September 24, 2020

Mastercard Incorporated (MA) CEO Michael Miebach presents at Virtual Deutsche Bank Technology Conference (Transcript)

Mastercard Incorporated (NYSE:MA) Virtual Deutsche Bank Technology Conference September 14, 2020 11:25 AM ET

Company Participants

Michael Miebach – President and CEO Elect

Conference Call Participants

Bryan Keane – Deutsche Bank

Bryan Keane

Hello, I’m Bryan Keane, Senior Payments Processors and IT Services Analyst at Deutsche Bank. And we’re thrilled to have with us today the President and CEO elect Michael Miebach at Mastercard, for a keynote, virtual fireside chat presentation today. Format of this call will be a conversation we’ll have with Michael, ask him a bunch of questions. And then if you do have some questions, you can either email me directly, or you can submit it through the portal, and I can grab any extra questions that way.

So with that, Michael, thanks for joining us. And hopefully you are staying healthy and safe. I wanted to start out with asking about earlier this year, you being named Mastercard’s President, and you will become CEO effective January 1, filling in some quite large shoes of Ajay. Can you talk about how that transition is going so far and your view on the strategic direction of the company going forward?

Michael Miebach

Hi, Bryan, and Hello, everyone. Thanks for having us on the call here. Obviously, the topic of transition is very dear to my heart. We announced the transition; some of you might recall on the 25th of Feb, this was pretty much just before the pandemic hit us. So Ajay and myself, were locked up as the extended quarantine bubble here in the office over the last six months. And I can tell you, there is no question and answers in terms of the transition because we didn’t have any chance to go anywhere else and we had all the time on our hand, but in all seriousness, unprecedented crisis around us. Social economic, affecting our industry. So having two pairs of hands on deck came in really handy divide and conquer was our approach. The priorities as we managed through this last past year here was really around, first of all, we’re all in the people business, focus on employees, health and safety, peace of mind.

And based on that leaning in with our customers and being the best possible partner that we can be. As I look back over the last six months, particularly our data analytics and our cyber products in such a fragile, fast changing world came in really handy and starting to be part of the foundation of conversations with our customers around recovery and how we might help them get out of that.

To your question about as we look forward what’s happening? Obviously, COVID is impacting our industry, it’s impacting our business. So the question that comes to hand is what’s blip and what’s a true trend?

We’ll move over to the time together, we’ll probably have more time to deep dive into that. But clearly, what we’re seeing is an acceleration of trends that were there before digitization of the economy, which is fundamentally positive for us and interesting government in payments, which is also fundamentally positive for us. Health concerns of consumers out there impacting consumer confidence that is all going on.

So we’ll see how that plays out. Fortunately, these fundamental trends; we at Mastercard has had enough focus for years to come. You’ve heard us talk about government all the time; we build out that government practice. I think I call out a number in the second quarter call where we have like over 100 projects with — in 30 countries in terms of addressing the immediate impact of COVID. So that’ a muscle that we’re building out going forward.

The focus on digitization this is really where our groundwork over the last years has paid off to focus on tokenization our digital first approach et cetera, et cetera. So that is that we will continue down that route, our overall strategic focus around grow diversify build, we will not let off when it comes to focusing on our core business; diversifying into new geographies and customer segments. And that really where I spend most of my time in the last five years was the build part. That’s multi rail, that’s open banking; that is B2B, all that that’s really where we have an opportunity with this digital tailwind to build this out. So I’m not telling you this morning, we’re changing our strategy because we’re not this all makes sense. And it will make sense even more so in the wake of COVID. And that’s what a focus is. Few things that will definitely stay the same for the time being. Focus on consumer experience, leveraging those emerging technologies are coming about 5G and the likes, making sure that a company that doesn’t make calls on payments i.e. use card or something else, but we offer the full choice of payment options that are out there.

And then it’s this look around open banking, basically of diversifying beyond payments into adjacent areas like data transactions and so forth. So, to keep that focus, we’ll do that we’ll do it organically. We do it in organically. We do it in a disciplined way, as we have done so far. So, yes, and then a lot of time with Ajay, I could tell you a lot more about that at a different occasion.

Bryan Keane

Yes. Exactly. So, obviously, a lot has changed; you’ve come into become the next CEO here under a crazy time. I’m just curious. You could talk about how you tried to navigate through the pandemic and the trends you’re seeing in the business as we see the economy’s recover.

