Mastercard Incorporated (NYSE:MA) Deutsche Bank Technology Conference August 31, 2023 2:45 PM ET

Executives

Ling Hai - Co-President, International Markets

Analysts

Bryan Keane - Deutsche Bank

Bryan Keane

Okay. We will get started with our next session. I am Bryan Keane. I cover payments processors and IT services here at Deutsche Bank and we are really excited to have Ling Hai, who is Co-President of International Markets at Mastercard. So, first, welcome, Ling Hai.

Ling Hai

Thank you so much, Bryan.

Question-and-Answer Session

Q - Bryan Keane

Thanks for coming in a beautiful Dana Point here. Can you start by telling us a little bit about your background and your current role at Mastercard?

Ling Hai

Sure. Sure. First of all, so good to be here. I have been with Mastercard for 14 years now. So this is my fourth job. I joined Mastercard in Beijing, running Greater China. And then I moved to London, had a global job, went to Singapore to run Asia 2015 and then back to London. I am back in London again running all of our international markets, which essentially is everything outside North America, except Canada, U.S., everything else sits within international markets.

But also just maybe very quickly, before Mastercard, I did banking, I worked for HSBC, Bank of America, but more importantly, I started out as a management consultant with Booz Allen. Grew up in Shanghai, immigrated to the U.S. 33 years ago. So -- and now this job has brought me around the world. So that’s a little bit about me. So when people ask me, Ling Hai, where you are from, I ask how much time do you have.

Bryan Keane

Nice. Nice. So just to be clear the -- everything outside of Canada and North America ends up coming into you?

Ling Hai

Yeah. That’s -- so it’s Europe, Middle East, Africa, Asia and South America.

Bryan Keane

Got it. Got it. I was hoping maybe since, obviously, you cover a lot of the globe, you could talk about some of the spending trends you are seeing in those markets, international markets and then also, of course, related to cross-border travel?

Ling Hai

Sure. Sure. Well, I would start by saying, COVID accelerated this whole digitization process, but nothing has reverted. We see digitization continues and so this process is here to stay. Secondly, I would say, I am very surprised by the consumer resilience. We continue to see very strong spend across the board.

There is now a shift. So during COVID, I think, people were renovating their homes, so the focus was more on stuff. Now there’s a complete shift from stuff to experience. So travel is a big one. And I think for us, if I look at cross-border travel, everywhere in the world it’s way above 2019 level. So that’s a very good thing.

You see some moderation in spend in certain markets. For example, I live in the U.K. I see this firsthand. Inflation in the United Kingdom is still 7% to 8%. That puts a hit on the pocket book. And then energy prices are still high. And of course, with the interest rate increase in a country like the U.K. and mortgages, actually people don’t have fixed mortgages in the U.K. unlike the U.S. So, all of a sudden, your mortgage payment goes up on a monthly basis. So that impacts cash flow. But I mean it’s not a significant depression on spend, but you see a little bit of moderation.

I would say, probably, opportunities exist maybe with China, and what I would say is on the one hand, because if you look at inbound/outbound, it’s still way below 2019 level. So there’s some opportunity there on the one hand.

But on the other hand, you also read about the economy basically seeing a little bit of slowdown. So we will have to see how that plays out. But it remains a very exciting space in terms of travel for us.

And I think Mastercard is very well positioned because of all the travel portfolios we have, products like the Lufthansa co-brand, the Singapore Airline co-brand, American Airline co-brand. I took American Airline here to this town. So those things will actually do really well.

Bryan Keane

Is there any green shoots of seeing opening of China, of travel there, of cross-border?

Ling Hai

Yes. First quarter, second quarter, we definitely saw that. And -- but like I said, I think, we are seeing green shoots and I think the issues are several fold. We talked to some of our travel partners in China as well.

I think the issues lie in one, some visa restrictions still existed and those are being lifted gradually. I was in Washington, D.C. yesterday. So it’s very clear between U.S. and China, they try to sort this out. I think the other thing is very much around capacity. It’s both airline capacity, but also crew capacity on the ground. So that’s being addressed as well.

