Mastercard Incorporated (MA) Presents at MoffettNathanson Payments, Processors and IT Services Summit (Transcript)

Mastercard Incorporated (NYSE:MA) MoffettNathanson Payments, Processors and IT Services Summit June 3, 2020 9:00 AM ET

Company Participants

Craig Vosburg - Head of North America

Conference Call Participants

Lisa Ellis - MoffettNathanson

Lisa Ellis

All right, good morning, everyone. Thanks for joining us bright and early. Lisa Ellis here, of course, back at you today for Day 2 of Annual Processors and IT Services Summit. We are kicking off this morning with one of our main events and one of my favorite people to host the Craig Vosburg, the Head of North America at Mastercard. Craig, say hi.

Craig Vosburg

Hi, good morning. Thank you. And thanks for having me and thank you for that overly generous introduction. I'm glad to know. I'm one of your favorite people to host. That will keep me coming back, if keep inviting me.

Lisa Ellis

Exactly, we like the Craig is supporting the coronavirus look this morning.

Craig Vosburg

Yes, I will -- just for the record, I did put on a collared shirt today for the first time in two and a half months, so this is for you and your audience.

Lisa Ellis

Yes, yes, we don't want to know what's happening underneath the table and we've heard your dog is with you, so if there's some barking, we know that that's not Craig.

Craig Vosburg

Yes, exactly. It might be Warren by my IR guy.

Lisa Ellis

Right, yes. Housekeeping item, as usual, folks, but for anyone that was with us yesterday, at the bottom of your little webcasting screen is something that says, Ask A Question, it's very easy. You just type right into that box and the questions pop up on my screen, so I can see them. And I will layer them in to our discussion where they make sense in the flow. And then, if we don't get to your question for some reason, we'll certainly follow-up with you with the Company afterwards. Thanks everyone.

With that, without any further ado, I think we will get started.

Question-and-Answer Session

Q - Lisa Ellis

Craig, why don't we start with the topic that is top of mind for everyone? During earnings and some other forums, you and others at Mastercard have talked pretty extensively about the very broad-based support you're providing employees, your communities, your customers related to the COVID-19 pandemic, but maybe could you highlight a couple of unique things that Mastercard is doing that perhaps aren't as visible or haven't gotten as much awareness that investors?

Craig Vosburg

Sure. Yes, I'd be happy to. Thanks again for having me and hello everyone out there. Hope everyone's doing well and is safe and healthy, and happy to spend a little time with you all this morning. To your question, there's clearly, I mean, the impacts of COVID-19 situation goes without saying are just extreme and they're impacting all of our businesses and all of our communities, families.

Mastercard has been very focused on doing what we can and doing our part to help manage through this very difficult period and support our various constituents in ways that we can both large and small, and some of the larger things are more well known things that attracted media attention. Some of the smaller things, as you asked about, don't but are no less important. And there are a couple of areas where we're doing that clearly with government.

I mean, you see on the large scale things that we're working with government at the federal level to help facilitate disbursement of aid through to unbanked or under-banked recipients of aid through things like our Direct Express program. But that same sort of commitment to helping the underserved and under-banked extends down to the local level on much less visible ways through working with local partners.

For example, in Los Angeles, the County of Los Angeles, we're working and supporting L.A. Love, which is a program to channel a social benefits and aid disbursements to underserved members of the Los Angeles community. We're working in a similar way with the New York Immigration Coalition to again get aid benefits and financial support to under-banked often immigrant folks, many of whom are working on the front lines in healthcare facilities, helping to fight our way through this situation.

Similarly on the customer front, there are things that we're doing at the macro level across our customer base to provide data and insights. So, we've launched something called Recovery Insights to help our customers both businesses and governments, a lot of local governments, city, governments, governments like New York, London, Barcelona, all using Recovery Insights to understand what's happening at the city level to help inform decisions they may be making about where to invest, how to reopen, when and where to reopen.

That's a little bit more of the macro level, but we're working with individual customers as well on very specific issues that they may be facing. If you're a grocery store that's gone through a very significant change in the demand patterns for your products, how do you think about managing your stocking programs and shelf displays and merchandising? We're working with grocers on things like that. If you're an airline, that's curtailed your route system, how do you think about re-introducing routes and what city pairs based on the kinds of demand you're seeing in local city fair.