Michael Miebach

Yes. So, a lot has been — a lot has indeed changed. Pretty intense start, I would say. So, when I look at how we’re going to turn out of this, the shape of a recovery to shape of how we will make our way out of it as a company and as an interest is 3D first set by what’s happening around us and around the effectiveness of policy, in terms of three dimensions. The first is public health; prophylactic, therapeutics, vaccines, that is really the key driver for consumer confidence. It’s the key driver for loosening up social distancing measures, travel restrictions, et cetera. So that’s the first and we can’t really project that so we’ll see how that goes. The second is fiscal stimulus packages. We see some running out like in the US; we’ll see what comes next. They have proven difficult. So what is happening on that front in terms of bridging between where we are now and the time of a public health answered, that’s, again, an unknown, we’ll have to see where it goes.

And the third one is really around monetary policy. Here, again, we’ve seen quite effective measures of a number of central banks around the world, but yet again, hard to predict and where that goes. So with that, as the backdrop, you will Bryan as many of us on this call will remember us talking about a four stage framework. I’m not going to talk to you through that again, but containment, stabilization, normalization and growth. And really, the triggers in here are, which is what we can clearly observe is when our social distancing measures put in place and when are they loosened? What about travel restrictions, when are they loosened and the impact of all of that on spending behavior.

Net- net of all of that is right now we believe that we are across the world and most markets in the normalization phase. So we’re making our way back out of the valley in terms of the lowest growth rates. So that’s, we see modest improvement around that. But we’re also seeing that the past is not linear. If you look into the UK right now, there’s a couple of countries around the world which go forward, they lose, they open up and then they tighten again, depending on is our infection rates going back up? So we’ll expect more of that as we as we look forward. How does this play out in our numbers? September 8, last week, we put out the latest operating metrics at the end of August.

In the headline a day, I’m just looking at it I just put it in front of here the chart that we sent to all of you guys;

I would headline asserts its modest, continued modest improvement. So we see it on the volume side. We see it on a transaction side; we see it domestically and cross border. I think that term describes it reasonably well.

Bit of color around this is where there’s some of the modest improvements come from. It is an increase in card present growth rates as social distancing measures are being relaxed in some markets around the world, but on the other hand, we are seeing that as partially offset as I was talking earlier about stimuli packages in like with the expiration of the US unemployment benefits, so a bit of a mixed bag there, but continuous improvement since essentially since July. The card-not-present part remains healthy all along. So, a bit of a change in mix is the first thing that I want to say. Where do we see particularly encouraging growth rates, although of a low level is in the T&E segment; so people are getting out again and they’re eating at their local restaurants, and they’re renting cars, they are fueling up, they’re moving around again. So that is good to see, but if you T&E out and you look at our switch volume growth rates, we are currently at a level where we were in the fourth quarter last year.

So it just showed you how hard the T&E sector actually has been hit. If I take a geographic lens, Bryan, to your question, all regions outside of the US have seen improvements from July to August, which is great. And we have some countries; some more countries now actually wanted some in each region that are in positive growth territory. And some of the big ones that we haven’t talked about before. We mentioned in our release is Brazil, United Arab Emirates and South Africa. So that’s encouraging to see.

Transactions; they behave pretty similar to volumes. As you know, cross border is a big value driver for us. And we see the same modest improvement here since early July. And that the trend we’ve seen in Europe with Europe, outpacing the rest of the world in terms of cross border volume continues at a higher level than the rest of the world. So that’s positive.

But as we said before, cross border has a way to go as you know, long haul travel, business travel will come at a later stage, what we see mostly is personal travel and short haul. And because of that, especially in Europe as you can get into a car and you can drive around. The bigger trends that I talked about in your first questions; they all are behind that, but those, that’s how it’s playing out in the numbers right now. So we’ll need these three policy measures in the end to kick in over the quarters to come.

Bryan Keane

Do you see COVID driving any behavioral changes that will persist beyond the pandemic? And I’m sure you do. So could you just talk about those changes and how they could serve as a tailwind to accelerate the secular shift from cash to electronic payments?

