Mastercard - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered strong top-line and EPS beats: net revenue $8.13B (+17% YoY) and adjusted diluted EPS $4.15; beats were driven by higher-than-expected FX volatility revenue and robust value-added services growth.
• Payment Network net revenue rose 13% and Value-Added Services & Solutions rose 22% (currency-neutral), with contactless penetration reaching 75% of in‑person transactions and cross-border volume up 15%.
• Guidance tightened: management now expects FY 2025 net revenue growth in the low teens (ex-acquisitions), with a 1–2 ppt FX tailwind; Q3 net revenue growth guided to the high end of low double digits; non‑GAAP tax rate 20–21% for Q3 and full year.
• Capital returns remained a catalyst: Q2 buybacks of $2.3B (4.2M shares) and dividends of $691M; $9.3B remains authorized; Board declared a $0.76 quarterly dividend (payable Aug 8, 2025).

What Went Well and What Went Wrong

What Went Well

• “Another strong” quarter with net revenue up 17% (16% currency-neutral); momentum in deal wins including an extension of the exclusive partnership with American Airlines.
• Value-Added Services & Solutions grew 22% currency-neutral, supported by security, digital/authentication solutions, consumer engagement, and pricing; acquisitions contributed ~4 ppt.
• Operating leverage: adjusted operating margin expanded 50 bps to 59.9% YoY; switched transactions +10% and contactless reached 75% of in‑person transactions, underpinning transaction yields.

What Went Wrong

• Tax headwind: effective tax rate rose to 20.8% (adjusted 20.9%), primarily due to Pillar 2 global minimum tax implementation across jurisdictions.
• Mix headwind within cross-border: lower-yielding intra‑Europe cross-border grew faster than higher-yielding ex‑intra‑Europe volumes, partly offsetting pricing benefits.
• Lapping of prior portfolio wins (e.g., Citizens/Wells Fargo) intensified in Q2 and will continue through H2, dampening YoY growth optics despite healthy underlying spend.

Transcript

Operator (participant)

Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard Q2 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. Please only press star one once to queue up for a question, as pressing star one multiple times may affect your position in the queue. If you would like to withdraw your question, please press star one. Thank you. Mr. Devin Corr, Head of Investor Relations, you may begin your conference.

Devin Corr (Head of Investor Relations)

Thank you, Julianne. Good morning, everyone, and thank you for joining us for our second quarter 2025 earnings call. With me today are Michael Miebach, our Chief Executive Officer, and Sachin Mehra, our Chief Financial Officer. Following comments from Michael and Sachin, the operator will announce your opportunity to get into the queue for the Q&A session. It is only then that the queue will open for questions. You can access our earnings release, supplemental performance data, and the slide deck that accompany this call in the Investor Relations section of our website, mastercard.com. Additionally, the release was furnished with the SEC earlier this morning. Our comments today regarding our financial results will be on a non-GAAP currency-neutral basis unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to GAAP reported amounts.

Finally, as set forth in more detail in our earnings release, I'd like to remind everyone that today's call will include forward-looking statements regarding Mastercard's future performance. Actual performance could differ materially from these forward-looking statements. Information about the factors that could affect future performance are summarized at the end of our earnings release and discussed in further detail in our recent SEC filings, including our most recent 10-K. A replay of this call will be posted on our website for 30 days. With that, I will now turn the call over to our Chief Executive Officer, Michael Miebach.

Michael Miebach (CEO)

Thank you, Devin. Good morning, everyone. The headline this morning is, we delivered another strong quarter with our financial results exceeding our expectations. Second quarter net revenues were up 16% and adjusted net income up 12% versus a year ago on a non-GAAP currency-neutral basis. This is all underpinned by our winning strategy, diversified business model, and a relentless focus on executing against the priorities that fuel our growth algorithm. I will share several compelling examples on that today, but before I do, I will provide a few observations on the macro environment. Consumer spending remains healthy, supported by low unemployment and wage growth that continues to outpace inflation. This is true across both affluent as well as mass-market consumers. While macro uncertainty remains due to government actions and geopolitical tensions, overall, we remain positive about our growth outlook as the fundamentals that support consumer spending have been strong.

With that as a backdrop, let's get into the details of the quarter. We continue to deliver a steady drumbeat of significant wins with leading merchants and retailers. I'm thrilled that we have extended our exclusive partnership with American Airlines, one of the world's largest credit co-brand portfolios. Our services continue to set us apart. American will leverage our advanced analytics, loyalty, personalization, and security solutions to optimize their card proposition and enhance their industry-leading travel rewards program. We are also partnering with OnePay, a leading consumer fintech platform in Synchrony, to launch a new credit card with Walmart that will be available to consumers across the U.S. We are expanding our relationship with Uber, extending our exclusive Uber Pro card portfolios in the U.S. and Canada. We will also launch new programs in additional markets, including the U.K., as part of our global partnership.

As you look around the world, it's clear that leading merchants see tremendous value in partnering with Mastercard. We're also winning with fintechs, buy now, pay later providers, and marketplaces. With PayPal, we extended our card issuing partnership in the U.S. We also signed new credit and debit issuing agreements in the U.K. and Germany, and we are excited for PayPal's recently launched contactless mobile wallet in Germany. I just love doing things in Germany. In the buy now, pay later space, we signed an exclusive prepaid and credit card issuing deal with Afterpay in Australia. In Argentina, we renewed our consumer prepaid deal with e-commerce and fintech platform Mercado Libre. We're also partnering with them to launch new credit card programs in that market. We renewed our partnership with C6 Bank, one of the largest credit unions in Brazil, across credit, debit, and commercial.

In addition to winning deals, we're capitalizing on the significant volume and transaction opportunity in consumer payments by expanding acceptance, transforming the checkout experience, opening new verticals, leveraging alternative distribution channels, and launching innovative new capabilities. I'll give you a few examples for each of these five dimensions, starting with acceptance. We continue to leverage our contactless technology to drive open loop acceptance in the transit space. Our momentum here continues. In the second quarter, over 60 new public transport operators hopped on board to accept cards, from Ventura County, California, to Taichung Metro in Taiwan. We're also opening transit acceptance in China. This quarter, we launched Tap to Pay in the Shanghai Metro, which followed our successful launch in the Beijing Metro last year. In a QR-based ecosystem, this represents an important evolution toward a multi-form factor market that includes NFC technology.

