MA
#First of all, when you look at our overall pricing in Europe versus Visa Europe, you are absolutely right that our pricing is higher when you look at it all accumulated together.
It's not quite at the level where our global pricing is; it's lower because, as you know, in every geography and in the country it depends in terms of whether we just were to be able to license our brands so that we get the volume assessment, and whether or not we actually get see the transaction from a processing point of view.
All of you guys know, in Europe we process about 40% of our transactions only.
And lastly, in terms of what kind of services we actually delivering to the client.
When you look at the largest client, I have to believe we have very similar pricing to Visa.
It might be different in terms of when you look at the medium and then the smaller clients.
Now having said that, what Javier and his team have done in a really great way is, using the global capability of MasterCard with all the products and services that we have around the globe, to be bringing that in a seamless fashion to our European clients.
And that's what they really like to see.
This is what did not happen with our competitor, given that there were two different companies.
And given that we are generally the smaller company, I always have to say that we have to put more points on the board.
That means we have to rise higher in order to make sure that the customer gets that differentiated product and service that they are seeking in order to basically address their [pain] points and have fantastic products for their consumers.
That's how our team is winning every day in the market.
And your question on VocaLink ---+ I think you should remember ---+ I said VocaLink is not about competing with Visa Europe, by the way.
VocaLink is about us wanting to be real players in every aspect of electronic payments and the way they are developing.
And the reality is that today across the world 50% of payments ---+ not just retail ---+ are ACH.
But within that, what is really interesting is the opportunity to grow Fast ACH and VocaLink is one of the few players that has not only an outstanding Fast ACH platform implemented in the UK but also implemented in other countries.
And most of ACH tends to be local.
VocaLink's demonstrated an ability to take that Fast ACH platform and make it globally adaptable.
And you can imagine the possibilities of that over the next decade.
So I really want you to think about us doing the VocaLink transaction.
If it all works out, once we are through all of the regulatory steps, our strategic intent is to play across all aspects of these payment rails ---+ for individual consumer to merchant payments, but also B2B, P2P, and government payment flows.
And that's how we see our footprint growing over the years.
<UNK>, excellent question.
Listen, there are three factors that are contributing to the deceleration on the growth rate for the second half, which would land us pretty much in the same place as I said at the beginning of year, which is the low double-digit number.
The first one is, we have anniversaried the acquisition of APT, right.
And we said all along it was about 1 percentage point.
So that's going to come out.
Secondly ---+ yes, we do have on USA credit portfolio, it's rolling off very fast.
So we will have a more significant impact in the third as well as in the fourth quarter.
And then, thirdly you just heard us, that we actually we renewed American Airlines and starting with the third quarter we will have more rebates and incentives coming into that line item.
So I don't have any indigestion right now, just to be clear.
We've been digesting the other ones in the past and it has actually helped us build out a lot of capabilities.
It is not a coincidence that our other revenue line is growing at the rate it is been growing for quite a few quarters.
It is not a coincidence.
And remember, after a year, when you anniversary an acquisition, it comes into the base.
After two years the entire P&L comes into our base.
So we're quite disciplined about tracking ourselves against it.
Some of the acquisitions do better than what we thought we could do with them; some of them don't do as well.
That's just the reality of what we are trying to go through.
But in the process we have built out a decent capability in data analytics and information services.
We've added to our capability in loyalty and rewards.
We've added to our capability in technology and connectivity for eCommerce and gateways, as well as to connect with bank accounts around the world, even before the VocaLink acquisition.
So that's what we are trying to do.
I honestly, at any point of any time in any quarter, I think <UNK> and her team are working on a number of possible acquisitions.
What tends to happen is, 2%, 5%, 6% of them show up at any level of second level analysis.
By the time we are done, one out of many gets done.
So it is tough for me to tell you that I have two next quarter or three in the fourth quarter ---+ I'm not going to do all of that.
I'm just focused on, first of all, getting the ones we are already doing to keep doing well.
Second, you've got to work really hard between now and the next few months to get the VocaLink acquisition through all the processes of regulatory approval, and get our Company to be an excellent player in the ACH and Fast ACH game ---+ first with a responsibility to the UK, because we are going to be a large player there in terms of this.