Michael Miebach

Yes, definitely. I mean, everybody on this call with us, if you look back, you’ll see what your cards statement says in February looks dramatically different than what you saw in July. So it’s there. That’s a little bit too anecdotal. So we went out and we are doing this on a monthly basis, we’re doing these global consumer behavior studies. To get a real sense of what’s going on it comes back to what I was saying earlier, consumer confidence is largely driven by the confidence level in a public health response. So the news of better around cases that people will behave in a different way. But if you take a step from that what the data says across every wave of these of this research, which gives us optimism for the medium to the long run is that consumers are saying 70% of — over 70% of them are saying they’re going to continue or increase their online purchasing. So this thing about I was forced to use it because I wasn’t locked down and might have not been a great fan of online purchasing. I learned to love it. So that’s kind of what we’re starting to get to see here.

In a more recent effort, we extended our research to look at what SMEs see. And on the SME side, you’re starting to see a similar trend or as a lot of businesses in the SME space that were brick-and-mortar only that are rebalancing into omni channel. And here 76% of them are saying that they do want to be more digital; 64% and I love that one data point is especially saying that they are actively steering their customers away from using cash or paper checks, which is good. So the data is telling us there is something really happening and it’s been consistent months over the last half year. So that’s encouraging. So as we extrapolate larger trends from that is clearly the continued push towards e-commerce that should be a tailwind for us. It’s the negative attitudes towards cash, which also should be positive for us.

More digital transactions, if more digital transactions to be kept safe, more digital transactions is also more data that’s associated with those transactions is available. So we see a trend for more demand for data analytics and for cybersecurity solutions. Clearly, our services teams out in the market feel and live this every day. The cross border point we just discussed. We believe that we’ve seen it in previous crises, and we believe it here and it also comes out of our studies if I could, I would travel; so travel will come back. So therefore cross border will come back; we had a differentiated position. So quite a period of time and cross border and keeping our focus right now, as you know, a lot of companies in the travel sector are thinking when and how best to engage and of course, we are a partner when it comes to that, so across border happening over time.

I talked about the government part; the 100 projects and over 30 plus countries that were at a point in time this is happening every day. So we value the interest of government in electronic payments is like a government being interested in other critical infrastructure; electricity grid, the water grid, that’s positive. And if we played well, as governments are looking to modernize their payment infrastructure, we should be well positioned.

The last thing I think COVID has highlighted and that is a fundamental trend that is being accelerated here is the desire to optimize B2B payments, B2B payments have been a bit of, yes, just broadly inefficient over the years to come. These inefficiencies have been highlighted further in a time of stress. So we see interest in the demand and the space.

Across all of these trends, we’re well invested, we’re well positioned. And I said at the outset, our whole work around tokenization and gateway capabilities and so forth pays off right now, but it’s also the time as you think about click to pay. Here’s a great consumer experience making the online acceptance of — for checkout experience, the guest experience so much easier. So we’ll play right into that changing consumer behavior. We have a set of differentiated aspects of click to pay provided by Mastercard new data is one that we talked about before additional layer of security provided by us.

The government part; what comes in here of particular interest is our initiative around small and medium enterprises hard hit by the crisis, every government is looking to salvage that sector and get the SMEs back on their feet. So our commitment of over $225 million around enabling the online business aspect of it of a small business is playing well into us. So, six, five, six big trends supported by data. I believe they’re here to stay. And they’re broadly speaking tailwinds that make me fairly optimistic for the years to come.

Bryan Keane

Want to switch gears and just ask about the battle for fintechs and super wallets and other digital players? It seems like you guys have had a fair amount of success winning your deals there. Do you think that’s sustainable and what might be driving that success?

Michael Miebach

Yes. Interestingly you use the term battle here. It is — it does feel like that sometimes it is vibrant space. FinTech everybody looks at it from a different perspective. You have the large digital companies; you have established players that are spinning off digital businesses like digital banks; you get neo banks, you got small fintechs. You got startups; it’s the whole range, the super wallets as you talked about. And we look at all of them. We look at all of them as one segment and I think that is probably the key differentiator. We decided that early on many years back, we have digital partnership teams around the whole world that are looking at this segment and its sub segments, the ones that talked about their needs and realizing that we have to engage.

