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Executives

Barbara Gasper - IR

Ajay Banga - Chief Executive Officer, President, Director, Member of Executive Committee, Chief Executive Officer of MasterCard International and President of Mastercard International

Noah Hanft - Chief Compliance Officer, Chief Payment System Integrity Officer, Corporate Secretary, General Counsel and Member of Executive Committee

Martina Hund-Mejean - Chief Financial Officer and Member of Executive Committee

Analysts

James Friedman - Susquehanna Financial Group, LLLP

Adam Frisch - Morgan Stanley

Robert Napoli - Piper Jaffray Companies

Craig Maurer - Credit Agricole Securities (USA) Inc.

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.

Julio Quinteros - Goldman Sachs Group Inc.

Tien-Tsin Huang - JP Morgan Chase & Co

Andrew Jeffrey - SunTrust Robinson Humphrey Capital Markets

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Scott Valentin - FBR Capital Markets & Co.

Jason Kupferberg - UBS Investment Bank

Mastercard Incorporated (MA) Q4 2010 Earnings Call February 3, 2011 9:00 AM ET

Operator

Ladies and gentlemen, welcome to the MasterCard's Fourth Quarter and Full Year 2010 Earnings Conference Call. My name is Eric, I'll be your audio coordinator for today. [Operator Instructions] I would now like to turn our presentation over to Barbara Gasper, Head of Investor Relations. Please proceed.

Barbara Gasper

Thank you, Eric. Good morning, and thank you all for joining us today, either by phone or webcast, for a discussion about our fourth quarter and full year 2010 financial results.

With me on the call today are Ajay Banga, our President and Chief Executive Officer; and Martina Hund-Mejean, our Chief Financial Officer. Following comments from Ajay and Martina, highlighting some key points about the business and our financial results, we will open up the call for your questions.

This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website at mastercard.com. The earnings release and slide deck have also been attached to an 8-K that we filed with the SEC earlier today. A dial-in replay of this call will be available for one week through February 10, as well as posted on our website for 30 days.

Finally, as set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance are summarized at the end of our press release, as well as contained in our recent SEC filings.

With that, I'd now like to turn the call over to our President and CEO, Ajay Banga. Ajay?

Ajay Banga

Thank you, Barbara. Good morning, everybody. Before Martina gets into the details of the results, I thought I'd comment on some operational drivers for the quarter, a little bit on our thoughts on the U.S. regulatory front, as well as our recent business highlights.

For the fourth quarter, we saw net revenue growth of 10.7% as reported or 13% in a constant-currency basis, with healthy growth in gross dollar volume of 11%, cross-border volume grew 18.7%. All that put together helped to fuel fourth quarter operating income growth of nearly 22% and operating margin of 39.6% and EPS growth of 41%.

For the full year 2010, we delivered 8.6% revenue growth or 9.5% on a constant-currency basis, operating income growth of almost 22% and EPS growth of 26%. This was driven by strong operational performance, including 9.1% gross dollar volume growth and 15.2% cross-border volume growth.

The volume growth for the quarter remained strong outside of the U.S. And we began to see an uptick in the U.S., as well, where fourth quarter volume turned positive. And this is supported by commercial credit volume growth, which was positive for the third consecutive quarter and consumer credit volume growth in the United States, which turned positive for the first time in 11 quarters. Additionally, excluding the de-conversions, underlying U.S. debit growth remained strong.

Now these trends are generally supported by our spending post-data as well, spending on necessities such as gross fees was actually above pre-recessionary levels, and discretionary spending, apparel, restaurants showed an improvement although spending in these categories still is below pre-recessionary levels. Based on the spending trends we've seen and the improving consumer confidence, I think I'm cautiously optimistic that we will see continued improvements in 2011. It's just that it's hard to see sustained growth until the housing market and unemployment improve.

So let me now go on to the U.S. regulatory update and touch briefly on that for the legal and regulatory developments here in the U.S. As you've probably just seen, we just filed an 8-K to announce that we have executed a judgment and settlement sharing arrangement in connection with our merchant interchange litigation. While this is not a settlement, it does address the allocation of financial responsibilities among all the defendants. And the 8-K set forth with some details, the various promulgations and settlement and judgment scenarios and in a situation where all parties agree to settle, MasterCard's portion of the total settlement would be 12%.

So now turning to the financial reform bill. Suffice it to say that we were disappointed with the draft rule proposal released by the Fed on December 16. MasterCard is seeking changes to the Fed's proposal. We will continue to advocate to the Fed and lobby in Congress, both independently and through participation in wider industry efforts. And, of course, we will obviously be submitting regular comments to the Fed as part of the official comment process.

I've had the opportunity personally to talk with legislators and regulators in several D.C. visits over the last few weeks. One of the points I've been attempting to clarify is the role MasterCard plays in why this whole interchange issue is so important. We sit in the middle of the payment chain, linking consumers, merchants and banks, all types and all sizes of banks, and we provide products and solutions that are all in at a line that's convenient and secure electronic payment that we all love so dearly to occur.

Interchange revenue goes to the issuer not to us, so why is it our issue? And the answer is very simple. What we care about is the health and the vibrancy of the payment system. I care about the continuation of innovation and benefits for all the participants in the payment system. At the end of the day, interchange provides the balance between the cost consumer space and the cost merchant space. When that balance is interfered or tinkered with, the unanticipated consequences become very, very concerning. The balance tilting towards consumers having to pay more for these payment-related services and innovation being stifled at the other end.