We're also transforming the online checkout experience by driving adoption of capabilities like tokenization, Click to Pay, and payment passkeys. We have significant momentum towards our 2030 vision to transform online checkout into a single-click experience. In Europe, over 50% of e-commerce transactions are now tokenized. For Click to Pay, Commonwealth Bank of Australia and Westpac are automatically enrolling cardholders over the coming months, bringing mass market adoption in Australia. Issuers around the world are committed to removing manual entry by also making Click to Pay a core card benefit, including NatWest, Standard Bank, Bank Vostok in Ukraine, and others. On the acceptance side, the number of Click to Pay transacting merchants was up 4x in the first half of 2025 versus a year ago. We're also focused on driving acceptance in new verticals that have not historically been well penetrated by card. Insurance payments are a great example.

Significant flows, strong consumer demand, and a vertical that has undergone a digital transformation in recent years. However, card penetration is far lower relative to other carded categories. We are attacking this opportunity through new agreements with partners like Adyen, Checkout.com, Stripe, Transcard, and Worldpay. These partners will focus on enabling consumers to pay their insurance premiums. They will support claims disbursements to policyholders, and they will facilitate B2B payments from insurers to vendors providing services for these clients. Next, we're tapping into alternative distribution channels. For example, we're enabling stored value wallets around the globe. Our partnership with Alipay in Hong Kong and GCash will enable 36 local e-wallets to extend their use for cross-border through the international Alipay Plus wallet gateway. Mastercard credentials automatically added to the wallets, allowing any stored value to be spent via a simple tap anywhere Mastercard is accepted around the globe.

This is, again, a huge vote of confidence for NFC. Let's look at other areas where we're creating and deploying smart and engaging consumer experience that drive brand preference and incremental spend. First up, we're providing offerings that meet the unique needs of each individual cardholder. In Canada, we partner with CIBC to launch the CIBC Adapter Mastercard, which automatically applies additional rewards against your top three spending categories each month. It also includes our innovative touch card functionality, which allows cardholders, including the visually impaired, to easily distinguish the card from others in their wallet. Next, affluent cardholders. On average, they spend over two times more per card and up to three times more on cross-border. We're elevating our affluent value proposition with the Mastercard Collection, a comprehensive set of premium benefits created to drive top-of-wallet behavior.

That's paired with the expansion of our world product suite in the newly created World Legend Mastercard. Our most prestigious consumer card is now available to banks globally. This first launch is this month with the Citi Strada Elite Card. Finally, we're providing greater flexibility for consumers. We've deployed the Mastercard One Credential as a network-level capability worldwide. It enables issuers to offer a single digitally connected credential to give consumers flexibility as to how they want to pay: debit, credit, prepaid, installments, or stablecoin, all through their banking app. As Raj and Jorn explained in detail in our recent call on the giant e-commerce and stablecoins, we're leaning in to open up and drive new opportunities for our network in these spaces. If you didn't have a chance to join, I encourage you to listen to the replay. Today, I reinforce a few key points.

First, the giant e-commerce. We see this as an exciting opportunity across consumer and commercial flows to shop with merchants easily and securely. We're scaling agent pay globally, leveraging our capabilities to extend the trust of the Mastercard brand. It enables us to support a new way for consumers to transact. It gives us yet another capability. It sets us apart from domestic and alternative payment systems. It provides a way for us to drive switching and sell more services. As for stablecoins, we see it as another currency. We also see it as additive to the network, with opportunities for us to provide the on- and off-ramps from fiat to stablecoin, to partner with device and wallets, to bring interoperability, bring relevant services, bring global reach, and trust to the specific use cases. With new technologies, we always embrace innovation.

We offer choice and extended network to new partners, and we are doing the same thing here. We will bring our reach, ubiquity, and trust to agentic commerce and stablecoins and will provide an environment for our partners to innovate upon. That is the Mastercard Way. Now turning to commercial payments. We are driving growth by launching differentiated capabilities, scaling our industry-leading virtual card solutions, and expanding small business card distribution through new and expanded partnerships. In terms of new capabilities, the Small Business Navigator provides U.S. entrepreneurs access to cybersecurity solutions, insights and analytics, and partner tools to support more efficient and effective operations. Through the platform, Fiserv's Clover is partnering with us to offer SMEs discounted point-of-sale capabilities. Square is providing tailored educational programs to help small business thrive.

In the fleet space, several leading U.S. issuers, including Corpay, are deploying our new capability to integrate fleet cards into digital wallets. For the first time, fleet managers can now instantly issue and manage digital cards while drivers will be prompted to provide key data like odometer readings when they tap to pay at the pump. When it comes to invoice payments, we continue to scale our proprietary virtual card technology by making it easier for issuers and technology platforms to integrate our capabilities. We're now live with eight leading B2B platforms, including Coupa, Cvent, GEP, HRS, Navan, Oracle Fusion Cloud ERP, and SAP Taulia, several more in implementation. On the supplier side, our receivables manager platform is now available globally. It's being deployed through partners like Eleven, Run Payments, and EasyPay to streamline virtual card acceptance and payment reconciliation.

We're also driving small business and card distribution through a series of new and expanded issuer and marketplace partnerships. We've enhanced our exclusive relationship with Payoneer through a suite of services designed to accelerate growth of their small business customers across Europe. We're partnering with e-commerce marketplaces like BoxCommerce, who will distribute prepaid business cards to their merchants so that they can make and receive payments on cards across several countries in Africa. Shifting to disbursements, we continue to see strong growth in our Mastercard Move capabilities with YoY transaction growth of over 35% in quarter two. We're focused on penetrating a wide range of new and existing use cases. For example, in the disbursement space, we've partnered with Jack Henry to distribute Mastercard Move to thousands of community banks through their rapid transfer solution.

have expanded our relationship with NewWay, who will leverage Mastercard Move to enable Canadian businesses to facilitate near-instant payouts to Mastercard debit and prepaid cards. Staying in Canada, BMO Canada is expanding the use of our cross-border services in about 20 additional corridors. Moving to our third strategic pillar, value-add services and solutions. We continue to leverage the power of our data and product capabilities to differentiate payments and capture adjacent revenue opportunities. We do this by penetrating existing customers, diversifying into new customer types, targeting new buying centers, leveraging B2B partners for distribution, and deploying new services. Our years of experience and full suite of products help us build fit-for-purpose solutions for clients. We are seeing this in practice with several large customers.

