Mastercard Incorporated (NYSE:MA) Q2 2022 Earnings Conference Call July 28, 2022 9:00 AM ET
Company Participants
Warren Kneeshaw - Head of Investor Relations
Michael Miebach - Chief Executive Officer
Sachin Mehra - Chief Financial Officer
Conference Call Participants
Harshita Rawat - Bernstein
Sanjay Sakhrani - KBW
Rayna Kumar - UBS
Darrin Peller - Wolfe Research
Lisa Ellis - MoffettNathanson
Tien-Tsin Huang - JPMorgan
David Togut - Evercore ISI
Ramsey El-Assal - Barclays
Dave Koning - Baird
Bryan Keane - Deutsche Bank
Jason Kupferberg - Bank of America
Bob Napoli - William Blair
Operator
Good morning and welcome to the Mastercard Inc. Q2 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]
Thank you. Warren Kneeshaw, you may begin your conference.
Warren Kneeshaw
Thank you, Julie. Good morning, everyone, and thank you for joining us for our second quarter 2022 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 their GAAP reported amounts.
Finally, as set forth in more detail in our earnings release, I would 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 the earnings release and in our recent SEC filings. 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
Thank you, Warren. Good morning, everyone. Starting with the key highlights for the quarter, we delivered strong revenue and earnings growth with further improvement in our underlying operating metrics, notably, in cross-border travel.
Quarter two adjusted net revenues were up 27% and adjusted operating income up 40% versus a year ago on a non-GAAP currency neutral basis excluding special items. On the macroeconomic front, we continue to monitor a number of factors that have both positive and negative influences on economic growth. Inflationary pressures have remained persistent and we are now seeing central banks taking even more aggressive steps to reduce inflation as we have seen in the Fed yesterday.
The situation is being compounded by geopolitical tensions and supply chain constraints, which has eased from pandemic peaks but remain in many industries. Despite this, unemployment rates remain low, wages are rising and consumer savings levels remain high. With this backdrop, consumer spending and particularly travel-related spending remains strong.
Looking at this from a geographic standpoint, U.S. retail spending remains healthy as consumers navigate a high inflation environment. Spending has been aided by strong job creation and the buildup of excess savings during the pandemic. According to our Mastercard spending pulse, which is based on all payment types including cash and checks, U.S. retail sales ex auto ex gas were up 6% in the second quarter versus a year ago.
In Europe, spending trends are positive although the risks related to both the supply of natural gas and higher interest rates remain headwinds. Growth in Latin America continues to moderate following a strong rebound in 2021. Asia has generally lagged a recovery of other regions. While COVID-related requirements have been relaxed in several countries, strong restrictions remain in others. Asia continues to have significant upside potential.
Looking more specifically at our switched volume trends. Domestic volumes continue to show strong growth with notable strength in airlines, lodging, and restaurant spend. We’ve seen some shift in spends for the gas and groceries from discretionary categories like home furnishings in the U.S. Cross-border continues its strong recovery as border restrictions continue to be relaxed.
Cross-border travel in quarter two has now reached 118% of 2019 levels. Cross-border card not present ex-travel continues to hold up well.
Notwithstanding the strength in consumer spending, we will continue to watch the environment closely including fiscal and monetary policy responses to high inflation and their potential impacts on spending. Within this environment, we will continue to be nimble in managing our expenses. We have the flexibility to respond quickly across a number of levers as we showed in 2020.
Having said this, we will continue to invest in the business to drive top and bottom-line growth over the longer term. We have well-diversified business model and we are executing against our three key strategic priorities, expanding in payments, extending our services and embracing new networks. And here is an update on how we are progressing against each one of those.
First, we are expanding in payments by continuing to grow card volume, driving acceptance growth and leaning into innovation to capture other prioritized payment flows. We are driving growth in card volume with new consumer, small business, co-brand and travel wins globally.
In Canada, we are excited to announce that we secured a new partnership with CIBC that creates an opportunity for material share shift of Mastercard with the Bank. We also renewed our relationship with the Royal Bank of Canada including a range of services that will enable us to grow our proprietary and co-brand volumes with them.
In the U.S., we established a new partnership agreement with the U.S. Bank, which extends our current debit, credit, co-brand and small business credit programs. It includes several new products including the first large-scale launch of a consumer credit product, a small business credit offering and the development of Buy Now Pay Later installment solutions.
We are excited to announce that we have completed the conversion of Gap Inc.’s existing 10 million card members to Mastercard across the Old Navy Gap Banana Republic and Athleta brands. We renewed and expanded our co-brand with Brooks Brothers issued by Citi and we have renewed and expanded our co-brand with Barnes and Noble in partnership with Barclays.
Outside of North America, we have secured several new wins and renewals including a number of deals that position us well in Asia Pacific as the region rebounds from the pandemic. In Australia, we’ve expanded our partnership with Bendigo and Adelaide Bank Limited, enabling us to maintain exclusivity with Bendigo and convert several of their regional debit portfolios.
We are pleased to announce that National Australia Bank and Mastercard has signed an agreement to retain and grow the Mastercard components of Citigroup Australia’s consumer business that was acquired by NAB. This marks the first significant issuing relationship between the two companies in years and we look forward to partnering to grow these portfolios.
In Hong Kong, we partner with Citibank and HKT’s loyalty program and digital ventures arm, The Club to launch the Citi The Club credit card.
In India, we are happy to report that the embargo on new issues has been lifted. Issuers have restarted card issuance and they are eager to expand business with us. An example is Yes Bank where we signed a consumer credit agreement that will enable us to maintain a majority share and includes the commitment to scale our World Elite portfolio.
