the first part, which I shared in my prepared remarks, which is adjusted for the Capital One migration, we grew at about 10%. But I think your question was a little bit beyond the fact that it's 10%, you said we were growing at higher rates previously. I think one of the bigger factors that influences Switch transaction growth is the mix of our portfolio. And so I'll give you a real life example, right? So back in the days when we were operating in Russia, before we suspended our operations in Russia, right? We had significantly higher growth in Switch transactions. . And at that point in time, when we suspended operations, one of the things which I called out was that recognized that this market is a low average ticket size market. And so the fact that we no longer do business there, impacts us which transaction growth rates because average ticket size kind of plays a part, point number one. And then if you just extend that logic through to different parts of the globe, depending on where we're seeing more and less growth than what the average ticket size is that influences what our Switch transaction growth is. And the reason I say this is because mixes in geography are going to impact where our Switch transaction growth is. But fundamentally, what's going on in terms of the imperative for the business to continue to focus on driving Switch transaction remains. Case in point, for the longest time, we were not switching transactions in Japan. We're now switching to transactions in Japan. We were previously not switching transactions in a meaningful way in Mexico, that's something which has actually started to happen. So you know that as a matter of fact that the company is very focused on driving greater switch transaction growth for all the reasons we've kind of mentioned in the past, which is it not only generates revenue, it provides data. When you get data, you can deliver value-added services and solutions, which drives incremental revenue. So really important. And just as another metric point so that you're aware. In our most recent quarter, our proportion of switch transactions is now north of 70%. So the reality is we are executing on the Switch transaction strategy. We continue to remain very focused and believe that's an important area especially in light of what we shared with you at Investor Day 1.5 years ago when we talked about the sizable opportunity, which remains from a secular standpoint, in terms of Switch transactions, which still remain to be -- or other transactions, which still remain to be digitized, very much a focus area for us. Michael Miebach: Yes. So you mentioned the 70%. In 2020, it was 60%. So that's a very sizable increase. And we just think for a moment where it's coming from. It's coming a lot from -- we are -- I mentioned it earlier, lot of countries are looking to have their own payment systems. There's many domestic schemes out there. But it turns out that digital capabilities are really hard to do and they're really hard to scale. So that's part of our strategy, and that's how we're winning volume. It's a better proposition from a safety security perspective, tokenization, those are all things that we can bring to those countries, and that is what the biggest driver is so this is one of the key metrics for our company and our people to bring across the value that we bring there. and then compete against these domestic schemes. So a significant driver, and it has a lot of other digital capabilities. When we talk click to pay when we talk contactless, various other things that are just really hard to do for these kind of systems. So that brings switching on to us, and that's the -- that's fueling the services opportunity in turn. Operator: Our next question comes from Adam Frisch from Evercore ISI. Adam Frisch: A quick clarification and then a question, getting a bunch of questions from investors us. If the word will go longer or near-term impact would deem more destructive, what's the calculus on how that might impact your outlook, if at all? And then my question is on stablecoin and a shout out to Devin and Johan for a terrific call explaining the rest all for the BVNK deal a few weeks ago. Do you feel like the mounting challenges with getting the Clarity Act passed in D.C. delays the time frame for the industry in general? Or is there enough motion to keep the momentum going and having BVNK's capabilities helps you shape the trajectory a little bit more. Sachin Mehra: So Adam, on the first question, I'm really not going to go into multiple scenarios of how the work plays out, right? I kind of shared with us -- with you what the base case is and what the impact is. I also shared with you in my prepared remarks what the impact would have been had it not been for the war or rather the conflict occurring in Q2, where I said, basically, had it not been for the conflict, our growth rate in Q2 would have been generally in line with what we had in Q1. So look, the reality is things will move. We do understand that the conflict is something which is outside of our control, like Michael mentioned, it's not like we're sitting on our hands. We're working with our customers to try and find opportunities where we could be helpful to them and even in this environment. And if it's useful, maybe I can just size for you, really for the impacted countries, which is -- let's take the GCC in Israel, right? From a cross-border volume standpoint, right, GCC and Israel represent roughly of our cross-border volumes. And so -- and this is both inbound and outbound. You have to take both into consideration. Because, I mean, we have impact from an issuing and an acquiring standpoint. So it's important for you to just get a general size of what we're talking about here. Michael Miebach: Good. So coming to the other -- or the actual question versus a clarification. So Stablecoins, BVNK, Clarity Act, a lot going on. So first of all, I just want to go back to what I said when I shared our excitement about the BVNK acquisition. So fundamentally, what we see is that stable coins and tokenized