For example, we've partnered with Garanti BBVA to support multiple strategic initiatives, including revamping their digital wallet, optimizing collections, and boosting credit card sales across digital channels. We have partnered with Deutsche Bank to use our open banking capabilities to grow account-to-account payments across Europe. These services deliver significant value in their own right, but they are even more powerful because of the linkage to payments that fuels our virtuous cycle. We also continue to capture payment-adjacent opportunities and win business with customers beyond issuers and acquirers. We're leveraging our test-and-learn capabilities with partners as diverse as Lufthansa and ad tech company BLISS to help them conduct scalable, sophisticated testing in areas such as media measurement, operations, and marketing. Our range of capabilities also enables us to expand into new buying centers with existing customers.

For example, the credit risk team at Stone, one of the largest acquirers in Brazil, plans to leverage our small business credit analytics product to enhance the accuracy of its credit offerings to SME clients. We're also leveraging B2B channel partners to distribute our services at scale. Solidgate, a payment processing platform in EMEA used by merchants in over 150 countries, will use identity insights for transactions to help reduce fraud and increase acceptance. Finally, we continue to develop new services. We just announced Mastercard Account-to-Account Protect, which will combine our cutting-edge fraud prevention technology with a new dispute resolution framework to safeguard consumers when making account-to-account payments. Deploying services like this across account-to-account rails is a major step forward as it helps us grow our addressable market while also further protecting our customers and the ecosystem.

We're starting with customers in the U.K., including NatWest, Santander, and Monzo, to bring this global account-to-account overlay to other markets later this year. We remain enthusiastic about our future growth potential for services. Our breadth of data, network of partners, unique product capabilities, strong customer relationships, and our incredible talent will help us to continue to differentiate and provide us with substantial runway for growth. That was a lot. I will wrap it up. In summary, we delivered another very strong quarter despite an uncertain backdrop. There is significant opportunity ahead. The fundamentals of our business are strong. Our proven growth algorithm and differentiated solutions position us to deliver and win as we have demonstrated time and time again. Sachin, over to you.

Sachin Mehra (CFO)

Thanks, Michael.

Turning to page three, which shows our financial performance for the second quarter on a currency-neutral basis, excluding where applicable, special items, and the impact of gains and losses on our equity investments. Net revenue was up 16%, reflecting continued growth in our payment network and value-added services and solutions. Acquisitions contributed one percentage point to this growth. This growth was ahead of expectations, primarily driven by higher-than-expected revenue from FX volatility. Operating expenses increased 14%, including a full percentage point increase from acquisitions. Operating income was up 17%, which includes a one percentage point headwind from acquisitions. Net income and EPS increased 12% and 14% respectively, driven primarily by the strong operating income growth, partially offset by a higher effective tax rate due to the impact of the global minimum tax rules, which came into effect at the start of this year.

EPS was $4.15, which includes a nine-cent contribution from share repurchases. During the quarter, we repurchased $2.3 billion worth of stock and an additional $1 billion through July 28, 2025. Now turning to page four, let's first look at some of our key volume drivers for the second quarter on a local currency basis. Worldwide, gross dollar volume, or GDV, increased by 9% YoY. In the U.S., GDV increased by 6%, with credit growth of 6% and debit growth of 7%. This growth was impacted by the lapping of the Citizens' debit portfolio migration to Mastercard, which commenced in Q1, 2024. Outside of the U.S., volume increased 10%, with credit growth of 9% and debit growth of 11%. Overall, cross-border volume increased 15% globally for the quarter, reflecting continued growth in both travel and non-travel-related cross-border spending.

Turning to page five, switch transactions grew 10% YoY in Q2. Both card-present and card-not-present growth rates remained strong. Card-present growth was aided in part by an increase in contactless penetration, as contactless now represents 75% of all in-person switch purchase transactions. In addition, card growth was 6%. Globally, there are 3.6 billion Mastercard and Maestro branded cards issued. Turning now to slide six for a look into our net revenue growth rates for the second quarter discussed on a currency-neutral basis. Payment network net revenue increased 13%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives. Value-added services and solutions net revenue increased 22%. Acquisitions contributed approximately four ppt to this growth.

The remaining growth was primarily driven by demand for our consumer acquisition and engagement services, growth in our underlying drivers, the scaling of our security and digital and authentication solutions, and pricing. Now let's turn to page seven to discuss key metrics related to the payment network. Again, all growth rates are described on a currency-neutral basis unless otherwise noted. Looking quickly at each key metric, domestic assessments were up 9% while worldwide GDV grew 9%. Cross-border assessments increased 15%, with cross-border volumes also increasing 15%. Pricing in international markets was primarily offset by mix as lower-yielding intra-Europe cross-border volumes grew faster than higher-yielding ex-intra-Europe cross-border volumes this quarter. Transaction processing assessments were up 18% while switch transactions grew 10%. The eight percentage point difference is primarily due to revenue related to FX volatility and favorable mix. Other network assessments were $260 million this quarter.

Moving on to page eight, you can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 14%, which includes a full ppt impact from acquisitions. Excluding acquisitions, the growth of total adjusted operating expenses was primarily driven by increased spending to support various strategic initiatives, including hardening of our technology infrastructure, diversifying our geographic footprint to further capture the secular trend, enhancing our products, and delivering our services. Turning to page nine, let me comment on the operating metric trends. Overall, we continue to see healthy consumer and business spending, and metrics were generally in line with our expectations. Starting with Q2, I will discuss the operating metrics on a sequential basis, adjusting for the leap year and the timing of Easter and other holidays.