So again, it's sort of runs the gamut from very sort of high profile things to things that are a little bit more under the radar. We also are doing things, of course, in just pure more humanitarian kinds of things. There's been some attention around the commitment we made along with the Gates Foundation and Wellcon to provide funding towards research on identification of vaccines and therapeutics. But we're also at the very local level here supporting White Plains Hospital in Westchester County and with some -- along with some other corporate partners here in Westchester County.

So, it really runs the gamut just as a reflection of our commitment, not only to support our communities as best we can, but support our partners in the private sector, in government and across the board.

Lisa Ellis

Thank you. Well, one of the data and insights that you have at Mastercard, such a fantastic asset and have been essential during this time. That's an area where you've also been very generous as many of your peer companies in sharing a lot of that data freely on an ongoing basis so that everyone governments, corporations, customers, merchants can have visibility into almost like a daily view of what's going on. Can you give us a sense right now, what your best guess is at Mastercard around the current macro-economic outlook? And how you're expecting to running President of North America at Mastercard is expecting U.S. card volumes to trend over the next few months?

Craig Vosburg

Well, it's consistent with the way we talked about it on our first quarter earnings call, and since we're looking at this, the impacts of this series of events in stages, a containment stage, a stabilization phase, a normalization phase, and a growth stage. We saw containment occur in the U.S. beginning mid-March and early April, with some pretty dramatic fall off in spending levels as the number of cities and states went into lockdown mode. We saw this stabilization phase sort of take hold with the deceleration of spending bottoming out in mid-April early May.

We've begun to see normalization through much of the month of May with spending levels beginning to recover, still a negative territory on a year-on-year comp basis, but far less negative than we've been seeing in March and April. And the trends that's at a macro level across at the U.S. level overall, at a state by state level, it's interesting to kind of break that down based on where we see local restrictions. We saw every state in the country was in positive growth territory in early March by the third or fourth week in March every state in the country was in negative growth territory and some in very severe negative growth territory.

We're now at a point where somewhere between 15 to 20 states are at back in positive growth territory or at neutral levels, nominal. This is modest growth. This isn't what we would consider sort of a normal rate of growth, but there are a number of states that are still a negative territory that are reflecting ongoing restrictions in retail activity and the movement of people around cities, ability to travel and that sort of thing.

So all that being said, we're, we're seeing this normalization, we hope that that continues on a path. We'll have to see if there are any setbacks and we're even seeing now signs of New York City preparing for stages of opening, now slated for next week, depending on what happens with other challenges that we're facing in New York at the moment. But -- so with all that being said, hopefully that trend continues.

I don't know that we get back to really meaningful rates of growth and the kinds of growth that we've seen pre-COVID until there's a level of confidence broadly across our consumers in the U.S. that they're safe, and that's going to require some period of time without meaningful new cases. It may require, the development of effective therapeutics or a vaccine that those kinds of things likely take us into next year before we get the level of confidence in the consumer psyche that life can resume or revert to some form of normalcy that we had sort of pre-COVID.

Lisa Ellis

Well, I remember when I hosted you at this event last year and we talked about, what the path was to get the U.S. from card penetration in the low 60s up to somewhere in the 80s. Now, I don't think any of us asked for a pandemic to get us there. But certainly -- and it's certainly not and then obviously not to joke about it, jokes aside, it's obvious the last way we would have wanted to get there, but there are certainly number of secular benefits that we've talked about a lot over the last week and certainly the last day at this conference coming out of the pandemic and one of them.

And one of them and one of them that you talked about last year was contactless and how to finally get this to U.S. onto contact list. Can you just talk about from Mastercard perspective where we are now? How you see that accelerated through pandemics? And then also maybe talk a little bit about, how contactless obviously displays its cash, particularly with those stubborn small dollar transactions, but talk a little bit about how it helps Mastercard beyond just the cash displacement? And why you care so much. Why it's such a big important these?

Craig Vosburg

Yes, contactless, it's interesting. Contactless has been an important theme for us as a company for many years and obviously has had much greater success in penetrating payments volumes in markets outside the U.S. Inside the U.S., it's been more of a challenge to create the adoption around contactless, but it's been no less of a priority for us to be an enabler of that. And as we talked about last year, we've been working for a number of years, very hard at enabling the infrastructure in the U.S. payment system to be able to make contactless payments available to consumers on a ubiquitous basis.

