Barbara Gasper - Head of IR
Ajay Banga - CEO
Gary Flood - President of Global Products & Services
Ed McLaughlin - Chief Emerging Payments Officer
Chris McWilton - President of North America
Greg Boosin - IR
Craig Vosburg - Group Executive, U.S. Market Development
Tim Murphy - Chief Products Officer
Kevin Stanton - President of MasterCard Advisors
Noah Hanft - General Counsel, Corporate Secretary and Chief Franchise Integrity Officer
Ann Cairns - President of International Markets
Daniel Monehin - Division President Sub-Saharan Africa
Bella Stavchansky - Division President, MasterCard's High Growth European Markets Region
Eddie Grobler - EVP, Australasia
Cathy McCaul - Group Executive of MasterCard Integrated Processing Solutions
Martina Hund-Mejean - CFO
Bob Napoli - William Blair
Darrin Peller - Barclays Capital
Don Fandetti - Citigroup
Jason Kupferberg - Jefferies
Craig Maurer - CLSA
Chris Brendler - Stifel Nicolaus
Tim Willi - Wells Fargo
James Friedman - Susquehanna Financial Group
Greg Smith - Sterne Agee
Tien-Tsin Huang - JPMorgan
James Faucette - Pacific Crest
Sanjay Sakhrani - KBW
MasterCard Incorporated (MA) Shareholder Analyst Call September 11, 2013 10:00 AM ET
Good morning, everybody and welcome, either those of you here with us in New York or those of us who are joining on the webcast which is being video-streamed for the first time this year. I am, Barbara Gasper, Head of Investor Relations for MasterCard and on behalf of the entire MasterCard management team I’d like to thank you for joining us to spend time today at our Annual Investment Community Meeting.
We think that we have developed a program for you again this year which addresses many of the topics that we’ve heard that are of interest to you. And we are again as our standard practice combining a morning of formal presentations with an afternoon of product demonstrations.
Ajay Banga, our CEO will kickoff today’s formal presentations with a strategic overview and our progress to-date. You will then hear from several members of our management team beginning with Gary Flood, President of Global Products & Services, who will provide an overview of our products and services efforts. He will then hand it over to Ed McLaughlin, our Chief Emerging Payments Officer for some thoughts about what the opportunities for MasterCard are as the physical and digital payment spaces converge.
We will then move to hearing about the regional perspective beginning with Chris McWilton, who is President of North America, and then Chris will be followed by a panel that includes Craig Vosburg, Group Executive, U.S. Market Development; Tim Murphy, Chief Products Officer; Kevin Stanton, President of MasterCard Advisors who will discuss some of our efforts to provide value to our merchant partners.
Following a brief midmorning break Ann Cairns, President of International Markets will give an overview of our non-U.S. operations and then kickoff a panel discussion with three of her regional leaders, Daniel Monehin, Bella Stavchansky, and Eddie Grobler along with Cathy McCaul who will each talk about delivering on several of our key priorities in their respective areas. After that Martina Hund-Mejean, our CFO, will provide the financial perspective on our business.
And then after our second Q&A session, Ajay will be back up for some closing comments before we adjourn about 1:15 for lunch and the product demos.
Copies of the slides that we’re using today can be found either in your binders for those of you who are here and they’re also posted on the Investor Relations section of our website for your reference. Additionally, there will be an audio replay of this event available on our website for 30 days. Along with our presenters we have a number of other management members on the seat from the senior leadership team here with us this morning and rather than take time to introduce them now I would just point you to the back of bio-section in your binder where you’ll see a list and their pictures, so those are the other people who are here but not up on stage.
Today help facilitate the dialogue with our executives over lunch, there is also a diagram in your binder right behind the agenda showing the location of several lunch and discussion tables that will be down on the lower level and the executives who will be hosting those tables. Any executive who are not hosting a table will be stationed around the product experience room.
Before I go any further, I do to have acknowledge the other members of my Investor Relations team who have put a lot of effort into this event Catherine Murchie, Ryan Beaudry, and Tina D'Amato just a few administration items to get out of the way.
You can see from the agenda that this year we’re splitting the Q&A into two sessions. The first will begin about 11:15 and the second one out about 12:40. As in the past we will have the ability to take questions both from the audience and those of who are joining us by the webcast. There is an ask question button on your screen if you’re dialing in or listening in on the webcast and you can get any instructions there as to how to submit your question.
Our agenda does call for a brief 15 minute break at approximately 11:30. For those of you on the webcast can reconnect or stay on for 15 minutes you might just want to stay on. And as a courtesy to our speakers and those around you, I need to ask people who are here in the room if you would please silent your phones and your Blackberries now.
And then finally just as a reminder, today’s presentation includes some forward-looking statements about our expectations for future performance, actual performance could differ materially from those suggested by our comments today. Additional information about the risk factors that could affect future results is detailed in our SEC filing including our Forms 10-K, 10-Q and 8-Ks and now with that I’d like to turn the program over to Ajay Banga, Ajay?
Good morning everybody and thank you for being here and thank you for your consistent support and your questions and your participation. Over the course of the year we guys get to meet you in a number of different settings and this is only one of them, but it's good to be together. So thank you for being here.
Let me start off by there we go, so something looks familiar here and you will see this coming up in a couple of times over the course of today, those three concentric circles. The reason I have got them is because they inform the basis of our strategy, the fact that personal consumption expenditure which grows on the average through cycles between four, five odd percent and Martina will talk about this in some detail later. That is, think of this as the three circles as being three legs of a stool for a minute. That leg of the stool is the one that has the most instant reaction on the company's revenue; it's also the one that in which we have no control.
That's one of the realities of how our revenue comes, it comes out of how much people spend around the world. The only good news is over the years while some countries maybe going up at a particular point of time and others maybe struggling overall the world has been demonstrating the four, five odd percentage point growth of personal consumption expenditure.
The second leg of the stool is the second concentric circle and that's really the share of those transactions that contribute to that personal consumption expenditure, how many percentage of those transactions are in and check versus how many of them are in electronic forms, and that typically has been 85, 15 and over the last few years it's still 85, 15 because what's happening is that the developing world, the emerging markets which are growing faster in terms of that consumption. But remember they are starting from a slower base, they are much more cash intensive in general. Whereas the developed world which grows a little slower in personal consumption expenditure but off a much higher base and therefore in the waiting they still play a large number, they tend to be much more electronically oriented, although remember Germany 78% cash.
Remember that Japan is 78%, 80% cash, remember that the United States is 50% cash but relative to an India, or a China or a Russia they are more electronic sort of oriented. That growing the pie is what you see us working on through the things they are doing on financial inclusion whether it be what you have heard or you will see downstairs with the South African Social Security System SASSA or whether what we have been talking about in Nigeria where they are doing both the ID system for the government as well as their social payments on one two sided card, or what we are doing with the U.S. Treasury Department, or what we're doing in India with the unique identifier scheme.
And in fact we now have 100 such things around the world that are going on in 20 different countries right now. That's one aspect. The World Food Program, digital food, they are just a series of examples of this; you will see a number of these in the product setups. So you will see that by the way we have tried to setup the product exposures in a way that they connect back to what you’re hearing so you can get a good sense of touching and feeling what you are listening to from us during the next couple of hours.
Other examples of growing the pie, small merchants, low value payments, high value payments simplify, you will see a effort downstairs to begin making it easy for merchants to sign-up, to accept payments, card payments online in a way that hasn't been as easy for them if they were doing a MasterCard, Visa card connect we think we can make it easier for them. You will see that downstairs, you will see efforts in Parkeon a parking equipment manufacturer and supplier that also runs parking franchises and you will see Vita’s new meters coming up in New York actually in Queens in a few weeks which are solar powered but also intelligent and can generate offers and rewards powered by Truaxis which also you will see downstairs, and the guy who sold us Truaxis Schwark is now a part of our management team, he is downstairs as well. So you will see different aspects on small merchant acceptance, low value acceptance, high value acceptance in the system downstairs. That growing the pie the second leg of the stool is longer than the first leg of the stool, meaning it takes longer to respond or generate revenue to us. It's also less volatile than personal consumption expenditure maybe in any one country.
Overall personal consumption expenditure for the world as a whole, remember is not as volatile, by country it can create challenges for the guys who run countries and their scorecards and they get their knickers in a twists sometimes. But that's part of what the business is about.
The third part the most inside concentric circle the third leg of the stool is the part that people tend to focus on are share and what is today electronic. And there we got a lot of things going on you will see in a number of presentations in Gary's as well that we have done well in certain aspects of growing our share. In commercial payments, in debit, in prepaid in consumer credit we're doing well outside of the United States in the U.S. as I have talked about openly we haven't done enough, we're changing, we're winning 60% of every co-brand deal that has been around in the U.S. and Chris will talk about them including a few more that he is signed and he'll refer to which of those he can talk about and which of those he can't talk about.
But we have got those deals. That's changing where we are, but the other three product categories debit, commercial as well as the old prepaid area we have clearly grown share. Now we're doing it through not just going out and fighting with price, because that's a question that I and Martina get often, but actually through building competitive advantage through technology and services. And I have talked about In-Control and I have talked about Smartdata, actually you will see Smartdata downstairs. But I have also talked about other things that you will begin to see downstairs one of which is an effort we did in Mexico recently which is called MIYAMO which is really interesting, it's how you take music and you make it part of somebody's digital life.
So we talk about physical digital convergence, it’s not just in using a phone to tap and pay or somehow using your eyeballs to pay, it’s how you interact with the consumer, it’s how you interact with the merchant, it’s how you interact with the government, it’s how you interact with everything you do when you do commerce. And you will see examples of that again downstairs. So that’s the first part, we haven’t changed what we’re trying to do.
The Company is changing but it’s been -- I’ve been here four years and we’ve, over the last five-six years I would say from the IPO, but I’ve known for the four years as a personal experience. We’ve tried to not only focus on issuers obviously we focus on issuers, they are the point of entry into the system but also to provide the right kind of engagement with merchants, with government and of consumers and I’m hoping you’ll see a number of those examples in the conversations today but also in the product demos downstairs.
We believe that our brand has improved tremendously and without the brand we’ve gone from -- and again in Gary’s slides you’ll hear about going from number 87 to number 20. And the fact is we’re spending the same money in fact in dollar terms probably around a little less or more that we used two-four years ago it’s how we spend it that has changed. We think we’ve got differentiated offerings I talked about a couple of them and in terms of smart control and Smartdata and In-Control in the lights but you’ll see more.
We think we are far more oriented towards innovation. This is one of Gary’s slides with our strategic plan of the Board and he wrote that more jump in our innovation step and I would encourage you to ask him to jump a little, it’s an attractive site. But that’s basically what this is about we believe that we have the ability today to embrace technology and fight for being seen as being innovative with the products we are doing and bringing to the market. The most important thing is we’ve got the people. We have, in the last four years of the top 100 people more than 25% are brand new to their job from outside the Company. Another odd 25 odd percent have moved into their jobs inside the Company. That number is not different for the top 200. When I joined here four years ago the percentage of millennials in our population was 4%, it’s now 30%. 30% of the Company is as young as a few of you in the room and way younger than me.
That’s a good thing for us because they ask different questions, they make us think differently, they’re making us respond differently and I think we need to encourage them to be a part of our Company for many years to come because that mix of experiences is what makes us who we are.
We’ve put more people overseas. We used to have 60 odd percent, close to 65% of our people in the U.S., we’re now down to 50 odd percent, the rest have moved out overseas. And we’ve actually physically moved people. We have product categories run from overseas. We have Ann Cairns who runs international markets based in London. There is a whole series of efforts going on to move resources closer to the bank, the merchant, the government and the consumer in the countries, and again Ann will talk about that.
So we think we are changing, and we’re changing because we want to be more than just payments. And Gary Lyons describes this very well that nobody comes to sort of wake up in the morning or go shopping waiting and looking forward to making the payment, that’s not the most exciting part of that whole interaction, it’s all the rest of it. And so whether a consumer or a merchant or a government or a bank, our objective is to try and get beyond just being slotted into all that little payment space there. I think we can add value with our data, with our technology, with our people, with our expertise in the whole interaction whether it’d be what a merchant wants to do grow their business, attract new customers, keep customers longer increase their profits, figure out where to locate their stores, figure out which marketing offer gives them a higher ROI, all those things, just one example, the merchant.
You can have those examples on the slide for all the other categories. We believe we can play a role in that form, and that’s part of what the investment is going into and later on in the deck you will see us talk about investment, a large chunk of that is going into making our self more than just payments.
So today what I hope you’ll get at the end of today and you’ll hear it through every one of these slides is the first one, that 85% of retail transactions that are still cash they provide us with a long runway for growth. It is changing. The markets are changing in the way they respond to electronics, but the convergence of physical and digital is changing not just the percentage of payments but changing the entire payments experience which is why we have been investing in trying to get past just being the payments guy to providing more value to merchants, to governments, to banks and to consumers.
We’re clearly trying to expand our reach therefore across the ecosystem to get that done well. And most importantly you will find us putting our money where our mouth is and growing our expenses hopefully at least in some of the cases in the right way. We make mistakes like everybody else but we’re trying to put our money in investing for the growth or what we think could be our future.
And we haven’t changed how we’re executing that strategy, aim for the 85% by growing the core business, that’s the consumer credit, debit, prepaid and commercial businesses win those deals, have products that are differentiated, have offerings that are differentiated, have a brand that is differentiated, have the capability to bring those to the market of the front edge by investing in the right resources at the right point in the countries, in the regions not in purchase. And that’s kind of the difference that we’re trying to put into growing our core business. But then we’re also trying to diversify our geographies and our customers and Ann has opened up a number of offices in the last two years that she has been here and you will see the expanding geographies but also expanding into merchants of different types as a customer into governments, into telecom companies, all that is a part of what we’re doing.
Building new business is an obvious one. We have all talked about the physical and digital conversions but most importantly the data that we think can really inform how we do things with this wider ecosystem and Kevin Stanton is on a panel later that Barbara talked about; he’s going to talk a little bit about how that data is used for just merchants. And so is Craig and so is Tim. So you’re going to hear about merchants in a number of ways as we go forward.
The key to all of this is having the data and having the technology with the right people and I’ve already talked about that. So, that’s where I am, that’s what we’re trying to do. Go off the 85%, do it through growing the core, diversifying our geographies and building out those new businesses, have a little spring or jump as Gary would say in our innovation step and earn the right to get the business from all the players in the ecosystem, the banks and the financial institutions but also merchant, consumers and governments and with that Mr. Flood, over to you.
Those of us that get to work with Ajay every day, we know what jump means, right? But he also have understood the definition of quick, we know what that means, right? So, what I’m going to do is take you on a little bit of a journey. I’m going to share kind of how we’re thinking about things, progress, what’s happening on the ground, the progress we’re making and then I’ll kind of conclude with what’s on our mind.
And then I’m going to transfer to Ed who’s going to dig deeper into the physical and digital convergence discussion which is on many of your minds.
So, as I think about showing up every day and it seems like it’s earlier and later which is very, very healthy. The two things that I concentrate on are growing share and growing the pie. It doesn’t do us any good every day, if we come in and we are not driving our share in debit, credit prepay and commercial around the world and do we do that fundamentally by having the right people on the ground, in partnership with Ann and Chris’ teams locally.
But we embed certain value-added components into that mix which differentiate our proposition versus the competition. Couple of things I’ll talk about, I’ll talk about IPS, Cathy is on a panel later, that’s our prepaid and debit processing platform. We’ve been able to actually work with that to drive brand decisions so, not only making processing revenue but driving brand revenue as well.
I’d reflect on advisors, this year alone advisors rolled 1,200 projects worldwide. All of those are working either with issuers governments or merchants focus on driving our business that’s up about 45% from last year. So that’s their trajectory. The last one is interesting as it is MRS for us which is a rewards royalty platform, one that we started building several years ago; we have 70 million accounts on that platform around the world. Mostly outside of the U.S., so when you combine those types of assets with the people we have and the competencies baked in data, the propositions work. And I am going to in a few slides I’ll give you a little sense of kind of where we are and the progress we’re making.
Now, processing is interesting, I’ve talked about it in a sense in terms of extending brand decisions but it also puts us on the ground locally. I’ll build on this a little bit later and then Cathy will pick it on the panel this afternoon, but when you think about innovation there is nothing better than being on the ground at the point of sale working with merchants, working with issuers, working with acquirers to drive innovation and I’ll build on that concept a little bit later.
Grow the pie; new consumers and new merchants. The one example I love is SASSA which Ajay touched on, a lot of times we focused on the 10 million cards that are out and the potential for many, many more and what it’s doing to include consumers those are absolutely true. We’re digitizing benefits. But what’s interesting is you’re also including merchants, more merchants coming into the system, more accepting merchants of digital payments.
So that in South Africa the team locally work with the technology firm called Blue Label, they basically had a technology infrastructure in place, dealing with mom and pop convenient shops, if you think about beneficiaries this is where they shop but acceptance wasn’t where it needed to be. So the local team leveraged accumbency and a capability orient market to grow acceptance and we were on our path through about 20,000 to 22,000 of those locations accepting payments overtime.
That’s the ingenuity that occurs locally on the ground. When I talk about payment flows, new payment flows maybe for us but their payment flows that are additional payment flows that are out there. Whether that’s government benefits, whether that’s businesses providing benefits for paying people or whether that’s me sending money to you. P2P type and we estimate that’s about $62 trillion around the world. So we see that.
And in cash conversion, we wake up every day thinking about cash conversion guys, I will tell that the best example I can kind of play off on this one would be the work we’ve done with PayPass, I would say Canada, Australia and Poland where PayPass transaction penetration is north of 20%. It ranges, the teams later will talk on Ann’s panel. The average transaction is 21 bucks that’s cash displacement.
