Q2 2024 Mastercard Inc Earnings Call

Participants

Devin Corr; Executive Vice President of investor relations; Mastercard Inc

Michael Miebach; Chief Executive Officer; Mastercard Inc

Sachin Mehra; Chief Financial Officer; Mastercard Inc

Harshita Rawat; Analyst; Bernstein

Trevor Williams; Analyst; Jefferies

Dan Perlin; Analyst; RBC Capital Markets, LLC

David Togut; Analyst; Evercore ISI

Darrin Peller; Analyst; Wolfe Research, LLC

Dave Koning; Analyst; Robert W. Baird & Co., Inc.

Sanjay Sakhrani; Analyst; Keefe, Bruyette & Woods North America

Tien-Tsin Huang; Analyst; JPMorgan

Dan Dolev; Analyst; Mizuho Securities USA

Andrew Jeffrey; Analyst; William Blair & Company

Fahed Kunwar; Analyst; Redburn Atlantic

Paul Golding; Analyst; Macquarie Research

Andrew Schmidt; Analyst; Citi

Presentation

Operator

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 Incorporated Q2 2024 earnings conference call. (Operator Instructions) Thank you.
Mr. Devin Corr, Head of Investor Relations, you may begin your conference.

Devin Corr

Thank you, Julianne. Good morning, everyone, and thank you for joining us for our second quarter 2024 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 a 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 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, Devin, and good morning, everyone. The headline this quarter, we delivered very strong results powered by broad-based momentum across all aspects of our business. Second quarter net revenues were up 13% and adjusted net income up 24% versus a year ago on a non-GAAP currency-neutral basis. These results were underpinned by healthy consumer spending, including strong cross-border volume growth of 17% year-over-year on a local currency basis and value-added services and solutions net revenue grew 19% year-over-year on a currency neutral basis.
The macroeconomic environment remains mixed, and we continue to monitor the positives and negatives of future note strength in consumer spending continues to be supported by a solid labor market and wage growth are there some signs of labor market growth moderating. This is off very strong levels of job creation.
As an also inflation and interest rates remain in focus. You've seen inflation cool, but to varying degrees across carded and non-carded categories. Price levels are still elevated for many goods and services. Interest rates also remain elevated, but many central banks have started to ease and economic indicators support broader rate reductions, while tailwinds and headwinds to economic growth remain on balance, we remain positive about our growth outlook.
With that as a backdrop, we remain focused on executing our strategic priorities, which fuel our growth algorithm called payments, new payment flows and services. You may remember that we recently announced organizational changes to further increase our focus on these priorities, they included the realignment of both regional operations and payments and services to support our growth algorithm.
These changes were designed to accelerate growth and unlock capacity to invest in long-term business opportunities. This also helps us continue to deliver positive operating leverage over the long term. For example, we plan to redeploy resources into growth markets with high cash levels either invest in opening acceptance and new verticals and we will continue to apply technology to help us realize even more of the shift to digital across both consumer and commercial.
We will also enhance and expand our value-added services such as in data analytics, fraud and cyber security, particularly as we further embed AI into our products and services. As a result of this organizational realignment, which positions us well for long-term growth, we expect to incur a one-time restructuring charge in the third quarter.
Now moving onto an update on some specific elements of our growth algorithm. In payments were driving growth by winning and retaining deals, and we're tapping into the vast secular shift opportunity by expanding in new geographies and further digitizing the payments ecosystem.
Let's start with our continued deal momentum. I'm happy to announce that Varo bank will convert their debit and credit portfolios to MasterCard. And we're the first all-digital bank to receive a national charter in the United States. Varo chose MasterCard due to our differentiated data insights, merchant-funded offers platform and our ability to seamlessly integrate into their technology stack, extended our enterprise agreement with Wells Fargo and partner to launch the Attune World Elite MasterCard.
This is our first proprietary consumer credit program with the bank. We also want to renew deals this quarter with key US prepaid partners, including H&R Block, Blackhawk Network relevant and Dash Solutions and aggregate these partnerships will drive meaningful increase in our US prepaid market share.
In Canada, we extended our long-standing partnership with the National Bank of Canada across consumer credit, commercial and prepaid for the next decade. And PostePay who already issues millions of MasterCard cards in Italy, it has expanded our collaboration to drive additional growth across debit and prepaid.
Let's deep dive into a few specific verticals and geographies. Travel is, of course, a key focus and a strong growth potential in a meaningful cross-border component. Travel is also a natural fit with our virtual card technology and our marketing, loyalty and consulting capabilities. We executed several new travel partnerships this quarter.
We signed a deal with global digital payments provider Checkout.com to enable them to deploy their virtual card issuance solution to their online travel agency customers. We also announced a multiyear agreements with Wells Fargo and Expedia to launch two new co-brand cards with a range of unique travel benefits. And we executed a new co-brand deal with Dashen Bank and Ethiopian Airlines, the largest airline in Africa. It's built on a co-brand deal (inaudible) and Rhonda X that we initiated earlier this year.
I'm sure it wasn't lost on you that these two last deals I mentioned are in Africa. The continent is a great example of the vast secular opportunity in emerging markets. External sources estimate that approximately 90% of transactions in Africa are made in cash. We are committed to the digital transformation of the regions.
And we're doing so by ramping up our investments, developing new partnerships and rapidly expanding our acceptance footprint. For example, Africa is the world's largest adopter of mobile money accounts of partnerships with large telcos. Some of our network operators like Airtel, MTN, Vodafone Egypt and others, put us in a great position to accelerate inclusion and cash conversion.
On the acceptance front with more than tripled the number of acceptance locations in Africa over the last five years. We recently signed deals with the commercial bank of Ethiopia, the largest bank in the country and I&M bank in Kenya. These partnerships will enable us to increase share in both markets.
In Nigeria and Ghana, with partners boost our financial who will work with fintechs across the region to issue MasterCard cards. Also, our MasterCard move capabilities are the foundation for new cross-border money movement solution with Access Bank Group. Together, we are enabling businesses and consumers in several African markets to send and receive international payments across over 140 countries.
Now this secular opportunity is not limited to Africa. We see opportunities around the globe, think about emerging markets in Latin America and Asia Pacific. Fully capitalizing on that secular trend requires that we continue to innovate to support the digital economy at scale, and we're doing just that.