deposits are actually not just stable coins here to stay. They're going to be an important part of the financial ecosystem, the financial fabric going forward. So we believe that tokenized Money will occupy a meaningful part of the money movement in the future. And the use cases I talked about the B2B, global payers, B2B, Me-to-Me, that's like funding my own wallet and all the are going to be use cases that will be there. So we have some regulatory clarity. We had with the Genius Act. There is such regulation in other markets. So it's not holding us back. We see it in the volumes that is happening. I talk about healthy clip in crypto. Now this extends into stablecoin -- already. There are use cases. So we're moving forward on that, which is why the timing of BVNK was important because it feels -- it's this unlocked moment at this time. Now we also think that when this world is growing at a higher speed, let's assume the Clarity Act is coming through, and then we'll be even more momentum on this, we're going to face a world that is a world of multiplicity. So it's going to be more coins. It's going to be more change. It's going to be more non-dollar-denominated coins out there, et cetera, et cetera. So that will bring about a future where interoperability and trust and licensing and who clients' needs are super critical. And that is where BVNK is a leader. And that is in my customer conversations, everybody is asking, what are you doing? How can we work together? What do I do first. We talk about BVNK, well, it's not closed yet, so I should say that. But we're very excited about it because we already see the demand. Everybody is trying to figure this out regardless of Clarity Act yes or no. Now on the Clarity Act, it would establish a clear regulatory framework for digital assets. That would be good, can be sitting here and speculating when it happens, but it doesn't hold us back. We believe that BVNK puts us in a position in-house natively to drive that interoperability and trust layer in that digital assets world, stable coins, tokenized bank deposits, et cetera. So very exciting, and it truly sets us apart. Operator: Our next question comes from Tien-Tsin Huang from JPMorgan. Tien-Tsin Huang: Just wanted to ask on the agentic side if that's okay in Mastercard Agent Pay, Michael, you talked about some of the partners and some activity on the ground. But can you just give us a little bit more detail on volumes or any surprises with respect to actual activity or actual demand. And I'm curious if you were to maybe talk about it in the context of who's pushing the hardest across all the players in the 4-party model. What are you listening to for clues on how to invest harder, et cetera? Michael Miebach: Right. So on agentic so this all kind of really got into motion in April last year, just about a year ago. This is kind of what we started to get out there with Agent Pay, other protocols where there -- this is when Google and others, Microsoft started to put out protocols that are commerce-oriented protocols. So that was a push for those players, LLM players, people getting in seeing a tremendous opportunity for them. And then the payment world, us with Agent Pay, we got and say, "Well, we got to facilitate those transactions." And we want to deliver everything that people are generally used to from us in a regular transaction. So that's what Agent Pay does, leveraging our tokenization capabilities. So we pushed equally hard. . In terms of where volumes are, we're still at early stage. So that is also true because a few things were not quite in place yet. So the question of what goes wrong, I talked earlier about disputes. What goes wrong in an agent transaction, how do you prove that? So the significance of verifiable intent cannot be underestimated. That is a really important step. We worked on this together with Google. That is now a standard. So again, part of the urgency needs to be we got to be in there with the trust that we bring and make sure that the standards are there. And that's what we're doing with great urgency and that is where our urgency lies. And then we're ready to see when the volume comes, where do we see some of the upside, new use cases spreading baskets on the consumer side, transaction opportunity, of course, there could be more services opportunities inside Tokens and Elite will be such an example. So all of this is happening. And then I haven't even started to talk about agents in the B2B space. So you heard us talk about Agent Suite, which we started to launch where we're going to get into the business of building agents with our customers in the B2B space, et cetera. So early stage on B2B earlier than on the consumer side, but I would think this is a much bigger opportunity and it fits right into our focus on commercial payments. So early-stage ecosystem building, covering your basis, that's what we're doing. Operator: Our next question comes from Darrin Peller from Wolfe Research. Darrin Peller: Just first a quick follow-up, Sachin, just when you think about the way to normalize cross-border for the effects of Ramadan and Easter shifting or any other normalization just to give us a sense of what you see as sustainable given the portfolio shifts. I'm curious if you could help us quantify that. Michael, I want to ask about Mastercard Threat Intelligence more broadly, we're all hearing about instances of fraud picking up around AI on payments. Are you seeing that inflection in demand really pick up pace for your value-added services and offerings around cyber and fraud. I mean clearly, that could be a nice boost sustainably for VAS. Sachin Mehra: So Darrin, I'll go first on your clarifying question. And I'm going to actually say with the cross-border travel metric, and I'm going to actually speak to the growth rate for Q1 compared to the first 4 weeks of April, right? Because that 8% number that you see there going down to 2% growth is driven by primarily 3 things. Number one, conflict, number two, portfolio shifts, number three, the timing of Easter, right, and