So, when I take a step back and assess kind of where we are we’ve got cash in front and center and we also have this convergence of digital and physical and the opportunities that that creates worldwide.
Building on that 85% of the world’s transactions are still cash and check, you have emerging markets developing a little different than developed markets, Chris will talk about the North American markets, each of them poses opportunities to convert cash, each of them are going to provide wonderful opportunities to balance and payoff the conversion of physical and digital.
Now, the best way I like to talk about this is kind of bringing a little bit of what you’re going to see downstairs. So, I’ll go to alignment government goals, Ajay talked about Parkeon, which is a parking management company, one of the biggest around, they are in about 50 countries, 3,000 cities and they have hundreds of thousands of devices deployed.
But we think of them maybe as a transaction device, no, they're actually working with municipal governments to make the paying of tolls and parking fares more efficient. They're also enabling opportunities to create marketing platforms to provide local merchants with the opportunity to communicate you when you park your car. Think about it, it's a little different than just a transaction. Next one, consumer and merchant extension is huge, I talk about it times say now, today we have about 36 million merchant locations worldwide. If you think about what's going on with technology and phones and things like that this could quadruple over some time.
Ajay touched on the World Food Program, we talk about enabling consumers again to benefit through digitized provision of these benefits, versus dropping physical food in a location, but on a parallel path one of the biggest opportunities is what the implications are for merchants. Whether it is a convenient store that doesn't accept or a farmer that wants to sell their goods, so not only again are you including consumers but you're including merchants that haven't been included. You're digitizing and you're managing the convergence of physical and digital. Those two examples you're going to see downstairs.
Now when I think about 66% of the world's adults connected, yes, let me go to an example, you'll also see which is Zoom in Brazil which is part of our telephonic relationship. And that scenario they have about 64 million consumers in Brazil, many of them not touched by financial institutions. So you're going to have a prepaid physical card and you're going to have a phone, you're going to have the ability to use the card at the point of sale and you have the ability to make P2P as well as bill payments on the phone.
And you're going to be able to load it in all their retail stores, for me that is an extension, that's enabling issuance, and again building more and more acceptance for our franchise. Last one is improving the buying and selling experience. I'm not going to spend time on MasterPass although that I think is a outstanding demonstration of what this means, Ed's going to do that for you. What I'm going to do is just go to quicker, think about sitting in the Legends Park at Yankee Stadium, you want a hot dog, you want a soda, or you want some popcorn. The ability to take your phone, scan, have it delivered, how about a movie theatre in Australia, same scenario, so the technology will enable us to deliver a user experience that's convenient and simple. So cash is a big focus and again leveraging that convergence of physical and digital is front and center and you're going to see that demonstrated downstairs.
Now, coming to work every day, we have to make sure that consumer’s credit, debit, commercial, prepaid and processing are on the right trajectory. Ajay touched on these, there's no give and take, that's fundamental to our business. I'm going to dig into that in a minute, a little bit more, customers and geographies, governments and merchants. I've given you examples of government programs; SASSA is one, non-government type organization program, World Food Program.
Those represent big opportunities for us to extending our franchise. When I think about merchants, about 10% of the advisor projects are merchants focused. The panel will be up in a few minutes, they're going to share some of that they work on with merchants and how we leverage our data with merchants. It's about more from existing customers and getting more customers, unbanked and under-banked I've touched on as well as new markets, convergence of physical and digital. The best example I can share with you is the work we're doing with over 30 telco operators, MNOs around the world, covering 28 countries with a consumer patch of about 1.2 billion.
This will all take a lot of time, but we're embedded we’re engaged and we're defining experiences and working with them. The last point is advisors and information services, advisors is fully integrated with all of our go-to-market disciplines, as a matter of fact downstairs, there's a demonstration of a cashless journey. The fellow who's going to be orchestrating that discussion is Mark Burnett who runs our consulting services for us worldwide. The data and the information behind that are foundational to what we do with our clients. When we leverage it the right way, we produce more accounts, more volume, newer products and more growth. So let me dig in just for a second.
Ajay touched on consumer credit, double-digit growth, we're focused on affluent, we’re concentrating on mass, we’re looking at new universes coming into the system by the virtue of convergence of physical and digital, we're growing faster than the market, outside of the U.S. around the world. Chris is going to talk to you about the progress we've made in the U.S. and what we're going to do to make sure we keep working that through.
On debit we’re concentrating on optimizing portfolios, converting ATM to point of sale, leveraging IPS as a debit processing platform. We also have advisors fully engaged on portfolio optimization there as well, on commercial, we made a number of investments, we deployed people who work with corporates directly around the world, we've invested in Smartdata, we have over 500,000 companies on our Smartdata platform around the world. 180 countries, 220 issuers and here we also have advisors integrated concentrated on extending our penetration to small business around the world.
Last point is prepaid; we're growing faster than the market anywhere. We’re growing our share, we’re leveraging IPS and we’re intergrading this into all the MNO and all the government programs that we are concentrating on executing. With all these it’s a concentration of rich propositions which are based the assets we built over the last four, five, six years and on the ground coordination with Chris and Ann.
Now a lot of that is driven off insurance but you got to stay focus on the standard set of stakeholders, so on a consumer side you’ll hear about MasterPass. I will touch on Priceless Cities in a couple of moments, buying and selling, connecting consumers domestically and cross border, but Qantas Airlines converting their Loyalty Card to a dual Loyalty Card, Prepay Card with the ability to host nine currencies and to manage that through a mobile app as well as benefit from in airport experiences like lounge access, trolleys and alike all of this leveraging IPS and Access Prepaid worldwide as a processor and a program manager.
If I think about our merchants, I have touched on advisors about 10% of their products and programs and initiatives are merchant based. Ajay hit on simplified commerce which is what we’re doing to make it easy for small eCommerce merchants to get online to accept payments that will be demonstrated downstairs, but then I think about DataCash. DataCash is connected to 68,000 merchants around the world. The combination of the gateway we had in Asia and what we purchased with DataCash has put us in a wonderful position.
DataCash alone will add 20,000 new merchant locations to MasterPass in 2014 and then Truaxis. The work we are doing with Schwark who will also be downstairs in targeting offers and providing the right kind of value to consumers and issuers so that they value what we bring to them, but at the same time creating currency in the system. Merchants want value, they want the right consumer at the right time and they are willing to pay to for it. Governments and NGOs, the one I’m going to concentrate on here is just the World Food Program. We’ve talked about SASSA Direct Express, India UID, you’re familiar with the program, we’ve kind of touched it a couple of different ways.
There is one unique twist to it that I love which is the fact that as a consumer if you are one of our 2 billion cards around world, you can register to make donations every time you use your card. Now, what’s great about that is that’s the reason for merchants to want to switch to us. The only way we can execute the program is as we see transactions, so we think we’ve got a power program. We also have leveraged our network to do some very interesting things.
Now, Brand Momentum, when you run a network worldwide you have to have a variety of things that matter, you have to have your acceptance infrastructure, you have to have your technology, you have to have your people, you have to have the confidence of your participants that you’re going to be able to run a network for them worldwide that’s going to enable them to grow and Brand is fundamental. Priceless is 16 years young and I’ll emphasize young, it’s in over 112 countries. It is an asset that partners want.
So our ability to create to innovate and to leverage that platform worldwide provides us with outstanding opportunities. Ajay mentioned the budget and how we’re basically managing that. We ensure that our ROIs on programs are exactly where they need to be. We inform all of our decisions with very, very strong analytics. We have integrated Kevin’s scientists that produce and execute data analytics for us for our advisors customers within our marketing group. So we have all the insight intelligence we need to make sure that we’re optimizing that investment and getting as much out of it as we possibly can. And I think the results here speak for themselves.
Now, how do you pay that off, I’ll just give you a couple of examples, Priceless Cities connecting buyers and sellers domestically in cross border. We have about 120 issuers supporting the program. Our satisfaction scores are strong and our net promoter scores are up. When I think about Stand Up To Cancer third year in the program in the restaurant category we’re up about 3.5 percentage points over industry growth as we execute this program started in the U.S. now it’s off to Russia with Bella and she is extending that across the rest of high growth and emerging markets as we speak.
Priceless Music, this integrates what Ajay mentioned which is MIYAMO, which is that digitized profile but it’s a comprehensive platform focused on new consumers, youth, 25% of the world’s population providing them with the right type of music experiences which is their passion or one of their passions, in the right way and format, digitized and social. So strong marketing assets leveraging the right partners around the world puts us in a position to keep winning big business.
Next point I’ll go back to is just processing, Ajay touched on it. We have been very thoughtful about extending our participation in the processing landscape for MiGS and DataCash on the acquiring side where we’ll touch 68,000 merchants, SPS in Australia where we’re driving about 5000 ATMs, 20,000 point of sale devices, 600 million transactions and then ECS and Trevica. ECS a minority investment in India, Trevica a wholly-owned company in Poland, both providing us with agile competency and capability on the ground in those areas and both extending beyond those particular countries. On the issuing side IPS, 16 customers, 25 countries getting done exactly what we want to get done, working hand and glove with Access Prepaid, so I have got a processing platform and a program management platform, combine that with outstanding product people, we should be in pretty good shape on prepaid and we sure that's what is driving a good amount of those results.
And again on the issuing processing side ECS and Trevica, local installations, agile relatively small, can take care of the smaller opportunities that are represented in these parts of the world. So as I think about this the one point I want to leave you with here is touching more transactions, we touch more, our ability to innovate is enhanced. So this is the road we are on from a processing perspective.
Now I just want to go back to grow the pie, we have talked about the unbanked and under-banked, I don't need to get too much more into that 2.5 billion. From a market organizing perspective you have sources of funds coming in. For us the challenge is getting at those funds before it gets activated in the form of cash, so you want to digitize it, whether it's on a phone or a prepaid card. I mentioned how large those sources of funds are, 62 trillion.
Then storage of funds, multi-dimensional accounts, one dimensional accounts, prepaid accounts with lot of tone up flexibility, debit cards so a variety, and then use of funds. This is the part that actually resonates extremely well for me when I think about the World Food Program and SASSA. Funds in is one thing, funds out is another thing. So I go back to that farmer, I go back to that convenient store, that's FASA shop in South Africa. And they need to connect both of those things; the ability to have funds and not use it doesn't work. So our initiative is along those lines.
So when I think of new small merchants I think about all the progress you have all seen with phones, and enabling merchants to leverage phones. I think under penetrated categories I think it transits, whether that's Moscow, Chicago, Seattle doesn’t matter, transit. Acquirers and non-traditional partners, I will go to the firm that Michael Maybach's team use in South Africa, Blue Label Technologies to help us solve an issue and open up a wonderful opportunity and keep it going. And then scale new streamline acceptance models and simplified commerce which you are going to see downstairs. Take the friction out of the process for a small merchant who wants to be able to accept payments.
Now world beyond cash, we have been talking about this for few years, I am not going to go through every part of this slide. The journey or the cash journey Mark Barnett can explain to you downstairs will cover many of these areas. We know that cash isn't free, we know we got to concentrate on low value payments, we know engagement with government matters, 20 countries, 100 programs with governments growing everyday and we know that acceptance development is fundamental, determining how you can open up new acceptance channels.
I have talked about that, mobile payments again happening in front of us a lot of activity around the world over 30 programs we're working on right now. But what I want to do is just demonstrate one thing for you, the diagnostic that goes in to understanding how a consumer converts from cash to electronic payments, it's a journey. This is a small component of what Mark will share downstairs. But you can see as the consumer progresses from relatively minor use of a debit card to a habitual user where the category extension is brought.
So what we do is work with customers, go in, diagnose their portfolio, see where consumers are on this particular journey, and then develop and execute programs that will help them advance through these stages.
What we found is this works country-to-country. Of all the projects that Kevin and his team have done, we have kind of synthesized it down to this framework. So at any point in time we probably have 10 to 15 of these going on around the world, and it's all about that conversion of cash.
I am going to conclude in a minute. So I have talked about differentiated assets driving new business. We have invested in payment gateways, data analytics, program management with Access Prepaid processing with IPS, we invested in the staff that we have as part of our team on advisors. We made this decision 10-12 years ago to build this functionality and capability. Loyalty I touched on, Ed's going to kind of take you in a minute through emerging payments. But these things come together and provide our teams our local country management with the solution sets they need to win business.
So Access and IPS driving home Qantas, processing program management, DataCash, white labeling and acquirer solution to ReadyCard in Brazil and we bought DataCash, it was a straight to merchant proposition. Now we're working through acquirers and proceeding to address more and more of those around the world. DataCash was live, I think August 21st. Fraud Shield in Germany leveraging our In-Control platform, data analytics from advisors 50 million accounts drove fraud down 65%.
So leverage and the ingenuity behind the assets and then advisors last year Kevin was up here, he talked about the three divisions within advisors consulting services, managed services and information services. I’ve reflected for a minute on over 40% growth in projects, almost 10% of those projects are merchant based. So that group has advanced and has provided tremendous leverage for us worldwide.
So now as I think about going forward strategy efforts are paying off frankly scaling more of the solutions and initiatives to drive more markets is what we’re concentrating on right now. Broader stakeholder focus the business opportunities that are coming by working with governments and merchants around the world, they are not shallow they are deep and they represent wonderful opportunities for our franchise.
Cash is converting to electronic yes make sure we’re going out of this fast as we possibly can, big opportunity for our franchise. Ajay touched on innovation technology I’ll touch on execution, we structure our organizations regionally and locally. We have developed customer delivery functions out in the regions to enable us to get a lot more done on the ground with pace. This is going to continue to be a key focus for us. Many of these projects, they’re not easy. So you got to make sure you have the right people with the right focus driving hard.
Next is, don’t take your eye off the basics. Tim Murphy is accountable for Debit, Credit, Commercial, and Prepaid and a few other things for us. We got to make sure that those things are humming and that our growth rates continue to be fast in the market. As I said on Credit, we’re doing really well outside the U.S., Chris has made progress in the U.S. and he is going to share that with you, but we’re not going to take our eye off the core at all.
Last thing as we get a lot of questions on the convergence of physical and digital. Hopefully what I’ve kind of expressed to you is we are tackling this worldwide. We are embedded and in the middle of all this. We are not taking it lightly, we are investing and we’re getting after it.
So with that I’m going to conclude and I’m going to invite Ed McLaughlin to jump up here, and talk to us a little bit more about this convergence.
Thank you, Gary, and good morning, everyone. So I’d like to take a moment, I’d like to take this opportunity to expand on the incredible growth opportunities that we have as a result of the ongoing convergence of the physical and digital worlds, and also take a moment to tie together I think a lot of the examples and a lot of the experiences you’re going to see from us today.
But let me start with something you already know. As you’ve already seen in your own like and particularly in the lives of our children we are in the midst of a global transformation and consumer behavior in both the developed and the emerging markets what is changing is nothing less than how consumers interact, it’s how we interact with our families, how we interact with our friends and how we interact with our communities. And these fundamental changes in how consumers interact will also transform how they transact. Because as consumer behavior shifts ever more to smart connected devices, the previous distinctions between the physical and digital worlds are becoming even more blurred.
So what does this mean for MasterCard? Well we believe the opportunity is nothing short of enormous because it now enables us to do things we could never do before with simple plastic. So for the consumers who use the nearly 2 billion MasterCards that we have out there to-date, we can increase spend. We can create new value. And perhaps more importantly for those consumers who may have another card or for issuers evaluating their portfolios, we will win share by being better at what’s next.
And it is exciting as thinking about all the new experiences are that we can provide for those consumers we have today. I think it is absolutely inspiring to think of how we can use digital to serve 100s of millions of new consumers. And these are consumers we could never reach before with our traditional products, with our traditional channels.
And this conversion of physical and digital is creating incredible opportunities for MasterCard to generate more value and drive more business for the nearly 36 million merchants who accept MasterCard today. But as Gary said, beyond the merchants we already work with convergence enables us to reach 10s of millions of new merchants who previously had never had access to the MasterCard network and we can now bring them all of the benefits of electronic payments and eliminate even more of the cash transactions.
But the last point I’d like to make and the really important is every one of these new merchants extends the reach of the MasterCard network. It increases the value of the MasterCard network and makes all of those products that our current consumers have and as 100s of millions of new consumers will have that much more value.
So the next question, how are we delivering on this promise? Well let me quickly cover three key topics; first, we’re optimizing our network. We’re making it easier to access. We’re allowing richer data to flow through the system, and we’re using digital technologies to make it ever more secure. We are creating an operating system for digital commerce. And we are making sure that every MasterCard issuing bank, every MasterCard accepting merchant can be fully enabled for digital transactions and everyone is ready for this world moving beyond plastic.
Secondly, we’re engaging with new partners and you’ll see examples of that all through the presentations today. Gary mentioned that over 30 active mobile partnerships we have around the world ranging from Samsung to Deutsche Telekom to our joint ventures with Telefónica to ISIS right here in the United States and with our open APIs our goal is to make it simpler for developers both corporate and independent to deliver innovations and build their businesses with MasterCard.
And third and finally, we’re helping extend new payment flows and increasing the opportunity for consumers to interact with us. So, we know this isn’t just about helping consumers make payments, it’s also about helping them receive the funds that they deserve and that is where this focus on government benefit distribution, payroll and other access to funds come from. But as importantly, after consumers receive their funds in their MasterCard account, we have tremendous opportunities to provide payment flows that are relevant to them in their communities whether it’s domestic transfer or bill payments or being able to shop online for the first time or even SMS based payments with the local merchants they shop with. All of which are more secure and more convenient than the cash based transactions they have today.
