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MasterCard, Inc. (NYSE:MA)

JPMorgan Global Technology, Media and Telecom Conference Call

May 19, 2014 09:00 AM ET

Executives

Ajay Banga - President and CEO

Analysts

Tien-tsin Huang - JPMorgan

Tien-tsin Huang - JPMorgan

Thank you. Thanks everyone for joining. Good morning. My name is Tien-tsin Huang, I cover the computer services and IT consulting group at JPMorgan. So, really excited to have Ajay Banga here, CEO of MasterCard, to kick it off for me in terms of all the different tracks, just want to remind everybody about the format. We've got this as a fireside chart, so I will go through a lot of the questions that a lot of you have asked me to ask, but we also have this ask a question portal, so don’t ask me how to log-in and all that good stuff, so do your best to do that, but the questions are in here and I will definitely try and get through that. So, again Ajay thanks for being here, I know how busy you are. So, maybe let’s just kick it off, since it’s a global conference may be you can just quickly walk us around the globe and tell us what you see in terms of consumer spend, consumer health, et cetera.

Ajay Banga

So, I would say in the U.S. by and large, April was a way better month than the first quarter in terms of consumer spending. SpendingPulse, which is the data we produce based off the data we've had for years, so we can regress back into total consumer spending. SpendingPulse shows that consumer spending ex-auto was up 4 plus percent in April, and just to contrast that, the first quarter was 2 point something, 2.8%, 2.9%. And last year, the number bounced around between 3% and 4% through the year, so we felt like April was back to a number similar to last year’s numbers. And May looks like -- the first couple of weeks of May looked like April more than the first quarter. So, the U.S. looks like it’s there in that form, you’ve got changes in the sectors, furniture and furnishings and fixtures, which were very strong a year and a half ago, which was how I started calling out that housing was recovering in earnings calls, that seems to have slowed down, which kind of fits exactly what’s going on in the housing market right now. So, it’s a mixed bag there, but that’s the U.S. in numerical terms better than the first quarter.

Europe is actually okay. The UK in April had a 5.5% growth in retail sales, which I don’t think the UK has seen in two, three, four years now. So, that’s a large number, now it's also off a small base in the prior year, but it’s still a pretty attractive number. And Northern Europe is any case doing well. Southern Europe which is more difficult is actually coming out of a trough from lapping very poor comparisons, and so it’s looking better. Europe is actually looking okay in spending. Consumer confidence in places like Latin America; Brazil is beginning to sort of stabilize on consumer confidence. Retail sales in this last period were up 5.8%, 5.9%, which is still off the 8% of last year’s first quarter, but it’s better than the in between two, three quarters. Mexico is doing okay, and so that’s Latin America.

Asia, China is clearly slow, and that makes a difference to everybody, but China’s sort of slowing off is less impactful for us because we don’t process domestic transactions in China with China UnionPay there, and cross-border from China, both in and out is still okay, lower than it used to be, but it’s still talking double-digit numbers. And the rest of Asia is kind of bouncing along. India is actually okay on spending, and Australia is doing fine, ASEAN is doing well. So, broadly I'd say we are in a decent phase of consumer spending.

Tien-tsin Huang - JPMorgan

Good, so no cross-borders…

Ajay Banga

And there are a lot of stuff that could go crazy right?

Tien-tsin Huang - JPMorgan

Sure.

Ajay Banga

But right now, that’s where we are.

Tien-tsin Huang - JPMorgan

Okay, no, it's good overview. So, let’s talk about cross-border a little bit, you mentioned that with China. I get a lot of questions from investors about how MasterCard is growing at such a big premium to Visa. I think it was 17 versus 8 last quarter. How much of that, Ajay, is mix? I know you had Western Europe, they don’t, if I remember you have a lot of European issued cards as well I think that’s like half of the volume, maybe. So, can you just educate us on why there is such a gap between your numbers on VISA?

Ajay Banga

So, I don’t know why the gap, and I don’t know enough about Charlie’s numbers. Charlie is here by the way, and the funny part is those of you who are going to see him later, he's dressed exactly like me, so I have offered to give him a turban so he can become a human being, but he is wearing a green tie and a blue shirt and a blue thing, so if you guys don’t mind, when he walks in, just tell him it’s déjà vu right, and he will figure it out.

