Mastercard Incorporated (MA) Q1 2022 Earnings Call Transcript

Mastercard Incorporated  (NYSE: MA) Q1 2022 earnings call dated Apr. 28, 2022

Corporate Participants:

Warren Kneeshaw — Head of Investor Relations

Michael Miebach — Chief Executive Officer

Sachin Mehra — Chief Financial Officer

Analysts:

Sanjay Sakhrani — KBW — Analyst

Harshita Rawat — Bernstein — Analyst

Rayna Kumar — UBS — Analyst

Darrin Peller — Wolfe Research — Analyst

Lisa Ellis — MoffettNathanson — Analyst

Tien-Tsin Huang — JPMorgan — Analyst

David Togut — Evercore ISI — Analyst

Bryan Keane — Deutsche Bank — Analyst

Ramsey El-Assal — Barclays — Analyst

Dan Dolev — Mizuho — Analyst

Andrew Jeffrey — Truist Securities — Analyst

George Mihalos — Cowen — Analyst

Jason Kupferberg — Bank of America — Analyst

Presentation:

Operator

Good day and thank you for standing by. Welcome to the First Quarter 2022 Mastercard Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions]

I would now like to hand the conference over to your speaker today Mr. Warren Kneeshaw, Head of Investor Relations. Please, go ahead.

Warren Kneeshaw — Head of Investor Relations

Thank you, Jameria. Good morning, everyone and thank you for joining us for our first 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 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 — Chief Executive Officer

Thank you, Warren. Good morning, everyone. Russia’s invasion of Ukraine marked a somber start to 2022, as war returned to Europe for the first time in decades. Given these extraordinary circumstances, we decided to suspend our business operations in Russia.

We did not take this decision lightly, given that Mastercard has operated in Russia for more than 25 years. We are now focused on the orderly suspension of business operations in Russia and supporting the well-being of our employees and their families across the whole region.

Even in the context of this challenging geopolitical environment, we’re off to a strong start in 2022. We delivered robust revenue and earnings growth with further improvement in our underlying operating metrics, notably in cross-border travel.

Quarter one adjusted net revenues were up 27% and adjusted operating income up 40% versus a year ago on a non-GAAP currency neutral basis. On the macroeconomic front, consumer spending remains strong, particularly as economies across the globe continue to reopen and pandemic-related restrictions are lifted.

Labor markets are firm, with low unemployment rates and rising wages. Weighing against this healthy backdrop are a number of factors that they are monitoring, including inflationary pressures, supply chain constraints geopolitical uncertainties and COVID with infection rates. We’re monitoring these developments including the fiscal, monitory, public health care and other policy responses.

Let’s look at this from a geographic standpoint. US retail spending remains healthy, aided in part by the buildup of excess savings during the pandemic. According to our quarter one spending pulse report which is based on all payment types, including cash and check, US retail sales ex-auto, ex-gas were up 4.7% versus a year ago.

In Europe, spending trends are positive, although the invasion of Ukraine has introduced risks to economic growth looking ahead. Growth in Latin America continues to moderate, following a strong rebound in 2021.

Asia has generally lagged the recovery of other regions. We’re seeing several countries relaxing COVID-related restrictions, like others are facing stronger measures. Asia continues to have significant upside potential.

Looking at Mastercard spending trends, we continue to see strong growth. Domestic switched volumes or strength across a broad range of sectors including retail, utilities and professional spend. We also saw strong growth in travel and entertainment including spending with airlines, travel agencies, lodging and restaurants.

In terms of cross-border where the growth was particularly strong the recovery continued this quarter led by travel. Cross-border travel reached 2019 levels as of March for the first time since the pandemic began. Geographically, the cross-border recovery has been broad-based with improvement across all regions.

Cross-border card not present ex-travel continues to be strong. Our strategy is designed to enable and capitalize on these trends and executing against our three key strategic priorities: one expanding in payments, two extending our services and three embracing new networks. Here is an update on how we’re progressing against each of those.

First, we’re expanding in payments by continuing to grow card payments and leaning into innovation and new payment technologies to catch-up other prioritized payment flows. We’re driving growth in comp payments through new consumer, small business, co-brand and fintech wins.

On the consumer and small business front, I’m excited to announce an enhanced partnership with Wells Fargo which includes several new elements. Wells Fargo will now issue Mastercard small business credit cards and for the first time in almost a decade, consumer proprietary and co-brand credit products.

We’re also excited to announce that we have deepened our relationship with our long-standing partner, Capital One. In addition to renewing our existing business, we will also be their issuing network for a larger number of new originations across both their consumer and small business products.

Further on the small business front, we are expanding our small business portfolio with the First National Bank of Omaha, also partnering with the bank and Verizon to launch a new Verizon business Mastercard targeting Verizon’s small business customers.

In total, these partnerships will help us continue growing our U.S. small business market share. Outside the U.S. we’re driving commercial card growth through new partnerships with leading B2B tech companies like Clara.

We will be flipping Clara’s business portfolio in Mexico to MasterCard and are working for them to launch new programs in five additional markets across Latin America.

Turning to co-brands, we’ve made substantial progress to ensure we are well positioned to capitalize on the return of travel. We have renewed and expanded our exclusive partnership with American Airlines, one of the largest co-brand programs in the United States.

American will continue to leverage our capabilities including SessionM and will participate in our Staff cast program to identify in tech partners who can help drive innovation across the airline. And in the U.K. we have launched two new Barclaycard Avios cards with Barclays and International Airlines Group loyalty.

Outside of travel we’ve expanded our relationships with leading retailers including a new co-brand program with Victoria’s Secret and a renewal of our Ulta Beauty co-brand offering both in partnership with Red Financial.

We’re also continuing to advance our leadership in the digital and fintech space, through new product launches and new partnerships. We’re partnering with BCA Digital, the digital banking arm of the largest private bank in Indonesia to launch a digital-first Mastercard debit product catering to millennials.