We worked hard to expand our travel-oriented portfolios which positions us well to capitalize on the strong recovery of travel. For example, in Asia Pacific we entered into a ten year commercial card issuance deal with Trip.com, one of the world’s largest online travel agency.
In the UAE, we renewed our co-brand portfolio with Marriott. In the U.S. we have renewed our longstanding co-brand relationship with Amtrak and we expanded our co-brand partnership with Virgin Atlantic in the UK, a partnership that will leverage our test and learn, innovation labs and SessionM loyalty assets.
We are also driving growth in payments by continuing to expand acceptance. Mastercard is now accepted at over 90 million merchant locations worldwide and we have more than doubled the number of acceptance locations over the last five years.
Mastercard has been driving tap on phone innovation enabling billions of active smartphones to become potential acceptance devices with over 130 deployments across 55 markets. This includes working with Apple to enable acceptance of Mastercard contactless cards and digital payments suited tap to pay on iPhone capability. This allows businesses to accept payments directly on their iPhones.
Mastercard is further empowering the ecosystem through our card commerce capabilities, which enables our channel partners to quickly deliver cost-effective acceptance. It also provides easy access to a range of payment solutions and services including tap on phone, QR, installments, loyalty, data insights and more via the Mastercard cloud.
In addition, we continue to drive adoption of our click to pay online guest checkout capability. Click to pay is now enabled in over 20 markets across all regions, attractions - transactions have been growing quarter-over-quarter.
We are expanding in payments through innovations like Mastercard Installments. Our open loop Buy Now Pay Later program has been very well received. Mastercard’s Installment is now soon to be live with Saudi National Bank and several new partners adding their support to the program. Examples include, Cross River Bank, Evolve Bank & Trust, Jifiti, Live Oak, MOCA Financials, and Web Bank in the U.S., as well as HSBC, Natwest and JPMorgan’s payments division in the UK. In addition, Apple recently announced Apple Pay Later, which uses the Mastercard Installments program.
Finally, we are driving growth in payments by leaning into innovation to capture a prioritized set of new payment flows including disbursements and remittances, commercial point of sale, B2B accounts payable and consumer bill pay. This is at the heart of the investments we’ve been making to develop a range of capabilities that span cards, account-to-account payments, push payments and blockchain.
We’re at various stages of scaling our capabilities across these different flows and we are making steady progress. For example, we are expanding network reach through new cross-border services relationships with partners like Doha Bank and Vodafone in Qatar and UPT, a leading money transfer operator in Turkey.
We are targeting specific use cases and scaling distribution through B2B partnerships with Mastercard Send. A few examples, Caesars Sportsbook will leverage Send for instant payment of online winnings and Paysafe will integrate Mastercard Send into their payments platform to enhance the payout capabilities offered to their merchant customers in the UK and the EU.
Now turning to services, our services capabilities have proven to be a tremendous growth driver and differentiator for our business, build on a foundation of investments and experiences built over the years. Looking forward, we continue to see a significant opportunity for services in three primary areas. First, services will continue to enhance the value of payments.
Services make payment intelligent, safe and secure. For example, our identity check payment authentication service is driving double-digit improvements in the approval rates. We are working with PostePay in Italy to support the deployment of their issuing portfolio, assist in growing their acquiring business and enhance the customer engagement approach.
And our consulting team in Europe is engaging with ING to help them create a seamless payment experience for their clients.
Second, we see the needs of our customers expanding beyond payments. We can leverage our full suite of differentiated services to address these needs. A recent example is Travelodge, was utilizing our Test & Learn capabilities to support optimization of new investments in their business.
And third, our services can be deployed to support new networks making our open banking and digital identity propositions even stronger. With these adjacent networks it is our services that will enable us to establish a differentiated position to scale and win. For example, we recently launched a new biometric checkout program. The program outlines a set of standards from banks, merchants and tech providers helping to ensure the security and privacy of personal data when people pay with a smile or with a wave.
Beyond expanding in payments and expanding in services our third key strategic priority area is embracing new networks. As a reminder, our current focus is on two areas, open banking and digital identity. We are leveraging our Finicity and IR acquisitions to expand our open banking footprint, grow our customer base and deliver new solutions. This quarter we expanded our engaged partner network to include our open banking services with new fin-tech partnerships, including Dwolla, Synctera, i2c and others.
They can now use our open banking capabilities to easily build and implement solutions for their end-customers across a range of use cases. From lending to payments, to financial management. In addition, we recently launched the global Start Path open banking program. This program enables us to co-innovate with start-up fintechs like Dapi, Finantier, mmob, Mono, and Paywallet as we support their path to scale.
We have expanded our open banking product offering as well. We announced pay by link in Europe to allows business to send payment request through invoice, email, SMS, or social media chat. This can expedite the payment of invoices in a cost-efficient way and aiding both parties to better manage cash flows.
Online accounting provider Visma Dinero is using pay by link to simplify invoice payments for over 75,000 small and medium-sized businesses.
And in the digital identity space, Ekata continues its strong performance signing over 200 new deals and expansion since we acquired the company just over one year ago. This includes many of the leading Buy Now Pay Later and crypto companies. It also includes real-time payment software providers like ECI Worldwide who is leveraging encompassed capabilities to help their global merchant network more accurately to identify fraudulent transactions.
Both in banking and digital identity are attractive and growing opportunities and Mastercard is uniquely positioned to be successful in both.
So in summary, our business fundamentals remain strong. We delivered robust revenue and earnings growth again. We are executing against our strategic priorities in payments, services and new networks. We have fortified our strong position with travel-oriented portfolios to capitalize on the continued recovery in travel.