So, we've been working with issuers to get them, to recognize the benefits of contactless and begin to reissue cards with contactless capability. That's been a process of working through our issuing base, and we now have roughly 70% of issuers who represent about 70% of our cards in the U.S., we have committed to issuing contactless, and many of them have a significant number of contactless cards in the market already.

And in light of current events, a number of them are accelerating the reissuance of contactless cards to get them into the hands of consumers more quickly. We've been working on the merchant side to work with acquirers and individual merchants to ensure the contactless capable terminals are available at the point of sale. That effort was aided pretty significantly by the EMV migration when there was a mass reterminalization in this market.

And with that, we have now contactless-enabled terminals installed and functioning, at merchants that represent 65% of our current present transaction volume in the U.S. So, that's a high degree of ubiquity on the acceptance side. The final leg in that journey towards making the U.S. contact contactless market, it was changing consumer behavior and getting consumers to adopt a new payments routine at the point of sale.

And as you know, sometimes the hardest part of making a change in payments is changing consumer behaviors, because we all -- as long as the behaviors that we have work and meet the need, it's sometimes it's difficult to get consumers to see a different or a better way of doing things. And of course, that's one of the reasons why we focused on and have been very enthusiastic about transit, as a specific use case for contactless because it's a catalyst for changing consumer behavior.

And that's something we continue to be excited about. Transit is obviously a bit depressed at the moment with ridership way down in a lot of mass transit systems. But the work continues to enable transit systems, as to have open loop contactless capabilities. Fast forward from last year to today, we've got perhaps the most forceful catalyst we could have imagined, actually, we couldn't have imagined it when we talked about it last year.

But the most forceful catalyst imaginable in changing consumer behavior and that is suddenly nobody wants to touch anything that they don't know recognized trust, haven't cleaned, and that includes terminals, that includes pens, that includes all kinds of who's working on the other side of the county, nobody wants to touch anything. And therefore, as a catalyst for changing consumer behavior, we're seeing a very significant uptake in consumers, embracing contactless as a way to pay. We're seeing merchants encouraged consumers to use contactless payments.

And as I said, we're seeing issuers accelerating the reissuance of cards. So there's real momentum building there, and we're seeing growth on the order of 40% in contactless transactions worldwide. We're seeing similar rates of growth in the U.S. And while it's off a very low base as a starting point, it's moving in a way that I believe -- I believe long before COVID, that we were finally at a point where the U.S. was on its way to becoming a contactless market. I believe that even more today and we'll get there sooner because of the circumstances we're in with COVID.

To your question around why does it matter for us. I think the main -- there are too many things, one you've alluded to is contactless is a way of getting at what has been a difficult source of cash based transactions for us to penetrate. Persistently, cash based transactions or small tickets and a high percentage of contactless transactions are targeting those small ticket payments that historically have been made with cash. And so that's bringing new volume into the Mastercard network for our issuers, for our acquirers and for us. So, we're very enthusiastic about it for that reason.

And we also just love the consumer experience. It's a great consumer experience, putting COVID related concerns around touching things aside. It's smooth. It's easy. It's seamless. It's quick. You pull out a card, you tap it, you put it away and you're on your way. It is a very good consumer experience. And I think as you -- in this day and age of technology and the evolution of technology, you need to continue to deliver a great consumer experience to ensure someone else doesn't figure out a way to deliver a better consumer experience than you can.

This is an evolution for our industry in providing a great consumer experience. It was a great experience to go from cash or writing a check to using the card. It was a great experience for the cards to go from being those paper-based zip zap things to being electronic. It’s a great experience for the card to go from being electronic and you have to sign for us and now you just tap and you go, and that it's just an evolution of that path.

Lisa Ellis

All right. Good. I am looking forward to tapping and going as much as possible.

Craig Vosburg

Yes, you're looking forward to getting out and doing anything that involves buying stuff.

Lisa Ellis

The other major and I guess would be secular acceleration happening because of the pandemic is the shift into e-commerce of course. Could you talk a little bit about sort of similar set of questions, one, maybe just dimensionalize the latest data points that you've disclosed at Mastercard in terms of how much shift or acceleration you're seeing in e-commerce? And then a similar question, beyond cash displacement which of course e-com does also squeeze out cash. What are some of the other reasons why e-commerce transactions of that shift into e-com is beneficial to Mastercard?