Tien-tsin Huang - JPMorgan

It’s the network look.

Ajay Banga

Yes, it’s the network look.

Tien-tsin Huang - JPMorgan

Yes, yes.

Ajay Banga

Thanks, Tsin. So, I'll tell you what, first of all, I know there was some mix-up that the 17% cross-border growth that we had in the first quarter, that some of it came from Europe, and Europe is a lower yield on intra-Europe cross-border, so it’s just an empty suit in some way, and it’s actually not. If you took out Western Europe’s growth rate of cross-border transactions, MasterCard’s growth rate of cross-border in the first quarter is actually a little higher than the reported number, just a little. So, in fact Western Europe grew slower intra-Europe than what was reported. So, I don’t think it’s got anything to do with the mix of Europe versus elsewhere. What I think is going on is that few of our countries are really performing very rapidly on cross-border. We are doing well there in terms of market share, but we’re also doing well in terms of cross-border activation of consumers by connecting the dots when they travel across cities, and some of those countries that that are doing well we had called out were Australia, Italy, Sweden, Russia, among others. The ones that have slowed off a little is Brazil, where the government introduced a cross border tax on card spending that did make a difference, and it changed their cross border growth quite dramatically, and Canada slowed down just a little; and Canada, the U.S. Corridor is the one that’s the strongest, but that kind of moves around depending on where currencies are going between the Canadian dollars and the U.S. dollars, that slowed down a little bit.

So that’s what happened to us, I am not quite sure what’s in Charlie’s numbers, but we don’t any confusion between Europe and the rest of the world in mix, that’s not the issue, we’re just growing well, our cross border is doing well. And in the first -- April 28 earnings call, we had said cross border is again at about 17%. I can tell you as of a couple of days back; it’s still at that number. So I don’t know what’s going on in Charlie’s numbers.

Tien-tsin Huang - JPMorgan

Ok, no, I didn’t appreciate that difference, because we lazily call it a Europe mix issue, so that’s good to know.

Ajay Banga

But I want to make sure you know that our revenue growth in the cross border was helped by the acquirer pricing increase that we had taken in around this time last year, so this lapped actually at the end of the first quarter, that did help, and in fact price increases of that type did in the 14% revenue growth in total that MasterCard had in the first quarter close to 3% came from those price increases which are lapping at the end of the first quarter.

Tien-tsin Huang - JPMorgan

So volume will look a little bit more like revenue growth starting this quarter in the second quarter?

Ajay Banga

Correct.

Tien-tsin Huang - JPMorgan

All right, good. Let’s satisfy this Russia question on the Ask a Question portal. So, update us on what’s happening with Russia in the new payments law?

Ajay Banga

Russia, so the Russian Government passed a law through its parliament through Duma a little while back, which essentially calls for the creation in response to the sanctions that were put in. We have sanctioned four banks by the way. Five actually, but one had no cards with us, four are currently under sanction. They add up to a very small percentage of the total Russian cards that we have issued, or for that matter that I think the Visa has issued, less than 1% for us guys. I don’t know exact number for Charlie, but around that kind of number, and Russia itself for us is just a little over 2% of our revenue, close to three-fourth of that revenue comes from domestic transaction work, not just processing and switching, which is actually only a small percentage of the revenue, but from domestic assessments and data being sold and all the stuff that we do with our P&L line.

The other 25% is from cross border. These rules that are coming in do not impact cross border, the rules do impact domestic. In domestic, they would certainly impact the portion of our domestic revenue that comes from switching and processing, which as I said, is a smaller portion of the 75%, it’s actually a relatively small portion, but it will impact. The challenge is twofold, the first part of that rule states that you’ve got to deposit a certain amount of collateral in 60 days from that rule coming into play, it’s unclear how that collateral will be completely computed, although somebody put out research report that talked about billions of dollars. We’re going to take a zero at least off, you’re in the low hundreds of millions for somebody like us.

Again, I don’t know what the number is for Visa, but you can ask Charlie who is here, but that billions number is just wrong, it’s blatantly wrong. I wish I had that kind of GDV in Russia, but I don’t. So you’re talking about much smaller numbers of collateral. If you do not become what’s called a domestic processing entity, don’t know what the heck is involved in becoming a domestic processing entity, that’s the clarity we are seeking, we’ve had meetings with the Central Bank, meetings with the Ministry of Finance, and are waiting for that clarity.