I’m telling you the obviously, but we have to engage with these types of customers in a different way. And we’ve done that. Our accelerate program with its very subcomponents bet it our star path incubator, our developer platform, our FinTech Express onboarding program, all of that has put us in a position of leadership as you said, so we have that today. But post COVID in a more, an even more digital world is going to be a competitive landscape that’s fluid. So we have every intention to stay ahead here and continue to innovate around that. And yes, I feel positive about that. If you look at some of our recent wins. Apple card isn’t so recent anymore but the digital first construct of the Apple Card there have been more wins. Thinking back around the end of the second quarter, our prepaid co-brand card called Credit Sesame in the US talking about large digital companies or telcos, Samsung. With Samsung, the SoFi Samsung MoneyCard in the US; the Samsung Pay Card this curve in the UK.

And then on the super wallet size, since you brought it up specifically, Grab. So Grab is a Southeast Asian of super wallet. It’s the financial — the supermarket, I would argue; they’re issuing with us in the Philippines and buying a lot of services from us a great partnership over there. I could say the same about PayTM in India. And in the past we talked about partnerships with WeChat and Alipay in China.

So that’s all really fantastic. I’m very happy with our progress on the FinTech side. But it makes us what we learn out of FinTech and how we become more agile and how we grow along with them, makes us a different company, which makes us more interesting with our existing partners and our existing partners who are battling or partnering with FinTechs themselves are coming to us and say, well, you got all these partnerships, what can you do for us? So the recent launch of the Shades Freedom Flex Card, if you look at some of the digital benefits in there, they’re coming from our digital partnerships. So what is happening on the FinTech side helps us on our traditional customer segments just as much, which is a virtual circle.

Bryan Keane

Got it? Wanted to move to the B2B front, which you mentioned earlier? I know you guys recently announced a commercial launch of Mastercard track business payment service in the US. Can you just talk about the strategy in the B2B space and how you’re going to market with this solution?

Michael Miebach

Yes, so I’m happy. All puns intended that track is on track. We said to you in September at the Investor Day, we explained the logic here, two sided network, a solution that facilitates easier payments between suppliers and buyers with more with as much data as needed, with much as much transparency as needed with simplicity for reconciliation purposes and so forth. At the time, we put out a pilot and into the market in US with a focus on the restaurant, the restaurant vertical.

And it’d be said we would launch in the first quarter and I have to say I was amazed by our work. We had our Mastercard labs function, actually create the platform, build it out in 90 days and get it into the US market is that in the biggest pandemic, that we’ve all seen together, so we went live in the market 13 launch partners, global payments, Avid, CSI, Pfizer, and many more. And the attraction here for these partners who were all somewhere in the B2B space but decided to partner with us was this view that together by creating a two sided ecosystem, there is a path to scale that’s easier to achieve then each and every one of them could achieve in isolation, either by focusing on buyers and suppliers, which is generally a nature of their business, only one side, what do we bring into the party? It is a supplier directory, over 200 million entries and tells you who are you trying to pay and where do they stand in terms of the compliance record?

A pricing and payment preference engine they — sometimes a medium sized company could say I want all my money amounts over $500,000, they got to come with ACH plus full data and as quickly as possible and something else I want over batch VCN something else over VCN, so just choice in payments and outsourcing the headache. That’s what this platform can do. Our first step into that was with a B2B hub that we partner on with Avid where we have an investment.

All of this comes with a data switch. This is the key differentiator here is a data switch that brings an ISO20022 full data regardless of the underlying choice and payments, which addresses the whole reconciliation, transparency, what have I paid, whatever been paid for et cetera. And then of course, all of this is not helpful if you’re offering choice but then you don’t have a path to choice on multi rail capabilities. So we started with VCN in the US, but it’s going to go ACH. And it’s going to go from domestic into cross border. Plan is to be live in other regions by the end of the year, at least for the pilot and every one of the regions. So I’m pretty excited about the proposition as such the strength of the starting partner set; the interest in the other regions. But I’m also realistic to tell you that this is going to take some time to build a network like this out, but I’m encouraged by our first significant steps forward here. Commercial transactions are flowing as we speak.

Bryan Keane

Great. I know in the last earnings call you talked about growth in services business being strong, and I think it was continuing to outpace the core business in the second quarter. Can you just talk about a little bit the strength in services and why it’s so important to Mastercard and maybe I think a lot of us thought that services would be weakened by the pandemic but it still remains strong to our surprise.