So you can ask some interesting questions saying, "Why do the Fed -- did they take into account the right cause?" "Was this the right process for a law to be enacted, no debate, no hearings, no analysis no evaluation of the consequences to consumers and others?" And those are all the right questions for legislators and the Fed. Some see this as a battle between banks and merchants and, yes, to a large extent, it is. The consequences to the balance I mentioned earlier are serious. Consumers stand to bear these additional costs, and in some cases, face the loss of access to banking services. It seems to me that the implications are about far more than addressing a battle between large banks and retailers. This is about understanding the consequences to consumers and the payment system, and this debate has been relatively forgotten up until now. That said, as investors, it's important for you to keep in perspective the implications of these regulations to our company, to our business, even if the rules are implemented as currently proposed by the Fed.

So let me emphasize a few points. First, we continue to believe that impacts on our debit business will be manageable. The rules regulate debit interchange in the United States, not our network fees. MasterCard does not earn revenue from the interchange, excluding prepaid U.S. debit, remember, represents approximately 40.25% of total MasterCard net revenues in 2010.

Second, while our network fees are not being regulated, for sure we anticipate some discussions with issuers regarding our fees. By the way, that's not a new thing. We routinely have discussion with issuers on the cost of our network services when contracts come up for renewal. You would expect that. We have a proven track record of navigating these negotiations in a way that achieves an appropriate value for the services we provide, while making the issuers get the appropriate incentive for them, for the work they do.

Third, we continue to anticipate some potential upside to our volumes as a result of the routing non-exclusivity, regardless of how it finally gets sorted out. So from a share perspective, as I said in the past, we have more to gain than to lose. We think that our real near-term opportunities to sell in our strong PIN solution. Remember, it's the only one that operates globally.

And beyond this, MasterCard offers a wide range of product constructs to help consumers who are maybe looking for alternatives for debit. Unless you believe that consumers in the United States will revert to cash and check -- and I think that's a real stretch, I do not believe that -- MasterCard is alternative for those who may no longer be able to afford debit cards, and while it will take a little time for these consumers to adapt. The alternative I'm talking about would allow them to continue to benefit in the convenience and safety of electronic payments.

So it goes without saying that this is a challenging environment for U.S. debit. The Fed's proposal, as currently written, I firmly believe, will harm consumers. We strongly believe in the value prop [proposition] of our debit products. We will work hard to defend the category. That said, the impacts to our business are limited in many respects and the legislation continues to provide opportunities that balance the risks. Whatever happens, by the time these regulations get implemented in the latter part of this year, it would likely only begin to have any impact on MasterCard in 2012. And I remain optimistic that we can navigate through these regulatory challenges in the U.S., just as we had done successfully in other markets in the past.

Meanwhile, we remain focused on executing our growth strategy. In fact, we have signed a significant number of new and renewed deals around the globe in the fourth quarter. So let me take a moment to highlight a few of them. Let's start with prepaid. In December, we announced an agreement to acquire the Card Program Management operations of Travelex, and that's an important driver for our future global prepaid growth. We continue to expect that transaction to be completed in the first half of the current year 2011.

In addition, we have launched multiple prepaid programs during the quarter. I'll give you a few examples. Corporate and consumer reloadable prepaid products in the United States, Mexico, Germany, Italy, Switzerland and with Carrefour, for example, in Romania. And public sector programs in the U.K. and the United States with the State of Illinois Department of Labor, delivering unemployment, other benefits and so on, on a prepaid MasterCard.

In credit, we continued our momentum on the airline co-brand space, targeting the affluent segment and beyond. For example, we have signed deals to flip the SWISS Air Miles & More affluent portfolio and the Austrian Air Miles & More commercial portfolio from another network. We launched programs at Czech Air and Wizz Airlines, one of the largest discount airlines in Eastern Europe. And the good news and I'm pleased to announce this, we have just signed an agreement to launch a program with Alitalia. So the momentum continues here. In fact, in 2010, we renewed, converted and launched over 20 airline co-brand programs around the globe.

So in addition to these airline programs, we launched a co-brand credit card with Tesco and the Bank of Communications in China. And of note here, we have now won 10 of the last 10 competitive co-brand deals in China, all 10.

In Canada, after decades of a non-dual environment, we are really excited for the change to permit duality is finally beginning to pay off for us. Like just this week, we have launched three new affluent credit programs with CIBC, which as you know, is Canada's largest credit card issuer, until recently, was an exclusive partner of a competing network.

So we continue to make great progress in the strategic mobile space, coming at this in a few different ways. As of last week, we announced a joint venture with Telefónica to provide mobile financial solutions in 12 Latin American markets. This should bring together MasterCard's payment assets and our expertise with Telefónica's mobile expertise, as well as its 87 million customers, many of whom do not have access to financial services. So the JV will basically provide them with mobile payment services to transfer money, reload mobile airtime, pay bills, make retail purchases. I think this JV has great potential to increase financial inclusion and expand acceptance and usage of electronic payments in markets where the war on cash is in a relatively nascent stage.

We recently announced an agreement with Airtel Africa and Standard Chartered Bank to link subscribers’ mobile accounts to a virtual MasterCard account number. To start, all that subscribers will do is to use this number to complete mobile e-Commerce transactions. But beyond that, we're actually exploring future capabilities to allow this account number to be able to transact anywhere a MasterCard is accepted. The program starts with Airtel consumers in Kenya, again, many of whom are unbanked, with plans to expand the functionality to key markets within Airtel's footprint across sub-Saharan Africa.

And finally, just last week in the United Kingdom, Barclaycard and Orange announced that they will be launching contactless payments via NFC-enabled [Near Field Communication] phones to their customers this summer. That's the first commercial launch of this kind in Europe, and I'm pleased to say MasterCard is the payment network to support the launch of this service.