And in Latin America we signed a regional partnership with global payment processing platform Galileo. The partnership establishes Mastercard as Galileo preferred partner across several markets in Latin America and they will work to integrate and distribute several of our products and services to help their fintech customers.

In addition to driving new wins, we are leveraging our services capabilities to execute against many of the large portfolio migrations that are in flight. In Europe, our consulting teams are engaging with our partners at Santander, NatWest and Deutsche Bank to ensure a smooth and timely transition and to identify opportunities to optimize those portfolios.

Santander is the bulk of the way through a nine million card migration and we expected to be complete by early next year, while NatWest commenced the issuance of Mastercard at the end of last year and plans to migrate their entire 16 million card portfolio by the middle of 2023. Deutsche Bank’s $10 million consumer and commercial credit and debit cards will be reissued as Mastercard-branded cards with a credit migration starting in quarter four of this year and the debit migration commencing early next year.

Similarly our team in the US is supporting key migrations including Gap Inc., Merrick Bank and First Interstate Bank. All the migrations are on track with Gap Inc. scheduled to be completed this summer. We’re also expanding in payments by leading entertainment innovation in areas like installments and cryptocurrencies. Here are a few examples. Our Openbit [Phonetic] Mastercard installment program has been very well received and is progressing according to plan. Remember Mastercard installment is built into our network making by Buy Now Pay Later available to millions of consumers and merchants worldwide.

We continue to add a wide array of new lender and fintech partners including Amount, Deserve, i2c, Lithic and Southern Bank. In this quarter, we announced several merchant partners who are excited to support MasterCard installments including Bass Pro Shops and Cabela’s, H&R Block, Saks Fifth Avenue and Walgreens. US customers will begin offering MasterCard installments to consumers this quarter and international expansion is planned for later this year.

And we continue to build solutions to support the crypto economy with a principled approach focused on three key areas. First, helping consumers easily and safely purchase cryptocurrencies and NFTs. In addition we are enabling consumers to spend their crypto holdings on card and catching up their crypto wallets via MasterCard Send.

Second, providing identity, cyber and consulting services for market participants, including engaging with central banks as they design and develop central bank digital currencies.

Third, preparing our core network to directly support digital currencies.

Making substantial progress in each of these areas. This quarter the Gemini Mastercard which offers crypto rewards went live across the US. We also partner with Nexo to launch a new crypto card in Europe, one that uses consumers’ digital assets as collateral to back their credit line. And we established several other international cryptocard partnerships including banks in Europe and Abra, Invesco and Bello in Latin America. On the crypto services front, MercadoLibre will be leveraging psychotraces AI and cyber capabilities to bring security and trust to their digital wallet in Brazil.

Now turning to our second strategic priority services, as I’ve noted before, our services support and differentiate our core products and have played a critical role enabling many of the wins I mentioned. We also continue to extend our services across multiple growth vectors through new payment platform capabilities, new verticals and new use cases.

Here are a few examples. First, earlier this month we completed our acquisition of Dynamic Yield. Now that the transaction is closed, we will combine Dynamic Yield personalization platform and decision engine within our SessionM loyalty platform and our test-and-learn experimentation software. The result will be a truly differentiated consumer engagement and loyalty hub for our customers.

Second, we announced that we’re expanding our consulting services into three new practices dedicated to open banking and open data, crypto and digital currencies and ESG. We’ve seen increased customer demand and a growing portfolio of successful engagements in these areas. For example, we are supporting Handelsbanken and Intesa Sanpaolo design programs that advance their ESG priorities. We’re helping Wirex explore innovations in crypto.

And finally, we’re expanding the breadth of our customer base and deploying our capabilities to solve for a wider range of use cases. For example, we deployed our Test & Learn capabilities to help tailored brands, optimize retail operations and improve marketing efficiency for the leading menswear brands. And deployed our FX capabilities with Santander in Spain to help streamline dispute resolutions and prove the customer experience.

Beyond expanding in payments and extending and services, our third key priority area is embracing new networks. Our current focus is on two areas: open banking and digital identity. Our open banking and multi-rail strategies are converging enabling us to leverage our unique set of assets to address new flows in verticals, like rent payments.

For rent payments, the risk of ACH returns due to insufficient funds is a significant pain point in both renters and landlords. To address this challenge, we’re launching a new suite of smart payment decisioning tools. These solutions use Finicity’s open banking capabilities to recommend the optimal payment day and payment rail for each transaction based on cost, speed and risk.

The Bill Payment Alliance, a collection of more than two million rental homes will be one of the first fintech partners to launch these capabilities. We plan to expand these solutions across a broad range of bill payment verticals.

In addition, we continue to expand our open banking reach with Finicity and Aiia, by penetrating new verticals and establishing new partnerships. We continue to enhance our capabilities at the mortgage vertical and are now expanding into the auto lending vertical.

We’re leading the way in terms of provisioning permission-based income, employment and asset verification information and we’ve partnered with Stripe, who will be using our open banking capabilities for a variety of use cases.

We’re also extending our open banking reach through data access agreements with products like Fiserv which will enable direct API connectivity to thousands of FIs in the United States.

In the digital identity space, Ekata continued its strong performance in quarter one, securing deals with financial services companies including MoneyLine and several leading Buy Now Pay Later providers.

In addition, we recently joined forces with Microsoft and a collaboration to improve digital transaction approval rates and reduce fraud. The solution enables issuers to optimize authorization decisions using network and merchant-specific authentication data.

Combined, open banking and digital identity extend our value before and after the payment transaction and into new digital transactions. These are attractive and growing opportunities and we are uniquely positioned to be successful in both.

In summary, our business fundamentals remain strong and we delivered robust revenue and earnings growth again this quarter which also reflects our disciplined approach to expense management. We’re executing against our strategic priorities notably expanding our share with key issuers.

In addition, we’ve worked hard to expand our travel-oriented portfolios which positions us well to capitalize on a strong recovery in cross-border travel.