Craig Vosburg

Yes. Well, of course, as we talked about together for many years, one of the great tailwinds to our business and our business model is the secular migration from physical forms of payment cash and checks to digital and electronic. And certainly though that's we believe a long-term trend and then there's plenty of runway left in that trend. The situation we're in now is accelerating that and we've seen an acceleration in the growth of digital, certainly relative to physical, as physical has been curtailed and confined a bit.

But we think that the trend in terms of the acceleration towards digital has some staying power. As we talked about in Q1 earnings, we saw more than 50% of our transaction volume was card-not-present in the quarter and that's out from 40%. We see it that's worldwide. We see similar rates of growth in card-not-present volume in the U.S. On a merchant category specific basis, we're seeing e-com growth rates of 40%, 50, and 60%. Some of them have no alternative at this point. So there's probably an exaggerated shift.

But the point being there's an accelerated adoption by consumers and accelerated adoption by merchants and focusing on digital channels, as the way to sell things that we see as a clear ongoing benefit and areas where our products will continue to add value, for many years to come. To your point on why this matters cash displacement, again, the obvious one cash isn't much of a viable competitor as a form of payment in the digital realm, but it goes well beyond that and that a digital or an e-commerce transaction provides a, a very rich environment for us to deeply engage in the transaction and add value to that through our various partners.

We can do that through things like the application of artificial intelligence and fraud solutions to enhance the detection of fraud by for example, incorporating new streams of data and new attributes, behavioral attributes into a transaction that's initiated through a device that we can necessarily incorporate through a card-based transaction at the point of sale and we do that through NuData, the Company we acquired a few years ago that helps incorporate those device-based behavioral attributes, as part of the decisions stream on whether or not to authorize a transaction.

We have the ability to also incorporate other enhanced forms of authentication with things like biometrics that can be leveraged through the device. We can support our merchant partners more effectively and through things like cyber-security and cyber risk tools, helping them identify vulnerabilities in their online environment. We do that through another company we acquired recently called RiskRecon.

We can offer loyalty kinds of solutions to partners to engage in the transaction flow in a real-time basis through the extension of offers, we can engage on an ongoing basis through things like the capabilities that SessionM offers, there's gateway services, the list goes on and on. So, it becomes a very rich environment for us to really fully deploy the full breadth of capabilities and expertise that Mastercard has to enhance the transaction value for each of the parties involved.

Lisa Ellis

So, you've mentioned a lot of safety and security related topics in there, but didn’t touch on tokenization. Although, I know that obviously tokenization is one of the major technology enablement of doing secure transactions online. And one of our experts yesterday was calling out that, one of the perils of this sort of step-function shift into e-com is that fraud rates in e-com can run four times higher than the in store transaction. So just give us an update on where you are with tokenization deployments in the U.S., particularly as merchants are -- consumers are using digital wallets perhaps more or and then merchants are using more and more of a card on file type of models?

Craig Vosburg

That is a fair critique at the moment of the online environment that fraud rates are higher in digital transactions than they are in physical. And with physical transactions, we've seen those be reduced dramatically through the introduction of EMV chip technology at the point of sale on the order of 80 plus percent reduction in fraud, across a number of categories. The technological equivalent to that chip technology at this at the point of sale being brought into the online environment is tokenization and tokenization will enable us to achieve an EMV standard, a level of security for online transactions.

So, it absolutely is a very high priority area of focus for us to ensure that we have are proliferating tokenization as widely and as quickly as possible across the digital ecosystem, there are three primary channels or use cases for which we're focusing on in as much as they represent the way in which consumers make online purchases through wallets. And of course we launched tokenization with Apple and Apple Pay and have continued to work with other partners in the wallet space to ensure that the credentials and those wallets are tokenized and therefore secure.

The second environment is the card on file environment, which obviously given the number of years that consumers have been lodging card credentials and a card on file, right? There are a lot of credentials that we as consumers have put on file with merchants of all shapes and sizes, and getting those 16 digit card numbers replaced with tokens is, it is a significant effort, but it's a really important effort. And one that is, I think, the whole entire ecosystem recognizes the value in that. The recognition of the value is even more heightened given the shift to more digital transaction activity that we're seeing in this environment.