Michael Miebach

Yes, services as I said, they have been out growing our core business for a while and then continued to do so. Second quarter saw that again. What do we have? What is even a service and Mastercard so it’s good consulting; it’s our Cyber Intelligence Services, it’s data analytics capabilities. We also have loyalty and rewards capabilities and some processing capabilities. And the whole idea is beyond the payments can we find a path to end-to-end solutions? I have more presence in the full vertical payments value chain. So we want to be that one stop shop partner. So I can play the scale game on payments. We are — we have the acceptance to do that. But also can I win the differentiation game and that not only in the payments competitive landscape, but another competitive landscape of loyalty rewards providers, other data analytics companies and so forth. So I think what we’ve done is we found the right kind of services that benefit from us being present in the underlying transactions. So the fact that we are in the underlying payment transaction makes our service more valuable.

And the fact that we have a service can then make the payment better again, and you start to see the picture this in your mind, it’s a flywheel. So the combination of participating in the transactions and having a service that makes the transaction better is the whole idea.

And to your specific point about in COVID, what would you have expected? With underlying transaction growth being partly affected by the crisis; we talked about what we’ve seen over the first quarter and second quarter and so forth. And it’s turning again with this modest improvement that we’re seeing. There are services that are decoupled from that. Because you want safety on all payments all the time, you might even want more safety; for example; our RiskRecon acquisition. So RiskRecon in a world that is pushing fast for a more digital world, a lot of new businesses coming on and pushing into multi channel. I create online businesses saying, oh my god, I need to find out what is my cyber vulnerability. That’s exactly what RiskRecon does. Ethoca is another interesting one. So Ethoca, they try to prevent manage merchant fraud.

We looked at them initially in the crisis as being exceptionally helpful to prevent chargeback because they each pass data on to the merchant in a way to say, is this — how can we address the chargeback before it comes a chargeback? Then people got interested into Ethoca and said well, what else do they do? So then we saw an increase in Ethoca for a whole range of other services, including digital receipt management.

On the data analytics side, again, there is quite a set of capabilities that are not linked to transaction growth or changes in the number of transactions. And that is our test to learn capability that is indeed, the most interesting asset on the data analytic side in a time of absolute crisis, every customer need a bank, be the merchant, be the government wanted to understand how this crisis is hitting my environment, my business, my industry, my country.

But once you do that, once you know how you’re affected, you want to have a conversation of what you can do about it; this test and learn comes in and say, let’s play out some campaigns. Let’s play out how this stimuli package is actually affecting or would be affecting your economy. And then you go and say, all right, that’s fantastic. I got hooked on this because this really works. Let’s now talk about recovery as we come out of the crisis. So Test & Learn, great hook for us. You see the downstream impact on consulting is of course that triggers consulting opportunities for us, et cetera. One recent example that close to home here in New York is the partnership for New York City. We are regularly providing data recovery insights out of our data analytics into that partnership. And hopefully we can make a difference here as well. So services, there is a linkage and we love it for that into our transaction business.

But there’s quite a range of them which are decoupled and the combination of them is a bit of a sweet spot for us that has worked really well. If you look ahead; what else could services do for us, particularly our cyber intelligence services allow us to in the short run; it will provide solutions like health pass, which is a kind of fraud proof way to prove that you have vaccines or that you have been tested in a way that leverages the existing acceptance infrastructure, which then is you think that forward, we have some number of conversations here with governments around that and private sector entities of different countries around the world. But the conversation naturally leads to a broader conversation around digital ID. And here, our pilot Australia has proven to be very, very insightful for us. Whether you had private sector and government partners together; so services going beyond what we have today is going to continue being in focus. Last thing, I should say on services back to differentiation to help us win deals.

I think I give you a whole range in the second quarter call on deals that we won without the commercial bank, Santander and a few others where it just makes our offer that true one stop shop offer that I was talking about because we have end- to-end solutions.

Bryan Keane

Got it, wanted to ask about open banking. I know it’s an area you focused on even previously in your build phase. And you guys just made an acquisition there, I think it’s Finicity. So can you talk a little bit about the strategy there? And what Finicity brings you guys?