There is a second aspect which has to do with on-soil processing. There, we actually have installed a 24/7 center a little while ago, which I was doing because Russia was growing and I could see the pressure building on the volume and capacity and the need to have local processing. Now, I am a big believer in local processing. In fact, we just announced an acquisition today in the morning in a similar idea. And so we were already putting that on the ground. I don’t think that satisfies what they want. They want more, but for that you’ve got two years.

So the issue is right now there is an issue of, are you a domestic Russian entity, if not, will you put in these two layers of GDV as collateral, which is not billions, let’s take a zero off, it’s low hundreds of millions. And second, what do you do with on-soil processing? That’s kind of where we are right now. And the impact as I said little over 2% of our revenue, 25% cross border, 75% domestic, off the domestic a smaller portion is the really processed switching revenue that directly comes under the Russian entity.

Tien-tsin Huang - JPMorgan

Got it.

Ajay Banga

That’s kind of where we are.

Tien-tsin Huang - JPMorgan

What do you think about this -- we’ve been thinking about this quite a bit. What do you think about this concept of national schemes or national payment systems becoming more popular, I mean we've seen I think in UAE with the Mercury Network, obviously here in Russia, RuPay with India. You’ve had established once with Canada and obviously China, you mentioned UnionPay. So is this something that might reduce the TAM for MasterCard?

Ajay Banga

Great question. Look, the nationalistic chauvinism has been around for a long time on issues like payments, because countries consider payments in many ways to be of vital importance to their sort of economic performance. And all over Europe, there used to be these nationalistic sort of switches in every country that were controlling debit switching. Canada has Interac, Mexico has them, Brazil used to have it through the old Redecard and CLO combination, Colombia has it through Bancolombia and Red Colombia, there’s a series of these around the world. Most countries have got some form of this or the other partly done by government regulation, partly done by the banks creating in some cases their own domestic switches in an effort to control at least debit if not credit switching in that country.

I don’t see it increasing other than this recent event in Russia, it’s actually been reducing because CEPA brought the European ones into a different place and Mexico just changed the opposite way saying that those monopolistic switches were no longer going to be allowed to remain monopolistic, but they would add the ability for people like us to process locally.

So countries are going in both directions, Russia is going in one direction, the others are going in another. Do I see any big pattern out there? No. Most often than not when you talk to a country in Russia had a previous desire to create this switch three-four years ago when I had gone there and met the government at that time, and I’ve been backed very often since then. They understood that we bring things that they can’t get to the domestic switch, just global connectivity, fraud and security, which is right now a big issue on every country's mind, right. If you think about our system, if somebody does something in Taiwan with security, and if we get to figure out what’s going on, we put a fix into our system. That system goes into 200 countries. If you start having 200 countries trying to build their own ability to fight off fraudsters, it’s a very expensive and a very unlikely way to win in this interconnected system, so everybody gets the pluses and minuses of a domestic versus an outside player. But, you know, stuff pulls in and stuff pulls out, I don’t think it changes the long term picture.

Tien-tsin Huang - JPMorgan

All right, good, now that’s good to know especially given how much you travel and visit with all these countries. So, let’s bring it back to home a little bit, talk about US debit which hasn’t rebounded as much as credit right Ajay, so I’m curious what’s driving that. Has the secular outlook changed there? I know interchange has come down, we’ve had some security breaches as you mentioned, there’s a lot of talk about instant ACH and what not, so what’s your view on debit in the secular outlook in the US?

Ajay Banga

So, I don’t think that the security breaches -- Target was the one that everybody talked about, and I did see when the target breach happened that people were fearful of using their cards per se, at Target, debit, credit either. I haven’t seen that create any kind of secular change between the two. Interchange going down, consumers don’t care about that, right, that’s a merchant bank kind of conversation, and consumers are using what they’re going to use. I still see a lot of young people preferring debit, I don’t think that has changed dramatically. I do think that banks and issuers would clearly like credit to grow because they have better economics on credit if they can afford the credit risk which they’ve all become even more careful of over the last few years. Banks would love that, I think that there’s no real secular underlying movement that’s going on between debit and credit that I can think of.

Tien-tsin Huang - JPMorgan

All right, good.