But also with the ability to see how we take it elsewhere.
Our priorities remain in the area of loyalty and rewards, in the area of data analytics and information services, in the area of safety and security.
Some degree, all this depends on us being able to see more transactions, to be able to see and handle and touch more transactions.
Processing assets are very helpful in that space, so we tend to play through these as we go along.
Honestly, I think <UNK> has done great working with me, because she's looking at a few deals all the time.
That is probably not a great sartorial comment, but that is true.
Jim, I do have to say ---+ and I just came back from another trip in Europe ---+ there have been quite a bit of changes on the merchant acceptance landscape because of the lower interchange fees.
And, as you might remember, all during the last couple of years leading up to the changes that came in last December of 2015, we were hoping that, that would actually change the view of some of the merchants to be wanting to accept card payments.
Because, quite frankly, [no] card payments are a heck of a lot cheaper than what you have to do with cash.
So we are seeing fairly large scale changes coming through with some very large merchants.
So that's what we're seeing first.
So for instance, a grocery store like Aldi, which is a very gruffy discount store ---+ they don't even have shelves in there in their store, you grab actually goods out of the boxes that they just rip open ---+ they finally are opening or have opened card payments.
And there are a number of those large retailers who are now willing to do it, and we see it in pretty much in every European country.
Where we haven't seen yet as much movement is on the smaller merchants; and that's obviously where there's a lot of work that we still have to do.
And we are hoping that, that will continue to allow us to change the secular trend in Europe, which, outside of the UK ---+ the UK a lot of it is already electronified ---+ but in the rest of Europe, in the continent, I always call it that this is still an emerging country for us.
That will help us on the secular trend from cash and check to electronic forms of payment and will help our numbers over time.
Yes.
I think all of these changes in the regulation actually do help us over time to be doing more processing in Europe.
As I just said to a prior question is, we do about 40% ---+ about 40% of MasterCard transactions in Europe are being processed by our own network.
Now with the separation of the scheme and the switching unit, our processing unit ---+ that processing unit is actually free to go in the differentiated way to the market and to be hopefully getting even more switching opportunity from all of the local players, be it the banks or be it the merchants.
And I think the merchant routing rules does play into that.
Just remember, when you go back to SEPA, that was implemented back in January 1, 2008 ---+ it opened the kimono a little bit and we were able to move up process transactions from ---+ I think, <UNK>, it was in the mid-teens or ---+ mid-20s, I think; low 20s, something like that ---+ going up to the 40% range.
I think this is just the next click from a regulatory point of view which allows us to work with those kind of companies to move up more from a transaction basis.
Just to add to what I said to <UNK> a little while ago on services, why does all this matter to us.
Of course there is a revenue impact in the beginning when you process more transactions.
The most important thing is, all our services are built off our core payments capability.
We're not building services that don't connect back to our core payments.
Those core payments require us to be able to see transactions, whether they be debit, credit, prepaid, or commercial transactions.
That's why VocaLink is also important.
The more we see transactions, the more we can do with them; and the more we can help build yet another strong revenue stream for this Company for the next decade.
That's what we are trying to do.
The last one first: I can tell you that I'm not clear I understand enough about what exclusivity Visa signed with PayPal because we are not encountering any difficulty while talking to PayPal in that space.
So I don't know exactly what the nature of their exclusivity is.
You will have to ask PayPal or Visa.
Because I am pretty clear that we've got enough good conversations going on not just now, but for a little while.
Obviously, there's stress between these conversations, right.
Our digital wallet operator rules, when they went into place in 2013, were not replicated by others.
As well, we made our position clear that time that we wanted to have a clear, transparent, fair methodology in this digital wallet development.
It is been sometimes good, sometimes stressful, but constructive.
And my view always has been that, if PayPal wants to ---+ or anybody else like that, a digital wallet operator ---+ wants to use our rails of credit and debit to be able to build their own model, then they cannot just use our rails when it suits them and use another rail to go around us and the banks where it suits them.
There's got to be a more constructive partnership.
So yes, we have a constructive partnership on co-branded card ---+ that, yes, we do.
We've had it earlier, we've renewed it again literally yesterday.