So we're sort of getting on pushing hard in mobile around the world, and I think we've gained significant traction over the past year. After many efforts and investments we have in place, some might actually have more significant outcomes than the others. The point is, I'm confident that we are continuously improving our position toward long-term success in this area as the ecosystems get defined.

So with that, let me turn the call over to Martina for a detailed update on our financial results and operational metrics. Martina?

Martina Hund-Mejean

Thanks, Ajay, and good morning, everyone. Let me begin on Page 3 of the deck, which shows our reported results. Net revenue grew 10.7% over last year's fourth quarter to $1.4 billion or 13% on a constant-currency basis. Net revenue growth was driven by increases of 18.7% in cross-border volume, 11% in gross dollar volume on a local currency basis and 6.3% in process transactions. Approximately five percentage points of net revenue growth came from pricing. These drivers were partially offset by an increase in rebates and incentives.

The 4.6% increase in total operating expenses versus last year's fourth quarter was primarily due to higher marketing spending, as well as higher general and administrative expenses as a result of the DataCash acquisition and strategic investments, somewhat offset by lower severance charges.

Operating income was $569 million for the quarter, up 21.6% versus last year. This resulted in an operating margin for the quarter of 39.6%. The effective tax rate declined to 28.7%, primarily due to a benefit recorded in connection with the repatriation of foreign earnings.

We delivered net income of $415 million, up 41.2% over the fourth quarter of 2009 or a 46.2% increase on a constant-currency basis. Earnings per share were $3.16 on a diluted basis. As expected, the DataCash acquisition had a $0.03 dilutive impact in the fourth quarter and an $0.08 dilutive impact for the full year.

On the next couple of slides, we have the breakdown of operational metrics. So on Page 4, you see that worldwide gross dollar volume or GDV was up 11% on a local currency basis in the fourth quarter and grew 10.9% on a U.S. dollar converted basis to $752 billion. By the way, this is the highest quarterly GDV ever.

U.S. GDV was up 2.1%, the first positive growth we've seen in the U.S. since the third quarter of 2008. Across the rest of the world, GDV continued to grow a healthy 16.1% on a local currency basis.

Worldwide credit GDV grew 8.8% on a local currency basis, and U.S. credit GDV growth was positive for the first time since the second quarter of 2008. Credit GDV for the rest of the world grew 11.6% on a local currency basis.

Now worldwide debit GDV grew 15.2% on a local currency basis. And in the U.S., debit GDV grew 2%. Including the impact of de-conversions, which were partially offset by new business wins, underlying U.S. debit growth was healthy and in the double digits.

Debit growth for the rest of the world was about 29%, driven by APMEA and Europe. Cross-border volume growth on a local currency basis was up 18.7%, and this was the strongest cross-border growth in 10 quarters. This was supported by double-digit growth in APMEA, Latin America and Europe, as well as mid-single-digit growth in the U.S., which was a sequential improvement.

Now turning to Slide 5. Process transactions were up 6.3% compared with the year ago quarter at slightly over $6.2 billion. Process transactions continued to grow at double-digit rates in Latin America and APMEA. Process transaction growth has been impacted by a number of factors. And so first, de-conversions in the U.S. and in the U.K. were essentially completed in the fourth quarter. Nearly all of these cards have now rolled off. And second, we have been benefiting from the roll-on of new deals such as the switching deal with Itaú in Brazil and the SunTrust debit deal in the United States. If we exclude the de-conversions in this new business, underlying process transaction growth was about 12%, similar to the rate we saw last quarter. And global card growth was 2.5% to over 1.6 billion MasterCard and Maestro Card.

Now let's turn to Page 6 to discuss the components and revenue and their performance relative to last year's fourth quarter. Domestic assessments increased 14.5% due to increased volumes and the impact of 2010 pricing changes. Cross-border volume fees increased by 3.9%. And excluding the impact of the cross-border pricing structure change, these volume fees actually increased by about 19%. I would like to remind you that the impact of 2009 cross-border pricing is included in the gross revenue and in the rebates and incentives for the fourth quarter of 2009, but it is netted in these line items for the fourth quarter of 2010. And in Appendix A in this slide deck, it lays out the reported and adjusted impact for relevant periods for your reference.

Transaction processing fees grew 9%, and other revenues were essentially flat compared to the fourth quarter of 2009. So in total, gross revenue increased by $159 million or 8.5%.

Rebates and incentives for the quarter were $594 million, up $20 million from the year-ago quarter. However, the increase was $77 million or roughly 15% when adjusted for the cross-border pricing structure change. As Ajay stated earlier, we had a great quarter from a deal-signing perspective, and we saw healthy volume growth, both of which contributed to this increase. And for your reference, for the full year 2010, rebates and incentives were 26.7% of gross revenue, was a 24.1% in 2009 on an as-reported basis.

Now let's turn to Page 7 for some detail on expenses. During the fourth quarter, total operating expenses increased 4.6% or 6.1% on a constant-currency basis. And within total operating expenses, the general and administrative expenses increased 2.3%. This growth was primarily due to increased investment in support of strategic growth initiatives such as prepaid, e-Commerce and mobile, as well as the inclusion of $9 million of DataCash's operating expenses, following the close of the acquisition at the end of October. This was partially offset by a decrease in severance charges on a year-over-year basis.

Advertising and marketing expense was up 6.8% versus the fourth quarter of 2009 or 8.2% on a constant-currency basis, primarily driven by customer-specific initiatives and support of sports sponsorships outside of the U.S., as well as by increased support of strategic priorities, including prepaid and debit. Depreciation and amortization increased 9.1%, primarily due to the DataCash acquisition.