And last but not least, we want to reflect on what is most important, the safety and well-being of our employees and their families who have been impacted by the war. Our thoughts are with them and the people of Ukraine.

Sachin, over to you.

Sachin Mehra — Chief Financial Officer

Thanks, Michael. 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 two ppt to this group. These revenues were above expectation primarily due to stronger-than-expected cross-border and domestic volumes favorable cross-border mix and FX-related revenues.

Operating expenses increased 13% including a six ppt increase from acquisitions. Operating income was up 40% which includes a one ppt decrease related to acquisitions.

Net income was up 61% which includes a 20 ppt benefit due to the recognition of a one-time discrete tax benefit related to a US tax regulation published in the current period and a one ppt decrease from acquisitions.

EPS was up 65% year-over-year to $2.76 which includes a $0.36 contribution from the one-time discrete tax benefit and a $0.05 from share repurchases. During the quarter, we repurchased $2.4 billion worth of stock and an additional $599 million through April 25th, 2022.

So, let’s turn to page four where you can see the operational metrics for the first quarter. Worldwide gross dollar volume or GDV increased by 17% year-over-year on a local currency basis. Of note, data related to sanctioned Russian banks was not reported to us and hence such amounts are not included in Q1 2022.

In the US, GDV increased by 14% with credit growth of 31% and debit growth of 1%, reflecting the recovery of credit spending on travel and the lapping of stimulus. Outside of the US, volume increased 19% with credit growth of 20% and debit growth of 18%.

Cross-border volume was up 53% globally for the quarter with intra-Europe cross-border volumes up 50% and other third quarter volumes up 56%, reflecting continued improvement in travel-related cross-border.

For the first time since the onset of the pandemic, cross-border volume was above 2019 levels for all regions and cross-border travel was above 2019 levels for the first time in March.

Turning now to page five. Switched transactions grew 22% year-over-year in Q1 and were at 150% of 2019 levels. Card present and card not present growth rates remain strong. Card-present growth was aided in part by increases in contactless penetration in several regions.

With respect to card counts, as a result of the suspension of our business operations in Russia, cards issued by Russian banks are no longer active on our network and are therefore excluded from our card counts this quarter. So, accordingly card growth was lower at 4% this quarter. If you exclude Russian issued cards from current and prior years, our growth would have been 9%. Globally, the 2.9 billion Mastercard and Maestro-branded cards issued.

Now, let’s look to page six with our 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.

I also like to point out that in the first quarter the suspension of business operations in Russia had a minimal impact to the overall growth rate of the company as the loss of volume was offset by a onetime benefit of lower rebates and incentives due to the absence of a customer incentive agreement renewal in Russia.

Looking quickly at the individual revenue line items. Domestic assessments were up 21% while worldwide GDV grew 17%. The four ppt difference is primarily due to unreported volumes from Russian-related sanction customers and a favorable mix.

Cross-border volume fees increased 57%, while cross-border volumes increased 53% both ahead of expectations. The full ppt difference is primarily due to favorable mix as higher-yielding ex-intra Europe cross-border volumes grew faster than intra-Europe cross-border volumes this quarter. Transaction processing fees were up 27% while switched transactions grew 22%. The five ppt difference is primarily due to favorable cross-border mix and FX-related revenues.

Other revenues were up 20% including a seven ppt contribution from acquisitions. The remaining growth was driven by our Cyber & Intelligence and Data & Services solutions. Finally, rebates and incentives were up 30% reflecting the strong growth in volumes and transactions and new and renewed deal activity.

As a percentage of gross revenues rebates and incentives were lower than expected primarily due to the absence of a planned customer incentive agreement renewal in Russia, a higher mix of cross-border revenues and the timing of new internode deals.

Moving to page 7. You can see that on a currency-neutral basis total operating expenses increased 13% including a six ppt impact from acquisitions. Excluding acquisitions operating expenses grew 7% primarily due to increased spending on advertising and marketing higher personnel costs to support the continued investment in our strategic initiatives and increased data processing costs.

Turning to page 8. Let’s discuss the operating metrics for the first three weeks of April. For your reference to help you understand the trends in the business ex-Russia, we have included an appendix later in the deck to show all the data points from the schedule if you excluded activity from Russian-issued cards from current and prior periods.

Going through the metrics in turn. Starting with switch volumes. For the first three weeks of April, we grew 23% year-over-year down four ppt versus Q1 primarily due to the cessation of activities in Russia. If you exclude Russia-related volumes from the current and prior periods switch volumes grew 27% down one ppt versus Q1.

Switch transactions grew 14% year-over-year through the first three weeks of April down eight ppt from Q1 again driven primarily by the absence of Russia-related transactions. Of note Russia has a relatively low average ticket size which results in a larger relative impact to this metric. If you exclude Russia-related transactions from the current and prior periods switched transactions grew by 25% year-over-year up one ppt versus Q1.

Overall cross-border volumes through the first three weeks of April grew 60% year-over-year up seven ppt versus Q1. Excluding Russia from the current and prior periods cross-border volumes through the same period grew 65% year-over-year up 13 pp versus Q1.

Since the end of January cross-border travel has rebounded quickly as border restrictions continue to be lifted and we distance ourselves from Omicron. In the first three weeks of April, cross-border travel was up 179% year-over-year up 38 ppt versus Q1.

Cross-border card-not-present excluding travel was up 5% year-over-year in April, a decrease of 8 ppt compared to Q1, reflecting in part the lapping of a strong comparable period a year ago. One point to emphasize is cross-border travel is now above pre-pandemic levels at 110% of 2019 levels.

Turning to Page 9. I want to share our thoughts on the remainder of 2022. Let me start by saying that our business fundamentals remain strong, as we continue to grow our customer relationships and expand our product and service offerings. As Michael mentioned, consumer spending remains robust, particularly as economies open further and pandemic-related restrictions are lifted.