Enhancing the checkout experience and expanding our tap on phone acceptance capabilities. We're scaling our contactless technology in areas like transit, and we are driving the ongoing conversion of Maestro to Debit Mastercard
Let's dig into one. Online shopping, it must be simple. It must work on all devices and all channels. That's why we are leaning into a new area of one-click payments. We announced that we will phase out manual card entry for e-commerce payments in Europe by 2030 in favor of a one-click checkout button.
There are three foundational components those effort all anchored on driving simplicity and security. First, tokenization. Tokenization replaces payment credentials with a digitally secure token when deployed fraud rates decrease and approval rates improve.
Since launching a decade ago, the technology has been broadly adopted around the world. In fact, we surpassed 22 billion tokenized transactions in the first half of 2024, up 49% versus a year ago. Second, as click to pay. Click to pay simplifies online guest checkout by eliminating the need to manually enter payment credentials.
Guest checkout becomes as easy as remembering your email address. It also makes checkout more secure using the token technology I just mentioned, we are working with our merchants and bank partners to drive adoption. Click to pay transactions more than doubled year over year in the first half of 2024.
And third, up payments passkeys. Passkeys is eliminate the need for passwords or text for onetime passcodes. They allow consumers to authenticate online purchases using a fingerprint or facial features that you use every day when opening your phone. When combined these powerful technologies and enabling us to deliver on our promise of a simple and secure one click online checkout experience for consumers.
We also continue to enhance in-store checkout. For example, we are scaling our biometric checkout program to new regions. In Europe, the partnering with Polish fintech PayEye to allow shoppers to pay with a simple clients. And in Latin America, we are working with Ingenico so that consumers at participating supermarkets can pay with a wave. We're also working at pace to migrate my extra cards to debit MasterCards outside the United States.
Shifting to debit MasterCard is a critical element of our strategy as we see up to time spend lift on cards once they have migrated this primarily due to the ability to capture both cross-border and online spend on debit MasterCard. The first half of 2024, we converted over 14 million cards, which brings us to almost 300 million cards migrated since 2016.
These innovations are examples of the investments we are making to differentiate the MasterCard experience versus other payment methods like P2P or local payment schemes. We also continue to capture the large secular opportunity in targeted new payment flows. Today, I will focus on commercial, starting with accounts payable payments. We are operating from a position of strength.
Our market leading virtual card capabilities have been deployed with over 90 issuers worldwide. Additionally, we are integrating our technology into four of the top five leading global procure-to-pay solution providers. Completed the integration of our virtual card technology into Oracle Cloud ERP and commenced invoice payments for the first HSBC corporate customer in our apps.
On supplier side, we signed several acquirers onto MasterCard receivables manages, this includes Eleva whose customers are using our AI powered platform to streamline the process of accepting virtual cards. We also continue to expand distribution of our virtual cards, signed new deals with Brex and Ant Group, world first.
On commercial point of sale, we're increasing the distribution of our commercial card products worldwide. In the US, the Wells Fargo small business credit card portfolio migration is now complete. In Europe, extended our partnership with Virgin Money to continue growing our small business portfolio and our partnership with SAP Concur, which automatically integrates our corporate card data into Concur Expense is yielding results.
Large insurer Score SE awarded their T&E card program for MasterCard based on the value delivered through this joint offering. And finally, we're executing against our strategy to penetrate new B2B verticals. This quarter, we signed an exclusive partnership with Latin America with CBC., the largest Pepsi distributor in the region, and the fintech enable yellow tech MeeGo payments. This partnership will provide card distribution acceptance and financial education to almost 2 million retailers.
These small businesses can now use the MasterCard small business cards to purchase inventory and other items. In the healthcare space, we signed an exclusive partnership with the Medical Tourism Association. They will now accept cards from consumers and utilize virtual cards to make cross-border payments to medical providers.
Separately, they're working with Square to broaden card acceptance amongst smaller healthcare providers in the UK. Now turning to services, payments, support, all services and vice versa. Service has played an important part in winning many of the deals I just mentioned.
The strong payments drivers helped fuel services growth that coupled with strong demand, drove 19% value-add services and solution net revenue growth in the second quarter on a year over year currency neutral basis. This is a powerful flywheel turning. I'm excited about our momentum and the future potential, whether it's deepening penetration of existing customers, launching new capabilities or distributing our services in new ways and across new customer and transaction types.
A few examples. First, our services help to improve MasterCard issuer portfolio performance, thereby supporting our customers' core business objectives. For example, at SEB in the Baltics is building their customer loyalty strategy together with MasterCard and Revolut is working with us to develop and execute the marketing strategy, launching campaigns across the UK., Ireland and Italy.
We're also deploying our services across non FIs, helping to diversify our business and capture a new set of growth opportunities. Customers as varied as paramount and McDonald's and Taiwan are using our Test & Learn capabilities to address core business needs, including media measurement and new product introductions.
And we're working with LATAM Airlines in Brazil to optimize their co-brand portfolio and develop innovative marketing campaigns. The partnering to distribute our capabilities in new and more efficient ways. Salesforce has integrated our dispute resolution services into its Financial Services Cloud. This enables banks and other financial institutions to handle disputes and prevent chargebacks more effectively.
And KPMG Norway has partnered with the Norwegian government to distribute our risk recon capabilities. The solution will help hundreds of local governments evaluate their cyber risk posture and out of their suppliers.
Turning to open banking, we continue to make strong progress in scaling new use cases, I'll use our account opening and account linking use case as an example. Klarna in the US is now using MasterCard's open banking for this purpose. Paypal will leverage account linking balanced check and transaction history for their wallet in the US and Jack Henry will distribute these capabilities to streamline the account opening process for hundreds of issuers they support. So with that I'll wrap it up.
In summary, we delivered another strong quarter of revenue and earnings growth, but driving growth by winning and retaining deals, penetrating the substantial secular opportunity. And we continue to see strong demand for our services. Now differentiated capabilities, diversified business model and focused strategy position us well to capitalize on the significant opportunity ahead of us.
Sachin, over to you.