We also believe and this is fundamental that the key to winning this transition is not to simply recreate what you could do before, but to enable for its consumers all of those things that you could never do before. We know consumers don’t want to make a transaction. They’re trying to do something else, they’re looking for better experiences, they want shortcuts, they want things to be simpler and faster and we also know they certainly don’t want to lose any of the security, any of the benefits they enjoy today from a genuine MasterCard transaction.
So, what are these digital shortcuts that we can deliver? Well, first when you’re an active register, MasterCard’s PayPass allows you to tap your phone, now your watch anything for fast secure payment. And what we’ve seen in 56 markets around the world is consumers love the speed and convenience of contactless. It’s the ultimate proof, after they tap two or three times they almost never go back to their prior payment behavior.
And merchants are seeing this benefit, we’ve had 136% growth in PayPass locations in just the last year to over 1.2 million locations globally and new markets like Japan are opening up for MasterCard contactless with over 400,000 terminals announced to go in just the next few years. And this is because merchants are seeing the benefits. At Coles which is one of the largest retailers in Australia over 60%, that’s over 60% of MasterCard transactions today are already contactless.
And we have talked with Douglas Swansson he is Coles Head of Payments, he told us we have seen the share of cash payments fall, contactless is replacing cash and our view is that customers are at a tipping point in the way they wish to pay. That’s straight from how this is helping Coles business in Australia and this is not just for retail, as Gary mentioned transit systems from London to Chicago to Las Vegas are implementing contactless to help speed commuters do their churn styles. This is an environment where milliseconds literally matter and contactless is by far the best way for consumers to pay.
But beyond what happens at the physical point of sale, we know that perhaps the best way through the queue is to avoid entirely and MasterCard is doing exactly that by enabling consumers to shop in aisle or shop in apt so merchants are no longer constrained by their physical store or even their online website and they can now reach their customers anywhere at any time.
Now of course, as all know most of the volumes today is still through the eCommerce channels and in that channel today over 20% of total consumers worldwide use a MasterCard directly for online purchases. Now to put that 20%, over 20% in perspective that’s almost four times more than the leading alternate payment provider. And with MasterPass we’re building on that advantage providing consumers with simple and more secure ways of using your MasterCard from any device.
And finally as you know, MasterCard’s position has always been that any deceive will be a commerce device, this was never about PCs or even smartphones and now we’re seeing with connected watches and glasses and even appliances getting wired up. MasterCard is now ready to enable all of them for commerce and one great example perhaps my favorite example from earlier is when you go downstairs you’ll be able to see a pair of Google Glasses that MasterCard Labs has already enabled for MasterPass payments, which I think really brings home our fundamental point.
The device doesn't make the payment system, it's the payment system, it's MasterCard that makes the device that much more valuable, and one other point and to be clear, we believe that for consumers it is not about any one of these experiences, it's about all of them, so we may have many competitors trying to enable alternatives in some of these areas, but what we've seen is what consumers really want, and think about it, what you really want is for all of this to work together and that's what MasterCard does. And perhaps the best use of all is, you can't use cash, you can't use checks in any of these environments, so to echo what Gary said, the convergence of the physical and digital world, these new shopping experiences are a major driver of that world beyond cash.
And MasterCard is ready, at the Barcelona Mobile World Congress in February of this year we formally announced MasterPass our platform for digital commerce. We're now live in the four target markets, we're working with financial institutions globally like Commonwealth Bank of Australia, Bank of Montreal, Citibank and we'll have seven additional markets implemented by the end of this year.
Our merchant acceptance is also gaining momentum with over 20,000 merchants live in just the first few quarters, and we're working to make MasterPass available to all MasterCard issuers as an integral part of the overall MasterCard global network. So MasterPass is digital MasterCard, and our focus remains the same, we're providing a globally intractable platform, supporting all types of digital transactions. In-store, in-aisle, in-apt, online, and please remember MasterPass has been designed to enhance, not to interfere with the relationships our customers have with their customers.
MasterPass has been designed to enable integration across a wide range of partners, and MasterPass has been designed to make it as simple as possible for merchants to integrate it in with their systems and leverage the investments they already have in place. So finally, while it's still very early days in this overall conversion of physical and digital, the opportunity for MasterCard is tremendous. In fact we see this as the greatest opportunity for MasterCard since we first helped to introduce the plastic credit card a generation ago, it's that significant and we are on it. We're enabling a full spectrum of digital shopping experiences for consumers. Not just one channel but every channel today and we're ready for whatever the future will bring.
And we're executing, we're delivering new capabilities, more rapidly in more markets than any of our key competitors, so with that as a backdrop, I absolutely look forward to seeing everyone later today in the product demonstration area, so we can fully demonstrate MasterCard's digital technologies and the incredible potential that digital convergence holds for MasterCard, so with that I'd like to turn it over to Chris McWilton, he's going to cover the North American markets and thank you very much for your time and I look forward to seeing everyone later, Chris?
Thank you. It's great to have someone like Ed who is so passionate about his space and so knowledgeable leading us in this great convergence we’re going to be undertaking. Well again, good morning and thanks for coming, I know this is a difficult day for many people, being the 12th anniversary of those terrible events just a few blocks from here, but I'm Chris McWilton, President of North American markets, and if you remember last year I was introduced as Chris McWilton President of U.S. markets, you're probably aware that on January 1st of this year we combined our Canadian and U.S. regions under a North America umbrella, and we're really glad we’ve done that, besides Ann Cairns not having to cover an additional three time zones which I know she's happy about.
The U.S. to Canada consumer cross border corridor is one of the biggest in the world and we're seeing increasingly our customers whether they be in merchants like Target or Wal-Mart or issuing banks like Capital One or TD Bank or BMO cross borders in both directions to meet their growth objectives, so we're seeing a lot of good business coming out of that reorganization, we're very happy Betty and her team continue to do a great job up in Canada.
So for the next 15 minutes or so I'm going to share with you the journey we're on in North America markets, it's a journey that's taking us to a place that we’re going to be a very well balanced and diversified profit engine for the Company for a long, long time. We're doing really well in debit, in North America we're doing really well in commercial credit and I'm going to spend some time sharing some of the great news we're seeing in that space and in the prepaid space as Gary mentioned.
I know there's a great interest in our U.S. consumer credit position and I'll spend a few minutes of my remarks sharing our progress in that space. But I hope you leave with an appreciation that while North America is more developed than some of the markets Ann covers and her region Presidents cover that doesn’t mean it’s a no-growth or slow growth region, it’s a high growth region and we’re very bullish on the prospects.
Let me just frame the North America region with some factoids. First of it’s the largest revenue generating region of our Company, generates about 40% of our revenue, and we’ve maintained strong financial results through a very complex operating environment. We’ve obviously lived with increasing levels of government regulation, starting with the Card Act to the Durbin Amendment to the Dodd-Frank bill. We have seen consolidation in the industry not only the financial institution side of the equation, but on the merchant and our co-brand partner side of the equation. And obviously consumers have been impacted significantly by the economic conditions, the high end employment rates, and the foreclosures in the housing over the past five years.
But we’ve been pretty resilient through that, the first six months of 2013 we’ve grown our revenue 11.6% and we’re quite proud of that. Eight of 10 of the largest cross border quarters that we see consumers using MasterCard products and services either start or end within the U.S., so it’s a key market for our cross border activities particularly affluent and travelling consumers. Our revenue yields in the U.S. are quite high relative to our other regions because we switch nine of 10 transactions of MasterCard products. North of the border in Canada, we have been the leader in technology and innovation Betty and her team led the rollout of EMV and broad based acceptance of PayPass or NFC enabled contactless technology.
She is doing a great job up there with MasterPass as well which Ed has talked about and the Roger Telecommunications a large cable and television network in Canada has been the first telecommunications provider to receive a payments license in Canada and we’re really honored that they have selected MasterCard as a network for their first payment card that I’ll be rolling out very shortly. There are great growth opportunities in North America, new verticals that haven’t been fully tapped, healthcare, insurance and rent. There is still a large swath of underserved and unbanked customers Gary talked about that in terms of the cash conversion opportunities.
Small merchants are continued to look to ways to sell their products and services online and simplify, you’re going to see down the product showcase, and we have MasterPass rolling out I’ll talk a little bit about the success of that in the U.S. and elsewhere but we’re very optimistic we’ve got great momentum in that space.
So let me rewind five years ago, explain where we’re and then I’ll let you know where I think we’re headed in terms of changing our business. Five year ago, we had a very concentrated customer base we were highly reliant on a single large credit card issuer. We had no debit franchise to speak of insignificant. We had no real merchant interaction within the halls of MasterCard we refer to merchants as customers, but to be honest with you it’s probably a little bit more lift service than it was real interaction and concerned about helping them growth their top-lines.
We were reactive to government regulation and we certainly didn’t consider in any broad way that the government could be a big customer of ours. And we had a good brand but a brand that consumers were aware of not necessarily that they were engaged with or necessarily preferred. So fast-forward today, we have got a much broader mix of customers a much diversified mix of customers, including regional banks and a growing base of independent banks and credit unions which provide us a great revenue yield compared to some of the larger issuers.
We have a very robust debit franchise. We are enabled either on a signature or pin basis on half the debit cards in the United States. We have gone from approximately a 3% or 4% share of the pin debit network of pin debit to becoming the largest pin debit network in the United States. We have a growing commercial base and again I’ll talk about that in a few minutes and a growing prepaid business, so we’ve diversified our product mix in addition to our customer base. We significantly expanded our merchant interaction and this isn’t something that happened six months ago. Craig Vosburg, who is going to be on the panel in a few minutes, has been leading our efforts in merchant development and market development for about three years.
We have 40% of our account management personnel dedicated to merchants wasn’t even close to that five years ago and we have made investments in this space. Gary mentioned Truaxis which I am very excited about, it gives as a chance to interact with merchants and with issuers in delivering products and services to consumers based upon their payment patterns and you will see that down in the product showcase. Government; government is now a big customer of ours, Direct Express, the social security payment program is issued on prepaid MasterCard cards the disbursements are made on prepaid MasterCard products. And we have a brand as Gary mentioned that is in the significantly different place than it was five years ago, with Stand Up To Cancer and Priceless both consumers and our issuing bank customers and merchants view our brand much differently than they did five years ago.
So let me talk about credit and I am going to talk about credit holistically in terms of both consumer and commercial because that's the way we view it. In the past I have highlighted the reasons why we weren't where we thought we should be, and need to be from a U.S. consumer credit perspective. And I have discussed things like the fact that we probably under invested in big T&E co-brands in the past. And I talked about customer mix as well, the fact that some of our large issuing bank customers and our large co-brand partners had more difficulty navigating the great recession than those of our competition.
I also talked about the fact that getting back in the space was not going to happen overnight, it wasn't going to be a grand slam homerun. It was going to take doubles and singles and stolen basis to get our share back to where it needs to be. And speaking of stealing basis we're actually stealing a lot of co-brands from our competition. As Ajay mentioned 60% of the co-brands that have been up for RFP, up for bid over the past 12 months we have taken from the competition while not losing any where we were the incumbent.
You can see some of the co-brands up on the screen here, Intercontinental Hotel Groups which is a co-brand with JP Morgan Chase, Virgin Atlantic which is a co-brand with Bank of America, Bass Pro Shops with Bank of America as well. We drove our production people a little crazy over the past several days, we did have two other co-brand deals that are signed and will be announced shortly, however the co-brand partner in that case called us up and asked us not to announce that, because they didn't want to create customer confusion in advance of actually reissuing the cards with our networks. So we obviously honored their request.
It's not just in the co-brand space but in the financial institution proprietary card space that we're seeing progress, Bank of America’s better balance reward card has been issued and will be issued under the MasterCard network. SunTrust and KeyBanc are rolling out and expanding their credit programs and we’re seeing increased interest again from the growing base we have in independent banks and credit unions of getting into credit as a way to diversify their revenue streams.
Shifting to commercial credit, this is a great story and it's a space I am really excited about because couple of reasons; one is I think we have a distinct advantage over the competitors in the space with respect to American Express we have a distinct acceptance advantage not only domestically, but internationally and when business people travel overseas they want assurance that their card is going to be accepted.
It also tends to be sticky revenue, consumers today are bombarded with card offers, teaser interest rate, balance transfer offers, new rewards propositions new cards et cetera. So they can sway between card they carry in their wallet or which card is top of wallet many times during a year. When you get into and embedded into the financial reporting systems and in the wallets of employees of large company, they are not going to change that on a whim. They are going to be thoughtful about it, it's going to be in there for a while and it gives us an opportunity to then sell in our consumer products to those employees.
So it's great sticky revenue, we’ve got great product differentiation, Smartdata and In-Control really gives the back office insight into how employees are spending and procurement organizations are spending. And the proof of the pudding here in all that is that if you look to the Neilson report a couple of weeks ago we have actually grown our commercial credit business 25%, which is pretty impressive and again is supporting the growth we're seeing in our overall credit position.
Legal and regulatory landscape I will touch on that for a minute, you can't escape it. I was actually down in Washington yesterday and had a audience with Director Cordray of the CFPB clearly regulation is not going away, it's here. We have done a pretty good job; I think a very good job of navigating it. We don't like it, we particularly don't like government price controls. However, the fact of the matter remains we have done pretty well when the regulation and the legislation has challenged the incumbency positions of our competitors. And I am referring here to Durbin and the great wins we have seen in our pin debit space as a result of the exclusivity provisions of that amendment.
From the Durbin perspective you are probably all aware that the Federal District Court objected to the fed’s implementation of the Durbin Amendment of the Dodd-Frank bill. Again we’re glad the fed appealed, we believe that overall more regulations in the space is going to hurt consumers and hurt the industry. I saw a statistic the other day that there has been a reduction of 49% in the number of financial institutions offering free checking accounts, since Durbin was implemented. And I don't think consumers are feeling that they are the beneficiary of about $7 billion or interchange that was moved between parties and the system.
But once again this may present an opportunity on the signature side to pick up some market share, we have dusted off the secret sauce we had for pin, and we're ready to go if in fact it ends up that way, again not something we’re looking forward to but we will take advantage of it.
North of the border in Canada we received a favorable ruling from the competition tribunal on the key rules we have governing acceptance of MasterCard and Maestro products. We’re glad the competition tribunal ruled in that direction obviously reinforcing the fact and our belief that our rules are not anticompetitive.
That battle is not over that’s on to the legislative front and Betty and her public policy team are working hard to make sure we get to a favorable spot on that venue. The merchant settlement very timely, tomorrow is the court hearing for final approval of the settlement. There’ve been a number of large big box retailers that have done their best to disrupt the progress in that space Noah Hanft and his team here as well as others in the supporting cast for the banking industry have done a great job in getting us to a settlement. We’re addressing opt outs financially. We’re very comfortable we’ll get to a good place on that and very comfortable this will move to final resolution and we’ll get it in the rearview mirror quickly.
One of the areas we are watching is the prepaid space particularly in payroll. And there were some discussions yesterday with Director Cordray around this. And MasterCard is out front with their public policy team and our prepaid product team making sure that this doesn’t become another black eye for the industry, and another tarnish on MasterCard that we really promote best practices in this area and protect under serves consumers that maybe using Prepaid products going forward.
So with that I am going to wrap up here. I hope you appreciate after my remarks that North America is a growth market for our Company. There is incredible verticals out there. Like I said that are untapped you probably read the paper over the past couple of weeks that many large employers, IBM, Time Warner, et cetera, are moving their employees out of company sponsored healthcare plans into employee directed healthcare plans, the exchanges, et cetera.
And just think about the dislocation in payment flows that’s going to create in this country once Obamacare kicks in and we’re going to be spending some time looking at opportunities with all our products and services in terms of how we perhaps navigate and pick up business in that space. 20,000 merchant locations we have PayPass enabled on in the U.S. great, great progress and that’s just a snowball running downhill the more merchants you get signed up the more issuer sign up and we’ve got some great momentum in that space.
You can’t forget that the U.S. is the backyard, the home turf of the digital giants of the world, the Amazons, the Googles, the Facebooks, the Apples, et cetera. And they are going to change the way consumers behave, live their life and purchase products and we’re going to partner with them in ways that make sense, in ways that expand the reach of our brand and our network going forward. So we’ve got momentum. We’re making the right investments and North America is going to continue to be a big part of the growth story of MasterCard for a long, long time.
So with that I’m going to turn it back to Barbara who will introduce our esteemed panel.
Thank you. And one of my fellow panelists are wandering up here I just want to edit a statement that Chris just made that over 20,000 merchant locations is MasterPass, PayPass is actually 100s of 1000s of locations.
So with that we’re going to move to our merchant panel. We want to talk a little bit about the merchant value proposition that MasterCard is driving, has been and will continue to drive. And I want to start out Craig with you I know some of the folks here in the audience have met you in some small group meetings. But for a lot of people here, this is their first time to hear from you. And Chris mentioned you’ve been in your job for just a little over three years. So why don’t we set the stage with what we’re doing around merchant relationships, what’s your group doing? And for those of you who do remember Greg Boosin, Greg left IR year ago and is now reporting to Craig. So…
For better or worse.
I like to think for better, so anyway let me just set the stage a little bit in terms of what we’re doing with merchants in the U.S. As Chris mentioned this is an area that we’ve been focusing on and investing in for a number of years in order to deepen the relationships we have with merchants, both as important participants in the payment system and as important customers of MasterCard.
The merchant account teams that he referred to are directly engaged in managing relationships with more than 200 of our largest merchants that cover 16 industry verticals that we have prioritized as being most important for our current and future growth. And just to give you some scaling, sense of the scale of that, those 16 verticals represent roughly 60% of our volume in the U.S.