Having said this, we are monitoring a number of factors, including inflationary pressures, supply chain constraints, geopolitical uncertainties and COVID infection rates. At this stage, we have not seen any significant impact of these and consumer spending.

Cross-border travel is recovering rapidly as border restrictions ease. This is occurring faster than our earlier expectations. We are well-positioned to capitalize on this growth with our travel-oriented portfolios. Weighing against these positive trends are the impacts of the war in Ukraine and the suspension of our business operations in Russia. So now taking all of this into account, we continue to expect net revenues for full year 2022 to grow at the high end of a high teens rate on a currency-neutral basis, excluding acquisitions and special items. So, essentially, we are maintaining our growth expectations in the same range as the strong cross-border travel recovery and strength in consumer spending helped mitigate the loss of sizable revenues in Russia and Ukraine.

Acquisitions are forecasted to add about one ppt to this growth, while foreign exchange is expected to be a headwind of three to four ppt for the year, primarily due to the strengthening of the U.S. dollar relative to the euro. In terms of operating expenses, we are reducing our forecast for the year to reflect cost savings related to Russia. All year, we expect operating expenses to grow at a high single-digit rate on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecast to add about four to five ppt to this growth, while foreign exchange is expected to be a tailwind of approximately two to three ppt for the year.

With respect to the second quarter, 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. This reflects closely strong consumer spending, including continued improvement in cross-border travel spending relative to 2019. Secondly the discontinuation of revenues from Russia and a sequential reduction in revenues related to Ukraine.

And finally, the lapping of a strong year good quarter that was aided by fiscal stimulus and the easing of pandemic-related restrictions, as vaccination programs rolled out. Acquisitions are forecast to add about one ppt to this growth, while foreign exchange is expected to be a headwind of approximately five to six ppt for the quarter.

From an operating expense standpoint, we expect Q2 operating expenses to grow at a high single-digit rate versus a year ago on a currency-neutral basis, excluding acquisitions and special items. Acquisitions are forecast to add about four to five ppt to this growth, including the acquisition of Dynamic Yield which we are pleased to have just closed. Foreign exchange is expected to be a tailwind of approximately three to four 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 and our recent debt issuance. 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 approximately 18% to 19% for each of the remaining quarters of the fiscal year based on the current geographic mix of our business.

Before closing out, I want to briefly comment on our three year performance objectives for 2022 to 2024. Clearly, the elimination of Russia-related revenues and the reduction of those from Ukraine create a headwind to achieving these objectives. If this would continue, it would result in a headwind of approximately two ppt to our net revenue CAGR. Having said this, we are off to a strong start in 2022 with the recovery of cross-border travel ahead of expectations, as I previously mentioned. We remain focused on building long-term sustainable growth for the company. And net-net, it is really too early to adjust our three year performance objectives, as we work to offset some or all of these headwinds.

And with that, I will turn the call back over to Warren.

Warren Kneeshaw — Head of Investor Relations

Thank you, Sachin. Jamaria [Phonetic] we are now ready for the question-and-answer session.

Questions and Answers:

Operator

[Operator Instructions] Your first question will come from the line of Sanjay Sakhrani with KBW. Please proceed with your question.

Sanjay Sakhrani — KBW — Analyst

Thanks. Good morning. I’ve had a question on inflation. I know the data suggests the consumer remains in good shape as we look across trends in the vertical as such. Are you seeing anything that sort of is seeing some kind of negative impact on consumer spending patterns as a result of inflation? I know we heard some comments on e-commerce. Maybe you could talk about that? Thank you.

Michael Miebach — Chief Executive Officer

Sanjay, thanks for your question. So on the inflation side, as Sachin mentioned earlier, we have not seen anything yet in terms of changing consumer spending behaviors. But what we are seeing is in terms of the impact on vertical mix and so forth. There has been a 1% increase in our switched volume that’s related to gas price increases. We’re seeing some shifts in the airline. That is again under an inflationary pressure there from ticket pricing perspective. So we have to see where it goes going forward. I mean fundamentally, where I stand on this is the push by consumers into the digital space. They learn these habits they’re online. All that will continue. And we’ll see where the underlying prices go and then comes back to what we’ve been saying all along. There’s macro considerations in each country that has to be considered here. What is monetary fiscal policy and then there is the micro aspects of the different verticals which ones of those are carded which ones we would see which ones we wouldn’t see. Could there be a crowding out effect of rents or gas prices particularly in Europe? Yes that might be but that’s not something we can tell yet.

Sanjay Sakhrani — KBW — Analyst

Thank you.

Operator

Your next question will come from the line of Harshita Rawat with Bernstein. Please proceed with your question.

Harshita Rawat — Bernstein — Analyst

Hi. Good morning. Michael, Sachin, I want to ask about cross-border travel very strong recovery here. Is there a scenario where, even if let’s say China and other parts of Asia don’t come back meaningfully, you can still kind of get back to this like normalized 30% to 40% kind of levels above 2019 which is depend with the run rate pre-pandemic? Because there’s so much pent-up demand, or does Asia and China need to come back for the next like cross-border recovery? And Sachin, just a follow-up for you. Can you just talk about the sensitivity of your revenue guidance should macro consumer spend deteriorate from here? Thanks.

Sachin Mehra — Chief Financial Officer

Thanks, Harshita. So first on your question on cross-border, you’re absolutely right. Cross-border travel has actually come back stronger than our expectations and there continues to be pent-up demand. And we in terms of how we’re thinking about our guidance, we’ve kind of built in that improving recovery in cross-border travel on a going-forward basis as well. So I just want to kind of get that out there. But to give you a little bit more color right on cross-border. So cross-border volumes are above 2019 levels across all regions for the first time.

I would tell you that, the top 20 destinations which represented approximately 70% of our total cross-border travel pre-pandemic and we’re at 70% of 2019 levels when we discussed this at our Investor Community Meeting, are now at 85% in Q1 of 2022.

