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Mastercard Incorporated (NYSE:MA)
Q2 2018 Earnings Conference Call
July 26, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mastercard second quarter 2018 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, please press * and the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you.

Mr. Warren Kneeshaw, head of Investor Relations, you may begin your conference, sir.

Warren Kneeshaw -- Executive Vice President of Investor Relations

Thank you, Krista. Good morning, everyone. Thank you for joining us for our second quarter 2018 earnings call. With me today are Ajay Banga, our President and Chief Executive Officer, and Martina Hund-Mejean, our Chief Financial Officer. Following comments from Ajay and Martina, the operator will announce your opportunity to get into 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 accompanies 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 currency-neutral basis and exclude special items unless otherwise noted. Both the release and the slide deck include reconciliations of non-GAAP measures to their GAAP equivalents.

Please note that due to our decision to deconsolidate our Venezuelan entity starting this year, we are providing additional information regarding our switched transaction and card growth rates. The adjusted growth rates eliminate Venezuelan switched transactions and card counts from prior periods so that you can better understand the underlying growth rates of our business. Our comments on the call today will be on the basis of these adjusted growth rates. These are the only supplemental operational metrics which are significantly impacted by the deconsolidation.

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 our 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 President and Chief Executive Officer, Ajay Banga.

Ajay Banga -- President and Chief Executive Officer

Thank you, Warren. Good morning, everybody. Our strong performance continued this quarter with net revenue growth of 18% and EPS growth of 48% versus a year ago on a currency neutral basis and excluding special items. Even if you exclude the impacts of the accounting changes and the acquisitions that affect year-over-year growth comparisons, our underlying net revenue growth was 14% and operating income was up 26%. These results were achieved while investing for the future and reflect solid underlying business fundamentals and the continued execution of our strategy by all our employees around the world.

Let's start with the macro-economic environment as usual. We continue for now to see solid overall growth. However, we are keeping close tabs on the potential impacts of reduced fiscal stimulus by central banks and the increased trade barriers, which as you all know, could impact global economic growth over the longer term.

In the U.S., economic growth remains positive with low unemployment and healthy consumer confidence. Retail sales are strong and our quarterly SpendingPulse estimates are up 4.7% versus a year ago, ex-auto ex-gas. As this does represent a slight decline sequentially, primarily due to the weather at the beginning of the second quarter and difficult comparisons over last year.

Conditions in Europe are stable overall, although we do remain concerned about the potential impacts of Brexit. Consumer confidence in the U.K. has been declining and we have seen some deceleration in U.K. retail sales growth rates year-over-year, according to SpendingPulse data. In contrast, consumer confidence in the Nordics and Germany remain strong. In Latin America, there's still some question marks. In Mexico, although the elections are now behind us with a clear verdict, policy uncertainties remain. In addition, exchange rate volatility continues, primarily related to the NAFTA renegotiation. In Brazil, concern over the upcoming October elections has, I think, contributed to the deprecation of the real.

We are monitoring a few potential headwinds in Asia, trade tensions, rising U.S. interest rates, and oil prices are weighing on sentiment in some countries, including China and Korea. In the Middle East and Africa, on the other hand, recovering oil prices are generating some optimism in oil-producing countries. So, overall, there are some geopolitical and trade-related risks that we are keeping a close on. But as of now, they've had limited impact to date, and global economic trends remain generally positive.

Against that backdrop, we are driving healthy double-digit volume in transaction growth in Mastercard across most of our markets, with momentum across our core products and services. Let me give you a few examples, starting in the United States, where we continue to make excellent progress with core brands. By leveraging our differentiated data and analytics capabilities, we won the L.L. Bean consumer credit card brand and we also renewed our long-standing relationship with Hawaiian Air, for both consumer and business core brand cards.

We expanded our portfolio of PayPal core brands with the new Venmo consumer direct card, which as you know, will enable Venmo users to cash out their balances and use those funds online or in store, wherever Mastercard is accepted.

In addition, we are partnering with leaders in the healthcare industry such as Anthem, as they move their prepaid consumer spending accounts to Mastercard. And on the commercial side, we recently extended our agreement with J.P. Morgan Chase. We are very pleased to continue this strategic relationship with one of the largest banks in the market.