Michael Miebach

Yes, so open banking. Just to kind of a quick backdrop; I’m sure everybody’s familiar, but it is in the end about creating a world where an account holder, be the bank account holder, and eventually will the other older so it will be about not only open banking but open data and account holder can benefit from the data that they have in their accounts. So if I have data in my bank account, and I want to use that to obtain better financial services than my bank, where I have the account with can provide then that might be better. This is where the regulators in Europe have pushed the European Union with payment systems directives. So this is the way that they’re going. In the US, the market is on the same path, but it was organically driven by really consumer demand into fintechs to finding ways to access bank account data even without banks being directed to or willing to engage. So that’s the landscape. This is a train that has left the station open banking is here, it’s real, it’s going to stay.

And we looked at this and said, oh, what role can we play here? And the role of a trusted intermediary is needed. You have many banks and you have even more fintechs trying to engage with consumers consent on bank account data. If you map this out in your mind, it looks like a spaghetti plate. There is no multilateral network as we have created it on the card side. So that trusted intermediary to connect all the fintechs to the respective banks and vice versa, leveraging an appropriate technical standard permission API’s is our approach and our preference here.

That is an important role to play. Then you think about what we just said about services. Once we’re the trusted network in the middle, you look at the needs of people on either side; big banks, big consumers be it fintechs. There’s a range of needs that will be common; for example, around the cyber security space for things like your loyalty solutions as if I’m FinTech that provides a personal wealth management app. I want to connect into my customer’s bank account, I might want to have a loyalty program to entice them to transact in my app, and where could that come from? It could come from Mastercard. So premium API’s, on the top of a connectivity role that we play, kind of trust role is the strategy. In Europe, we did this organically. We built it brought to market last year. We’re in 11 countries, 2000 banks connected already. In the US with the incumbency, this is littler harder to do. So we went the route of acquisition and hence we bought Finicity. What we like about 0:35:09.0 is they are — they have established connectivity through API’s, but also through other methods that is best in class, particularly on bank connectivity. So we like that. But what we liked even more is that they look at this idea of giving control to the consumer in a very principled way.

So the approach to open banking that Finicity had was around data management, consent management, you’re doing all of this in a way that it addresses consumer problems, but it also has the banks involved in the transparent business model as well as the fintechs was unique in the market is no other player that operates is like that; they have actually taken a step forward and said, well, why don’t we create some sort of a broader movement around it. So they created the SDX financial data exchange standard. They chatted for a while, they, you know, and now it’s a much broader movement. So right kind of approach, love that. The final bit here is data quality. So they move data between bank accounts in aggregated fashions to fintechs.

This has to work all the time, and it needs to be reliable data. And their approach to this has been, as far as we could say, as we were scanning the market better than anybody else. So from all these aspects, Finicity is the right partner. We clicked — we just clicked with these guys. Closure, end of the year. That’s what we’re working through right now. So I’m excited about to welcome them to the family.

Bryan Keane

Want to ask about another acquisition; obviously, the big one is the Corporate Services net business. Looks like you guys are close to approval there but maybe you can just give us the update on when the deal should close and what net springs you and then maybe finally to add on that would just be the M&A strategy beyond Finicity and that’s another deals you’re looking at.

Michael Miebach

Yes, so on nets, we announced the intent to acquire last year; so a lot of time has passed. The idea here is we have Vocalink who is was very well positioned when it comes to real time payment infrastructure solutions i.e. countrywide systems then to clearing and settlement of real time payments. They have a quite a wide ranging set of applications that run on this infrastructure from Bill — from Bill Pay from pay buy is straight from an accountant, pay by account, et cetera. And they have built out quite a successful set of services. So you could ask, we have everything that we need. The point is this is a very far reaching movement, the move to real time payments, better speed, better data, a lot of countries looking to monetize their payments stack. We see real time payment is the way to go. So from a speed to market perspective as well as further bolstering our talent; we said we need to look for comparative assets that we could add Nets was by far the leading provider that was still out there. So between Vocalink and net, I think we have what it takes. Nets bring on the infrastructure side capability of — for nimble systems. So for smaller markets, that’s a nice addition to the large scale customized solutions that Vocalink can bring for large markets. They also have their own application which complements ours, strengthened bill pay, for example, in e-invoicing, and some online, some open banking.