On the macroeconomic fronts, we continue to monitor on a number of factors influencing economic and spending growth. And with all of that, we will continue to manage our expenses carefully. That said, we will also continue to invest in the business to drive top and bottom-line growth over the longer term.
Sachin, over to you.
Sachin Mehra
Thanks, Michael. Now turning to Page 3, which shows our financial performance for the quarter on a currency-neutral basis excluding special items and the impact of gains and losses on our equity investments.
Net revenue was up 27% reflecting the continued execution of our strategy and the ongoing recovery in spending. Acquisitions contributed one ppt to this growth.
Operating expenses increased 12% including a five ppt increase from acquisitions. Operating income was up 40% which includes a one ppt decrease related to acquisitions.
EPS was up 40% year-over-year to $2.56, which includes a $0.05 contribution from share repurchases. During the quarter, we repurchased $2.4 billion worth of stock and an additional $448 million through July 25th, 2022.
So, now let's turn to page four where you can see the operational metrics for the second quarter. Worldwide gross dollar volume or GDV increased by 14% year-over-year on a local currency basis. On the same basis, if you exclude Russia from the prior period, GDV increased by 19%.
In the US, GDV increased by 10% with credit growth of 25% reflecting the recovery of spending on travel. Debit declined by 2%. Excluding the impact of a roll off of a customer agreement, debit increased by 1%. Outside of the US, volume increased 16% with a credit growth of 19% and debit growth of 13%.
Cross-border volume was up 58% globally for the quarter, reflecting continued improvement in travel-related cross-border.
Turning now to page five, Switched transactions grew 12% year-over-year in Q2. Excluding Russia from the prior year, Switched transactions grew 22% year-over-year in Q2. Card present and card not present growth rates remained strong. Card-present growth was aided in part by increases in contactless penetration in all regions when excluding Russia.
In addition, card growth was 5% or 9% if you exclude cards issued by Russian banks from the prior year card comp. Globally there are 3 billion Mastercard and Maestro-branded cards issued.
Now, let's look to page six for the highlights on the revenue line items, again described on a currency-neutral basis excluding special items unless otherwise noted. The increase in net revenue of 27% was primarily driven by domestic and cross-border transaction and volume growth, as well as growth in services partially offset by growth in rebates and incentives. Acquisitions contributed approximately two ppt to this growth.
Looking quickly at the individual revenue line items, domestic assessments were up 13% while worldwide GDV grew 14%. Cross-border volume fees increased 16% while cross-border volumes increased 58%. The three ppt difference is primarily due to favorable geographic mix.
Transaction processing fees were up 22% while switched transactions grew 12%. The ten ppt difference is primarily due to favorable mix and FX-related revenues and pricing.
Other revenues were up 23% including a three ppt contribution from acquisitions. The remaining growth was driven by our Cyber & Intelligence and Data & Services solutions. Finally, rebates and incentives were up 23% reflecting the strong growth in volumes and transactions and new and renewed deal activity.
Note, rebates and incentives as a percentage of gross revenue is higher relative to Q1 2022 primarily due to volumes and related revenues generated from a sizable customer in Russia in Q1 with no related incentive agreement on such volumes.
Moving now to page 7. You can see that on a currency-neutral basis total operating expenses increased 12% including a five ppt impact from acquisitions. Excluding acquisitions, the remaining increase was primarily due to increased spending on personnel to support the continued execution of our strategic initiatives as well as unfavorable foreign exchange related expenses due to the remeasurement of monetary assets and liabilities.
Turning to page 8. Let's discuss the operating metrics for the first three weeks of July. For your reference to help you understand the trends in the business ex-Russia, we have included an appendix later in this deck, we show all the data points from this schedule if you excluded activity from Russian-issued cards from prior periods. As a general comment, our metrics are holding up well in July.
Going forward however, the year-over-year growth metrics will face tougher comps as we begin lapping periods when COVID-related restrictions eased and spending levels started to rebound.
Going through the metrics in turn, starting with switch volumes, for the first three weeks of July, we grew switch volumes 18% year-over-year, down three ppt versus Q2. Switch transactions grew 10% year-over-year through the first three weeks of July and down two ppt from Q2.
Overall cross-border volumes through the first three weeks of July grew 54% year-over-year, down four ppt versus Q2. Cross-border travel had another quarter of strong growth as border restrictions continue to be lifted. In the first three weeks of July, cross-border travel was up 89% year-over-year, down 55 ppt versus Q2 due to more difficult year ago comps as I just noted.
Cross-border travel is now at a 126% of 2019 levels, up eight points versus Q2. Cross-border card-not-present excluding travel was up 16% year-over-year in July, the increase of 9 ppt compared to Q2, reflects a reduced headwind from crypto purchases and the timing of significant e-com promotional activity between the periods. This metric continues to hold up well in relation to 2019 levels.
Turning to Page 9, I want to share our thoughts on the remainder of 2022. Let me start by saying that we have strong momentum with our customers, we continue to enhance our products and service offerings and that our business fundamentals remain very strong. Consumer spending remains robust, and cross-border travel has improved more quickly than expected as border restrictions ease and consumers increase their spending towards travel. And there is more room to prove as – borders remain either restricted or yet to recover to historical levels of growth.
For instance, based on our switched volumes, Asia, which represented approximately 14% of cross-border inbound travel in 2019 is only at approximately 60% of 2019 levels in Q2. Similarly, the U.S., UK and Canada, which represented approximately 20% of cross-border inbound travel in 2019 is at about 110% of 2019 levels, still well below the historical trajectory.