Ajay Banga

We -- our debit volumes are doing well, because funnily enough, we -- when Durbin happened because we had to be the -- enabled as another scheme that had to enabled for the PIN transactions, we’ve now up to 400 million plus PIN transactions a month, we were at 100 million when Durbin started, so in a really odd funny way, we grew out of that system, and the credit is doing fine, we’re actually turning the corner on consumer credit in the last quarter. Commercial credit has been growing well through this, and by the way through April 28 and now let’s say over the last couple of days of May we are doing well on US credit both consumer and commercial in terms of processed volume growth, actually a little higher than what we had seen in the first quarter, that’s what going on.

Tien-tsin Huang - JPMorgan

So sticking with US credit there and you’ve had a couple of co-brand wins which is great, I know that one of your missions has been to get the share up with credit profitably so what’s the status there? Is co-brand really the path to more wins?

Ajay Banga

To greatness, look we are clearly smaller than our competitors in US card, there’s a long history for it. One of the biggest reasons for it is we were the banks that we were aligned with where the banks that either got bought by other banks that were aligned with competitors or didn’t perform as well through the cycle. So we’ve got a problem that for our consumer credit, our commercial credit is in pretty good shape and growing rapidly.

Consumer credit, to me the only way to do it was either go back and win more issuing business or win more co-brands, it so happens that in the consumer credit space, co-brands are pretty large as a volume contributor and there you can get flips, it’s difficult to flip an entire bank’s credit portfolio over from one into the other, you can get them but it’s tough to do.

So while we’re not taking our eye of the banks, we’ve now got a Bank of America there, better balanced rewards for example which was something we launched recently it’s only with us. It’s the first time that we’ve done that with one out of the other networks. So we’ve got that going on, but those are all singles and doubles, similarly in the co-brand space, those singles and doubles although some of those are a little bigger doubles than the others, so Walmart and Sam’s Club and Target were good and there’s more along that way, we had Hawaiian Airlines, we had Virgin Atlantic, we've had Intercontinental hotel group, we had Bass Pro. So the seize of these, I’m just trying to make sure that every time there is an opportunity we are there, we are playing for it and we bring our advisors and data and analytics capability to the party each time very strongly. If the incumbent brand is AmEx, then there is a very simple discussion that starts from the acceptance of AmEx versus us and the money that the merchant is leaving on the table. By not having a brand, that has got wider acceptance outside their footprint. So all that revenue is getting left out. It’s a different story against the different plans, but that’s what we are up to.

Tien-tsin Huang - JPMorgan

I just on the -- just taking with U.S. credit, I get this question a lot about how with the Chase de-conversion cum banking you may have heard of, could U.S. credit turn negative in the second half of the year, is a question I get quite a bit.

Ajay Banga

I don’t know the schedule for sort of unconverting our cards out and Chase and -- they started doing some, but since you work there, if you can get me a schedule, I will be very happy; because it will help me answer this darn question which I’m also getting. I don't know the number. I don’t know what’s their pace of conversion will be. But they are converting. And my anticipation was that they will start converting early in the year because the pricing with us is clearly unattractive compared to the pricing what they got with Visa right now. And that’s fine because I’m actually making good money out of them now that they no longer add any kind of commitment to me on going forward volume. So that helps my revenue.

But I thought they will switch off much quicker. They probably got their own reasons. But whatever be their reasons, I expect that over the next six, nine months, meaning the second half of this year, and some into 2015; they will switch off. They will not go away from us on co-brands because there’s a life of card deal there. And they probably are -- they're giving us more business in commercial. We’re doing their middle large market card now, that’s a (51) [ph]. So it depends. But Intercontinental Hotels is with them, for example, and so on.

So I don’t know what their pace will be. Now, I don't know their pace; I know that we’ve won these other deals. Our Target loan, we convert next year, Walmart Science Club is starting now, Intercontinental Hotels has happened, Basfroi has happened already. So some of them happen, some of them are in the process. It’s tough to do the math. I’m kind of hoping that we will not be negative at all during that period because in the meanwhile our base volume is beginning to do better. So, I think we should be okay but I don't know what pace they will convert in.

Tien-tsin Huang - JPMorgan

That’s why I have my MasterCard Chase debit card for what it's worth.

Ajay Banga

Good. Good. Keep it forever. Be the one guy who holds out.