Going to Europe and building on some of the significant wins we've been announcing over the last few quarters, we've continued to secure renewals and new business with customers. An example is Crédito Agrícola, where the team in Portugal will be flipping their consumer credit and debit business to Mastercard. Crédito Agrícola also leveraged our LaunchPad service, which enabled them to work closely with Mastercard teams and using design thinking, to rapidly develop a prototype for their new digital bank.

On the topic of digital banks, we continue to drive digital payment solutions with Challenger Banks, including to an expanded consumer and commercial debit partnership with M26 in Germany. In Latin America, we have customers in a number of markets who are leveraging the solution that we've developed that combines our Mastercard Black premium credit product with our cross-border travel rewards, which provides a very powerful valuable prop for their affluent customers.

Banco Popular in Puerto Rico, for example, has chosen to leverage Mastercard's affluent solutions, including differentiated rewards, benefits, and marketing assets for the bank's customers, as well as advisors consulting, managed services, and data analytics to optimize their cash back, airline co-brand, and other Mastercard portfolios.

In Asia, we continue to pursue single-branded issuance in China by renewing relationships with large issuers, such as China Construction Bank, and by winning new targeted portfolios like Bank of China's newly launched women's card and the Bank of Communication affluent youth card. We are also very pleased to establish an expanded relationship with Standard Chartered Bank across 11 markets in Asia, including Hong Kong, Singapore, and India.

Moving to the Middle East and Africa region. We're so pleased that we've deepened our strategic partnership with several key customers. For example, we've renewed and extended our agreement with National Commercial Bank in Saudi Arabia, winning exclusive, new, commercial issuance and maintaining exclusivity in prepaid and credit, with advisors and loyalty services embedded as part of the deal.

On the product front, we are executing on our commercial strategy, including by building out new products and scaling existing solutions, such as our In Control virtual cards platform, smart data, and the Mastercard B2B hub that's powered by AvidXchange, which as you know, optimizes accounts payable payment for small and medium-sized businesses in the U.S.

We are expanding our accounts payable automation capabilities to mid-sized and larger businesses, and are further leveraging existing partners, such as [inaudible] and in the second quarter, we also launched In Control for commercial payments and business travel in Italy with Nexi, a partner that will help us build scale in that new geography for us. Over time, we expect these and our full suite of commercial solutions to be very valuable tools for our partners and their customers.

We're working on the fact that providing choice to customers, merchants, and bank partners is essential to our business, and that includes offering capabilities that reach beyond cards, such as with account-to-account transactions. Let's give you a couple of examples on the progress we've made this quarter. First, the example of our ability to combine our proprietary assets to offer one convenient end-to-end solution is the recently announced U.K. launch of Mastercard Send.

Now, that's our push debit solution, which is combined with VocaLink's real-time payments capabilities. That fully integrated solution will enable financial institutions, fin-techs, digital customers, and other businesses to send real-time payments to U.K. bank accounts and also receive payments from U.K. bank accounts. The connection of Mastercard Send to the faster payments network enables a variety of use cases, including P2P payments and B2C disbursements in a seamless way.

Additionally, we expect to expand the reach of pay-by-bank app through the launch with HSBC later this year. Worldpay makes this capability available to its merchant customers in the U.K. starting early next year, early 2019. As I've spoken about in the past, the pay-by-bank app enables consumers to make online payments for goods and services via a mobile banking app and directly from their bank account with no need to link a card. Worldpay's reach, together with our existing distribution arrangements with Barclays and ViAcard I think will provide a significant U.K. acceptance footprint for this new capability.

Finally, we continue to advance our secured digital solutions. The Worldpay partnership I just referenced is actually much broader and it's focused on expanding acceptance and making digital payments more convenient and secure. As you may have seen in Worldpay's announcement last week, our relationship will extend to tokenization, Mastercard Send push-to-card disbursement solutions, and support of [inaudible]'s secured and more common framework for a common check-out partner. So with that, let me turn the call over to Martina for an update on our financial developments and operation metrics. Martina?

Martina Hund-Mejean -- Chief Financial Officer

Thanks, Ajay. Good morning, everyone. Turning to Page 3, we are very pleased to deliver another strong quarter, even when you exclude the 2 ppt tailwind from foreign exchange to net revenue and the 3 ppt to net income, which is primarily due to the appreciation of the euro since last year.