Specifically, if inbound travel to these three countries had continued to grow at the historical three-year CAGR through [Indiscernible] we would have expected to be at approximately 135% of 2019 levels rather than approximately 110%. We are well-positioned to capitalize on this growth with our travel-oriented portfolios.
As Michael mentioned, there are a number of macroeconomic factors that could influence future economic growth, employment and wage levels, consumer savings levels, persistent and elevated inflation and rising interest rates and geopolitical tensions in particular. We are monitoring each of these, but on balance, expect a modest improvement in cross-border travel versus 2019 levels and a generally resilient consumer spending through the remainder of 2022.
Taking this all into account, including our well-diversified business model, we are increasing our expectations for net revenue growth for the full year 2022 to a low 20s rate on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecasted to add about one ppt to this growth, while foreign exchange is expected to be a headwind of five to six ppt for the year, primarily due to the strengthening of the U.S. dollar versus the euro.
It is worth highlighting that this performance is despite the cessation of our Russia operations in Q1. For the year, we expect operating expenses to grow at the low end of a low-double-digit rate on a currency-neutral basis, excluding acquisitions and special items. This reflects continued investment in our people and strategic priorities, as well as impacts from FX-related expenses primarily due to a remeasurement of monetary assets and liabilities.
Acquisitions are forecasted to add about four ppt to this growth, while foreign exchange is expected to be a tailwind of approximately three to four ppt for the year. We are prepared to quickly adjust our operating expense base as we did in 2020 should circumstances dictate.
With respect to the third quarter of 2022, year-over-year net revenue is expected to grow at the high end of a high teens rate, again on a currency-neutral basis, excluding acquisitions and special items. Sequentially, this reflects continued strong consumer spending, including a modest improvement in cross-border travel spending trends relative to 2019, reduced FX-related revenues as a result of lower anticipated FX volatility and finally, the lapping of a stronger year ago quarter as the recovery took hold last year.
Acquisitions are forecasted to add about one ppt to this growth, while foreign exchange is expected to be a headwind of approximately seven to eight ppt for the quarter. From an operating expense standpoint, we expect Q3 operating expenses to grow at the high end of a low-double-digit rate versus a year ago on a currency-neutral basis, excluding acquisitions and special items.
Acquisitions are forecast to add about five ppt to this growth. Foreign exchange is expected to be a tailwind of approximately five ppt for the quarter.
Other items to keep in mind, on the other income and expense line, we are at an expense run rate of approximately $115 million per quarter given the prevailing interest rates. This excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics and finally, we expect a tax rate of between 19% and 21% in Q3, which includes a discrete tax item related to an unfavorable court judgment, the details of which we are still assessing. We expect a tax rate of approximately 19% in Q4.
And with that, I will turn the call back over to Warren.
Warren Kneeshaw
Thank you, Sachin. Julie, we are now ready for the question-and-answer session.
Question-And-Answer Session
Operator
Thank you. [Operator Instructions] And your first question comes from Harshita Rawat from Bernstein. Please go ahead.
Harshita Rawat
Hi, good morning. So, Mike or Sachin, can you comment on the media reports yesterday that a potential bill for introducing routing choice for credit cards? I know the Durbin amendment for debit has market share, how could a credit routing choice, how could be implemented given many alternative networks don't have those capabilities?
And then finally, just taking a step back, can you talk about routing decisions for merchants that why they choose Mastercard or might choose Mastercard where they have a choice of alternatives? Thank you.
Michael Miebach
Harshita, let me start off with that. This is – so we read the same article. Clearly, it's early stages because we haven't seen the bill yet. So we are all speculating here, I think what might happen. So we'll engage. We'll try to find out more over the weeks and months to come. But if you just assume for a moment that the article would be complete, and this would actually happen a few things come to mind that are straightforward from our perspective.
First of all, we believe in competition, we believe in a level of competitive landscape and playing field and we’ve invested massive amounts in safety and security and we focus on providing consumer choice, different ways of pay, credit, debit, whatever it is. So that's been our strategy. So we are going to look at this proposal – proposed bill through that end.
So that's one – that's a starting point for us. Some of the questions that you touched on, some points here. What are practicalities, what are the technical aspects of this, how many providers are ready that have made the same kind of investments to really ensure that the consumer can rely on safety and protection and so forth. Those are open questions. We'll have to see what the regulation actually foresees.
Overall, the concept of interchange is a balancing factor and the ecosystem is one that has served the ecosystem including the consumers well in terms of rich propositions and all of that and we'll have to see what – becomes out of that. Those are a whole range of questions that we've talked about over years that need to be considered by all stakeholders. And we will spend the time and the effort to ensure that everybody is well informed about the puts and takes around this proposed bill.
Harshita Rawat
Thank you.
Warren Kneeshaw
Next question please?
Operator
Your next question comes from Sanjay Sakhrani from KBW. Please go ahead.
Sanjay Sakhrani
Thanks. Good morning. Sachin, you talked about what's being baked into your forward view on cross-border being a modest improvement in cross-border, but you talked also about the long runway you still believe you have in terms of cross-border. Could you just help us think about what's factored in versus what practically can happen as we look forward? Thanks.
Sachin Mehra
Sure, Sanjay. So, what I shared was that we are thinking ahead in terms of cross-border travel seeing a modest improvement relative to 2019. And as you can see in our metrics, cross-border travel in Q2 was at a 118%. And in the first three weeks of July is at 126%. Without getting too specific as to what exactly we are kind of building in that, but that the point we've got is the following: we expect a modest improvement in travel when indexed back to 2019, and it's predicated on certain data points.