Tien-tsin Huang - JPMorgan

We can also ask Jamie.

Ajay Banga

For truth and for value.

Tien-tsin Huang - JPMorgan

Well we can also ask Jamie, and you ask in the question portal at our key notes, later on today what the conversion schedule is. Let me stop there and…

Ajay Banga

Good luck.

Tien-tsin Huang - JPMorgan

Let me stop and let the audience ask any questions if they have any. Don’t be shy, if not, we can keep going. All right, we’re at the boredom to death, or we’ll keep going. So let’s talk about, your mentioned Target, you mentioned Target, right, all right, just so -- EMV in the U.S. is a big theme Securities is a big theme, I asked a question on the call if EMV chip and PIN could actually cause some brand flips, looks like that happened with Target; what’s the state of EMV? How do you see it? What’s the implications for MasterCard?

Ajay Banga

I think that EMV is very important. I have felt this for a while. I came out of the banking system. I’ve been in the U.S. I’ve been overseas. I have run Global Consumer Facility internationally. So I have seen the movement into EMV around the world. And frankly the fact that the U.S. was the only country left holding onto MagStripe. This kind of pan invitation thing, you know come and take me kind of thing. I am here for fraud service, which is just not a smart place to be. So I am a big believer that we need to get towards the most secure form of transacting. Because ultimately payments is about trust, and trust is about security and safety. And if 85% of the world’s retail transactions are still in cash and you can’t get people to trust what they do alternatively, they'll go right back to cash. So it’s just a -- fundamentally this is a wrong place to be. And even in the U.S., 50% of the transactions are still with cash. So it's not as in the U.S. has converted electronic payments ubiquitously, in fact, the only countries that have really done that well are the Nordics and Korea, for reasons of government support and pushing it. But everybody else, U.S. 50%, Brazil is 80%, Japan is 80% cash, Germany is 80% cash. So we've got a very big market place to think our way through. And security and trust will be principal in that. So I am big on the EMV thing. I also believe therefore that the most secure form will be not only the chip but also the pin. The chip is secure because it makes it difficult to counterfeit the card. It also is secure because it makes it difficult to steal the data and use it for a card not present transaction because with the chip goes a unique code each time. Just like a contact list, a unique code goes each time. So when people say either about the chip or contact list or we can steal your data and reuse it, that's bullshit, they can’t. That’s a technical term. But there’s basically a unique code that goes each time, so this is nonsense absolutely. It’s misinformed nonsense. So the pin advantage is that if I stole your card right now which I would like to do, and I go running out to buy jewelry for my wife, because nobody actually checks the signature at the back very often in a merchant store and therefore don’t relies if we look different. I could get away with it once, by that time you would call into your bank which might be JPMorgan and you would say that I have this problem and then they would call me to help switch that card off. But with the pin I wouldn’t even be able to get through the first time. So therefore to me the advantage of chip and pin is beyond counterfeiting and fraud it is the issue of my being able to steal your card and use it in another way. So it’s a lower proportion of the cost, that’s caused by the stealing card, using it once in a while, a much higher proportion of fraud is caused by systemic data being stolen and reused which the chip will find. But chip and PIN therefore adds a double level of benefit compared to only chip and signature. But that doesn’t mean that you have to go all the way to chip and PIN, I provide infrastructure, my job is to provide the best infrastructure in the physical world and then in the digital world which we will talk about all the way from chip and PIN to today’s MagStripe would prefer people to go to chip and PIN because it’s safer, MagStripe is less safe, that’s all I am doing.

Tien-tsin Huang – J.P. Morgan

What about the economics Ajay? I think a lot of people ask me about the economics on PIN and the EFT networks being whatever a third of that of signatures. So can you just spell the notion that ENB chip and PIN drives down economics?

Ajay Banga

Well look we've chip and PIN overseas for years, and you can look at our yields and our yields overseas on credit transactions are attractive, in many cases more attractive than the United States because of the negotiating power of merchants and banks in the U.S. versus elsewhere, right. That’s the bigger issue than chip and PIN. Debit, that’s already way down anyway and debit by the way has a different rationale if you don’t -- at the end of the day a merchant doesn’t incur credit cost with a debit card to the same extent. And therefore there is a value exchange involved that’s different for credit versus debit.