Switch volume growth was impacted by a number of smaller factors, including tougher comps primarily due to the lapping of portfolios won in 2024, the timing of Social Security payments, and the mix of calendar days and lower gas prices. Switch transaction growth remained relatively stable. As it relates to cross-border, underlying growth remained strong. Let's double-click on cross-border travel growth. As mentioned in our last earnings call, we saw some moderation in select Middle East and Africa markets, primarily due to tougher comps, enforcement of Mastercard rules, and a ratcheting up of geopolitical conflict late in the quarter. We also saw some lapping of portfolios won in 2024. Cross-border card-not-present ex-travel growth remained strong. Now looking at the first four weeks of July, switch volume, switch transaction, and cross-border card-not-present ex-travel growth remained stable.

For cross-border travel growth, the sequential decrease is primarily driven by the timing of Easter as well as the continuation of the impacts I mentioned earlier. With all of that being said, our overall cross-border volumes continue to grow well in the mid-teens range. This is supported by strong underlying consumer spending and a diversified portfolio across geographies and travel and non-travel spend. Turning now to page 10, I wanted to share our thoughts for the remainder of the year. The headline is that our business remains strong and consumer spending remains healthy. The macroeconomic environment has been supportive with low unemployment rates and, for the most part, wage growth continuing to outpace the rate of inflation. That said, ongoing geopolitical and economic uncertainty remains. With global policy shifts ongoing, we remain agile, monitoring developments, and we stand ready to adjust as needed.

In this period of heightened uncertainty, what remains clear is that we have a well-diversified business across geographies, products and services, and discretionary and non-discretionary spend categories. We remain laser-focused on the execution of our strategy, as Michael said, while maintaining a disciplined capital planning approach. Now turning to our expectations for the full year 2025, our base case for the remainder of the year assumes continued healthy consumer and business spending. Given the strong first-half results, we are tightening the full year net revenue outlook range to the high end of the range we shared with you at the time of our Q1 earnings. We now expect net revenues to grow at the low teens range on a currency-neutral basis, excluding acquisitions.

Acquisitions are expected to add 1-1.5 ppt to this growth for the year, while we now estimate a tailwind of 1-2 ppt from foreign exchange. From an operating expense standpoint, we continue to expect growth to be at the low end of a low double-digits range versus a year ago on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to increase the operating expense growth rate for the year by 4-5 ppt, while we expect a headwind of 0-1 ppt from foreign exchange. Now turning to the third quarter, YoY net revenue growth is expected to be at the high end of a low double-digits range on a currency-neutral basis, excluding acquisitions.

Acquisitions are forecasted to add 1-1.5 ppt to this growth rate, and we expect a tailwind of 1-2 ppt from foreign exchange for the quarter. From an operating expense standpoint, we expect Q3 growth to be at the low end of a low double-digits range versus a year ago, again on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to add approximately 5 ppt to this operating expense growth, while we expect a headwind of 0-1 ppt from foreign exchange for the quarter. Other items to keep in mind: on other income and expenses, in Q3, we expect an expense of approximately $130 million given the prevailing interest rates and debt levels. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.

Finally, we expect our non-GAAP tax rate to be in the 20-21% range for both Q3 and the full year based on the current geographic mix of our business. With that, I will turn the call back over to Devin.

Michael Miebach (CEO)

Thank you, Sachin. Thank you, Michael. Julianne, you may now open the call for questions.

Operator (participant)

Thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Please only press star one once to queue up for a question, as pressing star one multiple times may affect your position in the queue. Our first question comes from Sanjay Sakhrani from KBW. Please go ahead. Your line is open.

Sanjay Sakhrani (Managing Director and Senior Analyst)

Thank you. Good morning. Sachin, you mentioned the lapping of portfolios, obviously Citizens in the first quarter.

I guess as we move through Q2, was there a more prominent impact? I guess as we look towards the back part of this year, are there further lapping of other deals? Just on Capital One and Discover, I know they kind of talked about the transition happening next year now, so I assume is that just not in your numbers for the remainder of this year in terms of the migration of the debit portfolio? Thanks.

Sachin Mehra (CFO)

Thanks, Sanjay. Let me take both your questions there. As it relates to lapping, just a quick reminder, it's more than just the Citizens' portfolio, right? I mean, we won the Citizens' portfolio last year. We won the Wells Fargo small business credit portfolio last year.

These are the two big ones in the U.S., but there were several other wins which we had across the globe as well. Specifically to your question as it relates to the impact of lapping to the YoY growth metrics, just as a reminder, the Wells Fargo portfolio converted in Q2 of last year. The Citizens portfolio started conversion in Q1 and then ramped up in Q2 of last year. What you should expect is that the lapping impact has gotten more pronounced in Q2 and then will continue through in Q3 and Q4. There is going to be continued lapping, not only on account of those portfolios, but other portfolios as well. That's kind of to your first question.

On your second question on Capital One, look, I mean, at the end of the day, as I mentioned in prior earnings calls, we've taken our best estimate into consideration as it relates to the migration of the debit portfolio with Capital One, and we continue to our current guidance view still assumes our best estimates around that. Obviously, the transaction is now complete. Conversions have actually started. They're still ramping up, so it'll still take some time before the conversions actually come into play. I also want to just remind you sequentially how this works, right? The new cards are issued, the new cards go into the hands of consumers. At the same time, the old cards are still there. The Mastercard branded cards are still alive and well. We take our best estimates as to how volumes will roll off.

Overall, I would tell you we expect that the ramp-up in terms of the volume declines will increase as the year progresses. We expect this year the net revenue impact to be minimal to our overall company's net revenues. The vast majority of the impact we expect to feel will be next year.

Michael Miebach (CEO)

At the same time, we continue to expect a strong partnership on the credit side and the services side. It is not only about rolling off, it is also about continuing to build our business with Capital One.

Sanjay Sakhrani (Managing Director and Senior Analyst)

Thank you.

Operator (participant)

Our next question comes from Darren Teller from Wolfe Research. Please go ahead. Your line is open.

Darren Teller (Research Analyst)

Guys, thanks. When we look at some of these wins, I just want to dive in a little deeper onto the value-added services that you're calling out as the most differentiating. Obviously, your competitors also call out value-added services.

When considering what you think stands out, and then sort of as an add-on to that, the pricing dynamic, we've seen really good pricing for value that you've shown in your numbers now, and it seems to be somewhat, I think it went in effect a lot of them in July and October last year. Just touch on the areas you're finding the most pricing power and if we can expect more of the same over the next 12 months.