Specifically, on your question around Asia-Pacific, I think it’s important to note that Asia Pacific has been slower to recover. The Asia Pacific opportunity as I see this is as follows: Asia Pacific represented approximately 14% of total inbound cross-border travel volumes pre-pandemic and we’re at 40% of our 2019 levels in Q1.

So as you can see from this number right that, there is a fair amount of recovery still remaining to come from Asia Pacific. Obviously, it does matter in terms of how restrictions are lifted in that market. Again, the point is at the end of the day cross-border fundamentally is still very sound. This is something we’ve been talking about right through the pandemic, where we felt like when restrictions are eased volumes in cross-border will come back.

We’ve seen that happen and we continue to believe fundamentally that that remains very much in place on EP in particular, a couple of thoughts in China. One the – both China both from an inbound and an outbound standpoint where not a very significant portion of our cross-border volumes pre-pandemic. In fact, I would argue that, the outbound China was slightly higher than the inbound China. So when you think about recovery you’ve also got to think about what restrictions are there in terms of people going into countries versus people coming out of countries.

And I would tell you outbound China has shown better improvement than inbound China for obvious reasons as we all know that, there have been locked out in China and things of that sort. So net-net as I said back and I think about this I think about the fundamentals of cross-border being strong. I think about the potential for pent-up demand continue to contribute to improvements in cross-border travel spend. And again, the Asia Pacific region still remains a fairly large opportunity on a going forward basis.

Michael Miebach — Chief Executive Officer

Yes. If I can just build on that, we love cross-border. But while we love the trends, it’s a lot of hard work. And over the last two years, I mean, the travel industry was hard hit from the outset of the pandemic, we have leaned in. And as I recall over the last two years JetBlue, Cathay Pacific, British Airways, LatAm, Aeroplan, AirCanada you name it it’s a long list of where we have either expanded renewed one additional volume. So we’re participating in the trend in a very significant way. And we’ve always said, it’s going to happen this year and we’re ready for that.

Operator

Your next question will come from the line of Rayna Kumar with UBS. Please proceed with your question,

Rayna Kumar — UBS — Analyst

Good morning. Thanks for taking my question. It was really good to see the strong operating margin expansion in the quarter 460 basis points. Can you discuss some of the underlying drivers outside of the return of cross-border and how sustainable you believe in upper 50% operating margin is going forward?

Sachin Mehra — Chief Financial Officer

Yes. Rayna, happy to take that question. So look I mean at the end of the day, you know that, the business as we have it is a high operating leverage business, right? At the end of the day incremental dollars of revenue typically flow to the bottom line just given the nature of how we operate. So certainly cross-border recovery is playing into the recovery in operating margins but it’s not just about cross-border. It’s about overall strong consumer spending and cross-border travel recovery all of which is contributing to the delivery of improved operating margins. Helping that even further is the good new strength in our services and everything we’re doing along those parts. So it’s everything which we are doing in terms of driving the fundamentals of our business back to the strategic priorities Michael was talking about which is growing our payments keeping on leaning in on services and then continue to invest in the new network space which is really important.

So all of those factors are contributing factors to the expanding operating margins that you’re seeing come through. The message I’d like to leave you with on this is the following: We continue to run the business for long-term sustainable growth which means effectively that we’re going to continue to invest in a disciplined manner to ensure that we are creating the right opportunities for ourselves to deliver this long-term top line growth. And while we do that you should see the impact of that come through in terms of operating margins.

Warren Kneeshaw — Head of Investor Relations

Next question, please.

Operator

Your next question will come from the line of Darrin Peller with Wolfe Research. Please proceed with your question

Darrin Peller — Wolfe Research — Analyst

Hi. Thanks, guys. When we look at the types of opportunities on cross-border that you’re seeing right now you clearly are positioned as you said before to take advantage of the upswing in travel. And historically it’s been very high pass-through without rebates incentives, I think as I have a correlation. So first of all, just to be clear, I mean should we still expect that to be the case, or is there anything around the new business the relationships that Michael you mentioned earlier, that would cause that growth yield, I guess we can say our net yield to be a little bit different going forward on this type of big pickup in resumption and spending on travel.

And then Michael just more strategically, when we think about that that industry in terms of cross-border payments. There’s been so much change. And even you guys are trying to work through opportunities for more A to A [Phonetic] and open banking opportunities across globally. And so does that change the ecosystem at all, or is card-based really, how you expect to see cross-border players stay really dominant for payments cross-border over time?

Sachin Mehra — Chief Financial Officer

Thanks, Aaron. I’ll take the first part and then Michael will address your second question. I guess the headline is the following which is, we’re not seeing anything fundamentally changed in terms of the profile of our cross-border revenues. I mean net-net things are going to move around depending on how much cross-border comes from intra-Europe versus volumes from outside of that intra-Europe corridor because as you know intra-Europe is lower yielding and then other cross-border volumes are higher yielding. But fundamentally, I would tell you not much has changed.

I will make one point. You talked about rebates and incentives not being there with cross-border. I would say that there’s a lower indexation of rebates and incentives to cross-border. There’s always been some level of rebates incentives which have been associated with cross-border not nearly as high as what’s there in the domestic volume environment. But we’re not seeing fundamentally much change in that regard.

Michael Miebach — Chief Executive Officer

Right. And strategically, so Darrin here’s what I’d say is similar lens that we took at Investor Day where we looked at different universes and different use cases. You got the P2M world where card is well established domestically but also certainly cross-border. The industry and we very specifically with our services propositions have found a way to ensure that the risks associated with these cross-border transactions for merchants and for consumers are addressed. So the conversion rates and the approval rates have continuously increased. And there’s a lot of value brought. So there isn’t much of a problem to be resolved to payment for payments for goods on a cross-border basis.

Now where we’re actively looking in our — it tends to participate in all relevant payment flows. We’re saying what other payment volumes happening cross-border that we can contribute to with our technology through our franchise and so forth. And here the whole space of import-export, cross-border and accounts payable. That’s a space where a counter-account solutions make sense for us to hold.