So you can see we’re directly engaged with areas of the market that represent a sizeable portion of our merchant customer base. That of course is in addition to the more than 60 acquirers, ISOs and merchant service providers that we work with on a B2B basis to continue expanding the network. And the approaches it’s delivering results for us in areas that are important to MasterCard’s revenue growth. Things like expanding our acceptance footprint, increasing usage and preference for our products at the point of sale and increasing the use of value-added services and solutions.
Let me take just a second to expand on the point of about acceptance. Acceptance is a really important source of competitive advantage for our Company, our acceptance footprint is unsuppressed by any network and continues to grow at a healthy pace through our focus in a couple of areas some of which have been alluded to already this morning. But we’re focusing on brining large merchants into the network in verticals that have traditionally been cards accepting verticals, but where individual merchants may not have accepted the full range of MasterCard products.
The Dollar Store of category is a good example of that, one of the fastest growing segments in retail in the U.S. over the last several years, we now have full acceptance of the full suite of MasterCard products within that important category, our new verticals have been alluded to areas like rent payments, tax payments, B2B payments, areas that have traditionally been very heavy in cash and check based payments, constitute a large part of that 85% of cash based transactions that Ajay referred to that on an individual basis those verticals represent hundreds of billions of dollars in payments that are available to us to pursue and we’re working aggressively to bring those into the network.
And then finally small merchants, both expanding the reach to the network to include small merchants through things like working with mobile point of sale partners, taking advantage of the new technology that’s available there to expand the network and deploying our own proprietary solutions like simplified commerce which has been mentioned a few times this morning as well.
So, we’ve made some great progress but what’s behind it all, what’s driving the success of all this?
Well, there is a couple of things, I think first and foremost the value of acceptance is strong, we’ve worked with a number of merchants in fact to quantify the value of accepting MasterCard products for payment and while there is and there will continue to be discussion about the cost of acceptance, we’ve consistently seen the benefit in terms of increased sales, reduced risks, out weighing the cost and that’s a good position to be in as a starting point.
But beyond that a lot of the value-added products and solutions that I mentioned earlier are being developed with the specific intention of addressing areas that matter to merchants and matte in improving the performance of their P&L, things like attracting new customers into their franchise, increasing the amount of sales they have with their existing customers or increasing operating efficiencies in their business.
And while we have a wide range of capabilities that address some of those needs, data and analytics and the avenues through which we turn insights into action for the benefit of merchants are particularly important. There is real value in data and the insights that we can drive from that data in addressing a variety of merchant issues as -- and in fact as one measure that value more than 20% of the merchants we manage directly in the U.S. today are using MasterCard data and analytics in some capacity to power their business. That’s in addition to vary an even larger number of small merchants who are leveraging similar insights in their business.
Kevin will expand a little bit more on how we’re using the data but underneath that is what I have described is an important dynamic that’s really helping us change the nature of our dialog with merchants and by focusing on things that matter to their business and matter to their P&L, we’re able to have a much more balanced discussions about their business rather than being singularly focused on cost.
So, Craig talked about three critical elements that a merchant looks at in their P&L with increasing sales, attracting new customers and improving operating efficiencies and that third one might be the one that isn’t quite as obvious to some as to why MasterCard can help in improving that working with merchants. So, Kevin why don’t you talk a little bit about that if you would.
Sure. And we do it in a lots of ways not least which you have to -- I am going to note that Craig is an advisors among this. Since we are going through pedigrees but before I get into specifics on that maybe it would be useful if I cover some of the basics that we’ve talked about before because since last year the data analytics business has made a lot of progress.
I think Gary talked to you about the number of engagements going up to 1,200, 40% increase, in the first half of this year we saw our revenue growth north of 20%, we expect that it will improve over the balance of 2013. And this is driven by a lot of factors including the data we have and I’ll go through some of that. The data we have the people we have and the technology we have all which drive its scale, enable this business to return pretty high margins as well. So, that’s a good thing.
So going through that, we’ve been able scale the human element of Big Data by doing things like opening up our office in India, Rob Reeg and his team run a very efficient scaled technology operation to handle our data and just to remind you the data we see is massive and it is a byproduct of our payments business. But it’s not all about the quantity it’s also about the quality of our data, and there are really three things there; first our data is anonymous, we don't have the name or contact details of the cardholder and that's important and keep in mind attractive to our customers in a world of greater and greater complexity around privacy.
Our data is received on a real-time basis, and it's not lagged, and that means our customers can act on our insights on a near real-time basis and finally our data is actual data, it isn't survey data or reported data so it never needs to be corrected and you have to put that in contrast to a lot of data sources merchants rely on heavily are often corrected, government sources for example. So, that's a bit of the background on the data, I think it's important to note, I think we've had some questions, our data delivers a lot of value in and of itself, but we can and do augment it with other data sources in order to tailor the data to the needs of the particular engagement.
So I'm going to get to your question, yes to avoid seeming like a politician these days, around efficiency and I'm going to do it by way of three examples, I think that's the best way, and some of them are going to surprise you. And I'll start with some work that we did with a discount, a major discount retailer and there, they needed to understand how consumers spent across multiple categories from store-to-store on that most critical day of the retailers' year which is Black Friday.
And we were able to use our proprietary geographic spend sequencing analysis to reveal to them that their customers in particular spend 70% of the money that we're going to spend on Black Friday at the first store they visited, and that number popped up to 98% by the second store, now that's information a retailer can use to really focus scarce promotional dollars, and it delivers in spades, and we'll talk about some of the metrics later, but this isn’t just for the big guys, you heard from Craig, you heard from Gary, you heard from Chris that we're going to place enormous importance on maintaining our lead in acceptance.
And that in large parts relies on delivering value to small merchants beyond the basic payment functionality and we can do it with our data and the power of our data and we have a market report specifically geared to small merchants it’s easy to use, it provides some basic but powerful analytics about their competitors, how they're benchmarking against their competitors and where their customers are coming from, and where their customers could be coming from, that helps them resource scarce dollars as well and then the last one I think might be the most surprising and that's work we did for a specialty clothing retailer, they had grown very-very quickly and they realized that they needed to get more scientific around site selections and store closures.
So they came to us and we were able to use our geographic spend raw analysis which is slightly different from what I talked about before, and now they use that tool to make some very tough capital intensive decisions on a multiyear engagement basis. At the end of the day the common theme here is that while a merchant may and I say may have good data about what their customers are doing when they're in their stores, our data reveals what their customers are doing when they're not in their stores, when they're doing things with other people. And that can drive some pretty powerful efficiency decisions but it can drive a lots of business driving decisions I think targeting is a good example too.
That's an interesting point that you bring up Kevin with targeting on, and I want to build on that a little bit because targeting is such an important component in terms of the loyalty proposition that merchants are interested and Tim, since loyalty and rewards is one of the things that falls under your bill wig what can you offer on that.
So, we’ve touched on it a little bit today, already you heard Ajay and Gary mention it, MasterCard has a strong and growing loyalty and rewards business it's very much grounded in data and analytics as Barbara mentioned, we are investing to really position our network as a loyalty platform that can serve issuers, merchants and other partners, you will see some of them downstairs today, that's already been mentioned.
We like this space because it generates incremental revenue from the network because it generates really sticky relationships with issuers and merchants and then it lets us power very strong products for our consumers. We're particularly focused on the merchant loyalty space, we've had an issuer rewards business for a number of years now focused on merchant loyalty. Main driver there is the acquisition of Truaxis, which really close to now about a year ago, and as Ajay mentioned Schwark Satyavolu who was a Co-Founder of Truaxis is running the business for us today, he's in the innovation, or the product innovation space and we'd love you to stop by, we'll show you what it can do, but the reason we like that model, we like being in this business, is that it’s uniquely positioned to serve the needs of all our stakeholders, right, Truaxis provides merchant funded rewards and in doing so it really gives consumers the ability to get a targeted offer, a very relevant offer not that undifferentiated massive offers that people are getting through the daily deal sites.
And to redeem those offers very quickly and easily because they’re linked to card use, so great consumer value proposition, great issuer value proposition, it’s really a way for our issuing partners to provide more value to their consumers without having to pay for the reward, but the really interesting thing happens in this -- with Truaxis in its business model which we called card linked offers on the merchant side.
In that because Truaxis is levering actual consumer spend data because it has a very strong targeting capabilities it means merchants can be very precise and focused when they do their marketing through the channel and earn a very attractive return and that’s really how we think of the business, we think of it as a merchant marketing platform that really through our network allows merchants to tap into a whole new marketing channel which is getting to consumers through their banking relationships, really much in the same way that Google opened up search as a marketing channel a number of years ago, so very interesting space. We’re seeing some very good progress with Truaxis and its growth.
We now have relationships with over 900 financial institutions in the U.S., both directly and through processors we’re connected into our own process or IPS that Cathy McCaul runs and she will be up here a little bit later. Through those relationships we’re serving literally millions of consumers today and our merchant partners are really starting to take notice.
We have built relationships with a lot of names that you know, people like Neiman-Marcus like Sears, Walgreens, Theory, OshKosh, Lane Bryan, so lot in the retail space a lot T&E and restaurant customers as well. And we’re seeing merchants both continuing campaigns with us and then increasing the marketing commitments to the platform, so we’re very happy with what we’ve seen so far.
So what attracts them to come with work us and maybe more importantly what keeps them coming back, you said we have a lot of repeat opportunities?
Right, so it’s a couple of things, it’s very easy to implement platform, it’s a pay for performance model which I think helps Craig as we talk about in overall merchant value proposition. We have to deliver value in order to get paid for this business, but the real value the real reason that merchants are coming back is because really the first question which is targeting. We acquired the business because we thought it had the most effective targeting data analytics platform and capability in the industry. As Kevin’s data and as Kevin mentioned, it is doing targeting on the basis of actual consumer spend data which is by far the most accurate not only predictor but story right of how consumers are actually behaving and showing preference.
You are what you spend.
You are what you spend in so many ways and then it’s doing it actually on a very wide dataset, so in addition to the MasterCard network data because we work directly with issuers we have access to a whole range of data beyond the single form with payment, so it’s actually an even wider dataset than the network itself sees which in itself is quite big, so if you can do all that good engine targeting access to a wide dataset it means the platform in Truaxis can help merchants be very precise in how they market and that precision earns the return.
So if a merchant wants do new customer acquisition, it can focus an offer through the targeting capabilities only on customers who have either gone away who were traded or who have never shopped in that store before, it doesn’t have to put the whole store on sale so a lot of value in that.
If it wants to focus on increasing spend, it can provide offers only to consumers who are an occasional shopper and if you’re a shopper who is in the store everyday you don’t have to get the offer again it’s that precision reduces marketing ways, drives a very strong return and we’re seeing good results. So for I’ll give a couple of examples like Kevin did for a national retailer over the course of this year Truaxis run a campaign focused on new customer acquisition 39% increase in new customers.
For an international auto rental chain we did a campaign focused really on increasing spend saw a 62% increase in basket size, so in spend per customer, another campaign for a, it wasn’t a national, it was a regional quick service restaurant chain also focused on increasing spend, 164% increase in frequency so customers coming back. So these are strong numbers for merchants and they show that loyalty through the targeting capabilities based on the data analytics can really help Craig and nurture relationships because these are exactly the things that he talked about is the main needs the merchants have from us.
Before we get to wrap up there are two other priorities, the new customers and the increased sales that are also important to merchants. Kevin, can you give us a couple of quick examples on what advisors does on that front with data it would be helpful?
Sure, we do a lot of that kind of work. Just getting to the point, I’ll start with a major national discount retailer, sorry of consumer electronics. We did work for them around Christmas time. We were able to use our digital audiences product and help them run a campaign that pinpointed late holiday shoppers likely to buy consumer electronics, which is very targeted the way Tim was talking about. The second example I can give you very, very quickly is some work we did with an oil and gas retailer. We conducted a very sophisticated analysis of the behavior of their high loyalty versus moderate loyalty customers for promotional purposes.
And then the third example I will give you is a grocery store example, and they retained us to identify specific growth opportunities within their existing loyalty and rewards program.
Let me just add to that actually because I know we’re focusing mostly on data and analytics and a lot of the things we can do through advisors. But we’re also building and investing in platforms across the business that merchants can leverage to increase awareness, drive sales with customers, build loyalty with their customers. Some of those things you have seen before others are on display this afternoon. Tim already talked about Truaxis, the fewer rewards network is an example of that Priceless Cities, cross border marketing campaigns we are executing to attract international shoppers and Stand Up To Cancer has been mentioned a few times.
So these are examples of platforms that we’re putting in place for merchants to leverage to achieve some of those objectives.
And Tim you add some stats I think on the success of merchant campaigns and what their payoff is that the Truaxis is able to buy?
I gave some specific examples but the Truaxis’ major measure of value to merchants is return on ad spend. So it's a measure of for every dollar of advertising spent through the platform how much top-line revenue can be generated. And the network is consistent, the platform is consistently return on ad spend five to 12 times, so 500% to 1200% really suggest the value that we can provide and the value we can uniquely through our network having embedded Truaxis in it un-tap in terms of our consumer relationships reached through issuers, but really delivering value to merchants.
So just to wrap up Craig I am going to let you give the last word in.
Yes, so I will close just by reiterating a point I made earlier and that's that by focusing on and investing in things that really help merchants deliver on what's important to them and driving P&L performance, we’re fundamentally changing the nature of the relationships we have with many of our merchants. That's not something that happens just by saying it, it's not something that happens quickly, but we’re years down the road in making that into a reality and a scenario that will continue to be a real priority for us going forward.
Okay. Great stuff guys, thanks a lot. Okay so now we’re going to move to the first of our two Q&A sessions and I am going to invite Gary, Chris and Ed back up on stage for this one. And if we can turn the house lights up so we can see who the audience is, instead of just the bright lights, and don't forget if you are on the webcast we do have an ability to take your questions. So far nobody on the web has queued in, so we’re going to start here and Brian you want to, Bob.
Bob Napoli - William Blair
Bob Napoli from William Blair, I guess with the fed appeal and just the judgely on, if you could maybe Chris talk about the challenges of implementing dual signature the timeframe something like that would take, and how if you could think of -- maybe go through what value add there would be to merchants or consumers through adding dual signature?
Sure Bob it took me a second to find you in the lights out there. So I think it's a longer term proposition than most people would anticipate, I think Noah can help me here that the appeal is probably going to take…
About a year.
About a year to get through before you have a decision as to whether signature exclusivity will be permitted to continue. We get frequent questions well how hard is it to do it, it's not impossible, it's not an easy thing to do but as I have joked with Barbara Gasper recently, I mean we put robots on Mars, we got to be able to figure out how to do dual signature routing at debit cards. There are people smarter than me that know the network and are working very diligently to make sure we're prepared for that to happen.
I think what it does is it basically gives more flexibility to merchants in terms of routing decisions. I mean they are looking for cost savings and every line of their P&L payments is a big one, they felt over the years that they didn't have the appropriate voice in routing, the first passage of Durbin gave them the ability at least to route over different pin networks. But if you are not in a pin environment if you are in the restaurant business or hotel or situation where the final amount isn't known at the immediate time of the transaction it didn't do you much good.
So I think adding signature will give the merchants more flexibility and maybe take some error out of the balloon in terms of their angst anxiety about payment choice and routing.
Bob Napoli - William Blair
And just maybe as a follow-up, does the fed change in the head of the fed, I mean you thought this through with auto but do you have any answer, I mean we will have a new head of the fed does that change the enthusiasm of their appeal?
That's a good question, I imagine that this is probably at a level of the fed organization that is not going to be as influenced by a change in the head of the fed. It’s anybody’s guess where it will go, how the court will rule, et cetera. But I don’t see the passion either waning or increasing based upon a change at the very top, that’s my thoughts, personal opinion.
Okay, up in the back. Gene right there to your right I can’t see who it is.
Darrin Peller - Barclays Capital
Darrin Peller, Barclays. Thanks Barbara. There is obviously been a trend as you alluded to earlier towards more focus on the merchant side really trying to get more loyalty solutions, more value add there. I think with the regulatory just to follow on Bob’s point, with the regulatory intervention you’re seeing here in the U.S. as well as in Europe. There seems to be a shift towards exactly what you were just talking about with regard Chris too, trying to put more in their hands around routing decision.
So, beyond just the loyalty and the Truaxis I mean what you’re doing to work on the pricing model in the sense of it looks like the relationship that you have and the way you interact with banks might have to shift more, you might have to shift a lot more attention to merchants overtime. Do you think that might impact pricing and maybe not just to MasterCard or the networks but in the entire food chain, the interchange model?
It’s a good point I think the influence in the payments ecosystem is shifting more to the merchant side of the house and they’re obviously not standing ideally by as we’re experiencing the shift to new forms of payment in the mobile factor and in near field communication. I mean they are going to battle for control of the till as Ed says as we go through this change in technology. From a pricing standpoint we’re always in the game of balancing, we’re always trying to figure out how we price something so that there is broad based issuance and broad based acceptance we get as many cards into the market as we can.
We displace cash and check. We get as many merchants accepting as we can, so there maybe changes in the balance of who is getting the economics at the end of the day, but since we sit in the middle of all this and the fact of the matter is there is going to more transactions we hope, as mobile takes over and as merchants embrace more electronic forms of payment that will navigate it like we’ve navigated all the other shifts over the many years we’ve been in business. So I don’t necessarily see it cataclysmic it will be gradual evolution overtime. But there is no doubt that merchants are getting more influence in the system.
Darrin Peller - Barclays Capital
So would you expect to see a shift of incentives in terms of the going from the banks to merchants or even reduced overall overtime? Thanks guys.
Again, it’s balanced. I think it’s fair to say that if you have more influence in the system there is more appetite from a network like us to incent those who determine routing or determine whether our network carries the transaction. So the drift will be in that direction again don’t see it cataclysmic, don’t see it falling off of a cliff any one specific quarter.