And I think the third area is really going to be around confidence and the ability to want to travel and spend. So, like I said, it’s -- there’s some positives and some negatives, so we have to see how that plays out.

Bryan Keane

Got it. Got it. So many distinct countries that make up the international business for Mastercard. Can you explain a little bit about how you address each of those unique needs because, obviously, Africa, Latin America, Europe, they are all going to be…

Ling Hai

Yeah.

Bryan Keane

… very different.

Ling Hai

Yes. Yes. It’s a great question. In fact, I get this question a lot from people, like, what strikes you about the international markets. I will start off by saying, in fact, I am really surprised by the commonality, the consistency.

I think partly, this is because there’s so much more in common than what’s different. I think partly, this is because we have a global franchise model. There’s a set of consistent routes how we operate our business, right? It’s actually -- it brings more consistency.

Payment needs around the world are also somewhat similar, right? The things we need to solve on the ground will be around issuance, acceptance, thinking about new flows, thinking about services. So that’s very consistent across the board, every market is very focused on those things.

Clearly, there are differences as well. Some of the differences are cultural, right? So, for example, I can think about how Germany is more debit dominant, how Japan is more about credit, but people use credit cards like a charge card. They never revolve unlike in the U.S. So those differences definitely exist.

From a product perspective, how we think about credit, debit, prepaid makes a difference. There’s also countries where prepaid is not allowed, so we can do that. So those are the differences.

And then I think some of the differences are also technical. So, for example, you go to China, it’s all QR acceptance. You don’t really see that other than maybe some parts of Southeast Asia. NFC, contactless is a much more dominant form factor in countries like Singapore, where I lived for seven years, London, it’s everywhere, it’s contactless, right?

Australia is contactless, fully enabled, fully penetrated, and then, of course, you have the U.S. where we still -- we are making good progress, but we are not at 100%. So those will be the differences, Bryan. In general, I think, the opportunities actually are pretty consistent. But in terms of technical implementation, product preference, cultural preference, there may be some uniqueness there.

And I would say one thing, also government regulatory environment, I think, you may have different types as well. Japan is much more open. There’s not much regulation. You probably have a bit more regulation in countries like the U.K. or Australia or the U.S. and then you have something like China and India, which is much more regulated.

Bryan Keane

Got it. Got it. You have had a number of wins in the international markets, notably in Europe. I was hoping you could share some detail on some of those wins and help us understand what enable Mastercard to win the business?

Ling Hai

Yeah. I would start by saying, the way we win our customer’s hearts and minds. First of all, I have to attribute to the people, the teams, right? It’s really about sitting down with our customers and having a relevant conversation about solutions that meet their needs rather than just peddling our own widgets. So that really is the big difference.

I oftentimes also hear from customers the difference is our ability to co-create, co-innovate with them. So we stand out as being very different. I do think Mastercard in the last few years have built up a lot of unique capabilities around services, whether that’s data and services, whether that is cybersecurity and intelligence.

It actually is not just -- these services are not just a revenue driver, they actually a differentiation in our deal pursuits. Our ability to do a launch pad with a customer. So we put some concept through a two-week process. At the end, we actually have a prototype, right, a proof-of-concept, those things actually really matter in how we win deals.

And I think, some of the recent wins like UniCredit is probably a good example of that and those deals are oftentimes we have an exclusive relationship, all the products and it’s across multiple markets, we like those a lot.

The other point I want to make is also, sometimes it may take a while for us to win back a deal and I think Costco in Taiwan is a great example. When I joined Mastercard, we didn’t have it and we didn’t have it for a long time, but we never gave up.

It’s just like keep working on it and keep talking to customers about why us? And we first made inroads with Costco in Canada and then Japan and now we also have the Costco relationship in Taiwan.

If you guys think Costco is very significant in U.S., Costco is very, very significant also for us in Taiwan. So those are all great examples of winning, but you don’t win just by peddling your widgets, you actually really have to deliver solutions that address people’s pain points.