We have specifically called out for you at the Investor Day the focus on remittances. Again, that’s a significant opportunity for us. That’s all additive and expensive from a target market perspective from an opportunity perspective. Attractive growing opportunities. We have the technology on the cross-border remittances side our Transfast acquisition, our buyout on the HomeSend side all of that is coming together. It’s a 100 country reach.

So I think what we’re bringing here is the multilateral network idea into this space that has been historically inefficient. So, I look at it as a growth opportunity while we’re going to continue to power the cost side of the house.

Warren Kneeshaw — Head of Investor Relations

Next question, please.

Operator

Your next question will come from the line of Lisa Ellis with MoffettNathanson. Please proceed with your question.

Lisa Ellis — MoffettNathanson — Analyst

Terrific. Thank you. I was hoping to shine a spotlight on LatAm, specifically Brazil. Just taking a peak of the supplementals Mastercard’s volumes are up 40% to 50% in that region. But Brazil is also a market where you’ve got a local network like PIX, gaining a lot of traction. Can you just use as an example to talk a bit about how Mastercard coexist in a market like that, with one of these domestic networks and is a player like PIX actually a customer or a potential customer of some of your open banking or fraud or identity services? Thank you.

Michael Miebach — Chief Executive Officer

All right. So let me take that. So first of all, Brazil has been a market in focused strategically important market for us for years. We’re very well established on with the large banks out there Itau and others to mention. So, I’m actually seeing the Brazilian country manager right after this call. So, it’s very much in focus. We’re very happy with what’s going on there. Overall, it’s a market that drives a lot of innovation.

Buy Now, Pay Later has been a thing in Brazil forever. Open banking is on the rise, real-time payments is on the rise. So, a lot of movement there. And the P2P network that’s been introduced by the Central Bank in the Brazil market is another push to further digitization in that market. So, the whole digitization in Brazil is really seeing great momentum and we’re leaning right into that.

Now the kind of flow that PIX is going after, you see a lot of P2P flows and some B2B flows, so that’s not necessarily anything that we’re particularly worried about but it’s also the kind of flows as part of our multi-rail strategy that we like to support ourselves and we have a whole set of technologies for that. What’s have paid just to point one out which is the first live in Brazil itself is set a market with innovation and a lot of momentum there.

So, here’s our technology powering a social network as an alternative which is an easy user experience great adoption 4.7 million users already on that platform. So, I look at it as a market that’s a lot to learn from, a market that we invest in and where we chart passed for the new additional flows beyond card flows very with specific local solutions considering the size of the market.

Sachin Mehra — Chief Financial Officer

And I’ll just add Michael a couple of thoughts on Brazil. One you asked the question about the strong growth. Clearly, it’s a combination of the macro environment but it’s also the fact that we’ve been leaning in pretty heavily with our traditional issuers as well as our fintech partners in that space which has been part of the reason why we’ve been seeing some of that growth come through in a decent manner, Lisa.

The second point I’d make tying back to Michael’s comments around PICCs [Phonetic], the market has to be bifurcated in the context of both debit and credit. And on the credit side, we continue to see tremendous growth. PICCs — which Michael said is primarily catering to P2P and B2B flows, even if it were to actually proliferate a little bit into call it the smaller merchants from a P2M standpoint were primarily be focused around the debit side of the equation and so credit still remains the mainstay for us in Brazil as it stands.

Operator

Your next question will come from the line of Tien-Tsin Huang with JPMorgan. Please proceed with your question.

Tien-Tsin Huang — JPMorgan — Analyst

Thank you. Good morning. I wanted to check in on the call it balance of trade and this whole card volume coming in and out from wins and losses migrating. Given the update, I know you mentioned Wells — and of course ended there not West in Deutsche Bank, are you gaining share when all is said and done? I’m just trying to get a better sense especially in the short term with all the migrations in and out where you stand in the share gains. Thanks.

Sachin Mehra — Chief Financial Officer

Thanks, Tien-Tsin. So everything we kind of talked about and Michael talked about earlier on in this conversation was about our expanding relationships with these issuers. And so with these issuers, we are gaining share. That’s kind of the reality of the situation. Again, there are puts and takes in the market, right? So as I think about the new relationship well I should say new relationship, the expanded relationship we have with Wells, right, that’s an increasing share position with Wells which is taking place for example there. So the bottom line is the following which is whether it’s Wells, Capital One, what we’re doing with Santander and NatWest, Deutsche — you name it the GAAP portfolio all of these incrementally are helping us drive our volumes.

From a holistic market standpoint, again, like I said, there are puts and takes, right? But we’re very, very optimistic about how we are seeing business translate for us. And as we mentioned at the Investor Community Day, we are growing market share across all regions and the market share growth which we’ve seen in 16 of our top 20 markets which is something we shared with you at the Investor Community Day is really the data points we put out so far.

Michael Miebach — Chief Executive Officer

And Tien-Tsin, I should add, I’m very happy to ask the question. I thought these news was just going to pass by with none of you asking about it, so it’s much appreciated.

Operator

Next question will come from the line of David Togut with Evercore ISI. Please proceed with your question.

David Togut — Evercore ISI — Analyst

Thank you, very much. Cross-border card-not-present ex travel growth was solid in Q1 but did slow throughout the quarter and into April against known very difficult comparisons. Can you unpack cross-border card-not-present ex travel growth by geography, especially in Europe and US and how you see this playing out throughout this year, especially with the return of the consumer, the physical point of sale as vaccination rates go up? In other words, do you see a reacceleration of e-com later this year, or do you think the consumer is going to be more active at kind of physical bricks-and-mortar locations?

Sachin Mehra — Chief Financial Officer

Sure David. So I think you’re touching upon a couple of things which are there on that card-not-present ex travel. The reality is, as cross-border travel comes back, you do see some give back in terms of cross-border card not travel — card-not-present ex travel. That’s a mouthful. So the point is at the end of the day right, there are a few factors you got to take into consideration, when you’re thinking about future growth rates for cross-border card-not-present ex-travel. Number one, what’s the pace of recovery on cross-border travel is going to be.