Don Fandetti - Citigroup
Thanks. Don Fandetti, Citi. I was wondering if you could, the Visa Chase deal seems to have gone little quiet in terms of discussion. I was curious what your thoughts are, what you hear from issuers, it looks like Wells recently did a deal with America Express I was curious if you could talk if that’s really shifted any of the balance or psychology of how issuers are thinking today?
Yes, it has gone quiet, you’re absolutely right. And I think it’s very early days in terms of what the impact of the Chase Visa relationship is going to have on the market. As I talk to folks who run card businesses for large institutions and small, the emotions run a spectrum from EON to a little bit of what happened here with our network partner and the relationship with Chase. But one of the things that you realize about the banking industry is people that run these businesses are not rash decision makers, they’re not going to run out in emotional fury and all of a sudden change the network they’ve been partnered with for many, many years. I think it will end up in sort of one of the fact patterns as new deals emerge, as agreements come up for renewal, as the dialog with MasterCard and other networks changes overtime, it won’t be again, it won’t be something that happens dramatically.
We’re still scratching our head to be honest with you on how this all works. I am a former finance guy you do the math in terms of the value and the system of a transaction and how you provide additional benefits to a consumer to buy at a certain merchant and keep the issuer whole and keep the merchant whole, it’s pretty tight economics so we’re still scratching our head in that space.
We still have the opportunity to do it if another issuer is interested in doing it and has the acquiring footprint it’s not rocket science what was done. So we would be prepared if it made sense based on a number of factors to do that, so again slow evolution, not revolution, based upon that transaction.
I’ll let somebody else, Jason.
Jason Kupferberg - Jefferies
Jason Kupferberg from Jefferies. The increased engagement with merchants is certainly encouraging, but at the same time we’re hearing more and more about MCX and obviously lot of the big merchants coming to market perhaps sooner rather than later with their own mobile wallet. So wanted to get your read on how much of a competitive threat that could be because we’ve heard that they may be focused on kind of non-Visa MasterCard funding options in that wallet at least initially and perhaps even with some real-time authorization capabilities at physical point of sale which is something that ACH and its current form can’t provide so, just your general thoughts on that as far as competition.?
I’ll take that one and you can chime in I think in the MCX space, we haven’t seen a lot of details around it, I think a lot of it is speculative and to their credit they have sort of kept things to themselves. And I think a lot of the impetus for MCX and light programs has been defused by the price caps on debit interchange. So, when a merchant was paying 140 basis points for a debit transaction, there is a lot of impetus to go and create your own network and take the till back so to speak particularly as the technology changes and what’s going on at the point of sale changes.
But, if you are down to $0.21 for a debit transaction and perhaps lower depending upon how the fed appeal of the district court ruling goes you’ve taken a lot of the economic incentive out of that space. So, again I don’t think you’re going to see this get traction really quickly, it’s something obviously we monitor and we’d love to be a part of that system, if it’s going to embrace our cards we have a network, we can switch, we do switch between issuers and merchants that’s our bread and butter so we could play a role in MCX or in other like type opportunity going forward. Ed you have spent time in the space too, so.
Yes I would say these are all incredibly rational people and 15 years ago I ran an ACH based bill pay business, and I would have killed for the real-time capabilities what MasterCard can provide with the debit network. And I think if some of the economics come off the table and our eagerness to embrace and enable the new technology and also the recognition like I talked about earlier consumers doesn’t want lots of different fragmented options in their finances. They want it brought together.
So, I think the merchant community and the consumers are best served figuring out how we can make sure that best offer is being preserved through the new technologies.
Craig Maurer - CLSA
Yes thanks Craig Maurer with CLSA. It seems like with all the -- everything we’ve talked about this morning MasterPass, whatever, the Holy Grail is to capture consumer pre-shopping intent converted it into a transaction and it seems like there might be two companies in the world positioned to do that, how do you partner with those companies or do you or are they moving on their own, but without that everything else is noise, so?
I think and that’s a great point because you can never consider any of this as yours is some game. So, we believe MasterCard is brining tremendous value to all of these environments where consumers want to shop that’s the basis of opening up the network through APIs, that’s what we’re doing with the MasterPass enablement. So, we’re absolutely open for that partnerships because our objective is to make sure every MasterCard cardholder, every MasterCard issuing institution they can get the best possible experience in whatever context they want to do. So that’s why we’re engaging with the new partners, that’s why we’re enabling our network for digital commerce. So, I think we’re incredibly well positioned to work to some of the organizations you’re alluding with and many others across the ecosystem.
And I think that’s the great message of all of this convergence. As it allows us to serve new markets and help new constituencies and create that greater value that we could with the simple plastic that we had before.
I’ll just add five years ago, people thought the mobile telephone operators were the debt start of the network, they put us all out of business and now we have partnerships in, how many partnerships around the world?
More than 30.
More than 30 partnerships with telecommunications company and I think what happens is overtime it looks like a shiny object to lot of players to sort of play in the space. Then they realize that it’s a heck of a lot different running a telecommunication network than it is a payment network. And the infrastructure, the movement of money, the controls the redundancy everything cetera and sort of the network economics is very hard to replicate. So, instead of doing it themselves they partner with us and we’re getting partner with all those players you referenced and more in ways that expand the use of our network. Obliviously, we’ll protect our turf, we’re not going to just seed it without a fight, but.
Okay before we run out of time Gary is not getting off stage without answering a question, so who’s got a question for Gary?
Here we go.
Right here, David.
David Togut - Evercore Partners
Thanks David Togut, Evercore Partners. Gary I think you and Ajay both talked about the partnership with SASSA in South Africa. So two questions, number one what your economics look like on that type of a business, what’s the business model there because there are a number of people involved there for example like NetOne? And number two, how do you extend that business model to other countries, where you have extensive social welfare benefits that are essentially given out through prepaid cards or other payment cards?
Yes sure, I think each market is different on economics, I think you know that, I think in that example Michael, we’re basically processing in earning revenues off of the typical processing and switching type of fees we would make, I think taking that and extending it, you learn an awful lot by working these programs locally, and the combination of both the issuance and the point about the inclusiveness on the acceptance side and the variety of technologies that actually can get you there is the big differentiator, particularly in developing economies. So I think our work locally that Michael and his team has done, Ann's team around the world, working with governments they understand what it means to make things more efficient and how much money they're going to save, I mean I think that program alone is looking at $375 million in savings over just a few years.
So empowering consumers, saving money on more efficient benefit distribution and then leveraging technology on the acceptance side and vendors and people that are out there that can do it, and the ingenuity behind that. So there's learnings on both sides and I think packaging that and working it country-to-country is frankly what we're doing. We’re doing that through our enterprise development group which Walt Macnee runs in partnership with all our division presidents sitting over here.
David Togut - Evercore Partners
What are the other major…
Oh, Ajay, Cathy could you give Ajay the Mic.
Oh okay, so the only thing I’d add to that is that in the beginning what happens is the first thing they do is they go take out cash, because that's what they're used to, it actually in some ways when we get questions on earnings calls about the yield of transactions around, part of it is the good news, bad news is, they're getting more cards in there but they're basically taking out cash.
The key is to let that happen so you at least get a card or a electronic form of payment into their system, so you intercept the money coming in, which Gary talked about earlier. Money going out is where we typically make more money, when they spend using an electronic form of payment at a merchant that requires acceptance and education. The Blue Label idea in South Africa is all about building acceptance through a provider who had installed electronic terminals in tons of small mom and pop outlets where there was no electronic terminal acceptance for a card but there was for things like top-ups and lottery tickets, they're cashing in on that and getting in a whole bunch of new outlets that will accept cards.
Now you got to educate consumers to use the card there and not take out cash, it's a very slow build, and that's why when I started out I talked about those three legs of the stool, those legs of the stool have got time involved in them. Doing work with governments unless it's the social security card in the U.S. which has got a more developed infrastructure, tends to be a slow build on revenue, but the economics are based off the same way that we build economics in our traditional business, processing fees, transaction fees, yakety yak.
Okay, we are running about 15 or 20 minutes behind schedule so we're going to keep a hard 15 minute…
Hello, thanks to everyone who made it back from the break, I still think there may be quite a big queue downstairs. But my name is Ann Cairns and I am Head of International Markets and I am here to introduce the second part of the session and talk to you about the things that we’re doing all over the world.
So just to start and talk a little bit about our growth rates, we continue to have very good growth rates in international markets as you can see from this slide. And probably the number that surprises you on the slide is the volume growth in Europe, still up in the double-digit range, very respectable at 13%. I’ll start there to describe what’s really driving the business there.
Now you’ve probably heard many times that MasterCard is in a great position in Europe because we’re very strong in the North, in the strong economies and we’re also extremely strong over in the Eastern block and we’re less exposed in Southern economies that are still having difficulties. So that’s one of the reasons why we have such a good growth profile in Europe. The other thing is that in the UK we are the major credit card provider and UK is having good PCE growth of about 4% right now. And we’re winning deals in the merchant sector with the second biggest retailer in the UK Asta for credit cards for the 18 million consumers. We’re winning in the airline business we just signed a big deal, another credit card deal with Flybe, which is the biggest regional airline, 65 countries covered.
And we’re also doing really well in the commercial sector. And I know Chris said he was very excited about, I am very excited about too because that’s massive growth for us around the world. And for example Bank of America just signed up with us in the UK this year. So good growth story there in the UK. If we look at Northern Europe going into the Scandi area you’re all well aware of the Swedbank deal, but now we consolidate our position in the Nordics where we’ve actually signed up Nordea and we signed up Danske Bank, so we’re very, very strong in Northern Europe.
And at the same time we’re growing our business in Italy and it’s really a prepaid story in Italy. We’ve got very big deals with the large banks there. But I’m going to talk a little bit more about that later.
And we’re also having massive growth as I said in the Eastern Bloc, Russia, satellite Russia, Poland, Turkey is included in that. And we have Bella here with us on our panel this afternoon who is going to tell you about the growth story there.
Moving down to Latin America, the growth is very strong still in Latin America, 16% as you can see from this graph. And the story in Latin America is our business remains still very strong in Brazil, which is the largest market in international markets. And Brazil has PCE growing at 3%, so it’s pretty healthy. We’re not only winning good core business there, but as you heard earlier from Gary we’re actually going into the mobile space in a very meaningful way with our joint-venture with Telefónica and that’s called Zoom as rolled out to 26,000 people right now and not in the main towns yet not in the main cities but you’re able to do P2P payments, you are able to do payments to merchants later this year we’re adding bill payment and early next year you’ll see us rolling out in the massive urban conurbations of Rio and Sao Paulo.
So, big change happening there in Brazil other parts of Latin America, Mexico sort of had a weaker start to the first half then we thought but it’s actually getting better in the second half. Mexico is a story about acceptance and we’re rolling out new infrastructure to reach the unbanked there in a partnership with a local provider called Paga Todo.
You’re well aware that there are some wildcards in Latin America and particularly places like Venezuela and Argentina that may well have valuations, devaluations towards the end of the year and our business is doing well there, we’re not overly exposed there. So, we are not concerned that it would affect these growth rates.
Moving across to Asia, the Middle East and Africa, well of course this is our star region of the world in terms of growth, fantastic PCE and cross boarder PCE growth rates out in Asia and something like 7% and 12% to 13% respectively. And what we’re seeing is very strong growth in all of our core businesses across these continents, actually gaining market share in the large markets, big e-com deals opening new markets as Ajay talked about, and building from the ground up in minimal and in the Middle East and Africa we’re actually rolling out with Etisalat and National Bank of Egypt the first real mobile payment service which is going to reach about 5 million users to start with but all of the telcos are joining this which would bring in an entire user base something line 94 million people potentially and so it’s going to be a completely open system.
So, these are types of things that are driving business in this part of the world. Now, you’re all well aware of what’s being happening with the WTO and China, discussions there about opening up China and so that other players can be involved in the domestic deals there. Right now, there is certainly a view that China will open up but we don’t know when and the shape of it and how it’s all going to play out at this point in time.
But in the meantime, we have been closing big deals in China and for example we’ve closed deals with ICBC and Agricultural Bank to do global travel cards, sort of dual branded cards and our business continues to do extremely well in China.
So, that was a quick trip around the world. Ajay mentioned at the beginning of the session all about, how we’ve been changing over the last four years and that change has really been quite dramatic. So, what I’ve tried to do in this slide is just sort of say to you what we’ve been focused on in the recent past and where we’re moving to, what’s our current direction.
So, one of the things that was said was we’ve got many more people actually outside the states now than we have to begin with and that’s because we’re actually driving our business down to a country level having people on the ground that understand the business, know the people, know the governments, know how to execute things on the ground while continuing with Gary’s area to build those much needed global products to be able to get the scale to rollout around the world. So it’s a distributed execution model with a global product model overlaid very successful business model.
We are moving away from just focusing on financial institutions to governments and telcos and merchants also, no more so that than in the international markets and I’m going to talk in detail about one or two markets to give you a real flavor of that and the panel that follows me will also do that after my part.
And we were very, very assure focused but and Chris alluded to this how the sort of balance continually shifts. Our balance is now really starting to focus on acceptance, we are still issuer focused but we are putting acceptance people on the ground, we are building relationships with local partners because we want to reach the next 500 million consumers. And in order to do that you have to get into the underserved, the unbanked sector and you have to work with local partnerships to be able to do that.
And originally we played a very traditional role in the value chain now we’re really very much in the digital space, I’ll illustrate that with some of the things I say about Asia. And also as I said, we were targeting banked consumers now we’re really changing our approach and taking a much wider consumer base because obviously the thing we’re trying to do is really reach that world beyond cash.
So, just to take a deep dive on a few countries around the world, I’m going to start with Italy and the UK and the story here is going to be prepaid. I mean that might surprise you because you might have thought that I would do prepaid in a underdeveloped country, but actually no, prepaid is something that's really taking off across Europe and the reason that this business is so exciting is that a study about global open loop prepaid cards has told us that the flow through these will be about $822 billion by the year 2017 and just shy of 20% of that will be in Europe and 50% of that will actually sit in the UK and Italy.
So these are very important marks for that space, already in Italy today we have 10 million prepaid cards and we actually -- you've heard a lot about South African government but in Italy we have the first major prepaid social card program rolled out across the country about a million cards, it’s actually done through the Italian post bank and all their branches on the ground, so this is a big benefits program just again to say look it’s not just governments in emerging markets that we’re dealing with and it's not just emerging markets that need prepaid.
The other thing that we’ve been doing is, you're all well aware of ENI it’s one of the biggest companies in the world, it has gas stations, it has coffee bars and so on in Italy, they are actually rolling out contactless infrastructure all across the country. So they are changing the way that Italians live the way that they use money and it's really again sort of a war on cash, but they are actually in the meantime we’re also rolling out them contactless loyalty cards as we have done with Vodafone in the past.
And also in Italy in the market the big banks have been working with us for a number of years to create what’s called a prepaid light card, and what's that, that's basically a bank account on a card, it's a card which has an IBAN number on it, and that's a number that's sort of used internationally for banking purposes and on this card you can send and receive money. And this is now becoming very popular in Britain. Britain is growing at something like 40% in the prepaid space, and the prepaid space has started to be all about what’s going with the big telcos in Britain and the first prepaid telco card to launch there was launched with Orange in 2011, now it's everything, everywhere but we have moved on and we’re starting to have Samsung handsets that you can actually go out and buy things with.
So it’s a completely, it’s going to completely revolutionize the space and I can't leave this page without mentioning that prepaid is also becoming a very big thing in the airline industry as evidenced by the fact that we’ve done our first card with British Airways which at the end of the day is my second home, actually my husband said it's my first home, but it's great, I'm looking forward to getting my new card.
So the next area of the world I'm going to talk about is Latin America and change to a completely different tack, and the tack here is all about what's going on in the merchant sector. Now when we were looking at Latin America about five or six years ago, we realized we had to come up with something that really reached the unbanked sector, and looking at Brazil 50% of unbanked Latin Americans actually live in Brazil, so while we think of Brazil as a very advanced economy in Latin America there's still a lot of underserved people there and we knew that in order to reach these people we were going to have to really work with the retailers and that was a big challenge for us actually because our rules weren't written in a way that retailers were issuing or the way that we developing our products wasn't designed that way and also our people didn't come from that sector.
So we had to change all three things in order to really be able to address this sector and in 2010 we issued our first really true retailer license and now we're reaching 30 million consumers through our retail relationships today, and just to give you a sense of that, that's something like 16% of our volume in Brazil going through these channels, going through these customers, but we didn't just stop in Brazil, we said this is a great model for the whole of Latin America, let's do it in Mexico, let's do it in Argentina, let’s do it in all of the other Latin American countries we can and now Brazil is only 40% of the story here, because as you can see from the pie chart the other 60% of our retail growth is actually occurring in the rest of Latin America. So a very-very clear example of how, somebody asked Chris of things switching towards merchants, I would say, hey, they already switched, they switched a number of years ago and this is really evidence of the fact.
And so moving on to Asia Pacific as I said, fantastic growth region for us, and we're going to hear from Eddie soon who’s flown all the way from Australia to talk to us about what's going on in Australia and the whole digital convergence story, but here I’m going to focus on eCommerce in Greater China and Singapore.
A very big market you can see here over 500 billion worth of flow and it’s one of those markets, the statistics hereabout 22% growth that’s just a general growth figure. These markets that I’m talking about are practically double that size right now in terms of growth. And what we’re doing here is again we’re thinking about retailers as an entry into this segment especially the eCommerce segment and that’s why we signed this fantastic deal with Alibaba in China and you know that they have millions of merchants on their sites and they have hundreds of millions of consumers.