Sachin Mehra

Thanks, Michael. Turning to page 3, 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 13%, reflecting continued growth in our payment network and our value-added services and solutions. Operating expenses increased 10%, including a minimal impact from acquisitions and operating income was up 15%, including a minimal impact from acquisitions.
Net income and EPS increased 24% and 27%, respectively, both reflecting the strong operating income growth as well as a lower tax rate in the current quarter compared to Q2 2023, primarily due to a sizable discrete tax expense in the prior year as well as a change in the geographic mix of earnings.
EPS was $3.59, which includes a $0.07 contribution from share repurchases. During the quarter, we repurchased $2.6 billion worth of stock and an additional $820 million through July 26, 2024.
So let's turn to page 4, where I'll speak to the growth rates of some of our key drivers for the second quarter on a local currency basis. Worldwide gross dollar volume or GDV increased by 9% year-over-year. In the US, GDV increased by 6% with credit growth of 6% and debit growth of 7%. Debit growth was aided by the conversion of a previously announced debit win in the US.
Outside of the US, volume increased 11% with credit growth of 10% and debit growth of 11%. Overall, cross-border volume increased 17% globally for the quarter, reflecting continued strong growth in both travel and non-travel related cross-border spending.
Turning to page 5. Switch transactions grew 11% year-over-year 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 approximately 69% of all in-person switch purchase transactions.
In addition, card growth was 7%. Globally, there are 3.4 billion MasterCard and Maestro branded cards issued.
Turning to slide 6 for a look into our net revenue growth rates for the second quarter discussed on a currency neutral basis. Payment network net revenue increased 9%, primarily driven by domestic and cross-border transaction and volume growth. It also includes growth in rebates and incentives, which were lower than anticipated, primarily due to the timing of planned deal activity.
Value-added services and solutions net revenue increased 19%, primarily driven by growth in our underlying drivers. Strong demand for our consulting, data, analytics and marketing services and the scaling of our fraud and security and our identity and authentication solutions.
Now let's turn to page 7 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 7%, while worldwide GDV grew 9%, primarily due to mix. Cross-border assessments increased 21%, while cross-border volumes increased 17%. the four PPT difference is primarily driven by mix and pricing.
Transaction processing assessments were up 13%, while switched transactions grew 11%. The two PPT difference is primarily due to mix and pricing. Other network assessments were $244 million this quarter. As a reminder, these assessments primarily relate to licensing implementation and other franchise fees. It may fluctuate from period to period.
Moving on to page 8, you can see that on a non-GAAP currency-neutral basis, excluding special items, total adjusted operating expenses increased 10%, which includes the minimal impact from acquisitions. The growth in operating expenses was primarily due to increased spending to support the continued execution of our strategic initiatives as well as an increase in indirect taxes as discussed on our Q4 2023 earnings call. This was partially offset by the timing of advertising and marketing spend within the year.
Turning to page 9, let me comment on the operating metric trends in the second quarter and then through the first four weeks of July. As a reminder, our Q1 switch metrics include the impact of the leap year in 2024, which added just over one PPT to growth across each of switched volumes, switch transactions and cross-border volumes.
In addition, our switch metrics in Q1 and April were impacted by the timing of Easter, which occurred at the end of Q1 this year as compared to an April in 2023. After adjusting for the leap year, the timing of Easter and excluding the benefit from the US debit portfolio when I previously discussed, our switch metrics in Q2 were generally stable sequentially in the US and across the globe. Looking at the first four weeks of July, trends remain generally stable versus Q2.
Turning to page 10, I wanted to share our thoughts for the remainder of the year. As Michael said, there are a number of economic headwinds and tailwinds that we are monitoring and we remain focused on executing on our strategy. Business fundamentals remained strong as evidenced by the results we delivered this quarter across all aspects of our business.
Our diversified business model, underpinned by healthy consumer spending, the continued secular shift to digital forms of payments and strong demand for our value-added services and solutions continues to position us well for the opportunities ahead. Overall, we remain positive about the growth outlook.
Now turning to Q3 2024. Year-over-year net revenue growth is expected to be at the high end of a low double digit range on a currency-neutral basis excluding acquisitions. Acquisitions are forecasted to have a minimal impact of this growth rate while we expect a one to two PPT headwind from foreign exchange for the quarter.
From an operating expense standpoint, we expect Q3 operating expense growth to be at the low double digit range versus a year ago. Again, on a currency-neutral basis, excluding acquisitions and special items. We expect higher growth in advertising and marketing in Q3 compared to the first half of the year, primarily driven by the cadence of spend related to our sponsorship activities.
Acquisitions are forecasted to have minimal impact to this OpEx growth for the quarter, while we expect a zero to one PPT tailwind from foreign exchange. Separately, as Michael mentioned, as part of our recent reorganization, we expect to record a onetime restructuring charge in Q3 of approximately $190 million.
This will be recorded as a special item and excluded from our non-GAAP metrics. We expect these actions will free up capacity to further invest in our strategic priorities as we continue to execute on our growth algorithm. We also expect that will contribute to delivering positive operating leverage over the long term.
As it relates to the full year 2024, we expect net revenue to grow at the high end of a low double digits range on a currency-neutral basis excluding acquisitions. Acquisitions are forecasted to have a minimal impact for the year and foreign exchange is now expected to be a headwind of approximately one PPT for the year.
In terms of operating expenses, our expectations for the full year are to grow at the low end of a low double digit range on a currency-neutral basis excluding acquisitions and special items. Acquisitions and foreign exchange are forecasted to have a minimal impact to this growth for the year. Other items to keep in mind. On other income and expenses in Q3, we expect an expense of approximately $100 million. This assumes the prevailing interest rates and debt levels continue and excludes gains and losses on our equity investments, which are excluded from our non-GAAP metrics.
Finally, we expect the non-GAAP tax rate of between 17% and 18% for Q3 and 17% to 17.5% on a full-year basis, all based on the current geographic mix of our business.
One last point, I wanted to let you know that we are planning to host an Investor Day in New York on November 13. We look forward to discussing our future plans with you at that time.
And with that, I will turn the call back over to Devin.