Bryan Keane

Got it. Thinking about some of the markets that you cover, I wanted to go back into China. Just thinking about the opportunity there, there is regulatory issues there…

Ling Hai

Yeah.

Bryan Keane

… often with the government there and there’s China UnionPay competitive and you hear about Alipay, WeChat Pay. What’s the opportunity for Mastercard to grow inside of China?

Ling Hai

So we continue to remain, first of all, very committed to the market. We have been there for a long time and I think we still are working towards getting a final approval. I think we are making really good progress. Today, our business there is more cross-border, but the domestic market is hugely significant.

So winning that part of the world, winning the domestic piece of China remains our goal and I think we are making good progress towards the final approval. As some of you may already know, we got an in-principle approval from China back in January 2020 and now the work is really about working with the regulator to ensure they are okay with our readiness from an operational technical perspective. So that work is still ongoing.

Bryan Keane

And is there a timeframe when officially they will be done?

Ling Hai

Yeah. It’s great try. I wish I could tell you. It’s very hard for me to predict the future, especially in the context of China, but we are working hard on that.

Bryan Keane

Okay. Got it. The other country that comes to mind is India. They also have some regulatory and competitive markets there. How is Mastercard doing in India?

Ling Hai

Yeah. So we are very optimistic about India. We no longer face any restrictions in India. So it’s back to our normal business. One thing I would say is, may sound very boring, but it’s really back to the basics, focus on issuance, focus on acceptance, focusing on winning deals, driving market share, focusing on cross-border, focusing on credit. Those are the things we are doing in India.

I would say generally, though, we are -- I am personally first very encouraged by the whole digitization efforts push by the Indian Government. I think this is just -- it creates a very good overall operating environment for all the players. So that’s a good thing.

The second thing I would say is, with digitization, though, inevitably, you are seeing more fraud. So that’s a great opportunity for us. Mastercard has a lot of value that we can bring to the table in India in terms of solving fraud, managing risk. So that’s good.

And the third thing I would say about India is, today the whole digitization still is very much payment related, it has not expanded beyond payment into other financial services, such as insurance, such as other retail banking products. So I think there’s still a lot of runway in India for us to grow with this market.

Bryan Keane

Beyond winning deals, the growth vector and you mentioned it here in talking about India, but it’s just driving acceptance and in international markets, there’s still plenty of growth, I think, to have. So can you just talk about driving the acceptance part?

Ling Hai

Absolutely. And I think the acceptance opportunities actually across the board. People may think in mature markets you may have less opportunities versus developing markets. It’s actually not the case.

Again, I give another example in Japan, cash as a percent of retail is still very high. So card acceptance -- digital payment acceptance is still a big job even in a developed market like Japan, right?

Clearly, acceptance in developing countries where cash is still dominant is a huge opportunity for us. Right now I am also very encouraged by some of the new innovations that are coming into the acceptance space, for example, tap on phone. I think that is going to be huge. A lot of the small businesses find cost of acceptance for digital payments to be a bit more on the high side.

So things like pay out. So every phone will become your acceptance device, right? It’s a great way to address this cost issue. So I think that kind of innovation also gives me a lot of optimism in terms of how much we can grow. Globally, we are already at 100 million. So the work will continue on this front. It is a very important value proposition for us.

Let me make -- maybe also make one last comment on the acceptance. Acceptance is also where we need to customize a little bit in terms of some of the consumer experience or form factors, right?

So I think about plastic versus a phone using NFT versus using QR as form factors or the consumer experience and that’s not going to be one size fits all depending on which market we are operating, we have to invest in the right technical solutions to drive that.

Bryan Keane

Commercial has been an area Mastercard’s targeting for growth. I was hoping you could share some progress in addressing the commercial flows in international?

Ling Hai

Yeah. So in the international markets, here’s what we are seeing, lots of headroom. I think the whole commercial space is still likely penetrated. Maybe let me take one step back, I’ll separate commercial into two buckets of opportunities.