Number two, what the prior year comps were on cross-border card-not-present ex-travel? Because remember, these growth rates are all influenced by prior comps as well. And what was happening in the COVID environment last year which might have caused for elevated levels of cross-border card-not-present ex-travel.

And number three, you do see fluctuations come in that number through, as a result of crypto and crypto volumes, right? And so, these three factors are kind of things you’ve got to take into consideration.

The point at an up level is the following which is, the consumer continues to spend in an omnichannel manner. When they can get out and spend in a physical environment, they do that, when they can’t spend in a card-not-present environment, they do that.

We are ready to support them in both manners, whether it’s through our omnichannel capabilities that we’re offering our merchants and the strength which we’re seeing in card-not-present ex-travel from a cross-border standpoint, is something we expect that strength to actually stay going forward as well.

There might be puts and takes for all the reasons I just mentioned but largely, I think, consumer behavior has changed in a manner where they’ve gone more digital and you’re going to see some strength come through out there.

David Togut — Evercore ISI — Analyst

Thanks.

Operator

Your next question will come from the line of Bryan Keane with Deutsche Bank. Please proceed with question.

Bryan Keane — Deutsche Bank — Analyst

Hi. Good morning. Just a couple of quick clarifications. On the Russia-Ukraine, I heard the two points to net revenue targets to the performance objectives 2022 to 2024. Could you help us clarify the revenue and expense impact for the going forward quarters like the second quarter, third and fourth this year? Just trying to quantify that. And then, the second question is just what level of cross-border recovery are you assuming in the guidance for 2022? Thanks so much.

Sachin Mehra — Chief Financial Officer

Sure, Bryan. So, first, I’ll take your question on Russia and what we’re assuming. So we have suspended operations in Russia, as a result of which we’re not earning any revenues related to Russian issued cards.

So as it relates to revenue for the rest of the year, we had mentioned that we had put out an 8-K about how Russia represented roughly 4% of our revenues in 2021. And so, we’ve assumed that that 4% doesn’t exist in any of the quarters going forward, from a net revenue standpoint, right?

Point number two. And again, like I said in my prepared remarks, there’s some level of headwind which we’re assuming in Ukraine as well. But the reality is, that’s a little bit of an uncertainty, just because we’re not entirely sure as to how the war in Ukraine evolves and what the implications of that are. So we built in some assumptions and that’s what we’ve kind of given you in our overall thoughts.

From an expense standpoint, the Russia-related expenses represented roughly 2% of our operating expenses. And, again, from an opex growth standpoint, kind of, that’s the way we think about it. As I mentioned, we have taken down, when we’ve shared with you our thoughts for full year 2022, we have taken down our opex growth rate on an ex-acquisition currency-neutral basis to reflect that very impact from a Russia standpoint.

Operator

Your next question will come from the line of Ramsey El-Assal with Barclays. Please proceed with your question.

Ramsey El-Assal — Barclays — Analyst

Hi. Thank you for taking my questions. Good morning. I was wondering if you could give us your latest view on what the kind of longer-term post-pandemic payment [Phonetic]. I mean, do you see a different longer-term mix of debit versus credit or any associated impacts to P&Ls or yields or anything that we consider as we model out in the long-term.

Michael Miebach — Chief Executive Officer

Right. Ramsey let me start off on that. So the structural changes that we are seeing that we’ve been observing with our regular consumer engagement surveys over the last two years and that have transpired with our customers as well is less cash and checks, number one. Anything digital more of, number two. The whole — this whole notion though has changed in the consumers’ mind.

A couple of things going on. First is, consumers are really ready to move on with the pandemic. They want to go out there, they knock off their bucket list. They want to pent-up demand. So there’s a lot of increased spending back into services. So it’s not a structural feature of the years to come that it’s all in goods. It’s going to go back to services and it’s going to balance out. It’s also not going to be only online, as Sachin just said, it’s going to balance out across multi-channel. Buy in-store pickup have delivered, do it the other way around whatever works.

I think consumers will go for more choices and that comes right down through our multi-rail strategy to enable basically all relevant choices that are out there. I think that’s the right positioning. That’s what we’re going to see going forward. In terms of debit and credit, if you kind of get a little more granular over here. There was a period in the early parts of the crisis, people will not want to spend on credit if they can avoid it, more control around their finances. That was a big tailwind for debit.

We see travel coming back, that’s more credit-oriented particularly because of the rewards around it. You start to see in the crypto space, there’s a whole new set of credit propositions. We just talked about the Gemini rewards and crypto rewards on that the Nexo Card. So there’s a whole thing going on. I think in the end, it’s going to be multiplicity around these different tools.

Operator

Your next question will come from the line of Dan Dolev for Mizuho. Please proceed with your question.

Dan Dolev — Mizuho — Analyst

Hi. Thank you for taking — my question is more specific. If I look at U.S. trends debit versus your competitor, I mean, over the last few quarters, I’m seeing downward trend in your share of the mix in debit and this picture in credit, is there anything to call out there? Is there an opportunity to improve in debit, or am I just missing some very fundamental here? Again just U.S. versus your large competitors.

Sachin Mehra — Chief Financial Officer

Yes. So Dan, there’s nothing fundamentally which is really changing as it relates to our debit business. I’ll put that out there in the first place. Growth rates obviously are impacted by comps. I think you get that piece. I think you’ve got to take into consideration that there is a one portfolio which is a debit portfolio which is rolling off in the U.S. which was previously announced which is probably impacting that comparative analysis that you’re seeing, because obviously, we’re seeing the detriment of that comes through in our debit metrics and that primarily started in the recent past and will go on through the course of this year. And the competitor is likely actually getting the benefit of that. So, that’s probably the reason you’re seeing some of the divergence.