And so we’re talking to them about issuing, we’re talking about them connecting up to our Internet gateways. We’re talking about being the fraud infrastructure that they operate on. We are talking about lots of different avenues for flow of this absolutely enormous probably biggest eCommerce site in the world. And these are the types of opportunities that offer themselves to you in these geographies.
At the same time in Singapore and if we actually look at what we’re doing on the NFC side, we’ve signed all three of the major telcos in Singapore. Already you can go to Singapore. You can walk up Orchard Road. You can buy things in the shop. You can tap and go all that infrastructure is there, but now with these three major telcos and Singtel, StarHub, and M1 and if you have a smartphone in Singapore, you will be able to have whichever telco you use you will be able to have a MasterCard on there that you can use to actually buy things and the thing is it’s completely sort of opened loop solution from the point of view of MasterCard and that’s something which we’re striving to do everywhere in the world.
And it would be remiss of me to leave this slide without mentioning that also in Taiwan it’s the first time we’ve sort of launched an NFC mobile solution in the market working with four different operators. Taiwan is very advanced as well in this space.
And finally on the South African side, you’ve just heard a tremendous amount about the government deal in South African, so I’m not going to dwell on it too much. Suffice to say, it took only a year to get up and running. Those of you who were here last year probably saw that little case that has biometrics on where people go and put their fingerprint and voice recognition and they get their SASSA card. Well that was used all over South Africa to launch 10 million cards in a year reaching 22 million people because 11 million of the recipients of the benefits are actually children, so that benefits go onto their parents’ cards.
The great news and you’ve heard about Blue Label is that now those little shops in the township are starting to be able accept cards and I was actually intuitive couple of weeks went into one of those small shops, there was a whole queue of people, and I actually saw a lady take card, her SASSA card and put it in a machine and be able to do the pin number, I mean that is a massive change in the way that the people are living.
And there was a lot of excitement in the rest of the queue when they actually saw this happening and because it is an education process as Ajay was saying to you, you’re trying to get people to move from taking cash out of the ATM to actually using their card to buy things and that revolution is starting to happen and it will happen very quickly. I can tell you when I was there, that people in the queue started to talk to each other saying hey you can use this card to buy things. I mean, revelation, so every exciting story.
The other thing we’re doing in South Africa you’ve heard us talk previously about Transit Solutions. We are actually working with two of the biggest banks there Standard Bank and Absa to have contactless Transit Solutions, so when I got out of the airport in Joburg, I could actually tap a card and go through the turnstile and get on the train into city and these Transit Solutions are being rolled out in taxies and buses so that they will actually reach something like 15 million of the population.
And it’s just not South Africa where this is happening, we have nine projects, this was mentioned during our second quarter results, nine projects, that are actually going to reach something like 350 million consumers when they are completed and one of them you’re going to hear about is in Nigeria and that’s a great segway for me to invite my panel up today which is Daniel Monehin who runs Sub-Sahara Africa for me and he is going to tell you the Nigerian story. Bella Stavchansky who actually runs the High Growth Markets the whole of Eastern Europe, a huge area of growth for us and she will be talking about the development of PayPass across Europe.
Eddie Grobler, who has come in from Australia to tell you about moving to digital convergence in one of our biggest markets in the world; and Cathy McCaul, who is actually our guru in processing because as we said at the beginning processing is one of our bread and butter things that we’re focusing on doing everywhere in the world that we can because when we process, we can do our information products and we can layer all of the great fraud detection and all of the wonderful technology that we have bought and deliver that to the customers. Thank you, guys.
Thanks, Ann. My name is Daniel Monehin, I joined MasterCard a few years ago in Canada, I’ve run the Canada Finance as RFO for four years and then followed the money to where the investment was going which was Africa. So actually this month three years ago I was employee number one in Nigeria to actually growing our business in the heart of Africa. So very excited to be here and very excited about what we do in that part of the world. And I was joking with Ed when he wins business in his part of the world it is about market share, it is about new revenue.
For us it's all that and then seeing the lives of the people practically change. I mean Ann alluded to that there it’s very exciting, but changing the world one person at a time is a big challenge because of the anonymity of the opportunity, 2.5 billion people worldwide are on the bank or unbanked at all and going about it in a traditional method way isn't working for us. So it's obvious that a new model is needed. Approaching it as a charity it's obvious that that's not working because international organizations and NGOs are finding out that throwing money at this challenge it’s not going to make it go away. So it's obvious that a new model is needed.
Approaching it as a business model by itself as a business entirely by itself will give a lot of CFO's a headache. So it's not working that way, and the new model is needed. That new model is what MasterCard is rolling out in Africa, you have heard about South Africa we're rolling it out in Angola, in Mozambique and Kenya, in Morocco and Egypt just to mention a few, but we're now holding on right now is our story in Nigeria and that story will illustrate to you why we cannot do one person at a time, and why we cannot do it alone. And why we cannot do it as a charity purely or as a business entirely by itself, but what's needed is a collaboration between the private sector and the public sector. A partnership between state-of-the-art technology and very strong political wheel and a handshake between a global multinational and local players and local financial institutions, which is overlaid by very solid business plans that now makes sense to the CFO.
Right so why Nigeria? The problem there and which is you can apply to all of Africa is that people need money to spend and where to spend it in a safe secure electronic format basically that's what's going on. And Nigeria is a country of 170 million people, the largest African country, if there were four people here in the audience one of them would be a Nigerian statistically speaking.
And in terms of economic growth also is very solid, for the past three years GDP of 7%. But 70% of the people are under-banked or unbanked. And few years ago there was no payment there was no acceptance infrastructure, the cards kings were all local. But in the past three years we have partnered with the government, we've partnered with regulators, we've partnered with financial institutions to open up that market and it’s exciting what you see, acceptance has grown more than 10 times in that short period of time, it's like it's what we have been waiting for to make happen.
And so we have taken care of where people could spend money, at least we have made a lot of progress there. And in terms of issuance MasterCard has grown tremendously tier one this year we grew by almost 100% in terms of card issuance. But looking at the anonymity of what we have to do that model is still not enough and therefore in May 2013 on the backdrop of the world economic forum we made an announcement about the most transformative financial inclusion program ever witnessed in South Africa and in some respect the world as well. And in that model with one fare swap we will eradicate financial exclusion in that country by given access, because that's the biggest thing to crack when you talk about financial inclusion is access. By giving access to everyone 16 years old and above and how is it rolling out, we are right now at a pilot stage.
Let me describe what a pilot is in Nigeria, the pilot is 13 million cards. Now to put it in perspective, 13 million is more than 34 countries, the population of 34 countries in Africa, 13 million is more than a population of 171 countries worldwide, that is a lot of numbers and that's what we're rolling out and MasterCard has been chosen as the lead payment provider for that. And so these cards are biometric enabled and payment functionality, MasterCard payment functionality enabled and protected by EMV chip and pin. When EMV chip and pin was introduced in Nigeria four years ago after a year of introduction fraud plummeted by 98%, it's almost non-existing in that market.
So the people are getting very comfortable using their cards. Now a few years ago this would have been only marginable without the right technology in place. It would have been impossible it would have been useless without the acceptance infrastructure that we now have in place. Definitely it would be like walking through a wall without the right partnership with the government and the financial institutions and the local technology players on ground in there to make it happen. The large financial institutions in the country are strongly behind this because they have seen it's an avenue to reach people that used to cost a lot to reach but leveraging our technology we can reach them at lower cost to them away from the brick-and-mortar approach that was a traditional approach. So what we see now is that the cards are not just being distributed while the government is going to use the vehicle of that card to put money on that group to make as salaries to make pensions, social benefit. It’s going to take on their life of its own. And why I am so excited is the change that’s going to happen in that country and that is going to change the way the people receive money, is going to change the way they store money, is going to change the way they transact their money, is going to change the way they transfer money. And MasterCard will be in the heart of that making it happen.
So when it comes to financial inclusion in Africa, we’re not doing to 1% at a time, we’re doing it one large country at a time. And we’re very confident that it’s going to change the face of Africa, it’s changing it already. We’re very confident that it will move MasterCard to the next 500 million customers starting with a country like Nigeria is a very good step in that direction. And therefore as Ann concluded in Africa we’re definitely doing well but we’re also doing building the process.
And at that note I’ll pass on to Bella who is also in a similar market but a lot more advanced, and we’re looking forward to your part of the world.
Thank you, Daniel. My name is Bella Stavchansky and I am in-charge of High Growth European markets. It covers 30 countries and spread around 11 time zones. So if you picture the math we’re starting all the way Russia and South Turkey and Israel, Czech, Slovakia, Calgary all the way to Asian Republics. So it’s really big part of the world but it’s very interesting part of the world. We’re going to talk about Australia pretty soon and Eddie will mention that his population is 23 million High GEM population is 500 million, little bit difference, so opportunities here.
One more point, only 14% card penetration on 3 trillion PC, that’s why we call ourselves high growth. Innovation is a key for our success and PayPass become a silver bullet as an innovation told. PayPass bring a lot of benefits to our consumers, it’s a fast and low convenient way to pay and it’s a building block for convergence and Eddie is going to talk about this later, convergence from PayPass to MasterPass. But for us we need to build infrastructure first. And in order not only to have a PayPass but have a second step is NFC enabled acceptance. So I am going to talk about Poland and that’s why you see it on the map, about Poland top in gold evaluation. But really quality valuation in this case it’s a positive work not negative like in Russia.
So let’s go to Poland. We started -- it was not easy to sell. Customers are very reluctant to sign for this initiative of this program. It was new, it was not a proven, it did not make a lot of economic sense at that time. So we found two key players in the market one is share and non-acquirer. The one who really wants to change the market landscape, the one who always looks for innovation, new technology, new way of doing business. They’ve been our bread and butter, we started with them and they support us. And also we’ll went to the merchant of course, merchant was in second stage now program. And the biggest segment of merchant was in Passport segments like McDonald’s, [SkyShop] and so on.
Consumer embraced it right away. It was really coming in way to pay they love it. In second stage we decided to go to the secular markets, gas station and transit and that make a huge difference for us. On top of it we’ll look at the chain type of merchants. So if you have a great acceptance in parcel the consumer has the experience the same kind of acceptance in enforcement, completely seamless to them.
Also we’ll look at a lot of marketing investment. We support that. We spend a lot of money for right type of very focused approach. We’ll look at special promotions in stores, in supermarkets, in big department chains and we did a topping, we call it, buy and get type of promotion in some of them discounted some of them more specific retailers but it was very suddenly improvement in customer education this way, we really saw big change.
In another way we’ll look at our education is through festivals. In Poland we have a lot of music festivals. It’s a really musical country. So we put a lot of devices in festivals, music festivals and consumer adaption went to 60%. So it was really, really good move on our part. So PayPass become a generic terms with stop and go. And even now people don’t understand about payment they always say PayPass even they don’t see as a brand. So that’s how we really achieved great results and you can see it it’s on our slide, we right now really leading brand in the market. The consumers adopted so fast that 30% of that debit portfolio of PayPass holders, exhibit that of the volume behavior which means their card spend year-over-year increased by 70% and voluntary attrition really reduced.
So, all this factor combined produced really great results, we took this learnings from Poland and we apply for other High GEM countries but we did it much faster, we have experienced already and what took us three years to achieve 10% penetration, in Poland took us only one year in Czech and on the side issuing and acquiring. But it’s not only consumer who really embraces benefits or moves to contactless payment. merchant is eager as well. They love increase spend, they love loyalty that produced and they love opening new category.
Look at Moscow, we just introduced metro Moscow PayPass, metro Moscow never accept cards, plastic was not even in their lexicon. Now metro Moscow accepts cards and you can buy ticket with PayPass.
In other one, Air Express in Moscow and I don’t know how many of you have been in Moscow, but Moscow is not easy part of city, type of city and it’s always congested. we have Air Express that takes you from center of the Moscow all the way to airport, you just tap and you board the train and you will in that airport, you don’t need to sit three hours in the car to get to your destination which is a big deal.
So, we use all kind of traditional form factors, we used the stickers, we used watches, we used PayPass cards but now we’re going to most of this certification level. We’re using mobile phones and in 10 countries in High GEM, NFC programs already live and well working. In three countries, Turkey, Hungary and the Poland we have very big major motive part to roll out NFC.
So, consumer loves PayPass, merchants love PayPass, its loyalty in higher spend, we love PayPass because its increase our transaction and increase our merchant location. In High GEM we always look for new way of doing business. We’ll always look for innovation and new technology. Our goal, to see in the future not only cashless society but cardless society.
Thank you, Eddie.
Bella thank you. So, internally we refer to Bella as the iron lady of the high growth markets and hopefully it’s clear to you guys now. And she even takes Australia on as well from time-to-time. And I grew up in Africa and just listening to Daniel and to -- and what’s happening in South Africa as well as it’s just amazing to see how the franchise is actually developing in that part of the world but I don’t want to discuss Africa, I want to focus on Australia and I’ll specifically would like to focus on three strategic topics that’s important for us. The first one is cash displacement the second one is innovation and then the third one is our digital convergence agenda.
So, if we look at cash displacement, the vehicle that we’re using for cash displacement is PayPass and we started on this journey about four years ago and currently we have 85% of overall cards in the industry, our PayPass enabled cards. It’s on MasterCard debit, it’s on MasterCard credit and it’s even on MasterCard prepaid. The Quantas card that you will see down stairs today is got the PayPass application on it. So, we’re seeing very, very strong penetration on the consumer side in terms of PayPass enablement.
But what was very interesting as well as that we’ve reached that tipping point in terms of usage. In August we processed 16 million transactions through our own network. If we add the online transactions as well it will be close to about 30 million transactions. So, in other words, million transactions per day.
Now, it’s actually referred to Coles [ph] and the fact that they really like contactless. They are very intensive in term of time and motion studies and they’ve identified that PayPass transactions are actually 30 seconds faster than a cash transactions, so that’s fits very well in terms of their strategy for their consumers and experience and where they want to go on that.
Talking about consumers as well is we’ve seen that we’ve actually moved through the earlier adoptive phase now and we’re now in a phase where consumers, actually 40% of the consumers use the PayPass card for more than four times a month. a year ago it was less than 20%. So, we through the early adoptive phase and we are now in the mass phase where it’s really moving forward.
I think what is really important as well is that we look at the trained in terms of cash displacement. So, currently what we see is that three out of 10 transactions below are $100 are PayPass transactions. But if you go down and you look $30 seven out of 10 transactions on our PayPass transactions are in Australia. And what's quite interesting as well as well is that there's been phenomenal growth in that category, there's been a 50% growth in that lower ticket values price and Gary Flood actually touched on it as one of our strategic objectives is to grow and the low value tickets and that's really growing very fast in that area as well, but just to demonstrate this to you as well, a PayPass debit card transaction, the average transaction on a PayPass debit is 36% lower than on a debit PayPass contact transaction. The gap is even bigger on credit, the difference is 89% so again a very-very strong evidence that we actually moving down into lower ticket values.
But we've also got very strong evidence that the PayPass application on the card to use a term that we use bring the card to the top of the wallet, so the usage is more, usage is more for other applications as well, we've seen very strong penetration in supermarkets, food stores, restaurants and obviously in Australia - bars, as well as for petrol or gas. So from point of view phenomenal growth and this brings into NFC and our NFC agenda. Now what is in place is the strong acceptance network for contactless, which is obviously the foundation for NFC mobile and we currently working with two issuers in Australia with mobile applications, again I believe that cycle will take some time it will take about 12-18 months really to get into a rhythm on that, but it’s very high on the agenda, this moves me into the innovation space that we're doing, and again I think if you focus on MasterCard Labs, MasterCard Labs identified an opportunity with QkR and the demonstration will be downstairs as well.
We took that application to one of the [indiscernible] they loved it and we took it into a sports stadium where we actually enabled about 2000 seats in the sports stadium where you have a QkR application, you read it on your chair, the menu comes up, you order your food and it’s delivered where you sit. But what's even more exciting is that we took it to schools with the state government in Australia and we enabled QkR in three areas in the school environment, one is for canteens where parents can actually order food for the children in advance, the other is that they can order, pay the school fees and order school uniforms and stuff like that, so we're currently implementing that in eight schools in Australia and the interesting one in the first week that we’ve implemented one of the canteens actually decreased the cash in their system with 57%, the schools love it, the parents love it, so again this is innovation in action, we took it from MasterCard Labs and we’ve implemented it, and it's now in a production mode. The next one that we're extremely excited about is MasterPass, that is the real digital convergence mode that we're going to move into, and if you look at what consumers and merchants want they want easier, faster and safer payments online, this is what MasterPass offered.
So what we're currently doing is we're actually following exactly the same approach that we did with PayPass, we focused on the consumer ecosystem to develop that ecosystem in terms of cards, in this case we work with four issuers in Australia to enable the consumers, the card holders to use MasterPass online but we also focus on the merchant ecosystem and in that context we’ve developed partnerships with 16 payment service providers to enable merchants with the MasterPass button on their websites, to accept payments through MasterPass, and we will add thousands of merchants in the next three to four months in terms of our payment system. So again, just to summarize in terms of our three strategic objectives we've executed on that, the point that I want to make and it’s been raised by Ann earlier as well is, this would have not been possible if we haven’t had the resources on the ground, so down under we see the benefit of resources and the strategy in getting some of our resources closer to our customers. So that being said I am going to go across onto, Cathy just to talk to about our natural capabilities as well.
Okay thanks a lot Eddie, I think no doubt really-really impressive work that is going on in these markets around the world, so as Eddie says I'm Cathy McCaul, I've been with MasterCard for just over five years actually and I guess by this time you can also tell that I'm Irish, sometimes very Irish, but what I guess as I wrap up here for our panel what I want to point out is that of course none of all that magic that you heard about this morning and also the real magic that we've heard by the panel today where it happens on the ground, none of that's possible without processing solutions actually available in the local markets, so one of our major objectives as a company is to increase our transaction share above the 50% that it is today and Gary earlier on demonstrated the value chain in the market that demonstrates how important and compelling processing is to actually achieve that objective.