Devin Corr

Thank you, Sachin. Julianne, please open the call for questions.

Question and Answer Session

Operator

(Operator Instructions)
Harshita Rawat, Bernstein.

Harshita Rawat

Good morning, Michael, can you talk about US merchant litigation, the settlement rejection and the path forward from here? How should we think about the range of outcomes? Thank you.

Michael Miebach

Thanks, Harshita. You're not asking about the secular opportunity? Secondly merchant settlement. So the first thing I would say is on -- we're disappointed where this has landed for now, and I would describe it as we respectfully disagree with the court's ruling to reject the settlement.
This has been negotiated over many years across many parties, I think with best intentions and it would have produced some a lot of benefits for consumers for merchants and across all parties.
So this is now not happening we are obviously ready and we will take all efforts to ensure that a solution it found for this goes to trial engage all parties. We've done this in previous scenarios before. It's difficult to speculate on outcomes at this point. But I think this intention to lean in and see how do we can provide more security predictability to merchants and to banks. And all parties here is what's driving us.
So there's a number of defendants in this, and everybody will obviously take their own decisions here. But across the Board, obviously, there has to be a dialogue and to find the best outcome.

Operator

Trevor Williams, Jefferies.

Trevor Williams

Great. Thanks a lot. I wanted to ask on rebates and incentives growth. I think that came in a little bit better than you guys had been expecting for 2Q. So if you could just unpack some of the upside there relative to expectations? And then any help for what you're expecting for R&I growth over the next couple of quarters? Thanks.

Sachin Mehra

Sure, Trevor. So you're right. As I mentioned in my prepared remarks, our rebates and incentives did come in slightly lower than our expectations for the second quarter. I just want to kind of take it up a level just to kind of remind everybody. We're very active in the markets. We are constantly looking at what opportunities exist with existing customers and with who could be potential new customers.
And we have a view on what our pipeline of activities is. So the vast majority of what we had in the nature of there are, I would say lower rebates and incentives in the second quarter were driven by some of those deals that deal activity not materializing in the second quarter. Still remains in the pipeline. It's still something we expect will occur as the year progresses.
And then more specifically, as it relates to Q3, we expect that our rebates and incentives as a percentage of our payment network assessments will be higher than it was in Q2. And it's essentially based on exactly what I just said, which is it's very rich. The deal pipeline that we have and again, this is more of a timing issue than anything else.

Michael Miebach

It comes back to the point in the end, we want to be in the transaction flow. We want to be relevant to our customers. We want to be relevant in the eyes of the consumers that they have a MasterCard product in their hand, and we fight for the deals that we find strategic relevant that also meet our financial criteria. On in the end, it all has to add up in combination between payments and services and our net revenue yield develops positively and that we keep in focus.

Operator

Dan Perlin from RBC.

Dan Perlin

Thanks. Good morning. Can we just spend a second on the realignment of the organization a little bit. I know you talk about it to create capacity and drive incremental growth. I think the question I have is on how should we think about that and driving kind of new constituencies as you talk about new verticals and maybe expansion of data analytics? And then more specifically now, how does that open up the aperture of the network as we think about that going forward. Thank you.