Michael Miebach (CEO)

All right. Let me kick this off with the announcer on the first part here on the vast portfolio. When I look across the portfolio, I think the first thing to say, it's a very carefully curated portfolio. This isn't a set of single pearls on a string.

This is really before, during, after transaction, how we can bring value around the payment transaction, and then even beyond that when you think about topics like cybersecurity. Carefully curated, first point to know. When you think about it over the arc of time, we have been particularly focused over the past decade or so on security solutions. That is certainly a standout from a differentiation perspective. We have also been incredibly focused on leveraging our data to drive better engagement solutions for our customers. If you think in a more digital world, your cyber risks will go up. That is why cybersecurity is at the focus of what we are doing. In a more digital world, consumer engagement gets harder and harder, and you need better technology, better differentiation to drive through the clutter.

If I take some specifics out of both of these portfolios, first of all, on the cybersecurity side, the stakes are getting higher and higher. The fraudsters are using latest technology, using artificial intelligence, generative AI to power their solutions to break through. On the fraud side, on the cybersecurity side, we're doing exactly the same. I mentioned this in previous calls. Decision Intelligence Pro is leveraging data out of all sources of the internet, putting it through a generative AI engine for us predicting frauds. Instead of preventing fraud, we're going to predicting fraud, which is the latest stage of this kind of game. This is clear identifiable value for our customers that are very happy to pay for. Here we are right at the second point of your question on pricing for value. On the customer engagement side, it's very similar.

Our personalization engine through our Dynamic Yield acquisition continues to be providing outstanding value to our customers to really drive that personalized solution. Let's say you're a retail bank and you want to drive new account growth. You need a personalized solution, right channel, right context to do that. That's what personalization through Dynamic Yield does for us and for our customers in a way better than anybody else out there. You find us in the top quadrant of the Gartner Magic—what is that called? Quadrant thing. Whatever. The top quadrant. They are really good at that. A couple of examples.

In the world with some uncertainty from a macroeconomic perspective, the desire for our customers to make sure that they got full focus on the fraud line in their P&L to drive their top line with better acquisitions, that allows us to say, "Here is an outcome that you can see, that you will see in your P&L," and that gives us power to price for that because we're pricing for that exact value. That's what I would say. It's a very differentiated proposition across the industry. We've been at it for a decade, and we're going to continue to push that forward.

Operator (participant)

Our next question comes from Harshita Rawat from Bernstein. Please go ahead. Your line is open.

Harshita Rawat (Senior Analyst)

Hey, good morning. Michael, I want to ask about commercial POS, which you've sized as a $16 trillion opportunity and cards only having about less than 10% market share.

You have a very good business in the U.S., and I know you talked about this in your prepared remarks for a little bit, but maybe expand upon how you're taking this business international and the momentum you may be seeing there. It seems like this is quite a kind of medium-term to near-term opportunity for you. Thank you.

Michael Miebach (CEO)

Right. I couldn't agree more, Harshita. Medium, short-term, medium-term opportunity very much out there. In the commercial POS space, there's still so much cash out there. There's so many checks out there. And there have been so many almost virgin markets where the issue was where companies just haven't focused on this. That is not new news. This is why we put out the market sizing as we did at our Investor Day. This is significant.

The way to go to market on that is really to build those issuer relationships. We have the product construct today. It's not about building new products in this space. We have that. It's really finding the partners out there, finding the marketplaces that focus on small business to drive that business. If you take another lens at this, it's not just about small business. I mentioned in my comments earlier, there is the fleet card business, which we're the leader in this business. That's, again, it's a leading product. We're differentiating on that. We're pushing that around the world as well as in other regions. This starts to come in focus. The whole wave of digitization, the pressure on profitability, the rebalancing of supply chains, companies are looking for solutions that make running their business easier, and this is where this comes in.

For example, it's very much about being paid faster as a small business. That's what cards does for them, and that is a very helpful thing. Overall, it's a pretty clear go-to-market. It's not rocket science, but we are differentiated on some of our solutions of fleet card and so forth, and we've been at it a long time. We have now staffed this all up around the world with SME-focused specialized teams and product teams around the world. We're taking this very seriously, which is why we put out very ambitious growth targets to penetrate that SAM that we shared at the investor day with you.

Harshita Rawat (Senior Analyst)

Okay.

Operator (participant)

Our next question comes from Tien-tsin Huang from JPMorgan. Please go ahead. Your line is open.

Tien-tsin Huang (Senior Analyst)

Hi, nice results here.

Just on the upside in the quarter on revenue, it sounds like it came from FX volatility and strength in value-added services. Just wanted to confirm that and understand what's performing better than expected given pretty steady spend trends. Quickly for Michael, if you don't mind, just any update on performance of Recorded Future? Any surprises there half a year in? Thanks.

Michael Miebach (CEO)

Yeah, Tien-tsin, I'll take the first part of your question. You nailed it. The upside in Q2 was primarily driven by FX volatility. We had solid performance across the business. I don't want to make this only about FX volatility. At the end of the day, our payment network net revenues just performed. Our drivers continue to perform. There's strong consumer and business spending taking place. Our value-added services and solutions continue to perform.

All of that kind of is the bedrock, which allows for the strong performance overall. The delta which you're talking about in terms of potential upside came through primarily from higher FX volatility. Now, I will say on FX volatility, that was in the early part of the quarter. That was mostly in April, a little bit in May in terms of the higher levels. It has come back to what would be the historical levels of FX volatility. God alone knows where that's going to go for the rest of the year, but that's really what's driving that.

On Recorded Future, if I can just remind everybody, thank you for the question, Tien-tsin. World's largest threat intelligence company, 1,900 customers, 75 countries, so very significant. You see a lot of Fortune 100 companies in there as well as G20 governments.

It's an excellent mix. Based out of Boston, we love them. Pre our acquisition, we had a partnership with them on a couple of products. We launched a few things there. Now we are in post-acquisition stage. We've hit the ground running. It is still very early days, obviously, but we're already putting out more products with them. Malware intelligence is one that I called out in the last quarter around this. The beauty here is they have a lot of data, which they get from all sources of the internet, as I mentioned earlier. At the same time, we have a lot of data. The combination of that is the magic sauce here. The effectiveness of us to help our customers predict, to understand targeted threats.