So turning to Page 8, let's just take a quick look at our strong 2010 full year performance, which we are particularly proud of, given the headwinds that we faced throughout 2010. We achieved full year net revenue of $5.5 billion, up 8.6% and nearly 10% on a constant-currency basis. And as a result of the net revenue growth and slightly lower operating expenses, full year operating income increased nearly 22% versus 2009 and resulted in an operating margin of 49.7%.

Net income for the full year was $1.8 billion, which includes the benefit of the slightly lower tax rate. This net income represents a 26.2% increase over 2009 or 27.9% on a constant-currency basis. And EPS was $14.05, up 25.9% versus 2009.

So moving to the cash flow statement and balance sheet highlights on Page 9. We generated $670 million in cash on operations in the fourth quarter, driven by net income adjusted for non-cash items and partially offset by litigation settlement payments. And we ended the quarter with cash, cash equivalents and other liquid investments of $4.2 billion, even after closing on the acquisition of DataCash.

So the combination of M&A activities from the latter part of 2010, as well as finalizing the merchant litigation judgment and sharing agreement that Ajay just referenced, that we just have announced, has prevented us from being in the market for our $1 billion share repurchase program.

So let's turn to Slide 10 and first, I'll discuss 2011, starting with an update of what we have seen of our MasterCard process volume for the first quarter through January 28. Our cross-border volume grew roughly 18% globally, in line with what we saw in the fourth quarter. This was due to continued strengths in Asia/Pacific, Latin America and Europe, as well as an improving trend in the United States.

Although not a perfect proxy for GDV, total U.S. process volume grew 1%, about the same level that we saw in the fourth quarter. As a reminder, the first quarter of 2010 included volume related to the debit business that has now essentially rolled off. Therefore, from a comparative point of view, we're still facing a headwind, which will be partially offset by our new business wins and particularly in the first two quarters of 2011.

In January, total process volume growth for the rest of the world was about 22%, ahead of the 19% pace that we saw in the fourth quarter due to continued strengths across APMEA, Latin America and Europe. And globally, process transaction growth was about 9%, but if you exclude the effects of the net headwind and process transactions actually grew 12%, signaling a healthy underlying usage trend, which is in line with what we have seen over the past two quarters.

So now let me spend a little time to outline a few preliminary thoughts on our view of 2011. We expect net revenue growth for the year to be ahead of 2010 growth, benefiting from a continued economic improvement in the U.S., as well as by the momentum of new business wins. Our growth rate in the first half of 2011 will be lower than the growth rate in the second half of the year. This is primarily due to last year's first half including more volume related to the debit de-conversions.

We remain committed to our target of a minimum 50% annual operating margin. As we have discussed at our Investor Day last September, there are a number of strategic areas in which we are making significant investments, and you have seen some of that investment spending already occur in the latter part of 2010. As a result, we are targeting only a small operating margin expansion in 2011. This includes the impact of the DataCash acquisition and our investment in areas such as e-Commerce, mobile, prepaid, commercial and information services. We expect this will impact all expense line items.

In addition, our pending acquisition of the Program Management business on Travelex could have a $0.04 dilutive impact. We have also hedged the purchase price of this acquisition, and the final impact will depend on movements in the currency market. We continue to expect this acquisition to close in the first half of the year. For modeling purposes, you should assume a full year tax rate of 33%, similar to the rate we saw in 2010.

Before we move into the Q&A, let me briefly touch on our 2011 to 2013 performance objectives, which continue to be a net revenue CAGR [compounded annual growth rate] of 12% to 14%, a minimum operating margin of 50% on an annual basis and an earnings per share CAGR of at least 20%. Recall, that we have said that these objectives are all on a constant-currency basis and exclude acquisitions, except for DataCash and Travelex. Obviously, we'll have to look at these objectives when there is more clarity around the longer-term impact of the final U.S. debit regulations on our business, but they currently remain unchanged.

Let me now turn the call back to Barbara to begin the Q&A session. Barbara?

Barbara Gasper

Thanks, Martina. We're now ready to begin the question-and-answer period. And in order to get to as many people in our remaining 30 minutes, we ask that you limit yourself to a single one-part question and then queue back in for additional questions.

Eric, would you like to kick off the Q&A, please?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Sanjay Sakhrani with KBW.

Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc.

I guess just from your conversations, how sincere do you believe are the efforts by some of those legislators to scale back the Fed's proposal? Do you think it's a high probability event?

Ajay Banga

It's hard to predict what -- when you put sincerity and politics in the same space. So I don't know to say that correctly. I can't predict that. I don't know how to do it. But I would say this to you, they certainly, the ones I met, even the ones who are not completely supportive of looking at this, they all understand what they're discussing. A number of prominent legislators have come out and said that the unintended consequences of this could be more than they had anticipated. You've heard Barney Frank, you've heard retired Senator Chris Dodd, you've heard others. You know there's going to be a hearing in the House in a few days’ time. So my sense is that if you'd asked me the same question three weeks ago, I would've been much more despondent about where this is going. I feel a little better now that at least a debate has a good chance of arguing. I don't know if that will lead to any change. I'm planning as though it won't, but I'm going to try my best to help make a change happen.

Operator

Your next question comes from the line of Adam Frisch with Morgan Stanley.

Adam Frisch - Morgan Stanley

Ajay, we're hearing the same thing out of D.C., and I'll refrain from congratulating you on the 12% until we know that it's 12% of what. But at least, we're making some progress there. My question is, in the past, the feeling I got was that MasterCard was not as willing to use its A&M [advertising and marketing] line to help fund customer-specific initiatives. Does the color around this line item in 4Q indicate a change of thinking? In other words, that you're more open to using this big source of operating leverage here to offset pressures in other areas and preserve the margin trajectory?