And secondly the single message versus dual message. There are lots of transactions that hiding a car, PING for you breakfast in this hotel where single message is not going to work. So PING is an authentication method, it doesn’t transform the economics of credit, debit transactions are transformed because of what debit is versus credit, don’t mix up the PIN versus the debit versus credit, you’re mixing up many things that are happening at the same time. Just segregate them from the experience we’ve had overseas, you will see that there is no logic to presume that PIN and chip would reduce economics to the same level as debit for credit.

Tien-tsin Huang – J.P. Morgan

Good. Good, now it’s an important distinction between authentication and the…

Ajay Banga

But safety is really important and in the digital world it’s important too.

Tien-tsin Huang – J.P. Morgan

Yes, so let’s talk about it. So, I think EMV has pushed more fraud online has been the history but here in the U.S. we’re going to take a shot at this tokenization standard I know MasterCard Visa I think AmEx also pushing one standard. I also get this question Ajay about how if a different standard develops in tokenization, could that harm MasterCard the incumbence in any way, what’s your view on that on tokenization.

Ajay Banga

So the first thing is that tokenization to me if -- look, the physical digital worlds are converging, but today ecommerce transactions are running between 7% and 10% of retail transactions. So the fact is they are growing faster, so somewhere over the next three years the same will keep converging and consumers are looking for a omni-channel kind of experience, they hate getting pulled and pushed through, oh it’s physical, I've got to be different, its digital I've got to be different and when people can figure out how to make that seamless is when you will get this transaction ratio to move more and more in digital from where it is today.

The fact of tokenization is that tokenization is basically chip and PIN over the web, that’s what it is. It creates a unique identifier each time that goes with the transaction. In the case of tokenization, we’ve added another level of security which is that this device is also recognized by the system so if you were to use your card, that debit card is a still MasterCard on this device versus that device it will recognize the two devices as well and if I tried taking the data from here and putting it on my iPhone it will bounce it.

So it’s not just the uniqueness of the code that goes with the transaction, it’s the device that comes from as well. So there is multiple levels coming into tokenization. Could people develop alternative (samples) [ph] of tokenization, sure they can go try, it’s not easy, we spent a large amount of money, effort and technology we’re doing it. And I think we’ve got skill because at the end of the day what consumers want us to take their current payment systems and put them on to the web to think that everybody is going to go running out to acquire new payment systems to go shopping digitally I just think that’s a step too far.

Tien-tsin Huang – J.P. Morgan

Okay.

Ajay Banga

So I still think there is a lot of play here and all I am trying to do is to make sure that when we think about our digital future, we make sure that all that we’re doing at MasterPass which is people think it’s a wallet, it’s not -- wallet is just one angle, it’s the whole digital strategy from MasterCard, that whole strategy must have as its splunk security, that is just mission critical.

Tien-tsin Huang – JPMorgan

So MasterPass you mentioned I always thought of MasterPass as a wallet of wallets for lack of a better word, there is so much out there, we’ve got a mobile wallet panel in a couple of days. How does MasterCard MasterPass fit against a Google Wallet or ISIS, MCFs

Ajay Banga

I don’t want to be in the wallet business, I just think being in the wallet business is not going to make anyone go to greatness because every merchant and every bank wants to launch their own wallet, how many wallets will be on the checkout button of a merchant’s final page and if you try shopping on that little phone that he is holding there, how many wallets do you think you can see even though he is much younger than I am on that page, it’s just not going to work.

And we just have to get to the program that says stop trying to put 200 wallets on the checkout page, it won't work. So our attempt at MasterPass is the consumer wants an omni-channel shopping experience, physical, digital in-app which by the way you should not forget. We are building MasterPass not just for the digital wallet where it could be its own wallet or it can be the wallet or wallets meaning I can private label if it’s what we’re doing to a number of banks and all you need to know is when you go into site, you’ll see the MasterPass logo, my cards will work, my electronic payment system will work.

That’s the digital sign. We’re putting in-app capability into it, so you’ll able to purchase clothes for your avatar while playing a game. You’ll be able to keep doing things like getting out and back in. And in the physical world, all the contact list and [indiscernible] and all the kind of stuff we're doing with it in MasterCard labs is all connected to MasterPass. So MasterPass to me is MasterCard’s digital future. It’s not a wallet. That’s only one aspect of it. There is the wallet of wallets. There is the physical space. There is the in-app space.