If you are a company and you're trying to defend against cybersecurity and you're doing this in a very broad fashion that is very expensive, what Recorded Future, what Mastercard is now helping our customers with, is identifying where the threat vectors actually are. You can be much more targeted in your response. That is, first of all, more effective from reducing cybersecurity risk. At the same time, it's more effective from a cost perspective. That's a really winning proposition. We're excited about that. The teams are very busy on the product side to put this out. At the same time, there are obvious synergies of Mastercard's reach with our clients to take these differentiated products and take them to the market.

At the same time, we have a whole set of security solutions that we can sell and we want to sell and we will sell into the 1,900 customers and the new customers that they will gain. This is a very natural extension of our multi-layered security solution strategy to go into threat intelligence, which is now the state of the art.

Tien-tsin Huang (Senior Analyst)

Thank you.

Operator (participant)

Our next question comes from Trevor Williams from Jefferies. Please go ahead. Your line is open.

Trevor Williams (Managing Director of Payments/FinTech Equity Research)

Great. Thank you. On cross-border volume, Sachin, I heard the callouts on the Middle East and the portfolio lappings. Outside of Q4 last year, cross-border has been consistently slowing. I mean, you're at, I think, 12% ex-inter Europe growth in July.

With the mix you have today between travel and e-commerce, I'm just curious kind of what you guys view as the right normal level of growth for each of those two buckets and then for the overall. I'm just trying to get at kind of if we assume a stable macro, what you guys think the floor should be for cross-border volume growth. Thanks.

Sachin Mehra (CFO)

Yeah, Trevor. Look, I mean, we do not put out long-term guidance as it relates to cross-border. What I will share with you is the following, which is let's just step back and think about our cross-border portfolio and think about the fact that it is not concentrated to any single corridor. Last earnings call, I kind of shared with all of you that there is no single cross-border corridor pair which represented greater than 3% of cross-border volume in 2024.

There is a high degree of diversification which we've got. We're not necessarily susceptible to big swings in any one jurisdiction, but it's important to note that this diversification is by design as opposed to happenstance. Point number one. Number two, the base proposition of cross-border is something which is very valued by consumers even today, and consumers as well as businesses. That continues to grow pretty well. Number three, there's great diversification which is there between travel and non-travel. You can see that because at the end of the day, by having that diversification, you're still seeing pretty good overall cross-border volume growth, notwithstanding the fact that travel has actually been impacted a little bit by the factors which I kind of talked about. Just as a few data points for you, our cross-border travel volumes represent roughly 60% of total cross-border volumes.

Our cross-border non-travel, what we call cross-border card not present ex-travel, is about 40%. It is pretty good and well diversified. You can see the card not present ex-travel cross-border is growing at roughly about 20% there. My overall kind of message to you is high level of diversification, strong value prop, and the business continues to perform well. You know what? The reality is I can't really tell you as to where this is, but it has been growing at a rate faster than our overall growth rates for GDV. You have seen that come through. That is really where I feel like we are best positioned to continue to capitalize. Our company remains very focused, not only to win the right portfolios, but to drive the best optimization of our existing portfolios. That is what we will continue to do.

Operator (participant)

Our next question comes from Dave Koning from Baird. Please go ahead. Your line is open.

Yeah. Hey, guys. Thank you. Maybe on client incentives, one thing we just noticed, for many years, client incentives grew faster than revenue. But the last three quarters, they've actually been growing the same or even a little slower in some cases. I'm wondering, is this a new trend, or maybe how should we think about this and what's happening?

Sachin Mehra (CFO)

Sure. So David, here's what I'd say. I would say that as part of our last call, I had mentioned that we expected the cadence of our rebates and incentives as a percentage of our payment network assessments to start to pick up in the second half of the year.

If I would tell you sequentially, I would tell you that in Q3, we expect rebates and incentives as a percentage of our payment network assessments to be sequentially higher compared to Q2. The point really is the market is still a very competitive market. We continue to be very active in that market. We have a very strong pipeline of deals. Nothing has changed as far as I'm concerned in terms of how we're approaching the market and what we're doing in terms of trying to win the right portfolios. I'll emphasize this is not about winning every portfolio. This is about winning the right portfolios.

A little bit of what you're also seeing in the contra ratio, the rebates and incentives ratio we're talking about in the second quarter is being driven by the fact that the denominator, which is our payment network assessments, has been impacted or has been helped by higher FX volatility levels. When you take those ratios into consideration, you got to factor that in as you think about what this looks like on a going forward basis.

Dave Koning (Senior Research Analyst)

Yep. Thank you.

Sachin Mehra (CFO)

Sure.

Operator (participant)

Our next question comes from Will Nance from Goldman Sachs. Please go ahead. Your line is open.

Will Nance (VP of Global Investment Research)

Hey, guys. Good morning. Appreciate you taking the question. I wanted to ask about some of the consumer data fees that some of the large banks are talking about applying. I guess specifically, how are you thinking about the impact of those fees on Finicity?

Big picture, as a consumer who relies on a lot of these services that use Finicity and other vendors to aggregate the data, how am I and other consumers better off from the banks kind of charging you and other data providers for access to their data? Thanks.

Michael Miebach (CEO)

This is a great question. Important topic. You've heard us talk about open finance for years, even before the acquisition of Finicity. This whole idea that a consumer can use their data footprint to avail better services in the finance space and if you go from open finance to open data in any other space, I think it's a good notion and that generally resonates and will not go away. You see this. You see it in Europe. We're very active in the open banking, open finance space in Australia and here in the U.S.

This more recent conversation, I mean, we've all seen the coverage on this. We don't really have full visibility here on what is being specifically considered by a number of banks. I can tell you Chase and other banks are fantastic partners of ours, so that's for sure true. We'll have to see where this goes. Our fundamental belief that consumer-consented data and their ability to share that is very important and that will be a winning proposition over time. Various economic considerations out there that are being discussed in the coverage that will have to be figured out, but it's not something that we have been engaged in at this point. We'll see. We have to work it through. It's fundamentally an important space, and you should be able to do exactly what you just said, Will.

Will Nance (VP of Global Investment Research)

Got it. Appreciate you taking the question, Michael.