And therefore, we're working with merchants and merchant service providers. People like Netflix, people like PayPal. Some of the big acquirers to systematically go across their base and replace those credentials with the card on file credentials of the tokens. That's under way that work is going to take some time to proliferate across the system, but certainly hope given this increased focus that will accelerate. And then, the third area really relates to the guest checkout experience and that's where the SRC standard or click to pay as it will be known to consumers comes in and click the pay offers a fully tokenized transaction experience through the guest checkout process.

In addition to being tokenized as just easy and fast and intuitive and the one click checkout experience. So those are the things we're focusing on those three areas. And we're sort of at different stages with each, but equally focused on ensuring that we've got tokenization is widely proliferated as we can and as quickly as we can. So the benefits are real by the way, the benefits, we tend to focus first on the benefits that relate to security and that's logical because security is kind of, that's a primary consideration here of reducing fraud, but we'll see benefits in terms of the consumer experience as well as it relates to the life cycle management of card credentials and how particularly credentials that are on file with different merchants.

When cards expire and get reissued, you don't have to go back through all of your, every place you've left the card credential update with a new card number. We can do that through disconnecting and reconnecting the token to a new card, if a card is compromised and has to be reissued, same thing. So, there's a lot of other benefits that will come downstream that will deliver a better consumer experience, again, back to the importance of ensuring the consumers experiences is consistently good and cutting edge, that will come as well as has a result of the work. But job one is improving security.

Lisa Ellis

All right. Well, I'm going to take us back for two seconds because I did have one question coming in from the audience. Now you can defer this to Sachin, your CFO friend, if you'd like, but I'll just go ahead and ask. Just back on e-commence just a question and this does come up frequently, which is, when all is set and done with the value-added services like you were highlighting. Does Mastercard ultimately generate more revenue or higher margin off of e-commerce transactions than a brick-and-mortar transaction?

Craig Vosburg

That's not a question that you can sort of generalize on. The broad sort of general answer is not really. There's a lot of variables that go into determining that some relate to the channel, some relate to the ticket size, some relate to the extent to which there are other services value-added kinds of services that are associated with the transaction. So, it's not broadly generalizable like that. We like all our transactions and we liked the yields and the revenues associated with all of them. We just want more.

Lisa Ellis

Well, you've mentioned when you were talking about tokenization, your relationship with PayPal as one of your major card on file wallet partners, and you also have a strong relationship here in the U.S. with Apple even deepening with the relationship related to the Apple Card. How is the pandemic impacting your major wallet partnerships in the U.S.?

Craig Vosburg

I think it's again kind of consistent with this idea of accelerating the trend in the shift and the focus on things that are digital. And there's clearly some benefits that are accruing to some of those partners as well as more consumers look to transact online. And it has just resulted in what has already been a very active and fruitful set of discussions around, hey, what can we do together to make this even better to have those discussions be faster and more frequent and more creative. And so, it's just helping to accelerate that direction that we've already been moving in.

Through the real, I think, a very healthy spirit of collaboration across those partners. In some cases, the environment we're in hasn't directly driven this, but we announced last week or the week before, the new program with Samsung, Samsung Money along with SoFi, that's obviously been in the works for some time, but it's another example of areas where we can lean in with these big digital players and big wallet players to not just enable a wallet with acceptance capability, but then enrich it with products that consumers will want to engage in and will help them deliver more value to the consumers that are a part of their platforms.

Lisa Ellis

Another group of technology companies that you have increasingly broad relationships with is all of the fintechs, digital bank, neobanks, whatever the name is du jour is for them. So big ones in the U.S. have included players like Revolut, players like Robinhood. How is the pandemic impacting that ecosystem?

Craig Vosburg

Yes, it's an interesting question. I think, I would start with a little bit of a broader view and not just focused on the "neobanks", but digital banking in general. And I think again, there's a bit of a catalytic moment here that's accelerating the movement towards the digital banking, whether digital banking is services are provided by a neobank or whether they're provided by a traditional bank, incumbent banks, a lot of the banks that had branches that have been closed or people have been reluctant to go into branches.

And it's again, resulting in consumers, figuring out new ways, new behavioral patterns that may have taken years for them to embrace, being embraced due to necessity in a very short period of time. So, I think there's a broad gravitation towards digital banking services that are relevant across the industry as a whole, an interesting segment of pro players are those neobanks that we've been focused on for some time and we've had a number of successes with, with dedicated teams and a lot of great partnerships thinking about products and programs with these partners that we can develop together.