One is really just the cards or the point-of-sale solutions we have. So this is like the corporate T&E card, a procurement card, a purchasing card, right? And also small business products and people will use those products to make purchases or spend on their business trips.

That itself is still very lightly penetrated. I see a lot of headroom in international markets, especially places like Asia, Middle East, Africa. So that itself we will be very focused on. It will give us a lot of momentum.

Sometimes we need to focus on the right solutions, for example, in the whole SME world, a small business, right, ultimately, people are looking for the right credit line. If you give a small business a credit card with only 500 credit line. That’s not very useful to them, because they are using it to finance their working capital.

And oftentimes banks find that a challenge. How do you find the right risk return trade-off? What is the right credit line, but also the right risk level for you to manage and Mastercard can bring a lot of capabilities to this work using our Test & Learn, using our data analytics, we can help banks optimize their credit line strategy for SMEs. So that’s just an example.

The second bucket of the commercial opportunity is really in B2B, yeah. And this is where I think our virtual card solution is just a great solution. We will continue to capitalize on that and we will continue to ensure our solutions are embedded in the procurement process itself in the B2B payment ecosystem. By that I mean like the SAP or Coupa type of invoicing system.

So the conversations, the work on the ground is about how we integrate our payment solutions into the B2B payment, the B2B procurement process or accounts receivable process, because oftentimes, the issue isn’t just payment itself, it is also data reconciliation, expense management and I think this is where we can bring tremendous value to the table.

Bryan Keane

Got it. Let’s turn to competition. I guess, first on competition, we think about the new fintech entrants and alternative payment methods. Do you see some of these players, I mean, Alipay, WeChat have been around forever, but also some of the new entrants in Europe and other places. Do you see them as competitors or can you guys actually partner with them as well?

Ling Hai

I actually see more opportunities to partner. I mean, one thing I don’t know if you have heard this, I was in Shanghai and Beijing not too long ago. I literally was able to provision my America issued credit card into Alipay now as an inbound tourist, right?

I don’t have to have a Chinese card, an international tourist that can provision their internationally issued card into Alipay and use it in China everywhere QR codes are accepted. So this is actually a real innovation, because today, if you are foreigner, you go to China, it’s difficult use a card, right, and cash is pretty much gone from the environment.

So it’s actually a great innovation, and to me, that is also a great example of our partnership, right? So there are ways we can partner with emerging players. Clearly, a lot of the digital banks, like new banking, Latin America, squarely our customers, right?

So I think the point here is this, there are different places -- spaces that we play in. The point is how do we find the right innovation, the right angle, the right complementary places where we can help each other win. So I do see there’s actually more opportunities to partner.

Of course, having said that, I think, we need to compete as well in places where we need to, that is about we have to make our own products and services and solutions competitive. So that is not something we are letting our game down.

We have to up the game and make sure we deliver the best solutions to the marketplace and help our customers really win their games and improve their profitability. If we do both and I think this is still a very sustainable play for Mastercard.

Bryan Keane

Yeah. The question I often get is some of the government stimulated new domestic schemes, Pix in Brazil. India has got one as well. Do those -- are those competitive to what you guys are trying to offer?

Ling Hai

So we -- Bryan, we have lived with competition throughout our history. We are never the only gaming town, right? So I think about domestic networks and all those in a similar category. But guess what, even with some of these domestic schemes through co-badging, through working on delivering services, I think, we can still find opportunities to partner as well. And so our own capabilities need to be there, our own products need to be competitive and we find a space where we can collaborate.

Bryan Keane

Great. I want to see if you are seeing good pickup in service offerings. We hear obviously about the big push in services. Most of the time, we think about it as a U.S. push in services, but I am sure it’s going on international. Maybe you could just talk a little bit about that?

Ling Hai

Oh! Yeah. So services from Mastercard services and value-added services are definitely not a U.S. phenomenon along, it’s across the Board in all the Mastercard markets. The international markets, last two quarters, very strong growth. We are seeing a huge contribution from services to our revenue.

