Operator: Next, to Bryan Keane at Deutsche Bank.
Bryan Keane: Hi, good morning. Sachin, I just wanted to ask about more chunkier portfolios and the timing of it. Obviously, NatWest anniversary, that might have surprised some people on the comps, but it’s just an anniversary of that. So just thinking about Citizens or Webster or others, the timing on when they come on and any others out there?
Sachin Mehra: Sure, Brian. So on Citizens, the portfolio transition is on track for 2024. You should expect that that will take place over a period of time as opposed to a flip-the-switch kind of environment. Webster, we just announced, which we’re super excited about, right? And the portfolio transition will also begin in 2024 and will take place over a period of time. Santander is done. NatWest I already spoke about. The other one, actually, which I kind of point out is Deutsche Bank, right? And there we had talked about conversion of 10 million cards. That conversion has started. It’s a combination of debit and credit. It will happen over an extended period of time. Again, it’s not a flip-the-switch kind of scenario. And the last one I’d mention is around Unicredit, which is something which will happen over multiple years.
So this is not, and when I say multiple years, I literally mean you’ll start in 2024 and this will work its way through over a few years. So that’s what I can share with you in terms of at least the chunky ones. Obviously, there are a bunch of other portfolios which we went, all the time, but these are the bigger ones.
Operator: Our next question comes from Tim Chiodu at UBS.
Tim Chiodu: Great. Thank you for taking the question. I just wanted to take this as an opportunity to revisit some of the mechanics around rebates and incentives. If you could just provide a recap on the portions of rebates and incentives that are volume and performance-based, some of the portions that are maybe more fixed, and then the portions that are more cumulative over the course of a contract? I think that would be appreciated by all. Thank you.
Sachin Mehra: Sure. So first, the reason we do rebates and incentives is to drive volume. I just want to be clear. That’s kind of what drives, what we’re trying to do, which is to win preference, which allows us to generate revenue from the payment stream, as well as to deliver services to drive our net revenue yield. So that’s kind of the headline. Your specific question around rebates and incentives, right, it’s a combination typically of fixed and variable. It depends on a deal-by-deal basis. If it’s a fixed incentive, the fixed incentive is typically amortized over the life of the deal. Variable incentives are variable in nature. They vary with the volume, which are coming through, and they are timed with how the volume rolls on.
So that’s kind of the highest level. The other piece I’d kind of share with you is, rebates and incentives are typically more indexed towards domestic volumes, less indexed towards cross-border. So those are the salient pieces I’d mention to you on rebates and incentives.
Operator: We’ll go next to Dan Dolev at Mizuho.
Dan Dolev: Hey, thanks. Michael, I just want to give you a compliment first because this is close to my heart, and I appreciate you mentioning the terror attack on Israel. I think your competitor made it more like of a politically correct comment on their call, so I really appreciate it. And then to my question, a key European merchant acquirer called out a big negative trend in Germany, and as the whole market trended down. Can you make some specific comments on how much of that was stuff that you were seeing? Because it seems like trends are actually pretty solid and pretty resilient, so there’s quite a bit of confusion in the market. We would appreciate some comments on the European macro trend. Thank you.
Michael Miebach: Thanks, Dan. As you can appreciate, I keep a close eye on the German market very specifically, and I think there’s a lot of confusion and we’re not seeing that. Consumer spending remains pretty steady in Germany and generally in Europe. Sachin talked a little bit about one UK might have a little bit of moderation here and there, but overall we’re not seeing that. So what we see on the other hand, as is strong growth for us in Europe on all the migrations, on our debit maestro migrations and so forth. So Europe’s been a bright star, continues to be for us. So we don’t quite relate to what others are reporting.
Operator: We’ll go next to Darrin Peller at Wolfe Research
Darrin Peller: Thanks, guys. I just wanted to follow up a little bit more on the incentives and rebates. But first, just, Michael, the number of portfolios that you guys are winning on the different parts of the world, really, but just talk a little bit about the competitive landscape, whether it’s Unicredit or now Citizens and how that dovetails into incentives and rebates because the growth, I mean, you’re about five, 600 basis points faster than gross revenues you’re seeing on it. Maybe that part’s a more first action. And it offsets some of the exciting opportunities we’re seeing on gross revenue growth kind of in a few quarters in a row now. And so I just want to get a better sense of what you’re seeing in terms of, anything structural on rebates, incentives that may be a bit different and tied to winning business, or is it just more business as usual and not necessarily a competitive landscape? Thank you.
Michael Miebach: Let me start off here. So I want to reiterate what Sachin said before. We are trying to win portfolios that are important for market relevance perspective for us to gain access to transactions to drive our services model and, follow through on that virtuous circle that I talked about earlier in my remarks. So that’s the whole idea. We keep net revenue yield in mind as we do all of this. That is the integrated payments competitive landscape. Payments is competitive. There’s a lot of players out on the landscape. we like competition and we feel we have a truly unique proposition between our payments and digital solutions on one hand and our services on the other hand. So when you think about Unicredit, so why did they come to us?
Well, they were looking at our proven track record in our engagement with Unicredit for the expanded relationships and supporting their customers. They like our sustainability agenda. On Citizens, it was a similar kind of mix and on Webster, yet again, it was a similar kind of mix. There’s always something across the portfolio of services that sticks out. Citizens, I recall a conversation on open banking, for example. That is clearly one that mattered and the sustainability agenda yet again. So it’s a mix. There is nothing particularly new here. We always weigh off the volume growth that we can see with the incentives that we give to make this whole equation work for us in a very disciplined manner. We do not want to win. So we’re very disciplined about that and I don’t see anything out of the ordinary here, but I want to hand over to Sachin to give us a little more color on that.
Sachin Mehra: Sure. So, Darren, I think Michael covered kind of the competitive landscape. I think your specific question around the divergence, not divergence, but the fact that gross revenue is growing at a faster clip and the incentives are actually impacting the growth on the net revenue side. The reality is in the growth business, the growth portfolio is up front. Going back to the earlier question which was asked, when you’re doing a combination of fixed and variable incentives, fixed incentives start to amortize the moment a deal goes live. That doesn’t mean the volumes come on at full speed when the deal goes live. Because like we talk, we talk about conversions happening over multiple years. If a conversion happens right away, you get the volume right away and you start to see the associated impact from a revenue standpoint.