Operator

Your next question will come from the line of Andrew Jeffrey with Truist Securities. Please proceed with your question.

Andrew Jeffrey — Truist Securities — Analyst

Hi. Good morning. I appreciate taking the question. Michael, I actually have a question on other revenues value-added services in particular. Ex-acquisition seems that it’s deselling a little bit. Would have perhaps expect to see that growing faster and certainly approaching the growth in the card business. Can you just comment on kind of puts and takes there and what the long-term growth trajectory is for value-added services?

Michael Miebach — Chief Executive Officer

Andrew, excellent questions. As you know we love our services business. It drives growth for us. It’s a differentiator. It’s a margin increase here. It’s all of that. And the key focus is on cyber solutions on one hand and data analytics and inside solutions. This comes back to the structural trend by the way. More data, more digital world – more digital work to be kept safe. More insights for all these new people that are having businesses online on the data analytics side. So fundamentally there are sound trends here.

If you just pick up this quarter and you do the unpacking the numbers that you have just laid out that is simply timing. We are expecting our – there’s nothing to be said that there’s anything changing on the growth rates of our business. So that will continue. Our teams are fully engaged and as we looked ahead in the guidance that Sachin gave, we assume a strong services growth.

Sachin Mehra — Chief Financial Officer

And I’ll just add some – a little bit more color on that just because I think it’s important for you as you’re thinking about your models going forward to actually factor this in. When we talk about Russia revenues, there are a few things from a Russia revenue standpoint which you might want to take into consideration one of which relates to the fact that Services was well penetrated in the Russia and Ukraine markets and had strong growth.

And so as you think about the model and the impacts across the different line items you’re going to see impact related to lost services revenue come through in other revenues in the ensuing quarters. That’s kind of point number one. Few other salient pieces on Russia-related revenues as you think about the different line items. Yes we will lose the volumes and transactions.

Russia was a fast-growing market. It has no average ticket size which I kind of mentioned earlier. There’s a high degree of contactless penetration. Again I think these are important things where you want to kind of keep in mind as you think about comps on a going-forward basis. And the cross-border issuing out of Russia was mostly higher yielding into regional cross-border issuing. Also strong remittances and disbursements market. Why am I sharing all of this with you? Because as you think about the various metrics we’ve shared across all of these aspects, those will get impacted as Russia starts coming into play in future quarters.

Operator

Your next question will come from the line of George Mihalos with Cowen. Please proceed with your question.

George Mihalos — Cowen — Analyst

Great. Good morning and thanks for taking my question guys. Sachin I wanted to ask you called out currency volatility is obviously being a benefit to our first quarter results. Can you isolate what that benefit was in 1Q? Just – I know it’s still a volatile time which is sort of three weeks into the next quarter. But how are you thinking about that looking into 2Q?

Sachin Mehra — Chief Financial Officer

Yes. So George, I called it out because Q1 had unusually high foreign exchange volatility. I mean the reality is we don’t typically talk about this because these numbers kind of go back and forth from a volatility standpoint but there was unusually high FX volatility in Q1. The outlook from a going forward standpoint is really hard to say. I mean this is one of those things where I guess as Michael jokes with me “Sachin you wouldn’t be doing the job if you knew where volatility was going on a forward basis for foreign exchange.” So the point is at the end of the day we’ve taken our best assumptions on a holistic basis for our business share with you what our thoughts are from a full year and a Q2 basis on net revenue. Very hard to predict what the outlook going forward is going to be. Unusually high volatility does help us. The other thing to keep in mind is since it’s related to cross-border volumes as to for volumes come back that combined with unusually high volatility has that much more of an impact.

Warren Kneeshaw — Head of Investor Relations

Jameria, I think we have time for one more question.

Operator

Okay. Our final question will come from the line of Jason Kupferberg with Bank of America. Please proceed with your questions.

Jason Kupferberg — Bank of America — Analyst

Thanks guys. Just a quick one, so just in terms of your expectation for cross-border travel relative to 2019 levels, last quarter you were expecting to be at 100% by the end of this year. You’re already at 110% in April. So what’s your updated assumption on that?

Sachin Mehra — Chief Financial Officer

Jason, as I mentioned we’re assuming improving trends vis-a-vis compared to 2019 as we go forward. We’re not sharing a specific number for what that looks like in the second quarter or the end of the year.

We’ve built in our expectations in terms of the revenue guidance I’ve shared with you our thoughts around how that trend takes place. The combination of that was consumer spending and what the improving trajectory in consumer spending is, it’s all factored into the numbers.

Jason Kupferberg — Bank of America — Analyst

Can we get a directional rebates and incentives just for the rest of the year?

Sachin Mehra — Chief Financial Officer

So think I mentioned to you on rebates and incentives is the following which is, we have a rich pipeline of deals. We continue to execute on that as you heard from Michael, in terms of some of the wins which we had recently. Obviously, you get the benefit of improving cross-border trends to play through in terms of lower amounts of business incentives impacting that.

And the last point I’ll make on rebate and incentive is, in Q1 we had this onetime benefit relating to the non-renewal of our Russian customer agreement which you should not expect the benefit of that to come through on a going-forward basis.

So net-net I would tell you that, a lot of this is going to be dependent on what the timing of deals are? How we put those new into deals into play? And what the recovery of cross-border is going to be.

Jason Kupferberg — Bank of America — Analyst

Thank you.

Warren Kneeshaw — Head of Investor Relations

Thanks Sachin. Michael?

Michael Miebach — Chief Executive Officer

All right. So thanks for your questions, insightful questions as always. Thank you for support for the company. Just a thought for me, here we’re thinking that we’re going to get out of Omicron and then a few days later we have an invasion in Europe. So for our teams, it’s around the world it continues to be a never-ending marathon. And I just want to extend the thanks to everybody in the Mastercard team.

And with that, we’ll see you next quarter. Thank you so much. Bye, bye.

Operator

[Operator Closing Remarks]