Ajay Banga

That's a deep question. What it really refers to is how they're going to use our P&L and our business model leverage to drive for growth in our company. And one of the ways is through A&M, but a deeper way is all the strategic initiatives in mobile, e-Commerce, prepaid, that kind of stuff. In fact, in the fourth quarter, we've had a tax benefit and Martina and I took the opportunistic call to use some of that space to actually put some effort and energy back into a couple of the things we were investing in. And I'm going to keep trying to do that. I'm committed to maintaining that 50% operating margin, but I'm also committed to using the dollars above that margin to try and keep building the company for the next 10 years. And I think that this decade in payments is going to be a remarkably different decade. There's going to be changes in form factors. There's going to be changes in competition. Technology is changing everything. And I want to be a part of that change and a part of defining the ecosystem. As I've told you personally and I've told others in the Investor Day and through meetings, that's going to involve taking some risks and putting some money on the table. And I think so long as we are thoughtful about those risks, and we learn from the money we invest, we can really come out these next few years ahead of the curve. And that's what I'm trying to do. If you had talked to me a year, a year and half ago about mobile, you would've heard we were doing some pilots. Then a lot of momentum has come about in the last one year, and mobile network operators and us are engaged in really sensible practical conversations. I don't know which one of these investments in prepaid, in e-Commerce, in mobile, in advertising will hit the ball out of the park, but I think -- maybe none of them will individually -- but put together, they will really position MasterCard the right way for the coming decade. That's what I'm trying to do.

Operator

Your next question comes from the line of Jason Kupferberg with UBS.

Jason Kupferberg - UBS Investment Bank

I wanted to just drill in on the Telefónica JV a little bit more. It seems particularly interesting down there in LatAm [Latin America]. Can you give us any general sense of the size of the investment you're making? Perhaps how long it might take for this JV to start generating a meaningful amount of revenue, because it seems like there's a ton of opportunity there as you outlined just tapping into that consumer base?

Ajay Banga

Yes, look, this thing is going to be owned 50-50 by us and Telefónica. And it's a [indiscernible] (00:53:14) markets, my whole logic for this is, we'll make money two ways in this JV. One is the single line item that will come through that will reflect the net share of profits that all losses that, that JV will make. That will come through as a plus or a minus on our revenue line. But the other side is, when people use existing MasterCard form factors to spend and there will happen to be a part of this, of the consumers of this JV, that gives me another stream of revenue, which won't show up in this line. It will show up in my regular business line. To me, both those are going to be really interesting because with the partnership for Telefónica, I get a way to reach both types of revenue streams. I'm hopeful that we will get some initial benefit from existing MasterCard kind of consumers. I think reaching out to the unbanked and to provide for financial inclusion does have a longer-term angle to it. But I think both are very interesting aspects for our future. They are investments. This is not the kind of stuff that pays back in day one or month one or quarter one or maybe even in some cases, year one. It depends from one investment to the other. And so I'm not going to make any specific comments on any one investment. But I've got the ability and the thinking within our operating leverage as a company that's set to Adam's question a little while ago, to put some money on the line to help drive and drive the ecosystem that will come about in mobile. And actually, the bigger question to me is, I don't know which way mobile payments will develop. I know they'll develop. I just don't know which way they'll develop. I don't know whether the developing world will end up being somewhat different from the developed world in terms of the nature of how mobile ecosystems get taken up. In the developed world, it may be that contactless becomes more interesting. It may be, I don't know. On the other hand, in the developing world, it may be that SMS-based mobile commerce, mobile payment gateway-based systems may become more interesting. All I'm determined to be is to be a part of that ecosystem each way, to help drive it and to help drive the value generation from that. I don't want to stand on the sideline and watch. And that's kind of what I'm trying to do.

Operator

Your next question comes from the line Craig Maurer with CLSA.

Craig Maurer - Credit Agricole Securities (USA) Inc.

I had a question about prepaid. Western Union reported the other day, I would imagine they're probably one of your most important global partners in prepaid. They actually called out prepaid for the first time as a material contributor to revenue. So I wanted to ask how globally you're seeing your prepaid cards being used – are a higher proportion being reloaded or are these being -- are they generally being used as one-use throw-away cards? So I wanted to hear your thoughts on how that market is evolving as it's becoming material to some other company's revenue?

Ajay Banga

First of all, Western Union is a good partner, and they've got some pretty cool distribution and they have their own challenges. But at the end of the day, they're a good partner and we're in regular contact and dialogue with them for business growth in different aspects, not just prepaid with them. Having said that, your question was more about prepaid than Western Union. So the first part is, I have a very low interest in single-use prepaid cards because the P&L impact of those is less than attractive. You just don't get to amortize the acquisition cost of multiple uses of that card. So if you take a gift card and it's the way the prepaid market developed, but the average gift card load in the U.S. used to be, I'm talking a few-months old numbers $75, $80. And there is the average multiple reuse reloadable Social Security kind of card goes all the way to $800, $900, $1,000, so the economics are obvious. And I'm much more interested in the reloadable cards, both for corporate reloadable purposes, payrolls and the like but also for individual general purpose reloadables. And that's where we're putting our effort and energy. Having said that, the biggest market right now is the United States. And the others are beginning to grow, but right now, it's still the U.S. And in the U.S., a lion's share of the market is reloadable cards. And that's kind of where we're focused in the U.S. Outside of the U.S., the market is still developing. In some countries, gift cards are again, the front end of the wedge just as they were in the U.S. In others, it's more the reloadable side. And frankly, if I had my way, I would always be promoting the reloadable ones as you can sense from where I'm going. But in general, the Travelex kind of card is much more a reloadable card and much more focused on that space, as an example than the one-time load. Just as one example.