Michael Miebach

Thanks Dan. And so on, as I said earlier, the idea here is to accelerate growth. The idea is not to reposition our strategy. We've articulated our strategy. You'll hear more of that in the investor community meeting in November and how we see that play out in more detail across our core payment solutions, new flows and the services portfolio.
I purposefully stayed at the point on markets with high cash penetration. So here is, as I laid out in the context of Africa, but there's more and more other emerging markets around the world. There's a tremendous opportunity here. So we want to strengthen our frontline, but it's also clear that the recipe to particular to participate in the secular opportunity emerging markets isn't the same as in developed markets that we're investing in product and so forth.
It's pretty clear that on the services side as far as the of areas of focus are concerned, we continue to be guided by underlying strong secular trends, and one of that is for really any of our corporate partners and B2B partners that they want to make sense of the enterprise data and make better decisions and how do we do that?
We do that by leveraging our artificial intelligence solution instead of assistance of, as I said, of fine tuning on how they could have more personalized suggestions to their end consumers, et cetera, et cetera. That's one part that help our customers make better decisions, not changing, but very specific solutions with a higher weightage to AI.
And then on the security side and the cybersecurity side, all of this data has got has to be kept safe. We kept saying that for years, that's a strong secular trend in itself and making sure that we have fine-tuned our solutions here, we're going to move faster because know the bad guys also moving faster and they have the similar technology tools in their hands now.
So leveraging artificial intelligence and the example I gave last quarter around Decision Intelligence probe. That's predicting what is the next call? It might be the product before it actually happens. Those kind of solutions provide significant lift to our customers in terms of preventing fraud, obviously giving peace of mind to their consumers and overall helping our business.
And it's a close link to our payments underlying payments business. So all of that, it's largely the same strategy, but we're really focusing on very specific assets aspects of that. And there are other aspects of our portfolio that we're going to dial down as a result of this effort comes.

Operator

David Togut, Evercore ISI.

David Togut

Thank you. Good morning, Michael and Sachin. In Europe continues to be your largest geo by GDV and also highly differentiated growth There continues. Would appreciate your look forward on cash, digitization, opportunity, thoughts on the consumer and then the outlook also for cross border travel in and out of Europe.

Michael Miebach

So let me start, I want to anchor on what you how you framed your question. It's been a strong growth story for us in Europe, that's Continental Europe as well as the UK. We've seen tremendous share growth there, and that's really focusing down and investing more locally in Europe have a better presence there, engaged with national governments as well as with European institutions was a view we feel very European in Europe.
That's the first thing I would say from when I come back to the times of COVID is the worse large set of economies in Europe that were lagging. I would argue on the digitization front, I'm changing behaviors in the customers of have increased the pressure to digitize further and that has happened. So we've seen Europe catch up and obviously shows in our numbers. But back to the point of secular opportunity we just discussed.
If you look at the economies in Germany in Italy, there's significant cash in the higher double digits that we're seeing that and we can go after and we will continue to go after. So I continue to expect a growth opportunity there, but it's also true that the markets that are so highly digitized to say today that the secular opportunity in itself is something that from cash to check isn't really happening.
And you come to the point about what are the emerging business models in a highly digitized world. The Nordics is a good example of that as a whole new set of business models coming up and we're supporting those fintechs, which is why Europe is one of the geographies around the world where we have a tremendous position in fintech and other market leaders in those partnerships. So I'm excited about the Europe outlook, and we continue to invest there.

Sachin Mehra

David, on your question around cross-border and out of Europe, a couple of thoughts around there. Look, I mean, globally, I would say we're well positioned from a cross-border standpoint, you could see that in our metrics some. And then as it relates to your back to what Michael just said, as we've been winning portfolios, you know, there's been a mix of portfolios we win there, some of which are high cross border and others are still lower from a cross-border standpoint.
The idea is to actually being the flow participate in greater opportunities for yourself to actually leverage our services, our loyalty assets in order to drive cross-border, whether it's Europe or anywhere else in the world. The last point I'll make is sensitivity to foreign exchange rates, right? Strong dollar certainly helps in terms of the inbound into Europe because you tend to see a lot more travelers from the US actually show up in Europe as part of that process. So again, we feel good about the cross-border opportunity, not only in Europe but globally for the company.

Michael Miebach

And one last point to add on based on the financial frame that Sachin just put around it back to the R&I question. So in Europe, we really feel we are well positioned in the market from a share perspective. So this aspect of financial discipline as we continue to look for deals and partnerships in Europe, really rises to the top.

Operator

Darrin Peller, Wolfe Research.

Darrin Peller

Hey, guys, thanks. It's good to see the stability into July in the US volume side. So if you could just help us understand a little more on the thing if there's anything from CrowdStrike or whether then I guess really, Michael, also more importantly, just the ability for you guys to win these portfolios? If you could help us just remind us understanding what the driving factors are, how much of it is, if there's any competitive pricing dynamics, how much of it might be just that and maybe a little bit more of what you see ahead?

Sachin Mehra

Why don't I take the first one and then question. Darrin, in terms of the trends we've seen for the first four weeks of July. It looks like they say -- look, I mean, general stability in drivers across the Board. And you can see that on page 9 of our presentation and really, I mean your question as to whether there was an impact from the events over with CrowdStrike or whether I mean the reality is the weather piece had a little bit of an impact.
And that's what I would actually mention, but it's kind of muted in terms of the context of you've got now four weeks worth of data. And so the reality is these things kind of happened that some it comes in a particular week. If you look at it, it may look lower higher and then that might be a catch-up factor which takes place as we extend I follow by and large, we feel good about what we're seeing from a consumer spending standpoint, and that's reflective of what you see on the metrics right here, right.

Michael Miebach

In the second part of your question, general markets in the US and same as Europe since we just talked about, that remains incredibly competitive. I think we haven't seen such elevated level of competition in payments that we're currently seeing on. You see a lot of movements in the market. You know, others, banks looking at network opportunities and so forth.
So there's a lot going on, but it's also true that for us, we continue to broaden our payment solutions and our service offerings and really that comes to that part of your question. I think what matters here at what matters is that we can help our customers run their business in a better way. So what are they trying to do and our solutions helping data inside cyber security certainly matter. The fact that cards isn't the best answer to all payments, but there is also a multi-rail set of solutions that customers are looking for. We have all of that.
So that puts us in a differentiated position. We're trying not to sell product, but really come in with solutions through our sales force that's working for us. That's pretty clear now we have to be financially competitive that always matters. But if you can have a conversation around the top line outcome with your customer vis-a-vis the cost of payments that changes the dialogue quite significantly.
So when I talk to CEOs and the customer side, that's what they're really interested in. So that's working on. That's a lot of value that we bring and we price for that. So we continue to price for that. You've heard us mention pricing changes in the last quarter. So we do that wherever we see the opportunity. Tokenization is a great example. We've invested in tokenization and weak needed to scale it up.
Now we have an opportunity to build a whole set of services on top of the basic token that we can price for it and we feel we should price for because they drive a better outcome in terms of better approval rates, lower fraud and so forth for our customers.
So I think we're well positioned in a very competitive market, and we're going to continue to trying to keep that edge.