And it's interesting there, you may have going into this, thought, gee, this is going to be a tricky time for earlier stage ventures, those that maybe don't have a, a big branch network as a deposit gathering mechanism to fund banking operations. It seems thus far any way that businesses with good models are still able to attract funding and use that funding to then continue to innovate and deliver great consumer experiences and new products and new ways of engaging with a growing customer base.

And what's that worth just continuing to lean in with them as we have to, as a great source of partners with whom to innovate with whom to create new ideas and leverage our technology and get some of our capabilities into the market so they can provide benefits to consumers that much more quickly.

Lisa Ellis

All right, you highlighted in the opening when talking about actions, Mastercard is taking related to COVID, some of your value-added services, particularly things around data and analytics that are gaining a lot of visibility and a lot of traction. How are your value-added services trending during the pandemic, which one are maybe seeing more demand, which one maybe seeing less demand?

Craig Vosburg

Yes, we’re seeing pretty healthy demand across the board. For a couple of reasons, I think, a lot of the value-added services revolve around data and analytics, and then on the backend of those data and analytics kinds of consulting work we can do with partners to understand that data and interpret it and act on it for their benefit. Things have just been so different in ways that would have been difficult to imagine it in ways that a lot of our partners systems just aren't really tools for and geared for that the demand for data and the demand for understanding what's happening in the broader environment? What's happening at a local level? What's happening by merchant category? What's happening at different consumer segments? The demand for that information has been, has been high.

And as a follow onto that, they've kind of sort of so lots around, what does that imply for me as a merchant, for me as a player in the travel industry, whatever the case may be, what does that imply? And what should I start doing with that? There's an incredible amount of demand there at the same time, you know, the big family of value-added services that we see continual continuous and strong demand for revolve around risk and cyber and intelligence and fraud solutions. Market dislocations, like the ones that we're going through, create opportunities for fraudsters because the behavioral norms that a lot of fraud detecting algorithms get out of whack because suddenly you've got these massive aberrations and behaviors.

And so, there's a real opportunity there to be working with our partners to interpret that data and use it to their benefit, to be able to refine fraud detection in this environment. We have within that part of our business, obviously there's an increase in cyber attacks and cyber risk. This is a field day for the bad guys. So again, when things are disruptive, the bad guys see that as a business opportunity and was so much more activity moving online with a lot of businesses coming online for the first time businesses that may not be as adept in managing their cyber risks, the environment from a digital perspective, there's demand for helping them identify vulnerabilities that for a small or medium sized business could be a life-threatening issue, if they get breached.

There's been, unfortunately, a massive increase in chargeback activity, as you would expect as so many services have not been able to be delivered because of the environment that we're in. And part of that part of our business focuses on charge backs through Ethoca that we acquired a couple of years ago, and Ethoca services has been in extremely high demand to help both issuers and acquirers manage the chargeback stream, more efficiently in a streamlined basis, try to eliminate charge backs before they actually occur. So, it's been pretty widespread, I would say. And I would anticipate that that will continue that we'll see pretty widespread demand across our services portfolio.

Lisa Ellis

In the middle of this Mastercard announced the launch of Mastercard Track, one of your payment platforms into the U.S. Can you just remind everyone what Mastercard Track exactly is? And then what role it plays in starting to help digitized payment?

Craig Vosburg

Your question suggests to me that that brand name is not resonating with you guys. So Mastercard Track, we have -- as you know we've talked for some time about the B2B opportunity as one that we're very excited about and we continue to be. I am very enthusiastic about the B2B opportunity in the U.S. Globally and on Investor Day, we talked about this as being $110 trillion opportunity, but one that historically our ability to participate in has been relatively narrow because it's been defined by the kinds of B2B transactions that are appropriate for being paid with a card, which is a limited set of what a business actually pays out.

It's their T&E expenses, it's procurement, it's some expenses they can pay for using virtual cards, but the bulk of that opportunity sits in the kinds of transactions that are managed as accounts payable. And B2B, a Mastercard Track business payment service BPS, the brand just keeps getting better. There is aimed at that opportunity to basically the theory behind this is we've established on the consumer side of our business, a great model where we as a network engaged with issuers and acquirers, who then in turn engage with consumers and merchants to enable payments to occur between counter parties who don't know each other.