And the data points are, if you think about what's gone on in Asia Pacific, we've talked about how Asia Pacific from a cross-border travel standpoint has been lagging and has historically not come back over the last few years since COVID hit in the same way, say, as intra-Europe has come back. In fact, I shared with you the metrics as to where we stand from an inbound cross-border travel standpoint in Asia Pacific.
So there is a lot of room to grow there. We think that that opportunity exists. Markets in Asia Pacific, such as Australia, New Zealand, Singapore, even Japan, they've started to open up and actually have opened up fairly well. The one thing which we have always taken comfort in is that the fundamentals of cross-border travel and on cross-border in total remain very sound.
When people have the ability to travel, they have demonstrated their intent to travel. And I think we've got enough data points now over the last 18 months to suggest that when barriers towards travel are lifted, people get on the road again. And so if you think about that and you think about the context of what's going on in Asia and the potential there, we've got opportunity there. But even beyond Asia, there are several other corridors such as the U.S., UK and Canada, which still have not reached their historical growth levels. They are higher than their 2019 index levels from an inbound standpoint but there is still more room to grow. So we've kind of built all of that in our thoughts for the rest of the year.
Michael Miebach
I'd like to just add to that, I find travel is such a fascinating topic and certainly very central to our business. There has been a [Indiscernible] of pent-up demand like this is going to be a bubble and then it's all going to go back to where it was during the last two years. Why would anybody that has now has the chance to see their family and their friends again stop doing that in a year from now.
So I think that actually doesn't make any sense. So we believe exactly the point that Sachin just made, if there is a possibility people will continue to travel the way they have been before COVID. One other thing to add is, one thing is the underlying trend that we have built in our outlook on the data points that Sachin just talked about, but it's also to strengthen our position vis-a-vis that travel trend.
All the portfolios, we talked to you about American Airlines, about JetBlue, about Cathay Pacific, everything that we have won in the last two years is going to really come to bear to really make the most of this.
Warren Kneeshaw
Next question please?
Operator
Your next question comes from Rayna Kumar from UBS. Please go ahead.
Rayna Kumar
Good morning. Thanks for taking my question. During the 2008, 2009 recession, Mastercard generated solid revenue and earnings growth and I'm curious to know what you think has changed the most about Mastercard since then, that could help you generate positive results through another potential economic downturn, even if you're not seeing it right now. Thank you.
Michael Miebach
Right, Rayna. I think the last word, as you said, is instructive as we are not seeing it right now, generally resilient consumer spending for the time being and we talked about the modest improvement in cross-border and same - spending behaviors until the end of last year. Now you're taking us really a long time back in 2008 and 2009.
I think the first thing I would say is it's a very different scenario. A scenario that we're looking at externally, that I come to the company in a moment, externally is we are not having a crisis around unemployment. We're having high consumer spending levels. So we don't have an asset bubble that looks anything similar than what we've seen at that time.
So a different starting point. I would say it's a somewhat more benign starting point than we had at that time. Now the company also looks entirely different than it looked in 2008 and 2009. It's a much more diversified business. It's a highly diversified business. I think we were largely consumer credit debit oriented at the time.
We have a whole range of card-based spending from push payments into general payments for goods and services, opening up new verticals and so forth and then there is our progress into new flows. So that gives us resilience on underlying payments. It also – our reach of our business model and how many payment transactions we touch that allow us to build a set of service on it looks entirely different.
Our switching ratios at that time were much, much lower than they are today, which has led to a very successful services business, which we have seen in the last two years is actually quite resilient when you go into – through up and down cycles. And as we continue to build into the future to see whenever we might face a down cycle, are we more resilient with other activities around digital identity and open banking and so forth that go into a world of open banking and move even further before or after the payment transaction to give us more resilience.
So, better earnings quality, higher diversification and we've been tested. We've been tested over the last two years. I mean there was a down cycle and we needed to demonstrate agility and the speed and managing our expenses, make the right investment decisions. So we feel we're well positioned to navigate what's going to – whatever is going to come. Hopefully, it's positive.
Operator
Your next question comes from Darrin Peller from Wolfe Research. Please go ahead.
Darrin Peller
Thanks guys. What's the investment that makes services to continue to pay off and I think to your point, it underscores that your customer base is still really spend on some of those areas. Can you just talk about what you are seeing in terms of the strength there and what kind of resilience you'd expect those to have in different economic scenarios?
And then, Sachin, just one quick one on processing yields. It came in a lot better than our estimated relative to transaction growth, processing revenue line up. You mentioned pricing other variables. Can you just talk about sustainable spread? Thanks guys.
Sachin Mehra
Yes. Darrin, happy to take the second question first. I must say you were breaking up on the first part of your question, so we might ask you to just – kind of state that again. But on your second part of the question, what you are seeing in transaction processing growth rates relative to the growth in switch transactions is exactly like I said, the thee things kind of going on there, right?
The favorable mix piece, which I talked about, the higher FX-related revenues and then there is some elements of pricing. Look, I mean, the reality is we're operating in an environment in which you've seen a few things happen. One is the mix has shifted towards a more cross-border and you know we make cross-border fees both in the cross-border volume fees line, as well as in switch transactions.
So, sometimes that's kind of an overlooked element, but that's an important piece to keep in mind that we do make cross-border fees on the transaction processing line. And as the shift has gone towards more cross-border, that's helped us. Number two is, there is high levels of volatility in the foreign exchange markets.