I will now highlight the numbers on a currency neutral basis and also exclude special items related to litigation provisions, most of which we had already announced in late June. Net revenue grew 18%, driven by strong underlying performance, and includes a 4 ppt benefit from the new revenue recognition rules and acquisitions. Excluding this, underlying revenue growth was 14%. Operating expenses increased by 6%, which includes a 6 ppt increase due to the new revenue recognition rules and acquisitions. Operating income grew by 28%, or 26% if you exclude the revenue recognition and acquisition-related impact that I just noted.

Net income was up 45%, reflecting strong operating results and the impact of the U.S. tax reform, which contributed approximately 7 ppt to this net income growth. EPS was $1.66, up by 48% year-over-year, with share repurchases contributing $0.03 per share. During the quarter, we repurchased about $1.5 billion worth of stock and an additional $279 million through July 23, 2018.

Let me go to Page 4. Here you can see the operational metrics for the second quarter. Worldwide gross dollar volume, or GDV growth was 14% on a local currency basis, similar to last quarter. We saw solid double-digit growth across most regions. U.S. GDV grew 9%, down 1 ppt from last quarter, and was made up of credit and debit growth of 8% and 11%, respectively.

Outside of the U.S., volume growth was 16%, similar to last quarter, primarily due to the Europe and Asia Pacific. Gross dollar volume grew at a healthy 19% on a local currency basis, driven by double-digit growth in all regions, with the strongest growth contribution coming from Europe. This was down 2 ppt from the first quarter due to lower cryptocurrency purchases and one less switching day in Q2. This was in line with our expectations.

Turning to Page 5 now, switched transactions continued to show strong growth at 17% globally, normalized to exclude Venezuelan transactions, as we no longer consolidate that entity. We saw healthy double-digit growth in switched transaction across all regions, led by Europe and the U.S. In addition, global card growth was 7%, again normalized for Venezuela, and globally, there are 2.4 billion Mastercard and Maestro-branded cards issued.

Let us go to Page 6 for highlights of a few of the revenue line items, again described on a currency neutral basis unless otherwise noted. The 18% net revenue increase was primarily driven by strong volumes and transaction growth, as well as growth in services. The new revenue recognition rules and acquisitions contributed 4 ppt to the growth rate. Excluding these impacts, underlying net revenue growth was 14%. This solid growth was in line with our expectations as an increase in deal closings and implementations in Q2 caused rebates and incentives to pick up from Q1 levels as planned, and we lapped the VocaLink acquisition at the end of April.

Looking quickly at the individual line revenue items. The domestic assessments grew 22%, while worldwide GDV grew 14%. The difference being primarily due to the impact of the new revenue recognition rules. Cross-border volume fees grew 18%. But cross-border volume was up 19%. The 1 ppt gap is mostly due to higher [inaudible] Europe growth. Transaction processing fees grew 20%, primarily driven by the 17% normalized growth in switched transactions, as well as revenues from our various service offerings. Finally, other revenues grew 13%, driven by increases in our advisors and safety and security services.

Moving on to Page 7. You can see that total operating expenses increased 6%, excluding special items on a currency neutral basis. Underlying operating expense growth was 7%, primarily related to investments and strategic initiatives, such as digital infrastructure, safety and security platforms, data analytics, and geographic expansion. The difference of 1% relates to the nearly offsetting effect of a 7 ppt benefit associated with FX hedging gains and a 6 ppt impact related to the new revenue recognition rules and acquisitions.

Let me turn to Slide 8. First, let's discuss what we have seen for the first three weeks of July, where our drivers are generally similar to what we saw in the second quarter. The numbers through July 21 are as follows. Starting with switched volume, we saw global growth of 15%, similar to the second quarter, with solid growth in all regions.

In the U.S., our switched volume grew 11% and outside the U.S. it grew 19%, both similar to what we saw in the second quarter. Globally, switched transaction growth was 17%, the same as in the second quarter with healthy growth in each region. With respect to cross-border, our volumes grew 18% globally, down 1 ppt sequentially due to slightly lower growth in Europe and Asia Pacific. This is in line with our expectations and as a reminder, we anticipate facing more difficult cross-border comps in the second half of the year.

