Chief Executive Officer at Mastercard
Thank you, Warren. Good morning, everyone. Russia's invasion of Ukraine marked a somber start to 2022, as war returned to Europe for the first time in decades. Given these extraordinary circumstances, we decided to suspend our business operations in Russia.
We did not take this decision lightly, given that Mastercard has operated in Russia for more than 25 years. We are now focused on the orderly suspension of business operations in Russia and supporting the well-being of our employees and their families across the whole region.
Even in the context of this challenging geopolitical environment, we're off to a strong start in 2022. We delivered robust revenue and earnings growth with further improvement in our underlying operating metrics, notably in cross-border travel.
Quarter one adjusted net revenues were up 27% and adjusted operating income up 40% versus a year ago on a non-GAAP currency neutral basis. On the macroeconomic front, consumer spending remains strong, particularly as economies across the globe continue to reopen and pandemic-related restrictions are lifted.
Labor markets are firm, with low unemployment rates and rising wages. Weighing against this healthy backdrop are a number of factors that they are monitoring, including inflationary pressures, supply chain constraints geopolitical uncertainties and COVID with infection rates. We're monitoring these developments including the fiscal, monitory, public health care and other policy responses.
Let's look at this from a geographic standpoint. US retail spending remains healthy, aided in part by the buildup of excess savings during the pandemic. According to our quarter one spending pulse report which is based on all payment types, including cash and check, US retail sales ex-auto, ex-gas were up 4.7% versus a year ago.
In Europe, spending trends are positive, although the invasion of Ukraine has introduced risks to economic growth looking ahead. Growth in Latin America continues to moderate, following a strong rebound in 2021.
Asia has generally lagged the recovery of other regions. We're seeing several countries relaxing COVID-related restrictions, like others are facing stronger measures. Asia continues to have significant upside potential.
Looking at Mastercard spending trends, we continue to see strong growth. Domestic switched volumes or strength across a broad range of sectors including retail, utilities and professional spend. We also saw strong growth in travel and entertainment including spending with airlines, travel agencies, lodging and restaurants.
In terms of cross-border where the growth was particularly strong the recovery continued this quarter led by travel. Cross-border travel reached 2019 levels as of March for the first time since the pandemic began. Geographically, the cross-border recovery has been broad-based with improvement across all regions.
Cross-border card not present ex-travel continues to be strong. Our strategy is designed to enable and capitalize on these trends and executing against our three key strategic priorities: one expanding in payments, two extending our services and three embracing new networks. Here is an update on how we're progressing against each of those.
First, we're expanding in payments by continuing to grow card payments and leaning into innovation and new payment technologies to catch-up other prioritized payment flows. We're driving growth in comp payments through new consumer, small business, co-brand and fintech wins.
On the consumer and small business front, I'm excited to announce an enhanced partnership with Wells Fargo which includes several new elements. Wells Fargo will now issue Mastercard small business credit cards and for the first time in almost a decade, consumer proprietary and co-brand credit products.
We're also excited to announce that we have deepened our relationship with our long-standing partner, Capital One. In addition to renewing our existing business, we will also be their issuing network for a larger number of new originations across both their consumer and small business products.
Further on the small business front, we are expanding our small business portfolio with the First National Bank of Omaha, also partnering with the bank and Verizon to launch a new Verizon business Mastercard targeting Verizon's small business customers.
In total, these partnerships will help us continue growing our U.S. small business market share. Outside the U.S. we're driving commercial card growth through new partnerships with leading B2B tech companies like Clara.
We will be flipping Clara's business portfolio in Mexico to MasterCard and are working for them to launch new programs in five additional markets across Latin America.
Turning to co-brands, we've made substantial progress to ensure we are well positioned to capitalize on the return of travel. We have renewed and expanded our exclusive partnership with American Airlines, one of the largest co-brand programs in the United States.
American will continue to leverage our capabilities including SessionM and will participate in our Staff cast program to identify in tech partners who can help drive innovation across the airline. And in the U.K. we have launched two new Barclaycard Avios cards with Barclays and International Airlines Group loyalty.
Outside of travel we've expanded our relationships with leading retailers including a new co-brand program with Victoria's Secret and a renewal of our Ulta Beauty co-brand offering both in partnership with Red Financial.
We're also continuing to advance our leadership in the digital and fintech space, through new product launches and new partnerships. We're partnering with BCA Digital, the digital banking arm of the largest private bank in Indonesia to launch a digital-first Mastercard debit product catering to millennials.
And in Latin America we signed a regional partnership with global payment processing platform Galileo. The partnership establishes Mastercard as Galileo preferred partner across several markets in Latin America and they will work to integrate and distribute several of our products and services to help their fintech customers.
In addition to driving new wins, we are leveraging our services capabilities to execute against many of the large portfolio migrations that are in flight. In Europe, our consulting teams are engaging with our partners at Santander, NatWest and Deutsche Bank to ensure a smooth and timely transition and to identify opportunities to optimize those portfolios.
Santander is the bulk of the way through a nine million card migration and we expected to be complete by early next year, while NatWest commenced the issuance of Mastercard at the end of last year and plans to migrate their entire 16 million card portfolio by the middle of 2023. Deutsche Bank's $10 million consumer and commercial credit and debit cards will be reissued as Mastercard-branded cards with a credit migration starting in quarter four of this year and the debit migration commencing early next year.