So it’s very additive and puts us in a fantastic competitive position when it comes to real time payments and gives us what we need to respond to all these opportunities right now, when it’s happening. Now, in terms of the approval, I’m really pleased that we found a solution with the European Union in terms of approvals here. So we have conditional approval from the EU. That’s great. The condition is really that we have agreed to provide a net technology license to a third party along with some transition support. And we’re just working through that. The one thing that I would say here is in terms of what that means is our ability to compete on the infrastructure side where this license is for the infrastructure. And it is for the European Union only.

So what that means is we can compete in the European Union with Vocalink we can compete outside of the European Union with either Vocalink or Nets depending on works from us, what works for us. There is no additional commitment to the EU and applications or services. So the key elements of the deals in terms of the synergies that we are looking for have not been affected by this commitment. So we are happy we file the solution. I think it works and ensures that this remains a competitive market for — in the European Union. So, one thing that I have to say which a change is where we were before. We do not, as we work this through; we do not expect this transaction to close this quarter. So that’s the update on that. You added the light question —

Bryan Keane

Yes. I was just asking about M&A and other tuck-in acquisitions. Is that something you guys would continue to do? The pipeline looks full of new deals.

Michael Miebach

Yes. So on that front; I talked about the strategic trends earlier. Services will continue to matter, multi-rail will continue to matter. Open banking will continue to matter and will apply same logic that we have here for Nets. If there is a time to market advantage that we can get by pursuing in an organic option we’ll do that. Broadly speaking what we strive to get to is having true end-to-end solutions and leveraging our global reach at the same time. So we talked about Ethoca earlier. Ethoca is exactly that. It extended our solution set to a more end-to-end solution set. And we can now power Ethoca solution to our global network of over a 100 offices around the world. So we will continue to be acquisitive around these key areas. And, yes, you’ll see more of that from us.

Bryan Keane

Right. We have two minutes left. I had a couple of questions. I am going to do wrap it two — I am just going to pick two here questions. And if you can do these fire this off. One question is just asking about controlling operating expense growth and recovery. Do you still see expenses to grow slightly under net revenue growth even when you have eventually when cross border comes back? You’re going to have a lot of profitability. And then second quick one, I know this is impossible here but just asking about update on China and entering China.

Michael Miebach

Yes. Okay. So on the operating expenses; you’ve seen us very disciplined. I used to term earlier. We are going to continue to try to operate in this sublime fashion going forward. And it has worked so well for us throughout the year. The levers that we pull was A&M, it was T&E; it was professional fees and we continue to do that in way that we could preserve our expense situation to allow to continue to fund our strategic initiatives. Because as we said there are trends of work which are going to be tailwinds and we have to be ready to leverage our tailwinds as much as we can. But we will continue to adopt our expenses in light of what we are seeing. So the guiding principle remains the same and will remain the same for the quarters to come that if there is no market readiness and no customer demand, we are not going to put things out there. We will put them on hold. And where there is demand we will put them forward. So, I think so far the recipe has worked and we’ll keep that in mind going forward.

On the — on China, so we are — I am answering this question the backdrop off not the most straightforward US China relationship as context. But as far as our business is concerned in China, we got our pro forma approval on our license to switch domestically in China. We are working right now with our JV partner NUCC to build out the technology to be ready. And we said it will take us a about year so that it will be into early next year to go back to the People’s Bank of China to request formal approval. Right now, there is no indication that there is any change to that timeline. In meantime, others building technology; teams are busy building out acceptance.

So as and when we switch domestically that Chinese cardholder finds relevant choice in terms of acceptance points. An important point to make here on China which makes me optimistic about our choice in JV partner; so NUCC to domestic switch, part of their ownership is you’ll find digital, large digital super apps, Chinese super apps in the ownership, so here as you start to think about their existing relationships with large banks but also through the NUCC partnerships we have, we can further build on those relationships with those market players as well which puts us nicely in the middle here. So, that is looking optimistic; so far we are progressing along those lines while broader geo political things are being discussed by other people.

Bryan Keane

Yes. Exactly. All right, Michael. That was excellent. Thanks so much. Thanks for taking the time. I know you got a busy schedule, great for the update and we’ll stay in touch. Stay healthy.

Michael Miebach

Thanks Brian. Take care. Thank you everybody. Bye, bye.

Question-and-Answer Session

Operator

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