Ramadan. These are the 3 factors. And I kind of laid them out in order of significance as well, right? But don't assume that the conflict is the biggest and then the other 2 are insignificant. It's kind of generally, directionally, the 3 of them are the key contributors to what you're seeing there. I think the more important thing, honestly, Darrin, out here is that by this very definition, what you're seeing. Let's take each one of them individually. Conflict out of our control, don't expect for that to stay with us over the long term. So fundamentally, nothing challenges the cross-border value prop as it stands. Number two, as it relates to the portfolio shifts. Look, we're very clear in our mind in terms of what our approach on portfolio wins and losses are. We want to win the right kinds of portfolios. We already maintain that. We've always maintained that, and we will continue to be very disciplined on that. So you're going to see wins, which you've seen more of -- and on occasion, you'll see things which will actually move away from us, which is part of what's going on from a portfolio ship standpoint. And I won't spend a lot of time on timing because timing of Ramadan and Easter is what it is, right? The week over week, you're going to see movements and changes on that. So that's what I'm going to share with you there. Michael Miebach: And every one of these calls, we talk about wins and losses and shifts. So if you just think about what I said earlier, Aeromexico, United Airlines, Canada, for travel agency wins. So there is a lot going on in the space. We've historically been focused and continue to see it as a strength and we'll lean in on that, but not always at all prices. Good. So on the safety security piece and Recorded Future, and the rising stakes in the world in an AI-powered world, that's absolutely true. We hear this everywhere. We see it everywhere. And it's not that new. It's just rising. So when we looked at Recorded Future and said our historic position in being a leader in fraud management and payment fraud management expanded to a multilayer strategy with risk recall where we looked at general cybersecurity stance of smaller businesses. That was a big part of our business. So we're not just fraud any longer. We're already talking to the -- companies. And then AI has been around for some time now. 2023 was really where it started to really accelerate. So bought Recorded Future in 2024, that was already with a perspective on, we got to look at broader threat vectors because companies -- our customers in our space, in the payment space, for them, it's very hard to defend. You cannot really outspend against all threat vectors. So we needed to have reliable information that we could give them that says, well, here's where your biggest risk is. This is where you really need to invest. And that's what Recorded Future has brought to us. And you can imagine -- right now, this is such a differentiated activity for us. Now in a world of geopolitical tensions and so forth, you can also see that a lot of governments are focused on this space. asymmetrical warfare, state actors, all of that is going on and recorded future puts Mastercard in a very unique position to be a trusted partner to provide those kind of insights. So when I look at the customer set of Recorded Future, it includes the intelligence community, government entities as well as private sector companies and so forth. So this has just been the perfect acquisition at the right time. And when we brought together our data set on the Mastercard side, that's Recorded Future as Threat Intelligence, that's a real synergy because then you have even more powerful data -- so how is it going? We closed in December 2024. We all got running last year and there is significant demand. So that continues. We put out a bunch of products. I mentioned Mastercard Threat Intelligence earlier, but there's others malware intelligence, autonomous threat operations, et cetera. So it is just the right thing at the right time. And we do expect that Security Solutions is going to be a continued significant growth driver for us. Yes, exactly that. Operator: Our next question comes from Andrew Schmidt from KeyBanc. Andrew Schmidt: Michael, appreciate the comments, Michael, on the selective deals. But if you just comment on whether the competitive intensity for deals has changed at all or whether that's relatively stable? And then Sachin, if you have any comments around how we should think about rebates and incentives trending this year or in subsequent years, that would be great. . Michael Miebach: Right. So selective is maybe a great word, but also -- we want to win deals. So that's our mindset. That is fueling transactions that's helping us getting after the cyclical opportunity, drive our Vasco, the virtuous cycle. So that is the mindset to start with. And that has been the mindset for years. So when it comes to competitive intensity around that because others might have the same mindset, I think that hasn't dramatically changed. I think our ability to provide value that has dramatically changed. So if you look at our services portfolio today and the kind of bells and whistles that we put on our Mastercard payment, that is a lot of value that we can bring and that we can have considered as we engage customers on what kind of value exchange works for these deals, and that's why we continue to win. So nothing dramatic I see on that front. So just being leaning in. But you say it's not every market where you would say, do I want to -- if I have a relevant market share and I'm well positioned in the market, then I might have a different consideration as if this is a new geography and I really want to grow my business. So we also make these kind of judgments as we grow our global presence. Sachin Mehra: Yes. And just picking up on Michael's comments, look, I mean, at the end of the day, we have a rich pipeline. Our teams are super active in terms of winning the right kinds of deals, and we will continue to stay focused on that. The impact, obviously, will come