Daniel talked more about how a market comes together and lots of different companies and governments integrate to provide basic infrastructure but I want to focus a little bit more on the strategic investments that MasterCard has made in order to fast track product enablement in market. so we bought Access Prepaid back in 2011 with an eye to that overall global travel prepaid market that Ann talked about. We invested organically in the IPS issuer processing platform really to get after large scale customers.
We acquired Trevica very interestingly in 2012 because as the -- when the iron lady demands then the iron lady usually get, but to enable her to achieve that fast track week and acquire Trevica to help build out that processing infrastructure that she talked about and now of course she is taking it across the 11 times zones of other High GEM countries.
NPS is our joint venture with Smart and that enables our mobile processing capability really important in these days ahead.
And then finally DataCash acquired probably late 2012 runs at our overall processing capability so the focus particularly on e-Commerce processing along with other channels of course.
So you’ll see a couple of examples back here but I’m only going to focus on the two that you can actually see down stairs, so that we can make sure that we get down there. But Eddie and myself are always good buddies anyway but we became even closer as Access and IPS worked at the local market teams and the product teams to build out that leading edge loyalty card that we referenced earlier with Gary.
And you will see downstairs and I really do urge you to lookout through the eyes of the travelling consumer because that’s what we all are at the end of the day. So you’ve heard a little bit and you’ll see a little bit about the capability but the point that I want to make about this, is it was the fact that we could integrate what we had rather than develop and scratch that abled us to introduce a new product to a new market in less than six months cutting our time to revenue by over a half and that’s the power of integration.
And of course now our pals at Access actually has a very compelling proposition to take to other global airlines group around the world. So now of course Ed always woos us internally and I’m sure he did you guys as well as he talked about this converging world ahead of us. so NPS has been working closely with Trevica and IPS to build out that mobile money capability that is so important for the work that we want to do in emerging markets in availing financial services and access to banking for the Unbanked. so you’ll see that downstairs Ann referenced as again it is amazing to go to that zoom stance and to watch the pyre of putting financial services in the hands of the Unbanked absolutely very compelling.
So I conclude really with the point that our financial innovators are really-really dependent, very operationally dependent on processing and a very fundamentally and compelling way in order to implement in the markets. So we know that it’s our ability to integrate the functionality that we have that delivers the technology and the operational infrastructure that these guys really need. that’s what enables us to fast track our products into market and therefore help us to achieve overall our company objective of increasing that tractions processing share.
So on behalf of my panel, I would like to thank you very much for listening to us and invite Martina now to come and talk to about our business from a financial perspective.
Thank you, you guys. I am not really sure about Daniel’s comments either, its budget season, he needs more investment or he might want to come back to finance, that will be great. So anyhow hello everybody and thank you for joining us here in New York, who are listening in on the webcast and this is the last presentation of the day and then we have another Q&A session and then you’re free to go down to the demo room, but I’d like to just pullover our morning session together both from a business drive and a financial perspective point of view.
So let’s get the engine up here, so first of all I would like to take a look at our 2013 outlook again from the business driver and financial performance point of view then I will be talking about our approached investments as well as our guiding principles to capital planning and I will be closing then with some remarks about our long term growth and financial performance expectations. So let’s start with 2013 year-to-date business drivers, what you see here on the chart for the first quarter and the second quarter you see actually our as reported numbers. Those are the numbers that we typically review with you during the earnings releases and as you know on intra-quarter basis, we really can only use our process metrics and that’s what you see on the right hand side.
You put our process metrics for the second quarter as well as for the July and August periods, so the July till end of August period is there featured versus the second quarter and what you really see in all of the metrics that we about 1 to 2 percentage points higher from a growth perspective and that is very consistent with what our expectation actually were for the second half. The second half is trending a little better than the first half and in part we also seeing positive signs coming through in the U.S. in the economic environment. So based on these drivers our expectations for the full year of 2013 continued to be in line with what we said on the last earnings call in early August. We expect that the second half net revenue growth would be similar to the 12% that we saw in the first half and as I just said this is really based on the business drivers that we're seeing at this point in time and we have exactly assumed those business drivers before so there is no change. But what we did do is we included the higher level of rebates in centers that we typically see in the second half of the year.
And as you heard from Chris we have a number of deals in the pipeline, so we also assumed a certain amount of incentives that will be only recognized when these deals come to fruition and as you know these deals they come to fruition whenever they come to fruition, so these amounts will be recognized in those particular quarters so that can be a bit of a moving number.
In terms of operating expenses we still expect them to grow just slightly below 8% versus 2012 as we continued to spend on the right things that support our growth. And when you take that together with the top line growth that is providing for some operating margin expansion in 2013. For modeling purposes you should continue to use a tax rate of 31% and on foreign exchange if the euro and the Brazilian real stay as they were as the end of August 31st, and if they hold for the balance of the year then we expect that the impact of these currencies will essentially offset each other.
So now some of you have actually asked about how we look at investments, so I thought it would be helpful to provide some insight on this. Over the last three years we have invested close to $2 billion and roughly half of that we have actually invested in acquisitions like Access Prepaid and True Access but also the investments that we make in joint venture such as you heard Brazil there is one for the rest of Latin America, the joint ventures that we have with Telefonica.
Now this amount actually doesn't include DataCash which we acquired just in 2010. The other half of this roughly $2 billion of investment was actually invested organically. And how we think about it is we're really thinking about it in three categories. So first we have investments delivering growth right now. And as you heard this morning we have done a number of investments in our core products which product share gains in debit, in commercial, in consumer credit outside of the United States as well as in prepaid.
But it also includes things like expanding the local presence, of our sales and marketing team, building acceptance with new merchants and new devices as well as growing our advisors team capabilities. And all of this as you can see really supports our strategic objectives of expanding our geographic reach and our consumer base such as working with governments and with merchants.
The second category that you see here includes investments that support the expansion of our payments capabilities as well as innovation. So these include the loyalty and rewards space, the information services space and you heard quite a bit about that this morning, as well as our continued investment in Access Prepaid and in DataCash.
On the topic of innovation as Ed mentioned we’re very focused on staying on the forefront of the physical digital convergence with products like MasterPass and our mobile money initiatives. But also MasterCard Labs is driving our pipeline of future innovations and many of which you're actually seeing downstairs when you are going to be released from this room. So finally we also continue to invest in our technology and infrastructure backbone. As Gary mentioned we must deliver on the core. We must continue to invest in key assets that allow us to scale our global processing network as we transport more transactions, and you heard that from a number of our executives this morning that that is a real focus of us.
We need to ensure that MasterCard continues to provide safe and secure solutions and that we have all the tools that we need as a premier technology company. So to summarize about a third of our organic investment has gone into delivering the shorter term growth, and almost half of our investments over the last three years has been going into gearing medium term and long term growth through expansion and innovation. And the remainder went really into the technology and infrastructure backbone.
Now let me talk a little bit about M&A, mergers and acquisitions, as we’re looking more actively at potential M&A opportunities. So here is a summary of how we evaluate on the opportunities, I mean to start with we assess whether there is a good strategic fit. And sectors of particular interest are related to the loyalty and reward space the information services space as well as processing. And clearly we’re interested in technology investments such as assets that can help us in the physical, digital conversion space and anything related to keeping consumers, financial institutions and merchants safe in the payments related areas.
Next we look at whether the target companies provides us with critical capabilities in expanding and strengthening our product and service offering, providing us differentiated technology assets, allow us to really reach out geographically or give us new distribution channels. And then we evaluate of course the financials like many companies we look at acquisitions mostly from a cash flow perspective and we’re looking for returns above MasterCard’s weighted average cost of capital of about 10%. And that hurdle rate can vary by the type of business that we’re looking at and depending in which kind of areas in the world it’s operating in. However, there might also be some properties that are interesting for us to round out our own technology skill-set but they don’t necessarily have an immediate return. So, and finally we obviously look at the risk profile and other considerations including integration and cultural fit.
So now let me shift gears and talk about our capital structure. So our guiding principles have not changed as we want to preserve a strong balance sheet, liquidity and our credit ratings to first and foremost make the investments that I just talked out in order to enable the long term growth perspective of our business. Given the strong cash flow capability, cash flow generating capability of our business, we expect to have excess cash even after pursuing our growth strategies, which we would target to return to shareholders. And at this point as many of you know, our bias is still toward share repurchase programs overall but we continue to regularly evaluate the dividend level. So let me put this a little bit in context with numbers. Since 2007, we returned more than $6 billion to shareholders either through dividends or share repurchases. And in 2012 we returned 1.9 billion to shareholders, significantly more than in 2011 and then when you see even stronger trajectory this year having returned 1.4 billion through the first half of 2013 including doubling our dividend in February.
Now with that let me move on to the last part of the agenda. So our long term growth potential and financial objective. Several people have already talked about these three concentric circles and let me just move on to some of the numbers on that. So here in the first part you can look at PCE growth on a worldwide basis. And Ajay gave you kind of the slices on that in terms of how that can vary by country, by economic times, et cetera, but not much has really changed on an aggregate basis since we discussed this at last year’s Investor Meeting. And PCE is still expected to trend around 5% per annum over the 2011 to 2016 period.
Second, so this is the second concentric circle that you see here in the green box. The secular trend of cash and check conversion to electronic forms of payments, that has been trending in the 4% to 6% range over the last six years, it can really no change and what we have talked about before and we continue to assume that kind of range going forward.
So taking these two factors together, we still expect purchase volume growth, market purchase volume growth, to be in the 9% to 11% range. And when you adjust for markets MasterCard cannot compete against domestic schemes, the market opportunity for us remains in the 8% to 10% range, again no change from we have seen before. And finally you can see in the second green box that is labeled strategic investments those are really the strategies a lot of which you have heard from our panels and from our executives this morning about that allows us to share and to capture additional value in the market and what bring us to that low to mid-teens kind of long term revenue growth target. So now let me put this in perspective for our 2013 and 2015 long term financial performance objectives and they really have not changed from what we presented last year. So we remain confident that we can deliver an 11% to 14% CARG over the 2013 period from a net revenue point of view. Assuming the economic environment remain similar to where it is today, we now expect the net revenue and EPS growth in the early part of this three year period will likely be at the low end of our stated range. And why we said this on our last earnings call this is slightly better than what we thought a year ago when we maintain it’s really due to what’s happening in the economic environment but we starting to feel little better in terms of what we’re seeing in the world.
We kept the 50% operating margin minimum here and I just want to be sure that everyone understands that we’re not managing to the 50% target rather we believe that it’s the minimum margin level that our business can generate even after considering all the right investment opportunities for growth as well as of course managing expenses very carefully.
Our ability to exceed that 50% in any given year is depended on both top line growth and in the investment opportunities that we are seeing. So, we expect and earnings per share CAGR of at least 20% over the 2013, 2015 period and of course this assumes some level of continued share repurchases tax rate is not changing at the 31% assumed level for the three year period and as all of you know these objectives are on the constant currency basis and that also exclude future merchant in acquisition activity. So, thank you and now let me turn the program back to Barbara and invites my follow executive committee presenters up on the stage to begin the Q&A session.
Chris Brendler - Stifel Nicolaus
Thank you, Chris Brendler with Stifel Nicolaus. I've heard a lot about PayPass today and it sounds like there has been some success, you mentioned Canada and some of the far markets but when I try to use my phone in the U.S. the merchants tend to look at me like I’m crazy trying to tap my phone. I tried several times and I stop trying because it just feels silly now I just carry a credit card in the back of my wallet, a MasterCard of course and swipe that, it's that just easier I just don’t understand like can you help us explain what’s the difference between some of these farm markets we are seeing people tap their phones or taping something, not necessarily a phone, versus what we experience in the U.S.
Unidentified Company Representative
[indiscernible] handle the acquiring side of the business and he always gets phone calls from Ajay when his PayPass isn’t working.
Unidentified Company Representative
I have the same problem. I send him text messages saying that it doesn’t work again.
Unidentified Company Representative
CBS on eighth avenue is now working. Try getting a screw driver and get out there.
Unidentified Company Representative
You think he's kidding but he's not. I get those emails most Sunday evenings. Yes, it’s an interesting question, I think it just has a lot to do with structure of the market. We’ve seen markets, we’ve seen markets where PayPass has really taking off and been very successful where the markets are a little bit more condensed, a little bit more concentrated on certainly on the issuing side where we get a nice level of scale support for issuing PayPass enabled devices and where there are some large merchants who can sort of set the tone in important categories for installing the technology at the point of sale.
The U.S. is just -- it’s a large complicated fragmented market, not as fragments on the issuing side but on the merchant side, we’re talking about more than 9 million merchant locations, we have in this market that there is a decision to be made about the equipment that’s installed at the point of sale. We’re hopeful and part of what we factored into our road map for implementing EMV in this market is that by creating incentives to encourage not just merchants but issuers as well to adopt the technology that we believe is more secured and delivers the best consumer experience that that’s going to create incentive for greater uptake in this market. We have continued to grow PayPass acceptance but as you’ve experienced, it’s nowhere near where it needs to be. But we have put incentives in place that we think as merchants go through technology upgrade cycles, that it’s going to become a natural part of their decision process to enable their point of sale for contactless technology. So, we’ll continue to work at it, it’s just been a bit of a longer slog for us in this market than it has been in some of the others.
EMV will help?
Unidentified Company Representative
We think it will and that we’ve part of what we -- question was EMV will help. We think it will in that some of the structure we’ve put in place around offering financial incentives to merchants in particular things like accounted compromise relief, PCI compliance audit relief et cetera. The benefits that they can release will be greater if their processing transactions through terminals that are enabled with contactless technology.
Tim Willi – Wells Fargo
I had a question about marketing. So if you think about the emerging markets and international markets, your customer acquisition is probably coming in a lot different way than it has in North America where you’ve relied upon the banks primarily. So, I guess do you think over time or you have maybe a bit more distributed way of acquiring consumers, how does that impact the return on marketing or the approaches you’re taking. Would we expect to see a change in marketing versus volume or GDP or something like that over time as a result of those differences and customer acquisition?
So we don’t actually acquire very differently. We still acquire essentially through banks or merchants whoever is the actually card issuer. So in some parts of the world merchants and non-banks can be card issuers but essentially it's the card issuer who does most of the consumer acquisition. The only thing we are doing differently and we started doing it in the U.S. as well as overseas is we’ve taken our money from spending it on what are called card image building campaigns around price list to connecting it to priceless experiences for consumers and that came from the price of cities which is not just overseas but here too, so New York is one we’ve got [indiscernible] and Chicago and Miami and if it’s a constant rejuvenation but it actually makes an enormous difference to the way the brand is perceived. The talk of marketing is different in some of the emerging markets from what it is and some of the developed better penetrated for electronic payments markets meaning in the emerging markets it’s about getting a card into their wallet and getting them comfortable with that idea. In the United States or in Canada or the Australia it’s about which card do they take out at the point of sale. And so it’s two slightly different reasons to push at it but we actually don’t approach the acquiring of a consumer any differently the two markets it’s always mostly through the issuer of the card as the primary engine and then some work through merchants but the issuer of the card is the primary engine.
Unidentified Company Representative
Yeah, I just think the issuer tactics vary market by market in terms of acquisition then if you go more emerging markets it’s all more direct sales or store based sales than maybe online sales or direct mail channels and that’s a lot of the work advisors does and executes around the world making sure that the issuers and their methodologies are efficient. And I’ll just point in developing market it’s about educating them on what they can do with the card that’s all it all. And then as you become more educate it’s driving usage and preference the pure acquisition of new accounts is pretty much driven by whether it’s merchants or telcos or our issuers traditionally.
James Friedman - Susquehanna Financial Group
Thanks this is Jamie Friedman of Susquehanna, I wanted to ask about the commercial and corporate angle because that’s becoming larger part of the investment thesis. Clearly the results speak for themselves as you’ve referenced in the Nelson report. American Express is such a huge company, 80,000 employees. And I wanted to ask about your go-to-market strategy. Is that to Ajay through the channel partners, the issuers or is there an enterprise sales force that you’re actually building to go at the corporate client?
Yes, so it’s actually a combination of both. You end up having typically the issuers who tend to make the first call but very often what we do is our sales force either goes along with them, because of our knowledge and expertise and depth of comprehension of tools like Smartdata and the commercial card and what it does for a corporate treasurer or a corporate CFO in terms of tracking expenses and managing the way that money gets spent. So we tend to send people along, but we do it with our partners. And we've got kind of lead partners of choice in different regions, because of their interest in that region. And that’s how it's kind of settled into a pattern over the last I'd say couple of years. That’s the big picture answer. I'm going to let both Ann and Chris refer to their kinds of experiences to give you a little more color to that.
Yes, Ajay is right on. We have marketing efforts direct to corporate, where we would go out and call on them and showcase our products and services and acceptance advantage. We also work very closely with big issuing banks and go with them on calls and provide our products and services on a white label basis to them. One of the things that I think is going to happen, it’s an evolution that we watch take place in co brand space that I think is also going to happen in the commercial space. Retail co brands used to be that the issuing bank made the network decision. And the retailers realized overtime with the help of a lot of consultants to split the decision between issuer and network. I think what's going to happen in the commercial space as well for big commercial deals you're going to see consultants employed and they are then going to split issuer decision and network decision again. So that will change a little of the dynamics and maybe a little bit more the importance of us having direct relationships with corporate we've had in the past.