Turning to our thoughts for the full-year of 2018, which I will describe on a currency neutral basis, excluding special items. Frankly, not much has changed, with the exception of foreign exchange. As you heard from Ajay, although we are monitoring certain macro-economic factors, they have yet to show up in the numbers and global economic trends are generally positive. Our business fundamentals remain strong, as we had a solid first half, and we continue to expect year-over-year revenue growth to be in the high teens. As a reminder, this growth includes the impact of the new revenue recognition rules that we adopted in 2018, and the full-year effect of acquisitions.

With the strengthening of the U.S. dollar, we now expect foreign exchange will be a benefit to revenue of between half a ppt to 1 ppt for the year. We had previously estimated a 2 ppt benefit. This means that we expect FX will be a headwind in each of the next two quarters.

On operating expenses, not much has changed. Although we had some foreign exchange hedging benefits in Q2, we continue to expect year-over-year expense growth to be in the mid-teens. This growth includes the impact of the new revenue recognition rules, the full-year effect of acquisitions, and our investments in our Center for Inclusive Growth.

For Q3, we do expect marketing expenses to increase sequentially and total operating expenses to grow in line with our annual expectations. With that, let me turn the call back to Warren to begin the Q&A session. Warren?

Warren Kneeshaw -- Executive Vice President of Investor Relations

Thanks, Martina. Krista, we're now ready to begin the question-and-answer session.

Questions and Answers:

Operator

Certainly. At this time, if you would like to ask a question, please press * followed by the number 1 on your telephone keypad. Again, that is *1 on your telephone keypad.

And your first question comes from Bob Napoli with William Blair. Your line is now open.

Robert Napoli -- William Blair -- Analyst

Thank you very much. Two questions, if I could. One on VocaLink and then one on Mastercard Send. First of all, are you comfortable with the trends in VocaLink? Ajay, there are several contracts there and I think some of those contracts are up for bid. Is there some risk of losing part of that business or in expanding it? What are your thoughts on VocaLink? I just wondered, does Mastercard Send, do you view that as the equivalent of Visa Direct and the opportunities to be the same? Thank you.

Ajay Banga -- President and Chief Executive Officer

First of all, VocaLink is doing well. We're actually happy with all the underlying trends, as well as the opportunity that we see with VocaLink in other parts of the world. We've got VocaLink in both licensed software form, as well as a little more role to play in different countries. In Sweden and Thailand, PromptPay is run by VocaLink software. In fact, our business in Thailand is benefiting not just from the relationship with the Central Bank of Thailand that comes from the ACH work there, but also on debit.

And so, VocaLink and us, I think that's working the right way. The contracts that VocaLink has in the U.K. and specifically, what I think you're referring to, they actually got an extension on the largest one out until 2022. But look, all contracts are competitive. They come up for bidding. People are going to bid against us and we're going to try our best to extend it beyond that and keep winning them. And there will be some that you win, some that you won't. Right now, things are OK with VocaLink and they look good. The expansion opportunities with VocaLink look good. That's the first part of the story.

The part about Mastercard Send. Mastercard Send is a loosely used term to include both the ability to move money from a card to a card, but also in combination with VocaLink's capabilities from an account to an account, and also in combination with our JV with HomeSend -- to many sends in these words -- but with that JV, you also have the change to move the money to mobile phones and the like around the world. So, when you look at the capabilities that you've got together, it's not just the card-to-card capabilities, it is the account-to-account and also to mobile phone numbers. That, I would believe, is far superior to what most other institutions can claim to have once you actually dig into the details of what we're capable of doing. That is what we're trying to put together.

For example, in my opening remarks, I talked about the U.K. There, it's a combination of the card-to-card but also VocaLink's faster payments network link to be able to do account-to-account payments. That's what gives you the P2P business case and the P2C disbursement business case. So, my belief is it's the combination of assets that matters and the choice that we provide to banks, and merchants, and governments. What us they can get what they want out of their combination, like a menu-driven approach.

So, all in all, I'd say that we're in a good place with VocaLink. I like what I see we're doing elsewhere. I think in the U.K. we're doing well with VocaLink. I think the opportunities of the combination of assets of Mastercard Send, VocaLink, and, in fact, the HomeSend JV, all that put together is really a good plus for us.

Robert Napoli -- William Blair -- Analyst

Thank you very much.

Martina Hund-Mejean -- Chief Financial Officer

Bob, let me just add a couple of operational stats on some of the Mastercard Send rails. We have access to more than 3 billion bank accounts in over 100 countries. We have fairly rapid growth rates, albeit still on a very low base.