We delivered some very important services when we do switching of transactions and when we do the settlement of those transactions. In a highly volatile FX environment, it's actually worked in our favor. And on pricing, the baseline is the following, which is at the end of the day, we continue to deliver value to the ecosystem. And as we put value out into the ecosystem, we price for that value.
And what you're seeing there is exactly that come through, which is, we are reflecting that in the nature of pricing. You'll see puts and takes in different quarters in terms of what we may or may not do in terms of pricing, depending on what we believe is the value we're delivering, as well as what the market's appetite to accept that is, and that's what you're seeing through there.
Darrin Peller
Okay. That’s helpful.
Michael Miebach
Could you repeat your first question?
Sachin Mehra
Yes, that's much better.
Darrin Peller
Yeah, thanks. I was just trying to figure out the value-added services, the new flows, all the areas that are driving other revenues, obviously, are continuing to trend very well. And I mean, if you could just revisit what do you think are the top two or three drivers there? And what kind of sustainability in different macro scenarios you'd expect for that? Just it looks like the investments you made there are clearly paying off. Think we're just wondering on the cyclicality of this. Thanks again guys.
Michael Miebach
Alright. Good. So, what we're seeing here is, first of all, on the backdrop, let's just pick up on the structural changes, again, that we have seen over the last two years. Clearly driven by social distancing measures are up a significant push into more digital engagement by consumers. They were sitting at home, so all that. It's a more digital world.
So here, services that helped make a more digital world safer and more easily understood. That's really the general thrust of what's driving the growth and the interest from our customers across established customer sets, as well as new ones earlier, I talked about travel watches. People come to us and say, hey, I want to use all of that data to get a better understanding of my business. So, taking it one-by-one, safety security, anything in the fraud space and in the authentication space has been a joy for us. You go further into cyber risk assessments. Our small business is safe.
Those many small businesses that have opened up in a more digital fashion now over the last two years and you go all the way into digital identity because in a more digital world, people find to have more passwords and nobody wants – really wants that. So digital identity is now a solution that's really taking hold. So that's that whole space.
And you saw us – actually doesn't stop at current types of payments. So the last thing I should add is our acquisition of CipherTrace and how we are going into the crypto space, making that safer as that is certainly something that captures consumers' interests, one space.
The second piece is what do you do with all of that data, retail and commerce, travel logic, I give you one example, many other customers are trying to understand how to make – run their business better using the payments data that is thrown off and we helped them with that. Our Dynamic Yield acquisition is one of them, where we help customers, retail and commerce customers engage their customers, their end customers in a more targeted fashion.
I imagine a landing page that now has personalized offers. In our case, always with strong consent from consumers and a focus on data privacy. So those are the two headlines. We do various other things and services from consulting into processing-related activities and so forth, but that's centered across.
Sachin Mehra
And Darrin, I'll just add as it relates to how we see the other revenue line item and services, in particular to what Michael was talking about, look, we see really good demand from the customers, and we see good growth potential there. The reality is we are doing deeper penetration of those services with our existing customer base.
We're expanding the set of services we've got across our customer base and the third element, we're actually taking those same services and moving across to the new network side of things as well. And Michael alluded to one part of that when he was talking about what we do in the CipherTrace, but more broadly, even in open banking, for example.
So the potential is there and we do expect that given the suite of services we've got, there is good growth potential going forward.
Operator
Your next question comes from Lisa Ellis from MoffettNathanson. Please go ahead.
Lisa Ellis
Alright. Good morning. Thanks guys. Good stuff here. I wanted to ask a question about some of the news related recently to the CFPB, the Consumer Financial Protection Bureau looking into stand-alone service providers, both in the P2P space. So, meaning the fraud issues we've seen in Zelle and other private P2P services and then also on the BNPL side, looking at the stand-alone providers there with the marketing and kind of risk management that they are doing.
Can you just comment on how Mastercard is kind of positioned relative to the areas they are looking into? Is this an opportunity for Mastercard to perhaps play a larger role with Mastercard Send in P2P and with MasterCard Installments in the NPL? Thank you.
Michael Miebach
Thank you, Lisa. So let me start off on that. Where the consumer protection agency here in the U.S. and some other markets are going is really to ensure that there is the right kind of protections for consumers that goes all the way from responsible lending to safety, security and so forth.
We follow that. But if I look just in-house and see what we are doing, if I look at our data principles, what we have done around the Mastercard Installments program to ensure that the participating lenders go through a vetting process and follow responsible lending rules that we have set as part of our franchise, we feel well positioned.
I feel we are a good industry custodian to ensure that these responsible practices are being held around. Now is that also an opportunity for us in all of this? Absolutely. We have learned to partner with P2P systems in many countries around the world with safety and security solutions. The services I actually just talked about when we say, hey, you have a fraud issue, we get it.
Here's a set of answers that we have for you to partner and in other markets, we compete head-on because we simply believe we have the better solution and players not necessarily always want to partner with us. So it's a bit of a mix, give and take, but it's an interesting and dynamic field that we are very focused on.
Operator
Your next question comes from Tien-Tsin Huang from JPMorgan. Please go ahead.
Tien-Tsin Huang
Hey. Thank you so much. Thanks for going through all of this. I heard the CBIC when – I am just curious how deal activity is going? Are the known conversions that you have proceeding in a timely way? I don't know if there's been any change given some of the macro uncertainty there?
And then also Sachin, would you mind just rehashing the FX-neutral OpEx numbers again? Are you changing your underlying investment strategy or inflation assumptions given what we've learned around the macro? Thank you.
Michael Miebach
Tien-Tsin, let me start off with the deal activity. The momentum that we have seen over the last two years throughout the pandemic, where we lean with our customers and say, hey, what do you need and these are tough times? I think we set ourselves up as a trusted partner and help to shape that deal pipeline that we currently see, which is very strong.