Mastercard Track is similar in as much as we will have agents representing on either side of that system buyers agents, and suppliers, agents working with buyers and suppliers again, respectively. We don't necessarily not know each other that's not the value-added component on the B2B side. The value-added component is that the way in which they engage, even though they know each other is very inefficient, the data flows are inefficient. The flows of funds are inefficient. It's expensive to process an invoice theirs challenges and records reconciling the payment data with the invoice data, et cetera.

And therefore, while we're building out that ecosystem around the buyer and supplier agents, we'll focus as a network on bringing value around establishing a directory of payments preferences that exist between those partners, creating a data switch to enable formatted data exchange between those partners, creating optionality in terms of how the payment is actually made, may be made with a virtual card and maybe made by ACH. It might be real-time payment. It might be a regular cards or lots of ways in which we can facilitate that through our multi real strategy.

And then to enable those partners to optimize the way in which the payment is made based on that variety of factors, the payments preferences, the policies that might exist for either of the counterparties, the terms that they agreed to with each other, the relative cost and speed and transparency of the payment mechanism itself. That's the idea. And that's what it's all about. We've launched that. We've got the initial phases of that are in market. We're working with partners to bring that into the market now and signing up buyers and suppliers and focusing initially on virtual cards is that as the use case.

So it's going to be -- it's a long journey, because it's a build. It's a big thing that we're looking to build here. But as we've talked about, we have big ambitions in the B2B space and think this is going to be an important part of helping us get there.

Lisa Ellis

And where did Mastercard Track fit in B2B? You have relationships with a number of the accounts payable and accounts receivable, software platforms, and obviously development of treasury banks is sort of, are they the customers of Mastercard Track? Or how does that relationship work?

Craig Vosburg

Many will be, so it is for us continues to be part of our B2B sort of go-to-market architecture. So, we'll work with partners who are our aggregating end users, whether they're buyers or suppliers and seek to integrate them into this network and use the out of the way to drive scale and growth across this. So, there are a number of large partners that we've communicated already. Some are specialists in that sort of kind of specialist software providers. Some are players, they focus specifically on the B2B space. Some are processors. So there's a variety of different kinds of B2B partners that will go to market with we're open to any and all as a means of because ultimately the value of this for we believe the value of this, everyone increases as the network effect grows and there's more buyers and more suppliers that are that they can participate in a more seamless and efficient way.

Lisa Ellis

All right. One more, before we get to our closing questions, I did want to talk about government, as you see us through the lens of North America in payments; relationships with governments have always been a little bit of a mixed dynamic positive to negative. How is the current situation impacting your relationship with the U.S. government and the other North American government?

Craig Vosburg

Yes, well, I think, one of the things that we've always, or for some time have really focused on with government is not just sort of trying to influence from a policymaking perspective, but to engage with governments in ways where they see the value of what Mastercard does and they can touch it and feel it, and that it helps them be more effective in serving the needs of their constituents, which ultimately should be the goal of government. And we do that in a variety of ways that that revolve around helping governments manage their own business so to speak more effectively.

Governments have massive inflows and outflows of payments that help governments make more informed decisions about how to serve the needs of their constituents and understanding the impact of investment in their community and the impact of how their local economies are developing. If it's a local government, how the broader economy is developing, if it's a federal government, particular focus on serving the needs of underserved members of any governments, respective communities, these are things we've been focusing on for some time.

This environment has again put a very sharp focus in the spotlight on initially, how to get aid into the hands of people who needed the most through the federal stimulus programs. And in a number of cases, the people who need it the most aren't going to be reached through the more established means of governments pushing money out because they don't have bank accounts, they don't have federal tax returns on records with the IRS and all these kinds of things.

So, there's been a very active and creative set of dialogs underway with government around how do we extend their reach to get aid into the hands of people who need it most and do it quickly and safely and securely. So we're able to leverage some of the kinds of programs I touched on early. That's sort of an initial right now, kind of thing. We'll see the extent to which the need for stimulus continues.

Beyond that there will be increased needs for information to help with decision making along the lines that I mentioned with recover insights, where we're working with a number of cities. We work with governments at all levels to leverage our data, to help them understand what's -- so a follow on question is going to be. What's been the impact of the stimulus? Where are people spending it? Where are they spending it? How is it being -- how is that helping with overall economic recovery? What categories, what kinds of businesses?