Robert Blair -- William Blair -- Analyst

Thank you very much.

Operator

Your next question comes from the line of Craig Maurer with Autonomous Research. Your line is now open.

Craig Maurer -- Autonomous Research -- Analyst

Thanks. I was hoping two things -- you could comment, one, on U.K. PSR's report that was published two days ago on acquiring, if you can just give your thoughts on the broader industry from that. And secondly, if you can comment on the outage that was recently reported. What caused that and if there will be any impact we should think about for third quarter?

Ajay Banga -- President and Chief Executive Officer

Hi, Craig. First of all, for third quarter, nothing. The U.K. PSR's report, by the time they actually get together and analyze all the aspects of the U.K. card acquiring services and that practice, that's going to take a fair amount of time to work our way through it. Look, what typically the PSR does is they will do a broad assessment of the market. They'll figure out is it working properly? Is it delivering the outcomes they want? They're going to look at all the range of factors related to the services which acquirers provide to merchants. I think this whole thing of the year, two years in the making for them to get to that.

I'm sure they'll also want to talk to us about, even those we're not an acquirer, they'll want to talk to us about the role we play in that whole ecosystem. That's a good thing. I actually believe that transparency and a dialog around the role we play, the role acquirers play in the ecosystem is great in a market like the U.K.

As far as the outage is concerned, honestly, the outage was for a short period of time. It related to extra traffic on a server in certain sites got zapped after that. We were back to normal soon after that and moved right on. So, I don't even know that you'll see an impact in any quarter out of that kind of an outage. That's not really an outage. It's a slowing down of the approval rate of transactions, the speed of approval of those transactions in a period of time which lasted for an hour to an hour and a half, depending on which part of the market you were in.

Craig Maurer -- Autonomous Research -- Analyst

Thank you.

Operator

Your next question comes from the line of Darrin Peller with Wolfe Research. Your line is now open.

Darrin Peller -- Wolfe Research -- Analyst

Thanks, guys. Just first question is really around the margin sustainability. When we back out some of the M&A adjustments, it looks like it was pretty flat and margins were-I mean, expenses were generally flat. Margins look pretty strong. Give us your thought process on that and rationale and strategy of whether or not you still think that could just be a side effect of what you need to invest and grow revenues versus letting it expand. Then just quickly, Martina, on the tax rate expectation for the year, if you don't mind updating us on that.

Martina Hund-Mejean -- Chief Financial Officer

I'll do the last one because it's easy. It's just basically a same repeat of what I said at the last quarter. It's going to be 19% to 20% given all the benefits that are running in from the U.S. tax reform, as well as on the [inaudible] businesses that we have, what kind of minimum margin profile should we have as a company, which is that 50%+ that you get to hear from us when we iterate our three-year financial performance targets.

What we do is we take the extra margin that we are making on the core business and investing it very significantly in terms of expanding and the other things that we have been talking about. One is the services. Many of these different services have actually lower margin, other than safety and security front services, but we're investing in that still heavily, such as data analytics, such as loyalty, etc., and that will continue to happen. The second expansion that we have been talking about in a fairly significant way since our last investor day in September of 2017, is the investment that we're doing in the B2B space. Remember the $120 trillion of opportunity which we are taking certain slices of the opportunity and those kind of investments will continue to stay with us.

So, no changes. When you see some margin expansion coming through from time to time, there are really two factors. One is our revenue line happens to be higher than what we set up in the budget. We're not going to be able to course correct that quickly to be taking the extra dollar to be investing it in additional investment. And No. 2, you should be expecting that over time in our services line items, the margins are going up, simply because we're going to run more volume over that.

Ajay Banga -- President and Chief Executive Officer

The services business, you've heard me talk about just a little while ago. Somewhere in there's first question I think I talked about Thailand and PromptPay and ACH and debit. By doing all those things with the Central Bank of Thailand, not only are we doing the fast ACH and the debit switching partnership, we're also running our services through them, which gives us scale. Be it safety and security, be it other kinds of data analytics.

What that does is it gives us a much broader, wider relationship and that is what we're investing our money into, is to create the stable system of having broader, wider relationship beyond just the core payment transaction revenue stream that used to be in this company the primary source of revenue 8, 9, 10 years ago. That's what we're trying to build. Then to get to scale with those services, as Martina said, you expand the margin on each of them as you go along.