I think across the international markets it's similar to what Chris described, especially the material markets like UK, like Australia, very classically like the North American model that we've got to know the dual approach through our issuers and also direct. But also one of the things I would say is Chris sort of said he was very proud of these commercial growth and that we are too all over the world and some places we're growing over 30%, over 40% in some markets. So it's a very-very good area for us. The thing that we're focusing on in the international markets is not just the big issuers, where you would go with that kind of sales force but also starting to produce solutions for the small to medium sized businesses because that’s where the real growth is going to come from in my markets. And remember that 80% of small to medium business and under banked and downstairs what we you're going to see is simplify commerce which as RJ mentioned or maybe it was Gary, I can't remember. You know it's a way of small businesses actually bringing themselves up in a matter of minutes on the interest and being able to accept calls. Well when you look at the opportunity for that across the international world, it’s absolutely huge so you can see even more growth in the commercial sector going forward.
Unidentified Company Representative
I think also just they go to market approaches one thing, the package of tools, we’ve talked about smart data, we’ve talked about in control and there is another element which advisors focused which is helping our customers actually penetrates small business. So they have developed expertise leveraging acquisitions channels which are different for small business and for consumers with these banks in all the different types of countries we have around the world, so it’s a complete kind of picture that is one of those things to scale further.
Unidentified Company Representative
The other thing I’d say about in control though you’ve heard that used in the context of commercial products. In my markets we’re using that to actually manage fraud and we’ve rolled out complete fraud shield for example across the whole of Germany by getting all of the banks to adopt it and we’re also putting it in the clearing system in Taiwan, so some of these products that seemed are developed in once space can be used to actually strengthen our franchise in a completely different way which is the great thing about innovation.
Greg Smith - Sterne Agee
Two questions for Martina, just the first, how should we think about buybacks going forward relative to the stock price with your stock up, evaluation up, how much should we consider that in trying to forecast your buybacks?
Second question is just, is there an opportunity on the tax rate to lower that? I know you’ve said use 31% next couple of years but as you we look over the next five years or so as should that come down naturally maybe as you grow faster in lower tax jurisdictions?
So first of all on the share repurchases, as we have said before we’re going to run the program with into last $2 billion program and really our philosophy is picking up on dips so that’s what we have been doing very successfully.
Greg Smith - Sterne Agee
Probably similar to what most of them do.
Yes absolutely, what they’re trying to do I think.
Greg Smith - Sterne Agee
You can do a combined thing if you like.
But really the philosophy hasn’t changed, I mean when you look at the growth opportunity that we have for very-very long time that is the way that you really have to look at your share repurchase program and as long as we’re producing this access cash which I said that is just part of our business model. You’re going to continue to see that kind of cadence fast doing but trying to pick up on the deeps so that we’re running accretive programs and proud to say I mean after now we have been really running accretive program.
Unidentified Company Representative
Just she knows that the idea of picking up in the deeps not something that Martina has started talking about this year or last year, it’s from the year I came and you’re talking about shareholder buybacks and she has been pursuing this picking up on the deeps strategy which is the only way you would want us to buy shares, it’s the way you do that and that’s kind of work the way.
Second on the tax rate, yes, I am saying for all of you guys use the 31% for modeling purpose, but I think you guys know that we have quite effective tax strategy that we put in place in terms of optimizing what we did with our European footprint as well as with our Asia Pacific, Middle East Africa footprint and this is all out very much in the public since we have to 10-K disclosure about that, but we optimized our footprint in such a way that we basically put out tax structure there where we actually generating our business, so for example in Singapore we have 1% tax rate for anything that really generate out of the Asia Pacific region.
Singapore is a major business hub for us. We have a lot of people there working. We’re doing a lot of development there and so it’s really fast good location. Now when you do these kind of structures that usually transition periods overtime where you get the advantage of that kind of tax rate right on day one. You’re going to grow into that over 5, 7, 10 year periods, so overtime you should be seeing some benefits of that coming through in our taxes and we’re continuing to look at that and it’s always really hook to way where we have our business, so where we have out big business hub where we do that development of our products where we run our business firm that’s where you will see us migrating too from tax point of view.
So I would think overtime, this is not something you’re going to get in 6 months or in 9 months and 12 months, but overtime you should be seeing a gradual decline in the tax rate.
Greg Smith - Sterne Agee
It sounds like our budgeting conversation. You won’t get this in six months' time.
Tien-Tsin Huang - JP Morgan
Just a couple of questions first coming back to Chris’ comment about the pin debit share that you’ve picked up on the back of Durbin, I think I have heard you and Barbara say that you didn’t discount price to achieve that and I’m curious if that’s a good case study that we can use if Signature Debit opens up for nonexclusive with you?
I think just to Tien-Tsin’s point, we have been disciplined about not discounting in debit just to win every transaction that’s in the marketplace. Craig Vosburg is my gatekeeper on that. Every Friday afternoon, I get a list of every major retailer where Maestro is our pin debit products stands in the routing tables up or down against other regional networks and we have a pact that we are not going to just chase share for the sake of chasing share there. We set some targets to make sense for us to meet our overall financial objectives for the year, we need to course correct we see within a band of reasonableness, our market share moving up or down, we might add a little bit of incentive, but certainly nothing wholesale. If you flip that to the signature debit scenario, I think the thing you have to remember if signature exclusivity goes away in the pin arena issuers and merchants were picking from, I think there are nine pin debit networks in United States.
If you go into the signature space, there is really only two players. The third being Discover not quite sure their staying power is in the signature debit space. So I would suggest that there is probably even less pricing compression if we go to a signature debit non-exclusivity than in the pin space. You go to a dance as a guy and there is nine ladies to ask dancing, the prices are different I guess the price goes up.
I would add to that, one is I don't know senator Durbin would like to hear this thing said as back of Durbin or let that go. And the second one is actually real number; I have said this in some meetings in the past, where we were in terms of pin debit transactions we were processing through our network before April of last year and now is four times the number. And we have kind of stuck to that number give or take a little up or down as he and Craig look at those Friday sheets will go up a little, will go down a little, we kind of stick around that number.
Tien-Tsin Huang - JP Morgan
Curious how many dance comments will be on the sales side analyst tomorrow? So question for Martina I guess the second one and maybe Ajay just on the M&A front it sounds like a little bit more interest there. Any size restriction or level of dilution you will be willing to take and especially curious to hear if there is any sort of big or chunky deals that you might be looking at. Thanks.
Most of the deals that we done at this point in time were anywhere in the zip code between 50 million and 500 million, I mean that's a zip code and we kind of think that there are lots of very, very good properties out there that are in the zip code that would actually benefit from a business point of view to have. So of course from size point of view when you just look at our financial wherewithal we would be able to grow up in size, but it all depends on whether the property really makes a lot of sense.
I haven't come across a lot deals that have got valuations that are deserved at much higher numbers in the kind of industry we operate in. So we -- in addition to full out right acquisitions we have been putting money into investments and JVs in a number of locations although we watch those very carefully because management JVs are always complicated, investments are not a bad way to go in some cases. So we've got investments in something called ECS in India which is a processing shop that gave us, actually I think it is in Cathy's screen when Cathy had her screen up there. It's one of the inputs we're using to drive beyond the 50% of transactions that we see today. We were at 40 sometime ago; we did 50 today we want to get past that, and that's why this lady is focused on that aspect.
We've got investment and things like new sigma in India where we wouldn't put money into gold and get a chance to build out our data processing capability for the analytics business that Kevin Stanton is developing.
We have put money into a provider in Thailand which is one of the leaders in the e-commerce space, that's connecting merchants banks and payment systems together, so on and so forth. So there is money being invested that goes past the outright acquisition of a True Access DataCash, Access Prepaid worldwide into the smaller deals where we may out some money in and then later on increase the share like we did in Trevica, where we owned a portion and now we own 100.
So there is two or three strategies being played out, there is another piece which is invested to the couple of very early stage angel investors in the payments technology space, that's the way I am trying to develop skin for our company to see more deals in the payments development of new technology which may not see ourselves all the time.
But it comes in through these people, it makes us more aware and makes us more I think prudent, it adds that little jump to the innovation step that Mr. Flood refuses to do it in public.
From Goldman Sachs, one of the things you guys talked a lot about today was this shift analytics and trying to use analytics as a way to sort of add more value. The question I guess as I am thinking about this shift in integrated payments at the point of sale seem more of these type of based POS systems even the digital walled guys, everybody talks about adding value in analytics. And as I think and as I hear kind of what you guys are saying clearly there is going to be a lot of value generated in using those analytics, but do you think that you need to own a bigger part of the POS itself? Maybe some kind of cloud based POS with some sort to actually get you closer to that data to be able to have that value or can you do it from you guys sit at the network side?
So why don’t we get Kevin to answer for the second and then I’ll ask Kevin, is he there, yes.
So, as I said before the day that we have through our transcend action network is spectacular stuff. But we are constantly adding to the data pool that we can draw from that’s with our customers on a case by case basis its purchase sources but we’re always looking at how do we enhance our data on a permanent basis. What you’ve described is one of the things we’ve investigated. I think you could as easily have directed a question to Ed because we work very closely with that in making sure as we enjoy the convergence of digital and physical that we’re looking at the data angle there.
I’ll add is that two areas I don’t want to go: one is I don’t want to know your name as far as possible in the data ship that I get because I do not want to be involved in marketing to [indiscernible]. It’s not what my role is I am a B2B player with a desire to be B2B to C sensitive. When the consumer signed up for an electronic payment or card account with you they issue you the merchant they signed up with you the issuer or you the merchant not we MasterCard. I recognize my place in that space so I don’t want to cross that line because I believe that as the privacy debate become strong and it will this will be an important position to protect and defend. I don’t need to prove I have a Chinese war in the company I don’t get the data I don’t get your name. So that to me is important part of what I am trying to protect and build. And I think that’s key to everything that Ed and Kevin do or that Chris and Ann do in the transactions we do.
The second part is when I like to get more granular information, what I like to get to SKUs and not just merchant court and dollar value and point of time absolutely and those can come through many ways through working with the cash or point of sale register but also working in part to ship with merchant associations and other institutions and we already doing that business with. So there is many ways to skin that cat if it could be called that and that’s kind of what Kevin and Ed are working on.
Jim, you want to pass that down, I’m sorry I can’t say but it’s…
James Faucette - Pacific Crest
Thank you. It’s Jim Faucette with Pacific Crest. I wanted to ask question on the proposal legislation out of Europe and just kind of get an update on where MasterCard feels that we are in the process first? And then second note you’ve had more time to evaluate the proposals. Where you feel like you are both on the question of interchange as well as network ownerships? Thanks.
Well, I’ll start and then I’ll pass over to Javier Head of Europe who is here and to Google on the subject. And we did give the investor community an update at the beginning of the summer and to be honest not much has happened since then because in Europe we like to have long term reassesses. But there is three points that I think are worthy of mentioning in terms of this question: one is the co-barging point the other is the impact on the consumers of the changes and the third is the separation of the processing and the scheme. But I’d like to hand over to Javier who I think will address those questions very well.
Thanks Ann. Thanks very much, and thanks for the question. As Ann said, we like to go on holidays and it’s good because people use their Mastercards and that’s a good thing. So the only thing that I can tell you is that I woke up to an interesting piece of news yesterday I don’t know if you saw that whereby the French government decided and said, and I say decided because it was a pretty official statement I don’t know if you saw it, that they don’t feel that a single interchange across Europe is a good thing. You got to remember that the French, six months ago, decided and reached an agreement with all the players i.e. retailers, bankers and the government on a different thing which has nothing to do with what Brussels is trying to drive.
So, hey, welcome to Europe. So I guess my point is that you should not take it to the bank just yet that you’re going to have a new environment in Europe it’s got to have to play out. And indeed in this there will be a lot of risks and opportunities to MasterCard that I think we’re really well prepared to take advantage of. Some of the things that we’re worrying you for example I get a lot of times questions about the fees, what about your fees you know that that our fees are not, I repeat, are not included in any way in what is being proposed by Brussels.
Furthermore, another concern is the separation of scheme and brand, brand and processing or scheme and processing. We do not bundle brand and processing as a matter of fact 50% of our transactions are done by somebody else so we don’t do that, but some domestic schemes do. So that could hopefully if indeed it does go through open up an opportunity for MasterCard to process more. But come to my table at lunch and we can talk about it some more.
Sanjay Sakhrani - KBW
I guess you guys mentioned IPS several times, and I’m just wondering where we are with its penetration and how satisfied you are in terms of that and then maybe Chris you could talk about how important that is when you win debit deals that you have IPS.
I think that I could say on behalf of all of us that we’re thrilled with the performance with IPS, we’ve increased just over the last 12 months, we’ve doubled the capacity on the platform itself inside U.S. markets and I know, I’ll leave Chris to eulogize about what’s is done for his business in U.S. markets and I think the investments that we’re making now to explore the platform out across the rest of the world very targeted I have to say where the need is well defined and the capability and functionality that we have is appropriate for what we’re trying to do in the market so we’re not in Brazil and the Netherlands, Switzerland and then the third area is really the processer of choice for access prepaid which is really what has exploded out and IPS across so many more different countries and has really and increased the prepaid dimension rather than the debit dimension. So prepaid growing in the U.S. markets are also growing globally.
Unidentified Company Representative
It’s great for our sales force to be able to [indiscernible] customer and a one stop shop. You get brand and you get processing at the same time, it’s something we didn’t have in our tool kit and our competition did. So particularly in the independent banking credit union space or area that our competition could offer both now we can as well. And then it’s sort of a after sales stickiness. Again, if you get your system embedded with issuers big and small it makes your brand sticker makes renewals a little bit easier conversation because if you ripping out the processing perhaps and switching brands it gets pretty messy.
It’s great we have it, we have great testimonials now, Cathy has done a great job in getting that platform stood up incredible in the market place, it is state of the art, people releases state of the art and we’re seeing some real traction with she’s able to do.
Unidentified Company Representative
I think Cathy’s comment about being the platform for access prepaid, access prepaid in the 26 countries right now, so that’s 26 international markets that multicurrency and processing is available and that’s fantastic because actually in our markets the prepaid business things is growing something like a 100% over the last five years. So it’s fantastic growth rates and the fact that we have this platform just makes it even better.
Unidentified Company Representative
Okay. So, before I turn the podium back to Ajay who’s got just a few quick closing comments. I’ve got two quick administrative things. First of all, we’ve got lunch available as you leave the room box lunches, pleas grab one and ahead down stairs where you’ll find the lunch and discussion tables [indiscernible] table it was not my budget but if you want to pay for it, fine. And then into the part of experience area, you’ve heard ever all of our speakers today talk about the different things that are down there. In the back of your bind you’ll find a sheet that looks like this, it’s in the pocket in the very back, if you open it up there is a map that describes all 20 stations that we have this year, staffed with experts that we hope you’ll take the opportunity to talk to.
So with that, Ajay.
So, I’m going to keep my closing comments very brief, I think you’re all hungry and most importantly I do really want the most of you can stay on to go see those product showcase, we’re trying to bring it all together you can touch and feel rather than just listen to us quack about it. It makes it easier for you to identify with it.
So, what I hope you’ve got today was talk the first one consistently over a period of time, we believe there is this enormous opportunity on the 85% and it requires a very careful way of thinking about it, it’s very easy to fall into the trap of chasing the 15%, you have to do that because that pays for us to have events like this and for Javier to buy somebody wine at launch. But the fact is our future will depend on the 85% and that is what we will evaluate ourselves on consistently over the next few years.
The second one is we recognize increasing competition not just from the traditional players who are also aggressive in many of the same areas that we’re talking to you about but also from new players, right now there is probably some two kids seating in the garage in silicon valley trying to dream up a way for this intermediate the banks and the networks and find a way to tap in this nice big profit pool. I think we recognize that, we want to engage with them because we believe we bring a lot of good assets to the party that aren’t easy to replicate at an economic sense and in a sensible point of time and we think we can leverage that in the fight against the 85, as against worrying only about the 15. This company has changed substantially in these four years, you would not have had a dialog about physical digital convergence of the passion of all the team you are listening to and what will see downstairs four years ago and what you are seeing is only a portion of what our dialogs are like inside the company.
So that's just one example, I gave you the example of the Millennials, it's the truth of having to deal with them and using their energy and the way of thinking about our business in a way that's different from the way that I would have thought about it even myself four, five years ago. It’s an important part of who we are. It reflects in the way we deal with merchants and governments, you have heard us talk a lot about it but you couldn't see examples downstairs. And our people from around the world are living those examples as we speak, the Nigerian example, the South African example, the World Food Program example, the PayPass example from Australia, from Poland you have heard about it from Canada and Turkey in the past, all these are a part of what we're trying to do differently today from the past.
We believe that we're well positioned, we got a lot of work to do much can go wrong, but we’re well positioned and we’re going to keep investing in making that happen. That legislative environment is a key part of what we worry about and think about that's why we're engaging with governments not just as a business point but also you will ask any business manager whom you have spent time with today, anybody from the regions of the divisions. And they will tell you they own the situations on the ground of building the right capability as well as the right conversations with the governments.
It is not the job of Noah and his capability to be available in 210 countries to try and change that conversation with a bunch of lobbies that is not what we're doing. We’re doing it ourselves; Chris was in DC yesterday meeting Cordray. I have been in DC seven to eight times a year, I consider that to be a business of mine, I need to get there, I am out travelling I was the week before last in Jakarta, in Seoul and in Singapore all three with Vicky, we met the senior most policy makers and opinion leaders in those countries, I am going in a few days to Eastern Europe with the Iron Lady and hopefully she will allow me to do a little bit of the work that you want to do there, and so on. It's just the key part of what we do; it is front and center of our future.
We're going to driving change in all these things, in technology and innovation and culture that's what we're committed to, that's what this gang is signed up for. So with that thank you very and looking forward to seeing you outside. Thanks again.
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