Operator (participant)

Our next question comes from Rayna Kumar from Oppenheimer. Please go ahead. Your line is open.

Rayna Kumar (Managing Director and Senior Analyst)

Good morning. Thanks for taking my question. Just based off of some of my recent channel checks, it looks like that PIX in Brazil is being used by almost everyone there. Can you give us an update on your progress in gaining market share in regions that have strong A to A players like PIX in Brazil and UPI in India? What strategies and products are you employing to capture the cash transition in these countries? Thank you.

Michael Miebach (CEO)

Right. Rayna, great question. Certainly a topic that we have been focused on. I'll give you some examples in a prepared mark of what sets us apart in winning against domestic schemes and so forth. We continue to try to differentiate our product set.

You asked specifically about Brazil and countries like that, so maybe that is a good opportunity to just illustrate what I just said a little more in the context of Brazil. Here is a system that has been put out very much with one focus in mind, which was to address some financial inclusion aspects and has been very successful at that. At the same time, we have strong partnerships in the Brazilian markets with banks, with fintechs across the board, and we've been driving our business to put better solutions into the hands of consumers, and that is always a focus on all consumers. Consumers that graduate into the Brazilian digital economy through PIX, you could see them over time graduating into our product set that we provide on the card side, etc.

Now, what we've also been doing is you have to be very laser-focused on how you compete. One thing that we just, as an industry and as a company, wanted to do a better job on is make sure that we have the latest state-of-the-art solution for online transactions in the market. The debit platform in Brazil, we have completely revamped and put out a new set of solutions out there that now to PIX is also enabling consumers with their solution, and we wanted to make sure that we have a competitive product, which we now have in the hands of the banks in Brazil. That continues. PIX is innovating on various other things, Buy Now, Pay Later, and so forth, and so are we. There's an excellent solution out there in the market already on installment payments.

That is very competitive as far as we can tell. There's recurring payment solutions that PIX is considering, and that's great, and we're seeing the benefit in that, and we have for a long time. There's a very strong proposition, particularly on credit cards that are on file in the market, which allows us to win and continue to drive this business. The business continues to see very healthy growth rates for us in Brazil. From that perspective, I think it's just our general approach: provide choice, partner wherever we can, compete effectively in the market. That's the game. It's a similar game in India on UPI. We always look to partner wherever we can and otherwise have a good solution out there for our partners. I see tremendous opportunity in the overall growth.

This is a very effective digital economy in Brazil that continues to grow at strong rates, and we're a big player there.

Operator (participant)

Our next question comes from Craig Maurer from FT Partners. Please go ahead. Your line is open.

Craig Maurer (Managing Director)

Yeah. Hi. Good morning. Thanks for taking the questions. Question, quick one on Pillar Two. The administration's been talking about reaching deals with certain countries to eliminate the Pillar Two issues for U.S. companies. Any thoughts on that would be helpful. If we can go back to your digital identity and auth solutions, it's our view that financial services due to the high regulatory requirements in this space will be leaders in this category. Can you talk about what segments you're seeing the most growth or most demand from? We hear a lot about crypto companies requiring digital auth solutions and others, so digital identity solutions.

If you can comment a little there, that would be great.

Sachin Mehra (CFO)

Yeah. Craig, why don't I take your question on Pillar Two first? Look, I mean, we've seen the same news you're seeing as it relates to some dialogue around potentially having an exception for U.S.-based multinationals from the impact of Pillar Two. The reality is there's a lot of work still to be done between where we are today to that being realized. Let me just spend two minutes on this, right?

At the end of the day, the way it works is if there are going to be any changes in terms of having any exceptions for U.S.-based companies from Pillar Two, that's got to happen not only in the nature of the OECD countries agreeing upon it, but every individual country which has enacted legislation already to implement Pillar Two has to now reverse the impact of that legislation. This is really, really important because the reality is there's work between when the announcement's made, when there's clarity given as to how it's going to be implemented to the actual implementation of that. I guess the best way to describe this is there's been local legislation, let's say, passed in Singapore, which would say that we as a company now pay a 15% tax rate in Singapore, right? Earlier, we had an incentivized tax rate out there.

We now pay, starting 2025, a 15% tax rate there. There has to be a change in legislation locally to take place to reflect what you just alluded to in the nature of this exception for U.S. multinational countries. That being said, it's not only about Singapore. It's also about other countries who have actually put in this legislation who have to change it because there was a component of Pillar Two, which is called UTPR, which basically entitled other countries in the chain to collect taxes to the extent that they were not topped up to 15% as a result of a particular jurisdiction. For example, if Singapore changed its legislation and took the tax rate down again, that doesn't mean we'll get the benefit of the lower tax rate.

It's because all the other countries are now entitled to true up the gap between what Singapore's rate is and the 15% rate is. All of those countries have to reverse that legislation before we start to see the impact of that come through. Complicated topic. Happy to talk in more detail if you'd like afterwards.

Michael Miebach (CEO)

Good. On ID, if you think about a tech stack and elements of the tech stack for the digital economy. We look at this and say we're powering the digital economy. We're powering digital commerce. Digital identity is a fundamental element of what needs to happen in that kind of world. Who's behind the transaction? Who is at the other end of the transaction? That is not just about payments. Exactly to your question, this is about onboarding on anything. It could be a merchant onboarding a consumer.

Today, this thing, I'm going to send you an email and you confirm that. That is not identifying your consumer. All things can go wrong on that. Proper digital identity is really critical. Now, the game of digital identity is getting harder and harder with technology. I was talking earlier about cybersecurity risk and so forth. The stakes are increasing and you got to get better at it. The good thing is we've been at this for a long time. This is initially around Mastercard payments and transactions, but we have very specific examples out there. For example, you heard us talk about in the open banking space, are we taking a digital identity solution, coupling that with open banking connectivity to make it clear that data can actually be exchanged in a very safe fashion.

I gave you one of my favorite use cases in this, and this is MLB, Major League Baseball. If you want to vote for the All-Star game, what is happening is that our identity solution is behind it. This is actually you voting and not your brother and your cousin and so forth. There is a whole wide range of use cases that go way away from our core business into a whole new set of new cases. It is really an enabler of the overall digital economy. You see us, if you draw concentric circles around the payment transaction being in the center, w try to play further and further out to be truly powering the digital economy.