Deal pipeline is strong across all regions and we gave you a few examples today from – we haven't talked much about Canada lately. So these are strong wins. This is excellent. Some of the very significant wins we talked about over a year ago in Europe when you think about NatWest, Deutsche Bank, the multi-regional deal that we have with Santander, they are progressing according to plan.
The conversions are going on. I mentioned very specifically back to United States. The GAP conversion is actually done on those 10 million cards. So overall, we talked to you at the Investor Day in November last year that we see share growth across all of our carded products and we continue to feel very good about that.
So momentum, it's competitive out there, of course. But I think the mix of what we have in various payment solutions, as well as services sets us apart. We've also relooked at how we deploy our sales resources across the company with all the acquisitions that we have so that we can do the best possible work for our customers. So overall, strong momentum that I think will continue.
Sachin Mehra
Yes, Tien-Tsin, on your question as it relates to the outlook for the full year 2022 on OpEx, so, on a currency-neutral basis, excluding acquisitions, we are guiding along the following lines, which is on OpEx that we expect to come in on a full year basis at the low end of the low-double-digits range.
And just to remind you on what we're talking about OpEx on the revenue side, also, we have changed our full year guide and our revenue, again, on a non-GAAP growth basis, currency-neutral, excluding acquisitions, is now at the low 20s rate, which is higher than what we had shared with you previously.
Operator
Your next question comes from David Togut from Evercore. Please go ahead.
David Togut
Thank you. good morning. Among your largest geographic regions, Europe continues to generate the greatest payment volume outperformance versus our model. You underscored a number of geopolitical and economic risks for Europe. Going forward, especially as we head into the winter, can you talk through Mastercard's growth algorithm, what that might look like in a significant economic slowdown in Europe?
Historically, you've been a big share gainer there, particularly against the national payment networks. You've got the secular shift working in your favor, but, if you could just kind of talk through your thought process, that would be much appreciated.
Michael Miebach
Alright, let me start, and then Sachin can chime in. So David, as a matter of fact is Europe is not homogenous. That's the first thing I would say. When you look at where we are on the arc of the secular shift, it's very different. So there is lots of opportunity across the board from further digitization. The opportunity to go beyond P2M and sets of flows is wide open in Europe.
The push of the European authorities to digitize beyond just in-store payments and online payments is significantly there. We are well-positioned with our tools in Europe, which is pushing on open banking, which is pushing on open on account-to-account, which is pushing bill pay solutions.
So we have all of that in a hop. So we feel that there is significant opportunity. And as I said before, there is uncertainty on the European macroeconomic front. But on the other hand, macroeconomic GDP overall economy and our baskets are two different things, and we'll have to kind of see how that will play out. I can't really predict that. I am from there, so I have a sense, but I am not in the business of predictions.
Operator
Your next question comes from Ramzey El-Assal from Barclays. Please go ahead.
Ramsey El-Assal
Hi, thanks so much for taking my question. I had wanted to ask about some of the longer term drivers of rebates and incentives. It seems like today or not it seems like today, rebates and incentives as a percentage of gross revenues are several hundred basis points higher than they were in 2019. I guess the question is, is the mix and the mix-related drivers of that increase are very clear.
But as we move forward over the next couple of years and your mix normalizes, should we see downward pressure on the rebates and incentives as a percentage of gross revenues? Or is this something where this new baseline is sort of here to stay? And if that's the case, maybe give us some reasons why?
Sachin Mehra
Sure. So Ramzey, I'll take that one. So, look, I mean, I think you're well aware about the fact that rebates and incentives are influenced by a number of factors, right? Some of which you alluded to, which is what's going on from a volume growth rate, what's going on from a mix standpoint, how the pipeline of new deals are looking, you take all of that into consideration.
But the reality is, if you just think about where we are from a mix standpoint, particularly on cross-border between where we were pre-pandemic and where we are today, we've still not gone back to the historical mix levels from a cross-border to domestic volume standpoint. So as that reverts back to the mean and when I say the mean, means closer to what the pre-pandemic levels where you would expect to see some benefit of that come through in rebates and incentives versus growth - as a percentage of growth, you would see that come through.
But the reality is there are other countervailing factors which are also taking place, right, which is a function of what the pipeline of deals looks like, what the timing around that is, but – the basic premise is correct, which is as more cross-border happens, you're going to see a benefit come through in rebates and incentives as a percentage of growth.
Ramsey El-Assal
Got it. Thank you so much. Appreciated.
Operator
Your next question comes from Bryan [Indiscernible] from Deutsche Bank. Please go ahead.
Unidentified Analyst
Hi guys. Good morning. I just wanted to ask a clarification, Sachin, on the OpEx, the non-GAAP growth, currency-neutral ex acquisitions that went up from high-single-digits originally. I think it was last quarter that you guided to that for the year to low end of low-double-digits. So, I guess, why the increase in OpEx?
And is it just taking the opportunity to invest more due to the strength of the topline but any color maybe on where some of those investments might be going with the additional expense? Thanks.
Sachin Mehra
Sure, Bryan. So a couple of things which are – you're right. We had previously guided to high-single-digits and now are guiding to low end of low-double-digits on this non-GAAP metric on OpEx. Couple of things going on.
One is we have taken foreign exchange-related losses on the remeasurement of our assets and liabilities during the first two quarters, order of magnitude about $70 million and you'll see all of this in our reports, which we've kind of publicly put out there. So that's certainly impacting it. And then a couple of other things which, to me, are more critical, which is we continue to invest in the long-term growth of our business, that which includes investing in our people.