So again, it drives a different dialogue with them in terms of areas where Mastercard can add value to what they're trying to do and demonstrate the power of the Mastercard network as a partner, as a vital player in the economy. You know, just aside from all of those things, if you just take a step back for a minute and think that we went through in the period of a couple of weeks, this incredible contraction shut down, shifts in how people were spending, inability to transact, physically, suddenly cash was a very challenging way to make purchases because stores weren't open and people didn't want to touch it.

The economy shifted like almost overnight to be electronically, digitally enabled to a much greater extent than it was previously. And that happened absolutely seamlessly, absolutely seamlessly, which we take great pride in. We expected it. But again, that's another conversation with government. Like we sort of helped played a pretty big role in keeping things, working in a way that, you know, they weren't working the way anybody wanted them to because of the economy was so disrupted.

But the part that wasn't disrupted, we work in very well, thanks to technology like ours, that, enabled people to continue to transact, get what they need, what they need for their families, those kinds of things. So, that's the kind of dialogue that we're having with governments and having it fast and furiously.

Lisa Ellis

All right. So to wrap, wrap up questions, the biggest challenge facing you currently and then I'd say in light of the current situation maybe number one thing you're also very excited about?

Craig Vosburg

Well, biggest challenge sort of continues on plays on the question we just talked about. I think the role of government. Notwithstanding all that I, all that I just said, we're in a period where the role of government and the way in which government is, I guess, interjecting itself into the economy is, it's different, right? It's it also has changed because of some of the actions that need to be taken. Some of that is related to stimulus, but that also has implications with respect to potentially to legislation, policymaking.

So, that's an area to keep a very close eye on to make sure that to the extent there are changes in the way government use its role that, that we're positioning ourselves to, in all the ways I just described, where they see the value of what we do and continue to, I guess, enforces will with respect to its role in ways that enable us to continue providing that value, put it that way. So that's one.

The other is, again, I talked about the changes in consumer behavior that are happening very quickly. Those changes historically tend to take a long time for consumers and mass to undertake behavioral changes. We've got this compression in that, that behavioral change pattern. And that creates opportunity and also creates some risks, right? That as consumers changed the way they behave and the way they want to engage with the world around them and someone else figures out how to serve those needs.

And therefore we're -- that's why I've alluded on many occasions this morning to delivering a great consumer experience and making sure that we're staying first and foremost in the consumer's mind as the partner with whom they want to work, and it is products they want to use. On the opportunities front is that, I mean, I have been for years, I continue to be just super excited about the potential in our business.

We talked earlier about that long-term trend that we've been, I think, beneficiaries with respect to the secular migration, the acceleration of that and what that means and the things that we can do in the digital realm, and what that means for digital and electronic payments and all the things we can wrap around that is really exciting to see, what's probably multiple years worth of evolution towards digitization, happening in the period of months or just a couple of a couple of years.

And that's true, not just on the consumer side, which is what we focused on a lot because of the impacts on consumer spending have been so visible. I think it's equally true on the B2B side, which we didn't really touch on, but businesses are also faced with this need to reinvent the way they manage things like accounts payables processes because nobody's in the office. And you can't get a paper invoice and do the checks and all that stuff when you're not in the office as easily as you could before.

So again, that's been one of these sources of inertial that has posed a challenge in migrating the B2B environment to more digital forms of payments that we've got this catalyst, a catalytic moments, I think, to accelerate some of that movement. So I'm excited about that too.

Lisa Ellis

Excellent. All right. Well, thank you, Craig, and we will see where we are one year from now, I guess, in terms of our penetration levels.

Craig Vosburg

We will, we will.

Lisa Ellis

With that, I don't think we thought that a year ago, but now with this acceleration, I don't know, I think we could get there by next year.

Craig Vosburg

You never know. You never know.

Lisa Ellis

All right. Well, thanks a lot again, and thank you for joining us. Thank you for making the trek to Westchester to do it. That was cool.

Craig Vosburg

Yes, my pleasure.

Lisa Ellis

All right, and with that…

Craig Vosburg

Thank you for having me.

Lisa Ellis

Absolutely, all right, thanks Craig.

Craig Vosburg

All right. Good to see you. Take care.

Lisa Ellis

Take care.