Operator (participant)

Our next question comes from Nate Svensson from Deutsche Bank. Please go ahead. Your line is open.

Nate Svensson (Director of Equity Research)

Hi. Good morning. Thanks for the question.

I wanted to ask on the U.S. consumer here. On the month-to-date trends, the step-up in volume growth in the U.S. stood out as relatively stable versus 2Q, but a step-up from 4% in June to 8% in July. I was hoping you could dig a little more into the trends you're seeing there. It could be a days-mix thing, online promotional activity, but wondering if there's anything else under the hood you're seeing that might explain the acceleration. I know you called out stability in mass market versus affluent consumers, but any verticals or areas of spend where trends have evolved here?

Sachin Mehra (CFO)

Okay. Sure, Nate. Why don't I take your question?

The impact on that 4% you're seeing in June is being driven by the mix of calendar days as well as the timing of Social Security payments, which is something just between which actually varies between June and July. That being said, I will say what we're seeing in the first four weeks of July is strength in the U.S. consumer. I mean, there's no hiding from that, right? The reality is, and again, four weeks don't make the quarter. I mean, that's one thing which we've just got to keep an eye on. Right now, if I strip out the impact of this timing stuff, there's still underlying strength in the U.S. consumer that we're seeing come through. I think you want to keep that in mind, and we'll track it closely.

We do our best estimates in terms of the guide we provided you to capture what we're seeing in the nature of the latest trends. That is what I would say as it relates to the U.S. consumer. On your second question on mass versus affluent, look, overall, what we're seeing is good spending across both mass and affluent. I mean, really, at the end of the day, we're not seeing, and again, I will be the first to preface that the data we have is our derived data. It's based on our product categories and our product codes, right? That's how we figure out what we think is mass and what is affluent. We obviously are not directly in touch with the consumer. That is our customers who are in touch with the consumer.

Based on the data that we see, we're seeing pretty steady trends across both mass and affluent.

Michael Miebach (CEO)

I'll just add a point, a tangential point here, is these kind of questions we get all the time from our customers and from governments around the world. We've built a really nice engagement practice through our advisors' business and through the Mastercard Economics Institute to really address these prevalent top-of-mind questions and what's the consumer doing here, what is this sector doing there, and so forth. It's been a really particularly important differentiator for us as we engage at the highest level on the strategic dialogue with customers, governments, etc.

Operator (participant)

Our next question comes from Fahed Kunwar from Redburn Atlantic. Please go ahead. Your line is open.

Fahed Kunwar (Global Co-Head of Research and Head of Global FinTech Research)

Hi both, and thanks for the color on the call. I've had a question on pricing, actually.

First, specifically on that, I know you called out deeply in customer penetration and you called out securities and customer engagement, but how much has pricing been a factor in this quarter versus kind of that deepening share of wallet? How much more is there for pricing going forward? I guess if I widen that question a little bit, when we think about pricing in your other businesses, CMS or your consumer payments business, do you still see pricing potential as you head into 2026, or is it remaining, or does it stay quite competitive? Thank you.

Sachin Mehra (CFO)

Sure, Fahed. Look, I mean, at the end of the day, the way I would actually answer your question is the following. We will have the ability to price for the value we deliver.

So long as we continue to deliver the value we're delivering, we'll have the ability to price. That's what we've done historically, and that's what we'll do on a going-forward basis. I would say that, again, I don't necessarily think about this on a quarter-over-quarter basis. I think about this as what is the long-term trajectory of our product proposition rollouts and what's the ability for us to price. Sometimes you roll out products earlier. You might actually layer in the pricing at a later point in time. In other instances, you roll out the product and you'll put in the requisite pricing at the same point in time. All of this is all very strongly tied back to what is the value we're delivering.

To your question about whether we see the potential on a going-forward basis, the answer is, yeah, so long as we continue to do our jobs, which is to continue to deliver value in the market.

Devin Corr (Head of Investor Relations)

Thank you. I think we have time for one more question.

Our last question will come from Ken Sukoski from Autonomous Research. Please go ahead. Your line is open.

Ken Sukoski (Analyst)

Hey, good morning. Thanks for taking the question. Maybe just a follow-up on that pricing question. I mean, you took some price, I think, in various parts of the business. I think it was started in 3Q of 2024, particularly around tokenization, I think, some of the other lines. Should we expect to start lapping some of those pricing initiatives in the second half? Maybe you can just remind us how you're thinking about that. Thank you.

Sachin Mehra (CFO)

Yeah.

I would tell you, first of all, when you say we took price, we like to think about the fact that we delivered value in the third quarter of last year, which allowed us to actually price for the value we delivered. To your question around lapping, I would say, yeah, sure. I mean, you would see the lapping effect of that particular value delivery, which took place for which we priced, happened in the second half of this year. Again, think about this in the nature of what is the cadence of value we can continue to provide, which will help us to actually bring in more value and more price for us to be able to actually continue to grow ourselves.

The reality is, look, you've got to think about this in the context of when companies put out new products, when companies put out differentiated products, they have the ability to charge for the value they deliver. I'd say that's what we continue to do on a going-forward basis as well.

Michael Miebach (CEO)

Right. This is very true. It's not about taking price, but providing value. I think the key aspect is who we provide value to. We provide value to our existing customers. When we talk about our go-to-market and services, when we talk about go-to-market for a whole set of payment solutions, it's about new customers. It's about new buying centers. It's about new markets. Our ability, where we take and create value, is there's a whole sea of opportunity out there. For us, we continue to do that.

That's how we build the business. If you were asking your question, thinking about, "Is it just one wallet?" That's not. Our share of wallet is the world, is the whole global wallet, and we're going to drive value everywhere across the board.

Ken Sukoski (Analyst)

Makes sense. Thanks for that.

Michael Miebach (CEO)

All right. Let's close out the call. Thank you very much again for all those questions. It was a pleasing support. Obviously, my opportunity to thank the 35,000 people here at Mastercard for driving this value all across and leave you all with wishing you guys enjoying the rest of your summer. Thank you very much. Speak to you next quarter.

Operator (participant)

This concludes today's conference call. You may now disconnect.