So that tells you that, that partnership has depth beyond one signature or one contract with somebody or the other.
But also, we've all been discussing the whole aspect of how this digital wallet operator system will work.
Now, if PayPal's methodology of operation, from what I've learned from their announcement with Visa ---+ if they reflect what our digital wallet operator policies put into place ---+ yes, that any fee we make from them will go away.
Because the fee is not meant to be there if they are doing what's in the policy.
But I can tell you that fee is de minimis.
That's not ---+ we are not trying to use a fee to get them to change their policy.
The fee was used to manage through all the difficulties that their policies were creating in terms of data and transaction management.
So let's just be clear about what this is all about.
This is not about forcing them to do anything, this is about our perspective of how the marketplace should develop transparently and openly to merchants, to consumers, to banks, to PayPal, and to all of us.
That's what we're trying to build.
So I think it is a constructive dialogue.
I think PayPal is very much a part of that dialogue.
I think this could all end up in a good way for the industry as a whole ---+ for banks, as well as for networks, as well as for PayPal.
Will there be changes in the dynamics or the economics for a bank, works for the network, works for PayPal.
Everything to do with digital changes those economics.
But that doesn't mean they are bad; you're just taking out other transactions and growing in volume as well.
So I have a gently positive view about where this is going.
By the way, I'm not saying there aren't hurdles along the way, there aren't road blocks along the way.
Remember, we've been talking to them for two, three years; we don't yet have an announcement to tell you of the kind of transaction that Visa has.
So everybody has their own ways of approaching transactions and has their own competitive dynamic and their own way of thinking about where the strategy is going.
That's actually okay in an open competitive market.
It is a good thing.
So let me take the second question first; that way I remember it better.
So the second question ---+ honestly litigation is complicated enough without trying to broaden things.
When you already have an agreement between tens of banks, Visa, MasterCard, tons of people on the other end ---+ it doesn't pay to start broadening things.
Who knows how this will go, I cannot predict, because there's other players who all have to come to an agreement, but we will see.
I think we made real progress and we had a good deal on the ground, which a previous judge had signed off on.
But you know what.
Courts decide what they do, and while we could be disappointed, we have to abide by it.
So we are going to find our way through that, working with other folks.
I don't think I can tell you which way that will get resolved.
I won't even like to speculate on that.
The part about PayPal ---+ I want to make sure you guys don't get focused on some stage wallet fee, because that's actually not what this is about.
The fee is de minimis.
This is not a large fee either for us, or for PayPal, by the way.
That's not what this is about.
It is about a set of rules and policies around what the digital wallet operator rules are.
That's what this is.
Could PayPal comply with those rules without some master agreement with us.
Yes.
They could.
But we already have agreements with them on a number of things and they are not the only digital wallet operator out there who wants to work closer with banks and networks and merchants.
My view of this is, if we can collaborate together and we can make this easier for a consumer in the process, and for a merchant in the process, that's a good thing.
We should be doing it.
What did you say ---+ 25%.
From an other revenue point of view you, do have the APT acquisition in there.
Most of the revenue for the APT acquisition is actually in that particular line item.
But I did call out actually not only APT; I called out Advisors, so we actually had a really nice increase in revenue from an Advisor.
And this is in our consulting business.
And then, secondly I also called out our safety and security products, which are our fraud products, and also that had a really nice increase.
First of all I'm not going to give you individual line items.
But I have said over the last few quarters that these services businesses are starting to produce the kind of growth as our core business.
And actually, when you look at these line items, they are their producing a little bit higher than our core businesses.
So you should be seeing that continuing in some fashion.
Okay, guys, thank you for all your questions and I will leave you with just a couple of closing thoughts.
Picking up where I started, our business continues to perform well.
You see that reflected in our strong transaction and revenue growth.
We are executing well against that digital strategy; our services are continuing to help us differentiate and win new deals.
We hope that many of you can join us at our upcoming Investor Day in New York.
I think we will be able to show you the opportunity to hear about our strategic focus areas; but also, most importantly, give you a chance to experience the various ways we are working to create a better consumer experience and shape the future of payments.
Give you a chance to touch and feel what we are up to.
Thank you for your continued support of the Company.
Thank you for joining us today.