Operator

Dave Koning, Baird.

Dave Koning

Yes, hey, guys. Thank you. And I guess my question on the cross border line. You've had a very nice positive divergence between for our constant currency revenues and constant currency volumes. This quarter was about 4% and I think for [13] quarters in a row, it's been nicely positive in prior years. It was pretty close to neutral sometimes even though negative. Why does it continue to be positive in how should we think of that going forward? Is that going to stay that nice positive divergence?

Sachin Mehra

Yes, David. So look, I mean, it's like I said, right, it's been driven by favorable mix and a little bit of pricing in the second quarter. The reality is that the mix piece is really what's been actually causing the positive divergence you're talking about as you are aware, our cross-border volumes are real and we show you the metrics on this.
We have increased Europe cross-border and then we have other cross-border. In Europe is lower yielding, other cross-border is high yielding for us. And so as you think about this, if the other cross-border volumes are growing at a high faster pace than intra Europe, you tend to see that positive divergence.
I would remind you, during COVID, we actually had the reverse phenomenon take place. We had into Europe growing faster than other cross-border, and you actually had the reverse happening, which is you had cross-border assessments growing at a slower clip than the actual underlying driver growth. So that's really what we mean by mix there. And then, of course, there's pricing, which we do back to the point, Michael was making around the value we deliver, which is another contributing factor in the second quarter.

Operator

Sanjay Sakhrani, KBW.

Sanjay Sakhrani

Thanks, good morning. And I was wondering such and could you just talk about the share gain benefits in the quarter and maybe what's on the horizon? I think you mentioned in the context of incentives and then just specific to some of the revenue items or revenue lines? When I look at metrics assessment revenue that kind of slowed from a trend line that we've seen that much stronger. I think some of it was FX, but was there anything else similar for other revenues, those were down a little bit. I know it's smaller line, but any callouts there?

Sachin Mehra

So I'll take. I think there's three questions there. So I mean, I think all three of them, which is on domestic assessments, it's the delta you're seeing in terms of domestic assessments, growing at 7% compared to GDP, growing at 9% is primarily been driven by mix. I need to remind everybody that GDV and domestic assessments is not a perfect proxy just because in domestic assessments, there's a whole bunch of other stuff, which is there.
You've got card fees, you got a bunch of stuff going on in there. So there's always going to be some level of pain, some difference in terms of growth rates there. But what we like to call out is what are the salient features of factors which are causing for that for the different growth rates between domestic assessments and GDV growth.
And when I talk about mix there, just so that you're clear, I mean, the mix could come from a whole host of things. So for example, our GDV in foods, our cross-border volumes, our domestic assessments do not include cross-border related revenues and so what you've got is with GDV growing, you don't have the associated cross-border revenue, which is there which would come in in terms of domestic assessments.
You could also have changes in geographic mix, you've got high-yielding and low-yielding regions and depending on the growth rate of regions, you might see that does come to the positive or the negative there. So that, Sanjay, is the domestic assessment fees
On the other arm, other payment network revenues, again, you look, I mean this is not something which we are necessarily focused in the business. That is it's one of the things which is required to run the network. It's a range of things from licensing fees, implementation fees, franchise fees, things of that sort and those things move around.
So I wouldn't get too fussed about the fact that in one quarter it grows at an exceptional pace in the next quarter is actually going the opposite direction just because first, the number is fairly small. And second, is there a whole host of reasons why that might happen? For example, as customers get more compliant, you might have meant less than the national compliance fees that you're charging them. So that's a good thing for the network by the way over the long term.
And then the last point you asked actually the first question you asked, which was around share gain benefits in the quarter. The one I called out really was around on the debit conversion in the US. And we previously announced this week we announced our win of the debit portfolio from citizens. We are super pleased with our relationship with citizens that conversion's going exceptionally well.
That conversion for the most part was complete in the second quarter. So we had new cards which are sent out to customers. So there's a little bit of that, which is there again. But what I wanted to share was that when we're looking at drivers, right between Q2 and the first four weeks of July or for that matter between Q1 and Q2.
When you take out the impact of the share wins, there's still underlying stability in terms of consumer spending trends. On share gains, just so that you've got the overall picture right. So we've talked a little bit about that because we had the Webster when you've got a whole bunch of stuff which will roll on. And those will be multiyear kind of conversions, which will come through in particular, I'd call out UniCredit. So in UniCredit, we had announced this deal win in 2023. Well, that conversions underway. That will be over a multiyear kind of timeframe again.
Deutsche Bank, again, the conversions underway. It will take a couple of years before you actually start to see the completion of that or so all of these things will play out over time.

Operator

Tien-Tsin Huang

Tien-Tsin Huang

Thank you. Good results here. Just on the value-added services and solutions that accelerated. I know there's an easy comp from the first quarter, but any interesting trends in terms of composition of growth within VAS and any call us for a second half of the year in terms of best growth?