But services are not just a contributor to revenue. Like I said, services actually become a differentiator in some of our deals and partnerships with our customers. So it’s actually very, very important to us and we are very focused on this. We have the right teams on the ground, delivering services, doing R&D, but also delivering services, doing business development as well.

We are also looking at the right acquisition opportunities. So services, in general, remain a very important contributor to our overall business growth and that is not just for the U.S., it’s for international markets as well.

Bryan Keane

Got it. Mastercard has been focused on financial inclusion for some time. I know it’s been a multiple year effort. Can you just highlight a few recent examples of some of the initiatives that you guys are doing in that space?

Ling Hai

Yeah. Bryan, financial inclusion, I mean, I think, for example, we have done a lot of work in India. We have done a lot of work in Africa. But in the end, I think, when people think about financial inclusion, the tenders intend to be, oh, it’s just about access to bank accounts or access to electronic payments.

I think, ultimately, the ultimate thing to solve in financial inclusion is actually access to capital, to credit, to working capital, right? So I may have a bank account, but if I can get -- I can borrow the money to finance my working capital, I won’t succeed as a small business. So this is, I think, the biggest piece of value-add Mastercard brings and I think it’s multifaceted as well.

Partly, we solve this together with our customers through SME cards. I talked about those commercial cards, right? That is a way, a lot of the times using a commercial credit card, SME credit card is a way for a small business to finance their working capital.

Real-time payment is another way to solve this, because oftentimes, they need working capital is because they don’t get paid until 30 days later or 60 days later. So getting paid faster is another way to solve this issue.

But more importantly, ultimately, there’s also this credit underwriting strategy, right? A lot of the lenders may be reluctant to lend SMEs, because; one, they think they have a higher risk intrinsically and may not be true at all; two, it’s the lack of information, right? It’s almost like when I moved to London, the banking in Britain wouldn’t give me a credit card, because they don’t know anything about me. I don’t have my -- I didn’t have my history with me. It’s all in the U.S. So it’s about providing the information.

And so on this front, whether it’s about creating more visibility and transparency into their behavior, their data, also it’s about using analytics to understand SME’s creditworthiness becomes something we can bring to the table and co-innovate, co-create with our customers.

Bryan Keane

Got it. We can open it up to see if there’s a few questions from the crowd. Just raise your hand and the mic will come over. I wanted to ask just on the international opportunity, it’s vast, there’s a lot of different ways you can go. So where are you most excited, where are you focused on right now?

Ling Hai

Yeah. So, first of all, I remain very optimistic and focused on services. That’s an area that excites me. I think, again, revenue driver but also differentiation for us. The second area, I would say, that’s really very exciting for international markets is all the commercial flows. I think there’s still a lot of runway. So we will be very focused on that. The third area is probably specific markets like India, China, Mexico.

So I am just using those as examples. The list probably is much longer than that. But so there are still markets where I think there’s a lot of headroom for us. So it’s a combination of developing services, thinking about the new flows, but also specific markets.

Bryan Keane

Got it. Yeah. Go ahead. I don’t know, Jim [ph], your mic on? Yeah. I don’t think the question, if you can just repeat a little bit about the question was on Mastercard Send. I think the mic...

Unidentified Analyst

Yeah. Sorry about that. Question was on Mastercard Send. Historically, it’s been more domestic use cases. So just wondering how that fits into the remit of your role within the international markets and…

Ling Hai

Yeah.

Unidentified Analyst

… where you see the long-term opportunity there?

Ling Hai

Absolutely. So, Mastercard Send is a very important solution for us in international markets as well. And I would say, it’s not only limited to domestic use cases, for some of the cross-border remittance use cases, Send can be an enablement as well. It’s corridor specific.

I’d also -- can’t make a general statement where -- like it’s relevant for everybody. But I definitely do agree, Send is not just a domestic enablement, it’s also a cross-border enablement as well, right?

I can give you an example, for instance, I think, about the U.S. and Latin America, there are many corridors where remittance flows are happening and we think about our cross-border services, we also think about Send as a way to enable those flows.

