Key questions and answers from the third quarter earnings call conducted by MasterCard Inc. on October 31, 2007.
Adam Frisch (UBS): Should we expect a bigger focus on expenses going forward?
Robert W. Selander: We have always had a good focus on expenses and we are going to continue that going forward. As we go through the budget process, we are reviewing opportunities from all over the world and have interesting things to invest in in order to build this franchise over time.
Adam Frisch (UBS): What are the likely impact in Europe of a ruling from the governing body on cross-border interchange?
Robert W. Selander: The European Commission has said that it is going to issue a decision regarding MasterCard’s European cross-border interchange fees. They could come out with a negative ruling and if that’s the case, we are likely to appeal that. We are examining various scenarios around the possible decisions that might be rendered.
Elizabeth W. Grausam (Goldman Sachs): What percentage of your total transactions are cross-border and how has that trended over time?
Robert W. Selander: We process all of the cross-border, and it tends to be less than 5%. Certain markets have the propensity to travel, so it may be higher for a given country.
Christopher Mammone (Deutsche Bank): What has changed on advertising spending assumptions?
Robert W. Selander: In 2006, we had a very big second quarter as a result of the World Cup spending taking place in that year. We will have a more normalized pattern this year where traditionally, the fourth quarter tends to be the heaviest ad and marketing spend.
Christopher Mammone (Deutsche Bank): At what point does the weakening dollar affect international travel trends by U.S. consumers traveling over to Europe?
Robert W. Selander: We continue to enjoy robust cross-border volumes of business. Europeans traveling to the U.S. have one of the strongest currencies and for them, the U.S looks like a bargain basement. On the other hand, the U.S. traveler to Europe is not spending as much because it is more expensive.
Chris A. McWilton: Outside of the U.S., there are large areas where we do not process, we only assess based on volume. When the dollar is weak it might help us in that when people travel across the border, we would get transactions processed that we might not otherwise process.
Tien-Tsin Huang (J.P. Morgan): Is the revenue yield level sustainable going forward?
Chris A. McWilton: The fourth quarter revenue yield tends to be our lowest revenue yield seasonally, because in that period, we are doing a lot of incentive arrangements and promotions with merchants.
Next year we are cautiously optimistic that we can continue to see good cross-border growth helping to sustain that momentum, and again, we do not see any cliff or precipice when it comes to that revenue yield on a short-term basis.
Tien-Tsin Huang (J.P. Morgan): Longer term, can revenue yield move higher, assuming you capture more operation fees internationally?
Chris A. McWilton: Yes, we have the highest yield and we are processing the transaction, generating cross-border or currency conversion fees on that. Ticket sizes tend to be higher for cross-border activities.
Craig Maurer (Calyon Securities): Any comments regarding SEPA and the conversion that will continue throughout Europe?
Robert W. Selander: There are clear timetables that were established but there is a level of uncertainty for issuers and acquirers, particularly surrounding the commission’s lack of support and lack of a decision with regard to interchange.
Despite that, we are making good progress. We have half of our 600-million plus Maestro cards around the world in Europe, and we have had very positive developments in Switzerland and Austria in terms of movement to Maestro.
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