Michael Miebach

Tien-Tsin, good to hear you. On 19% a strong growth rate for sure. On the usual suspects in terms of driving for growth is due to payments related part of this, particularly on the cybersecurity side. So that continues to grow and grow very well. So there's more need for more fraud solutions and that's one thing. And on the data analytics side, we continue to see great interest, as I laid out in remarks, test-and-learn, for example. So give you a number of examples how our customers are trying to figure out and what kind of campaigns makes sense or how can they serve their customers better and so forth. So no particular change there.
I think the fundamental tried a trend that I touched on earlier in an earlier response, more infusion of AI across the Board to make these products scale better and be more effective, that's certainly a trend. Overall, the whole mix of this is largely unchanged. We continue to invest in newer aspects of our services portfolio, particularly in the open banking side, I talked through a couple of use cases here. They still have to scale up in a significant way, but we feel very well positioned in Europe, Australia and the US, on the Open Banking side.
So good to see. We said in the first quarter where we had a slightly lower growth rate. We're going to be higher quarter every single quarter for the rest of this year, and that is playing out as predicted. And so occasionally, you have tougher comps and so forth. But this is a pretty solid trend for us.

Operator

Dan Dolev, Mizuho.

Dan Dolev

Hello, guys, morning. Thanks for taking my question. Last quarter, I believe you gave us a cadence on rebates and incentives growing slower in the second half versus the first half. Can you maybe give us a little bit a little bit more color onto the cadence of rebates and incentives this year and great results again. Thank you.

Sachin Mehra

Hi, Dan. Yes, last quarter I shared with you at a point of view around what we thought rebates and incentives would look like in the second quarter. And what we had said is it would be flat to slightly lower for the second quarter. In the second quarter rebates and Incentives came in lower than the first quarter are lower than even what we had expected for the reasons which I mentioned earlier, which is the timing of deal activity.
And then today I shared with you what I think will be rebates and incentives in the third quarter, which we expect that rebates and incentives as a percentage of payment network assessments will be higher in the third quarter compared to the second quarter. We really haven't shared much niche of rebates and incentives beyond that. And so really, just for clarification, that's what I want to share with you.

Operator

Andrew Jeffrey, William Blair.

Andrew Jeffrey

Hi, good morning. Thanks for taking the question. Michael, I wanted to ask about open banking and particularly in the US. We're hearing some conflicting things about the price of real-time payments, interchange and real-time payments, I guess, versus our debit, especially Durbin, regulated debit and perhaps the enthusiasm on consumers' behalf to pay from their bank accounts, but maybe some chargeback and customer service dispute issues that banks are facing.
I just wonder if you could maybe parse some of the puts and takes and give an outlook on the future of open banking, particularly in the US.

Michael Miebach

All right. So on interesting, you call it out. I just mentioned that just before and I said it's not quite where I think most market participants would have wished open banking got to over the years. And that applies, I think, globally. Here in the United States when I look at open banking with a focus on it's on your particular services set of actions around account opening or account linking or data aggregation and things like that.
If we see good momentum. I talked about it earlier when it comes to payments, the payments side of open banking, yes, it's still true that the value that the card ecosystem brings a significant and you made a point on chargebacks that is not comfortable if there's a problem and then there is no established way to get your money back on cards, we do that.
The same is for fraud protection. I think we know exactly how that works in the world of card payments. It's not so clear yet in the world of account-to-account payments. Nevertheless, it's our role as an ecosystem custodians to understand where emerging technologies are going, whereas customer interest going that consumers want to use our data footprint to get better services will absolutely.
First of all, that starts with data protection and data consent management, which we invest a lot of energy on, but then say, all right, how could this kind of technology use. So we do invest in it, which is why we called out open banking as an element of kind of future oriented activity for us in investment what we currently see are those use cases that I mentioned, they are the most near term opportunity and this is around lending.
It's around account opening account linking asset verification and more recently around data aggregation. Our smart subscription solution is one example of that. That works really well for consumers. If you've got 15 subscriptions and you see them in one place and it makes a real difference. So I think it's evolving. It's evolving and we're at the forefront of evolving it, but we're also trying to make sure that it's understood that the value we bring through cards, it is really unparalleled.

Operator

Fahed Kunwar, Redburn Atlantic.

Fahed Kunwar

Hi, both. Thanks for taking the question. And just wanted to ask about profitability. Obviously, there's a lot of various moving parts with VAS growing very nicely cross border and how you think about margin expansion, though versus kind of investing in all of these various product areas in distribution, the products themselves, should we expect margins to carry on expanding as they happen? Or will there be continued areas of investment that you think will kind of drive expenses higher from here. Thanks.

Sachin Mehra

Hi, Fahed. So couple of thoughts here view, which is number one, I think we mentioned in the past and this philosophy of ours remains unchanged, which is we aspire to deliver positive operating leverage, which is showing and driving that revenue growth at a faster clip than operating expense growth over the long term.
So that's really what the aspiration is for how we're running the business. The most important thing to remember is we're running the business for top line growth and bottom line growth. And in order to do that, we keep a very close eye on making investments to drive growth in the near term, medium term and long term.
So yes, we are investing in things which will drive growth in the near medium and long term. That is super essential from our perspective, not only because that's what our shareholders desire, but also because we believe the set of opportunities in front of us are sizable. And so for us to leave those opportunities, underinvestment would be a bad move for the long-term health of our company. So we will continue to invest in the business.
We will do that with the strategic priorities which Michael has laid out with that focus. We will constantly look at those priorities to see how the market conditions are evolving and we will pivot as necessary. But the general kind of flow is, yes, we will continue to invest in the growth of our business because we see tremendous opportunity on a going-forward basis.

Operator

Paul Golding, Macquarie Capital.