Bryan Keane

I think we have got one more question, but let me just ask on, when we look around the world, there’s -- everybody is trying to figure out what’s going on with the economies. So I am sure there’s fits and starts, but is there any pockets of weakness that you could call out that you see that maybe getting weaker versus pockets of strength maybe accelerating growth?

Ling Hai

Yeah. So if I look around the world, I think, in terms of strength is, so probably, Asia where the travel recovery was lagging a little behind -- lagging a little bit and now I think there’s probably more room and catch up for them to do. So that’s probably something exciting.

But I think China does present a little bit of uncertainty in terms of I see some positives and I see some negatives as well. But overall, I think, with the supply chain shift, countries like Southeast Asia -- countries in Southeast Asia, but also countries like Mexico will actually benefit from this trend. Mexico is actually doing very well as an economy. Its currency is very stable. So that’s probably where the strength is.

I feel Europe is probably where we see a little bit of a weakness and -- but it’s not something to be significantly concerned about. I think the question on inflation probably is still everybody’s mind. I think in the U.S., it feels like it is doing a soft landing, but hard to say for sure. The Federal Reserve is also saying they may do this, they may do that. So which means they complete the lack of clarity, I think, in my mind.

But generally speaking, I think, the consumer resilience is something that’s manifested in multiple markets. I talked about the U.K., it’s probably an example of where you see a little bit of moderation.

But overall, I think, geopolitics obviously plays a role as well. So how that’s going to play out? I think it’s difficult. Your guess is as good as my. So I think those are the things we would have to look at.

I would just maybe end by saying one more thing. I do think you are seeing a lot of productivity improvement in the world because of things like AI, automation, that has to contribute to some of resilience we are seeing, right? So I think with that productivity will increase. It’s a very good thing.

And then the other side is, it’s jobs, right? So you have to think about, if jobs remain very strong, unemployment remains low, then it probably paints a very good picture. But if let’s say, AI starts to replace work and unemployment goes up, that will definitely impact the demand side. But at this point, I am not seeing that.

Bryan Keane

Great.

Ling Hai

Yeah.

Bryan Keane

We will take a question in the back.

Unidentified Analyst

Thanks. I was just going to ask about some of the higher yielding cross-border products and businesses, like, what are a couple of things that you are most excited about where that investors can get excited about in terms of helping push the numbers down the road?

Ling Hai

Yeah. So, look, first of all, managing the mix of our business is very critical. So it’s very hard for me to say cross-border is better than domestic. I wouldn’t make that conclusion. I think, ultimately, it’s about managing the overall mix, but also the overall yield.

I remain excited about staying the flow and being able to deliver value-added services on top of that. So when you look at our total net revenue yield, we are seeing an improvement, the trajectory is really strong.

Clearly, I think, travel is one area that I remain very, very excited about and very positive. So when travel has two components, right, it’s leisure, there is business and we are seeing recovery and I think the trend probably -- the past trend in Q2 has been very encouraging.

So it boils down to, do we have the right products to speak to the cross-border behavior, if that’s what we want or the e-commerce behavior, if that’s what we want or the commercial spend. And I look around the mix we have, I think, we do. We have very strong travel specific portfolios and products. We have very strong commercial propositions.

And also, by the way, the VCN proposition actually is very relevant for travel vertical, right? We are actually serving customers like OTAs or travel agencies when they have to -- they get the money from the consumers and when they have to disperse hotels and airlines, those flows are actually supported by the Mastercard VCN solution. So that remains very, very positive to us.

Bryan Keane

What about strength in e-commerce cross-border, you mentioned that?

Ling Hai

I think if you look at Q2, it still is very strong. So, obviously, the growth in physical travel is much higher, but e-commerce remains at a very strong growth rate. It is something we definitely have also a strong advantage in a sense that when you deal with e-commerce, fraud risk become a major issue, right, and this is where our C&I solutions become extremely relevant in the e-commerce space.

Bryan Keane

Okay. With that, Ling Hai, we will keep it there. Thanks so much for being here.

Ling Hai

Thank you. Thank you.