through in terms of what you see on rebates and incentives. But again, we look at rebate and incentives, but we also look at overall net revenue yield for the company. And you can see the net revenue yield for the company is increasing. More specifically on your question on rebate and incentives, what I'll share with you is in the second quarter, we expect for rebates and incentives as a percentage of our payment network assessments to be slightly lower sequentially as compared to the first quarter. . Operator: Our next question comes from Matthew O'Neill from Bank of America. Unknown Analyst: Just curious, if you take a step back from a high level, how does Mastercard think about a stable coin transaction versus a local currency transaction from an economic contribution standpoint, in a future with a lot more stable coin utilization, is Mastercard kind of economically agnostic? Are there opportunities for accretion or the opposite? Michael Miebach: Right. So let me start on that. So generally, when you see where are most of the volumes today, there's a lot of on and off ramp opportunities. So we have these co-brand programs. And in that, you basically have card economics. So that's just as straightforward. So now in this space going forward, where we drive interoperability layers and so far, as you can see, it just start to build out a whole set of new services and additional opportunities. So we see the space driving more value for us going forward. But for now, it's that volume, that is the most pressing need. How do I get on to in stablecoins. I have an offering at the other end of the transaction. So we got to be at all those spaces and invest to do that. So that's how I see it. Overall, I think it is a significant net new growth opportunity for us, which is why we felt we are going to deepen our capabilities through the acquisition. So we want to drive all of that value. It would be central network that facilitates that value exchange over those digital assets. Sachin Mehra: And the economics on the acquisition, right, once it's complete, I mean the value prop, which is coming through there, which is Michael talked about send. Basically, it was about convert, send, receive and store, right? That are these different attributes which come with the acquisition. The revenue model on that is basis points on volume. So you were asking us to how you generate revenue, that's kind of the mechanism and that's all an addressable market, which we don't participate in today. That's the accretive part of what Michael is alluding to. Operator: Our next question comes from Bryan Bergin from TD Cowen. Bryan Bergin: May I ask on yield. Can you just dig in on the key drivers in the TPA spread uptick? And any important considerations on pricing changes as you move through the -- of the year. Sachin Mehra: Look, again, from a pricing standpoint, a lot of what we do is, again, predicated on the value we deliver in the market. And so I use what I would tell you from a pricing standpoint, all of our planned pricing is already contemplated in the guidance that I've shared with you. And I kind of give you a little bit of color as to what the cadence by quarter looks like as well. without giving you specific numbers for Q3 and Q4. But the reality is all of that already contemplates what kind of value we plan to deliver and for which we plan to actually have pricing. So that's close share. . Operator: Our last question comes from Jason Kupferberg from Wells Fargo. Jason Kupferberg: Michael, in your prepared remarks, you mentioned how much growth we've seen in acceptance points. in recent years, and I think some of that will continue to come from geographic penetration. But can we get an update on how you guys are thinking about the most fertile new categories of acceptance over the coming years just as you continue to grow the network. And then, Sachin, just can you clarify on the vast growth currency neutral that you were actually steady on an organic basis year-over-year? Because I think you lapped Recorded Future? . Michael Miebach: Right. So acceptance, you saw the growth. So that is very significant. And it follows a very clear plan. So we are looking at going after domestic schemes. We are going after a closed loop. We're going after underpenetrated verticals. Those are all aspects how we're finding new volume and creating new acceptance. And this is not limited to the consumer side. This is also happening in the B2B side. One of the things I should say is underpenetrated verticals, very interesting. So insurance, housing, our programs with built just finding -- making sure that it's understood that cards can solve needs that are out there in spaces that we haven't historically been in. VCN is another such example. So driving VCN acceptance, which we continue to do. So underpenetrated verticals, I think, is a significant opportunity for us. And then it's the bread and butter business of just driving acceptance every day, small business, for example. Sachin Mehra: And Jason, on your question on VAS growth. So in Q1, we had approximately 18% growth in our VAS revenues. And that has no impact from acquisitions. In other words, there's no incremental impact coming through. if you're looking at it sequentially compared to Q4. In Q4 of last year, we had about 22% VAS growth and that had about 3 points of an acquisition impact in there. . Devin Corr: Thank you. Any closing comments, Michael? Michael Miebach: Yes. So it brings us to the end of the call. We overran a bit today, but there was a lot to cover. We appreciate your questions and your interest and your support. All of this work that we just discussed today is only possible because of the work of our teams around the world. The first quarter gave us some pause to really worry about the safety of our people in the Middle East, in Israel and GCC and that is hopefully coming to a conclusion soon. But it is that work that is so critical. So thank you very much, and we'll speak to you in the quarter. Operator: This concludes the conference call. You may now disconnect.