Paul Golding

Thanks so much for taking the question. I wanted to ask about AI in a fraud sense. I know that you're incorporating AI into your products and presumably as part of VAS to combat fraud, just wanted to ask what you're seeing in terms of the offense of fraud using AI and how that might accelerate the adoption of your new products and your investment in new products around AI to combat that. Thank you.

Michael Miebach

Right. So you know, with rapid digitization around the world, we've seen a lot of new entrants into the ecosystem. A lot of small businesses have digitized post COVID. As you see in emerging markets, a lot of people for the first time using digital solutions. So from digitalization is growing, vulnerabilities are growing and technology in the hands of fraudsters is also evolving.
So this makes for an environment where players like ourselves who oversee an ecosystem of franchise between banks and merchants and for the benefit of the end consumer need to really invest in safety and security. We've done that, and AI isn't actually anything new for us. So we've for the better part of a decade we've been using AI this is not a discrete machine learning technology to really predict where is the next problem and try and analyze data of that we have and the data that our customers have to prevent fraud. So that's been very successful.
And as far as generative AI is concerned, our evolving technology here, the so there's obviously an opportunity for us to understand more data in a quicker way. And we have used that initially to you to train our AI models are discriminate AI models using generative AI to create artificial dataset.
So that was the first step. And then we went into putting out a new set of product, I mentioned Decision Intelligence grow Decision Intelligence is a product that we've had for a long time machine learning driven that was predicting fraud outcomes and now be using more data sets to that are externally available, stolen card data and so forth.
To understand where upfront vulnerabilities might be. The lift is tremendous, 20% we see in terms of its effectiveness out of that product. So we start to see demand for the whole reason of the vulnerabilities that I talked about. So we expect continued growth. We also expect the fraudsters to come up with new techniques themselves. We need to continue to evolve.
So I believe that the penetration of generative AI and fraud and cybersecurity product set will only expand. Now I talked a lot about transaction related fraud vectors around cybersecurity, obviously much broader his prediction of fraud. It is what's the general cybersecurity posture of a company, our risk recon capabilities and so forth. We tried to cover the whole ecosystem and become a true strategic partner of our customers.
So if anything, this whole space is going to grow further and you're going to continue to see us invest in that area.

Devin Corr

We have time for one more question, Julianna

Operator

Andrew Schmidt, Citi.

Andrew Schmidt

Hi, Michael. Hi, Sachin. Thanks squeezing me. And I just wanted to double click on macro viewpoint. If I hear the message correctly, it sounds like macro is mixed, but consumer spending trends are stable for the most part and if you could just double-click on that and let us know if there's any divergence amongst different consumer demographics and correspondingly what that might mean for debit versus credit transaction sizes anything like that, that'd be super helpful. Thanks so much.

Michael Miebach

Right. So at the outset of my prepared remarks, I talked about the puts and takes on inflation on prices. On the bottom line there is that for now because the consumer is supported and that's pretty much irrelevant of income cohort is supported by a strong labor market. So that's fundamentally true, and that's fundamentally true around the world.
It's in aggregate, but it's not a uniform answer. The picture obviously plays out very differently, country by country. We have a very, very global business. So we look at what is the Central Bank of Japan doing. And we saw that today to raise rates. And in Europe, you see and Germany came through with actually got a small recession in the past quarter.
So there's a lot of back and forth at that fundamental point that the consumer is supported by a strong labor market and some wage growth. I think that that's true and we don't expect any dramatic changes on that front. And that's why we remain positive about the about the outlook you.
Peel the onion a bit further, you look into different cohorts. And it's pretty clear that when it comes to higher-income versus lower-income, if you spend on an expensive trip on experiences, during the summer, whatever you're trying to do, you have more income than you can do more of that and you have less income that you can do less of that.
What we generally see though, as a function of the digital economy, the higher end consumer, but certainly the middle income and lower income consumer is much more empowered and powered by having more data and the ability to look for a better deal.
And that's what everybody is trying to do to make things add up and work for them that they still want to do that trip. So all of that together overall adds up to a picture that we feel are pretty good, at least about our side of the business. And why do I say that? Because inflation and prices cut across card and non-card it.
But we are obviously particularly our position and we're well positioned in Ocado target categories. We've seen these cycles go on post COVID have a lot of travel that's highly targeted. So you saw that rise and you know, right now, you see a lot of inflation in auto insurance and rent, that's not necessarily so much carded. So these are all the things that we think through comes back to down to the fundamental point in aggregate, we see healthy consumer spending and don't see that changing in the short term.

Sachin Mehra

And Andrew, I'll just add one point and Michael touched on this before, which is at the end of the day. Our diversified business model lends really well in different environments because at the end of the day rate, we are geographically diversified. We've got great diversification across seven quarters. We've got good diversification around channels of spend.
So the reality is when these puts-and-takes take place in certain sectors of the economy, $1 spent on one sector versus $1 spent on the other sector, we're relatively indifferent as long as it's carded spend. And that diversification really helps our business the way we are actually structured, which has not happened by chance, it's happened by design. And so that's something which is super important for us.

Devin Corr

Thank you. On that I'll hand it back to Michael for any closing comments.

Michael Miebach

All right. Thanks Devin. So everybody are passed on. We talked about the momentum and a good quarter. All of this obviously only happens because it takes the hard work of our colleagues at MasterCard's, I thank them.
And I also want to thank you for your support of MasterCard. We're looking forward to speak to you in a quarter from now and hopefully see some of you at our Investor Day Community Meeting on November 13 in New York. Thank you very much.

Operator

Concludes today's conference call. Thank you for your participation. You may now disconnect.