Similarly our team in the US is supporting key migrations including Gap Inc., Merrick Bank and First Interstate Bank. All the migrations are on track with Gap Inc. scheduled to be completed this summer. We're also expanding in payments by leading entertainment innovation in areas like installments and cryptocurrencies. Here are a few examples. Our Openbit [Phonetic] Mastercard installment program has been very well received and is progressing according to plan. Remember Mastercard installment is built into our network making by Buy Now Pay Later available to millions of consumers and merchants worldwide.
We continue to add a wide array of new lender and fintech partners including Amount, Deserve, i2c, Lithic and Southern Bank. In this quarter, we announced several merchant partners who are excited to support MasterCard installments including Bass Pro Shops and Cabela's, H&R Block, Saks Fifth Avenue and Walgreens. US customers will begin offering MasterCard installments to consumers this quarter and international expansion is planned for later this year.
And we continue to build solutions to support the crypto economy with a principled approach focused on three key areas. First, helping consumers easily and safely purchase cryptocurrencies and NFTs. In addition we are enabling consumers to spend their crypto holdings on card and catching up their crypto wallets via MasterCard Send.
Second, providing identity, cyber and consulting services for market participants, including engaging with central banks as they design and develop central bank digital currencies.
Third, preparing our core network to directly support digital currencies.
Making substantial progress in each of these areas. This quarter the Gemini Mastercard which offers crypto rewards went live across the US. We also partner with Nexo to launch a new crypto card in Europe, one that uses consumers' digital assets as collateral to back their credit line. And we established several other international cryptocard partnerships including banks in Europe and Abra, Invesco and Bello in Latin America. On the crypto services front, MercadoLibre will be leveraging psychotraces AI and cyber capabilities to bring security and trust to their digital wallet in Brazil.
Now turning to our second strategic priority services, as I've noted before, our services support and differentiate our core products and have played a critical role enabling many of the wins I mentioned. We also continue to extend our services across multiple growth vectors through new payment platform capabilities, new verticals and new use cases.
Here are a few examples. First, earlier this month we completed our acquisition of Dynamic Yield. Now that the transaction is closed, we will combine Dynamic Yield personalization platform and decision engine within our SessionM loyalty platform and our test-and-learn experimentation software. The result will be a truly differentiated consumer engagement and loyalty hub for our customers.
Second, we announced that we're expanding our consulting services into three new practices dedicated to open banking and open data, crypto and digital currencies and ESG. We've seen increased customer demand and a growing portfolio of successful engagements in these areas. For example, we are supporting Handelsbanken and Intesa Sanpaolo design programs that advance their ESG priorities. We're helping Wirex explore innovations in crypto.
And finally, we're expanding the breadth of our customer base and deploying our capabilities to solve for a wider range of use cases. For example, we deployed our Test & Learn capabilities to help tailored brands, optimize retail operations and improve marketing efficiency for the leading menswear brands. And deployed our FX capabilities with Santander in Spain to help streamline dispute resolutions and prove the customer experience.
Beyond expanding in payments and extending and services, our third key priority area is embracing new networks. Our current focus is on two areas: open banking and digital identity. Our open banking and multi-rail strategies are converging enabling us to leverage our unique set of assets to address new flows in verticals, like rent payments.
For rent payments, the risk of ACH returns due to insufficient funds is a significant pain point in both renters and landlords. To address this challenge, we're launching a new suite of smart payment decisioning tools. These solutions use Finicity's open banking capabilities to recommend the optimal payment day and payment rail for each transaction based on cost, speed and risk.
The Bill Payment Alliance, a collection of more than two million rental homes will be one of the first fintech partners to launch these capabilities. We plan to expand these solutions across a broad range of bill payment verticals.
In addition, we continue to expand our open banking reach with Finicity and Aiia, by penetrating new verticals and establishing new partnerships. We continue to enhance our capabilities at the mortgage vertical and are now expanding into the auto lending vertical.
We're leading the way in terms of provisioning permission-based income, employment and asset verification information and we've partnered with Stripe, who will be using our open banking capabilities for a variety of use cases.
We're also extending our open banking reach through data access agreements with products like Fiserv which will enable direct API connectivity to thousands of FIs in the United States.
In the digital identity space, Ekata continued its strong performance in quarter one, securing deals with financial services companies including MoneyLine and several leading Buy Now Pay Later providers.
In addition, we recently joined forces with Microsoft and a collaboration to improve digital transaction approval rates and reduce fraud. The solution enables issuers to optimize authorization decisions using network and merchant-specific authentication data.
Combined, open banking and digital identity extend our value before and after the payment transaction and into new digital transactions. These are attractive and growing opportunities and we are uniquely positioned to be successful in both.
In summary, our business fundamentals remain strong and we delivered robust revenue and earnings growth again this quarter which also reflects our disciplined approach to expense management. We're executing against our strategic priorities notably expanding our share with key issuers.
In addition, we've worked hard to expand our travel-oriented portfolios which positions us well to capitalize on a strong recovery in cross-border travel.
And last but not least, we want to reflect on what is most important, the safety and well-being of our employees and their families who have been impacted by the war. Our thoughts are with them and the people of Ukraine.
Sachin, over to you.