Operator

The next question comes from the line of Julio Quinteros with Morgan Stanley (sic) [Goldman Sachs].

Julio Quinteros - Goldman Sachs Group Inc.

Ajay, can you maybe walk us through a little bit on some of the discussions you might be having with the banks about their attitude or options for offsetting some of this potential loss interchange revenue on the debit side? Is there any sort of preference that they're thinking about in terms of how they would potentially offset some of this stuff?

Ajay Banga

Let me put it for you this way. You've probably been hearing a number of the bank CEOs on their earnings calls over the last few weeks. And that gives you a pretty good sense of the similar form of discussions that they are having with a number of them. It all has to do with their comprehension that the debit card was an integral part of their entire checking account and branch banking business. It wasn't a stand-alone business. And therefore, when they looked at the cost of a checking account or providing branch banking services with ATMs and customer service and phone calls and all that kind of stuff, they view the debit card as helping to provide for good profit margins there. Of course, they also earn profit margins from the spread on the deposits they're taking versus the lending they do. Now on low-interest environment, that's currently a challenge but that's not an always perpetual case. But they basically make money from these two places. And they've got to make it back if it's going to go away in such a large way, away from their P&L. And so the different things they're looking at are the ones they've described. They're looking at fees. A number of them have already put in fees for checking accounts, for ordering checkbooks, for statements. They're looking at fees on different aspects of transactions that impact their earning in their retail banking business. They're looking at reducing the reward levels on their debit card activity. They're looking at fees on debit cards. They're looking at restricting the manner in which debit cards get used, either for large-ticket items because of concerns around fraud losses or at the bottom end, for small-ticket items. And so there's a series of things going on. My concern, which I tried to explain a little earlier, is that this could actually lead to one completely unintended consequence, which is a number of people dropping out from the bottom of getting access to regular banking. And I think that's going to be a circumstance that the United States does not want to confront. We already have 40 million to 45 million people who have -- those estimates vary but those are old estimates -- that don't have the right access to banking, that go to check cashers, that go to payday lenders or unofficial borrowing methodologies for getting their access to money. I just worry about where all this is going, and I think that in an effort to reallocate profits between big banks and big retailers, the dialogue has got to take into account these kinds of consequences. I think that's what the bank CEOs are trying to say, although at the end of the day, given who they are, the dialogue very quickly turns to, "How you will make back your money?" as against, "What's the unintended consequence?" I happen to be in the position where I can focus on the unintended consequences and a little less on how I make back the money, but that's just my luck of where I am today.

Operator

Your next question comes from the line of Scott Valentin with FBR Capital Markets.

Scott Valentin - FBR Capital Markets & Co.

Just along the A&M line, I think it came up earlier, maybe using A&M to maybe engage issuers. But just wondering on the merchant side, given potential for exclusivity to go away, have you kind of focused on merchants and trying to engage merchants and become more of a partner rather than just providing transaction services?

Ajay Banga

Yes, absolutely. All over the world, I think this company is making enormous effort with merchants. I actually view my role as being the player between the banks, the merchants and the consumer. And so to me, all three are interesting, and you'll see us focusing on all three categories. I'm driving a lot of thinking, not just on banks of all shapes and sizes and not just on merchants of all shapes and sizes, and I'll give you a few specific examples. But even on focusing on how consumers think about their relationship with merchants and banks as a way of packaging and marketing products to them, that satisfy their needs. So let me give you an example of merchants in specific. Look at Carrefour. Carrefour in France is now one of our most interesting clients and one of our most interesting partners. And some time back, they had already crossed about 2.5 million to 3 million cards issued with us, not just in France but as I was mentioning a little earlier in the call, now even in Romania. And I've missed out a bunch of countries where they're already doing business with us. They're the ones who launched contactless MasterCard-only cards and helped us in fact to take advantage of the changes caused by the separate sort of rules in Europe. Just one example. Walmart in the United States issues our payroll card to their employees. 600,000 of them or so have signed up to get the payroll card with us and not have to get paid by a check, just another way of doing business with them. We do, through advisers, we do business with them on figuring out how to make more money or better targeted marketing to individual customers. We do business with airlines and Internet merchants across the world in different ways. With Amazon, we had an Amazon Gift Finder towards the end of last year. We are their chosen partner of choice in many countries around the world. I could just keep going with this list here. So is there more to be done? 100%. Am I satisfied with where we are on building merchant relationships? No. But do I feel better about it today than two years ago? Absolutely.

Operator

Your next question comes from the line of Andrew Jeffrey with SunTrust.

Andrew Jeffrey - SunTrust Robinson Humphrey Capital Markets

Ajay, can I ask you to opine on the future of PIN debit? I know there's been a lot of discussion about how the Durbin rules are ultimately going to be implemented, interpreted, et cetera. It strikes me that one of the unintended consequences is that with the convergence of PIN and signature debit interchange, one of the two payment forms may ultimately fall out of favor. It seems like there's less impetus for both to coexist over the long term. Have you given any significant thought to how you see that evolving, assuming that the Durbin rules are implemented around interchange, at least, as currently contemplated?