The second thing is, it’s got to have, that’s why we bought C-SAM because C-SAM has a ton of really good engineers and technologist who are very-very strong in the space of developing digital and in-app payment capabilities attached to wallets. They’re the ones who did the Isis Wallet among others. They also are working with a bunch of merchants and other wallets. By buying them, we get the ability to get MasterPass, to get scale to be rolled out in this physical digital in-app space, not just digital. And then labs in which we've invested is busy working on quicker and simplify all these things that are all oriented towards using MasterPass as well. And then finally what I’m up, to two other things, one is open APIs which are rolling out as we are speaking.

So people could come into using our data and our capabilities in Safe Sandboxes and build applications that we could get to use, so let’s say you were landing in Cincinnati and you were looking for the South Indian food restaurant that everybody goes to, currently, you’ll go to Yelp and you’ll get told this is the one I like. I can give you not what you like but you actually spend your money on because I know who’s going where, not by name but I know how many people went there, I know how frequently they went there and so on. Think of that as an open API app that could be built, that’s just one example. Safe secure sandbox where they can’t access our main systems. All that is part of MasterPass that's what’s coming over the next year or two and every one month there is a new thing coming out on it. We’re now in seven countries. We’ve got 40,000 plus merchants signed up. We should be in 75% of where our GDV is over the next year or two with MasterPass, that’s what we’re up to there.

And finally I’m trying to connect it into P2P payments, that’s how we did the JV called HomeSend with BICS and eGlobal because the idea is to create the ability to move from any form of account card, account, anything to another form by connecting through the clearing system of the telephone systems. So we’re going to connect all the mobile systems to these bank accounts ,that what we’re up to. And so I’m not interested in being a wallet that’s recognized by consumers at the end. I’m not a consumer company. I’m a B2B company with a B2B to C way of thinking. I am not changing that into digital world. I am working with merchants and issuers.

Tien-tsin Huang – JPMorgan

We have three minutes left. Questions from the audience one last chance, if not, keep going.

Question-and-Answer Session

Unidentified Analyst

[Question Inaudible]

Tien-tsin Huang – JPMorgan

Yes, question was about M&A and you guys [indiscernible] some debt also, are you going to do some strategic deals more tuck-in, I added a billion and half but yes, you’re going to do more strategic deals or more tuck-ins? I guess you guys announced one this morning as well.

Ajay Banga

Yes, so, we’ve been doing smaller deals. That’s correct. (You know he's) [ph] right. We just announced one this morning in the processing space that happens to be headquartered in India, but it’s in 25 different countries with debit, credit, and prepaid processing capabilities for acquirers and issuers and I see that as a way to take our processing footprint around the world at a lower cost than taking St. Louis kind of systems everywhere. The idea of are there bigger deal out there, sure they are, but I’m not going to tell you about them in a public forum because that deal is a certain one not to happen. I am very-very focused on right now exploiting what I think is great for us for the next two years.

We have that focus in safety and security, in loyalty and rewards, in data and information and processing. Those four are the key places to play. Processing because I can do data and information, security because I can’t survive without it long term, and effectively the loyalty and rewards is the way of making the B2B to C come true in a real proposition with merchants and with banks. That’s what I’m doing right now. Are there bigger deals out there that could be more transformative? I’m sure they would be, but I don’t see the need to gamble right now. I see a runway of 85% of the world’s retail transactions still in cash. I see enormous opportunity in that space. I don’t see us as an industry that needs to consolidate to take out cost to be the way to survive which is what a lot of other people are doing and some of them are not. AT&T and DirecTV is a different play, but these are very large mature industries in some ways that are trying to get into a different space.

We are not in the stage of maturity. I think we’ve got a long way to go, if we stay focused. So right now very focused and the only thing I would say is this is an industry in which you got to spend money on innovation, distribution and good people. And I think the industry five, six years ago was starving itself of that money, that I am changing. I am trying to put money in either acquiring or organically, and you can see that in the way our expenses are constructed.

Tien-tsin Huang - JPMorgan

All right, terrific. I think we are in the act here, so I appreciate the time Ajay, appreciate you being here.

Ajay Banga

Thank you. Thanks very much.

Tien-tsin Huang - JPMorgan

Thank you.

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