In a hot talent market, we want to make sure we've got the best people. We want to be there. In terms of having those best people help us execute on what we've laid out as our strategic priorities, which is what we're doing right here. We've always kind of followed the philosophy of let's keep an eye on the top-line and then kind of pulse as to what we want to do from an expense and investment standpoint and that's the philosophy we're following. We'll continue to follow that philosophy going forward.
Unidentified Analyst
Thank you.
Operator
Your next question comes from Dave Koning from Baird. Please go ahead.
David Koning
Yeah. Hey guys. Thanks so much. And I guess my question is on cross-border yields. One thing that was interesting this quarter, intra-Europe cross-border grew faster than non-intra-Europe for the first time in a long time and yield was up regardless. So it seems like the last few quarters, mix helped a lot, but now there it seems like another driver on top.
I guess is that right? Maybe what's that other driver? And should we get faster growth in non-intra-Europe kind of in coming quarters?
Sachin Mehra
Sure, David. So you are right in terms of what the mix shift between inter and intra was this quarter versus last quarter. I think there are a few things to keep in mind. That's the mix shift between inter and intra. But there's also within the world of inter what are the corridors, which are coming back versus the corridors which have not come back, right?
And as you started to see more of the higher-yielding corridors come back, that's actually helping us in providing us the tailwind we are talking about right here. So, for example, you've got markets – it’s like inbound into the U.S. as that starts to come back, you start to see the benefit of that come through markets like Asia, inbound into Asia, you'll start to see the benefit of that come through.
David Koning
Yeah. Great. Thank you.
Operator
Your next question comes from Jason Kupferberg from Bank of America. Please go ahead.
Jason Kupferberg
Good morning, guys. Wanted to get your perspective on just the relative health of the lower-income consumer versus higher income? And then, if you can just make some remarks about how we should think about rebates and incentives for Q3 and Q4? Thank you.
Sachin Mehra
Sure, Jason. So, on your first question, here is what we're seeing actually. Overall, the consumer and consumer spending patterns are very healthy. And again, you've got to parse this data out between what we see in the U.S. versus what we see in the rest of the world, right? And different people have different definitions on what is lower income versus what is the affluent.
But let's just start kind of that as the frame. In the U.S., what you are seeing is, good strength across both, but a declining trend in terms of the growth rates on the lower income side of things. Affluent spend continues to be very healthy and carries on in a very nice way. Outside of the U.S., we are not seeing much in the nature of a shift between now, the affluent category spending versus what the lower income category spending.
So the benefits of what we've got in Mastercard by being a diversified business and being diversified from a geographical standpoint is actually helping us very nicely because independent of what happens in one market versus the other, the value of what we got across the globe comes through in terms of spend levels here
And then your second question was around rebates and incentives. Look, I just talked about things which influence revising incentives. So I won't kind of belabor that point. What I'll share with you is the following that we expect that incentives as a percentage of growth will be roughly similar in Q3 to what we saw in Q2.
Jason Kupferberg
Thank you.
Sachin Mehra
Sure.
Operator
Your next question comes from Bob Napoli from William Blair. Please go ahead.
Bob Napoli
Thank you and good morning. I just wanted to follow up on a lot of your comments on the open banking, digital ID and your investments there. Can you maybe give some color on what you feel like the revenue TAM is for those businesses? And what type of – where you see the most opportunity, what the kind of the growth trajectory is of those businesses?
Michael Miebach
Right. So open banking, let me start off more generally speaking. So clearly, a global trend, one that's to stay. It's happening in Brazil. It's happening in Australia, certainly was there in the United States and Europe. The way we approach it is, first of all, we have a relevant position in connectivity and then building out a bunch of use cases.
And the use cases that would get really to the heart of your question, you see very different types of kind of revenue models, value exchange models. First of all, on connectivity itself, you have per API call kind of logic. If you go into financial management solutions and it depends on who's our customer here, let's say it's a fintech that could again be by API.
But you could start to see as we go into lending, mortgage verification, asset verification, kind of use cases. Those are kind of – that's the broad range of currently what we're seeing no established model at this point in time. I mean, we are investing heavily Aiia, Finicity because we feel there is a tremendous opportunity.
This is – it's going to help to pull so many new customers into – consumers into the ecosystem, on the financial inclusion side, on the SME side and so forth. So, hard to answer very specifically right now where we are, but those are those kind of different kind of models and it's going to be multi-geography and it's going to be here around to stay.
Sachin Mehra
And I'll just add to that a couple of thoughts. One, I think defining any sort of TAM in open banking at this point in time will just be an incorrect. We'll be looking for precision where it doesn't exist because use cases are still to develop. So I think, what we see is tremendous potential with what Open Banking does by providing us access to an alternative network. It's a data network, which comes with its own sets of use cases.
The second point I'll bring out is regardless of whether it's open banking or digital ID or all of our services. We think about that in the context of the revenues they generate for Mastercard, the company, but it's really important to remember that all of this is one big circular wheel. Our open banking assets power our payments, our services power our payments. So there is the collateral advantage, which comes through by virtue and being in all of these spaces, which trickles down to all parts of our business.
Bob Napoli
Thank you.
Michael Miebach
Alright. Thank you. So much for that last question, exciting space. We are going to close the call now. We are at the top of the hour. Appreciate your time this morning. Do want to thank our 24,000 colleagues around the world and I want to thank all of you who have joined us today for your continued support for Mastercard. Talk to you in a quarter. Thank you so much.
Operator
This concludes today's conference call. You may now disconnect.