Ajay Banga

Yes, Andrew. If it all goes through the way it is right now and the convergence does happen, clearly, there's going to be, over a period of time, some change in the way this thing is looked at because the merchants will have a different view, the banks will have a different view, and consumers will want to choose based on what card they have. But it's very interesting. If you think about MasterCard, we were the guys who focused on PIN debit in the United States for many years through our eventual costs in some ways on our market share with inadequate focus on signature debit. You know that Maestro is the leader in PIN debit around the world and is the only actual, if you think about Cirrus and Maestro, those are the only global interoperable schemes. And so to me, PIN debit is in many ways, an interesting aspect of providing consumers access to their own money in that sense. In India, the State Bank of India issues, they're our single largest issuer of debit cards, Maestro cards, anywhere in the world today has one issuer. Again, PIN debit-based. So yes, I think PIN debit's going to be an interesting evolution. The way we're looking at it, I'm prepared to go both ways because I'm very confused about which way this exclusivity rule will go. And I clearly hope it doesn't go the way of two signature and two PIN because that will just be confusion confounded. But who knows? But if it doesn't go that way and it goes one signature and one unaffiliated PIN or one PIN and one unaffiliated signature, then I believe that as the interchanges converge, that there is an increasing role for PIN. I don't know if it will be as profitable as the past for all the parties involved, but there will be a role. And I am very much willing to use our global schemes to play in that space.

Operator

Your next question comes from the line of Tien-Tsin Huang with JPMorgan.

Tien-Tsin Huang - JP Morgan Chase & Co

I actually wanted to ask about the litigation, the updates you gave. You mentioned, Ajay, I think the 12%. But just looking at the 8-K, it also discusses your -- read your portion under global settlement at 33%, which is, I guess, similar to the Walmart case. So can you help reconcile those two numbers? And I'm not a lawyer but also, does this effectively mean that the defendants are now waiting for the merchants to do the same thing in order for the class to be certified, so we can set a trial date and move forward, et cetera?

Ajay Banga

Okay, so fortunately, I'm not a lawyer either. That's the good news. But let me spill a little bit more about this, Tien-Tsin, just for a second. And I do have Noah sitting here who's my General Counsel, who's looking a little disturbed at my saying “fortunately.” Neither you nor I are lawyers but, hey, that's what makes us decent guys. So you have the deal, all the jokes aside. By entering into this judgment and settlement sharing agreement, what we're doing is we've defined and capped a percentage of our financial exposure in the case of an adverse kind of judgment or settlement. And the percentage that we've agreed to in the sharing agreement is what that will come out at rather than potentially 100%. So in the event of a global settlement, which involves Visa, involves the bank defendants and involves MasterCard, MasterCard would pay 12% of the monetary portion of the settlement. However, in the event of a settlement which involves only MasterCard and the defendant banks with respect to their MasterCard issuance, which could happen, then MasterCard would pay 36% of the monetary portion of that settlement. So that's the difference between those two numbers. This same percentage is, just to clarify, apply in the event that any of the cases go to trial and an adverse monetary judgment is rendered on any of those cases. Now where this came about was based on lots of negotiation. What we are pleased about is at least our share is not capped. Also importantly for us, Tien-Tsin, the covered cases in these agreements kind of parallel the cases that are covered as a part of Visa's retrospective liability plan, meaning in English, the covered cases include the existing proposed class action and the individual merchant actions, as well as any future opt-out merchant actions. So it's the whole lot. I don't know if the merchant cases will settle or not, which is to the latter part of your question. Just to engage in confidential mediation efforts, all the defendants are still awaiting decisions on their motions to dismiss. The court has not yet ruled on the merchant's motion for class edification. So everybody's kind of working on an additional round of briefings. No trial date has been set. This stuff is still very much up in the air as far as all that is concerned. All we've got done is get a value to our share of the responsibility. The 12%, if it's a global settlement, the 36%, if it's MasterCard, and the defendant banks for their share of the MasterCard issuance. I'm almost a lawyer.

Operator

Your next question comes from the line of Chris Brendler. [Stifel, Nicolaus]

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

I just wanted to, Ajay, if you could please provide any color or update on what you're hearing or any sort of discussions that you've had regarding signature exclusivity on the debit side. I mean, it seems like for you, it's a little bit of a potential benefit or is it a significant benefit? So are you supportive of signature debit exclusivity going away and opening up that market? It seems like the unintended consequences there could be pretty significant as well. If you can give me a little color on that, that would be great.

Ajay Banga

Well, look, my first perspective is that the signature exclusivity is actually only a subset of a much bigger issue, which is the issue around why a government is involved in setting prices between two economic parties, banks and retailers. I'm struggling with that. And I'm struggling with how they would be better able to define market value than the negotiations that happen on a daily basis between banks and retailers. So that's my bigger issue. I think exclusivity, whether it's signature only, whether it's one signature, one unaffiliated PIN, whether it's, God forbid, two signatures and two unaffiliated PINs, I don't know. I don't know which one of those will come out. And frankly, my perspective on that is, if that's the only option I have, at least I will find a way to make an opportunity out of that just because of my starting position on market share in the United States. That's all I'm saying on it, right? That's kind of where I'm coming from.

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

So suffice to say, you're not pushing forward at all?

Ajay Banga

No, I'm actually pushing to say that let market forces do their work. That's where I'm coming from.

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Any ability to offer an answer or opinion on the probability, hopeful it's low. Does it seem low to you?

Ajay Banga

No, I'm planning on the basis that what's been proposed right now goes right through. That's the way I'm working inside the company, and there are a few of us who are dealing with this situation on the outside are the ones who are working the hardest to try and make whatever effort we can to make our point of view heard. But the company, 99.9% of the company is focused on, this is going through the way it is right now. That's, to me, the only responsible way to work this.

Christopher Brendler - Stifel, Nicolaus & Co., Inc.

Does that mean signature debit, two signature networks or...

Ajay Banga

That one, I'm confused about. I'm talking about the absolute level of compensation that the Fed seems to have decided as appropriate for the system.

Operator

Your next question comes from the line of Bob Napoli with Piper Jaffray.

Robert Napoli - Piper Jaffray Companies

I hear, Ajay, that you feel like you have benefits possibly, but the market has -- it would take your stock price and beat the stock price, [ph] (01:14:44) for the moment is disagreeing. And I guess, I'm trying to maybe if you could quantify a little bit more, 14% of your revenue is U.S. debit. I was hoping you could break that out between -- as Visa has, what percentage comes from merchant acquirer and from issuer? And your thoughts on potential price compression or risk to more or less risk to each of those revenue stream, to each of those parties?

Ajay Banga

Look, I think the first thing, I think the stock price in the market is reflective of many things, and I think the uncertainty around this regulation, just like the uncertainty around the merchant case, does weigh on stock prices. That's what people do, right? That's what investors, analysts and individual buyers also think about. My perspective is and the reason I gave you the 14% is to kind of tell you that this is not a dead stop for this company. And that within that, certainly, some revenue could be at risk depending on where this goes. The reason I keep talking about the other opportunity is just the fact that my market share in debit happens to be much lower than anybody else's in this case. And therefore, the opportunity for me to benefit from a destabilized or changed marketplace, in terms of volume and GDV and transactions exists. Whether those transactions will be as rich in their revenue as they are today, I don't think they will be. So I don't have any way to quantify today's date as to how much of the 14% would be at risk or not. But suffice it to tell you that I don't believe that the majority of it is going to walk out the door. Some of it, absolutely. It will come up for renewals, it will come up for negotiation. The truth is whether this Act happens or not, some of my revenue is at risk every time I go back for a renegotiation. That's kind of how I'm viewing it. And that's what my personal perspective is coming from. And Martina, you've got something to add to that?

Martina Hund-Mejean

No, I think you said it perfectly.

Robert Napoli - Piper Jaffray Companies

Is there a possibility -- what have you heard out of the credits? And I'm sorry, in your recent discussions in D.C., have you heard anything as with regards to interest and credit or non-interest and credit regulation?

Ajay Banga

I think, I'm quite certain that the merchants would want to raise that whenever they can and they have for many years. But I don't believe that in this currently changed political circumstances that, that is the first priority of anybody in the system. And of course, by the way, as you know, the rationale becomes a very different feature. You're going to look at the losses on the credit book that banks take versus the benefits that the merchants get in that kind of circumstance. There's a whole different set of arguments. But having said that, that's logic and logic is only so good up to a point. So I'm alert to it. We are actively discussing it but at the end of the day, I don't see any movement on it.

Barbara Gasper

Operator, I think we have time for just one more question.

Operator

Your last question comes from the line of James Friedman with Susquehanna.

James Friedman - Susquehanna Financial Group, LLLP

Ajay, I just wanted to ask, or Noah if this is more appropriate, with regard to the merchant class action in the 8-K this morning, there were a number of requests in that original complaint, as I recall, monetary damages among them. Should this 8-K be interpreted to suggest that the resolution is going to be purely monetary in damages, and that the other claims in the complaint have been resolved?

Ajay Banga

Noah, I'm going to let you handle that one.

Noah Hanft

The answer is the agreement only addresses the monetary component of any resolution or judgment. So it only addresses the cash component to the extent that there is or isn't any other part of the case, this agreement doesn't speak to that.

Operator

Ladies and gentlemen, this concludes our Q&A session. I would like to turn the call over for closing remarks.

Ajay Banga

Thanks. So let me leave you with a few closing thoughts, and thank you for being here today through our conversation. 2010 was just not without its challenges, right? The challenges impacting our performance were kind of primarily the result of economic softness, primarily in the United States, as well as, as you well know, the roll off of a few debit portfolios, some of which we still have this lapping issue that Martina talked about for the early part of 2011. But despite those challenges, we did grow net revenue almost 9% and EPS over 25%. This is fueled by kind of the war on cash as I call it around the world. We saw double-digit volume growth in Latin America, in Europe, interestingly, but also in the Asia/Pacific, the Middle East and Africa. And we left 2010 in a much different place from where we started. The U.S. economy continues to show some improvement. We have not only worked through the roll off of the debit portfolios but we actually won significant new business across the globe. That is contributing to our results and will contribute to our results in the next couple of years.

Additionally, you've already begun to see us execute our growth strategy that we believe will position us for strong long-term growth. So I'm looking at capturing more than our current or fair share of the 85% of transactions around the globe that today are conducted with cash and checks. Those are expensive ways of transacting, and the cost of those methods of transacting are borne by society and not clear to everybody, but they're expensive. So the war on cash makes eminent sense for governments, for consumers, for banks and for merchants. So these efforts we are making include recent moves such as the acquisition of DataCash, the pending acquisition of Travelex's Card Program Management business and, of course, things like the Telefónica joint venture, all of which include an increased focus on consumers. And you will see more. And, of course, 2011 is not going to be without its challenges. The U.S. economy still has its housing and unemployment issues to work through and there's the U.S. debit regulation that we just talked about that we will have to navigate as well. And I'm pretty sure other challenges will come up around the world in different ways. But as we enter 2011, I enter with some optimism. And as I've stated earlier, we will manage through all this and continue to build our share of electronic payments globally. So thank you for your time today, and thank you for your commitment to our company.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Have a good day.

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