Operator

Your next question comes from the line of Lisa Ellis with MoffettNathanson. Your line is now open.

Lisa Ellis -- MoffettNathanson -- Analyst

Good morning, guys. I was hoping to drill in a little bit on your purchase volume growth number. If I'm looking at it, it looks like FX neutral purchase volume growth was about 15.5% in the quarter, which our quick look back looked like we hadn't seen a number close to that since about 2012. So, could you just parse apart a little bit what's driving that acceleration and in particular, is this underlying secular cash displacement? Is this e-comm-related acceleration? Is this share gains? Is this, you know, some early impact from Mastercard Send? What would you call out?

Martina Hund-Mejean -- Chief Financial Officer

Lisa, Mastercard Send is, as I said before, that's still a relatively low base. So, that is not really driving the numbers. The numbers are really driven by our core business and all the good work that all of our employees are doing around the world. So, when I start with the U.S., you can look at the numbers, and I know you're talking purchase volume. I really generally talk gross dollar volume because it shows the entire deal of the company and what we're going after. But you obviously see in the United States really nice step-up, both from a credit and a from a debit point of view, as you're looking over the last 5, 6 quarters.

That is we have been talking about the U.S. in terms of winning quite a few businesses. In particular, in the co-brand space, we're starting slowly but surely to getting all these wins coming into the numbers.

When you look at overseas, we actually had terrific growth in many of the regions. Europe is obviously outstanding. I mean, you can see those numbers every year. There's really no change in terms of how Javier and the team are going after those kind of businesses. We will be added down the road a little bit more in the U.K. because some of the U.K. businesses that we have won and a couple of other countries. But I would suspect that would just continue to be providing this fantastic double-digit growth trend that we're seeing from a volume perspective in Europe.

When you go to Asia Pacific, Asia Pacific -- I'm throwing Middle East/Africa in it -- as Ajay talked a little bit this morning, there's some ups and downs in it. We have seen China, still good growth, but it's in the high single-digit kind of range at this point in time. But you're seeing from the other countries really good growth that's additive. By the way, in India, if I were to do a list, I mean, it's almost a 30% growth rate at this point [inaudible] still, some with the benefit from the demonetization. Middle East/Africa, some of the numbers have been starting to come back, simply because the countries feel a little bit better as they're oil-producing.

Then when I look at Latin America, that is where you see a bit more challenge, in terms of the numbers. While you might think that the domestic volume is OK, we have from a cross-border point of view, a bit of a challenge because of the devaluation of the currency, particularly of the real. By the way, my comment for the third and the fourth quarter where I said that we probably will see tailwinds on the foreign exchange, is mostly related to the real, not really to the euro.

Ajay Banga -- President and Chief Executive Officer

Only two things I'd add to that Lisa. One is that the U.S. --

Martina Hund-Mejean -- Chief Financial Officer

Pardon me, headwinds. Let me just say, I said tailwind, headwind. I'm sorry.

Ajay Banga -- President and Chief Executive Officer

Headwinds. The only thing I'd add to that is in the U.S., remember we also won affluent product like the Capital One Savor card and Bank of America cash rewards card. Those issuings are beginning to happen. You will see results of that. In India, we have actually done very well on debit growth. Last quarter, I talked about Bank of Baroda. This quarter, actually, I didn't mention it, but I was there a little while ago, we signed a deal with Bank of India. These are large, public-sector banks. We already had the State Bank of India and a bunch of others. Our debit business in India is doing well. Our ability on debit to be seen as a real partner for growth is good.

So, I'd say you're seeing the result of both secular movement in a country like India, but you're also seeing in a lot of the countries around the world some of the impact of some of the business wins of the last few years. I would be a little cautious about cross-border in some places because of both foreign exchange. We're also a little cautious about the impact in China and Korea right now caused by what's going on with Central Bank actions and oil prices and the like.

Lisa Ellis -- MoffettNathanson -- Analyst

Terrific. Thank you.

Martina Hund-Mejean -- Chief Financial Officer

You had one more question which was e-commerce. I just want to add to that. E-commerce continues to grow in a terrific way. For this quarter, it was about 24%.

Lisa Ellis -- MoffettNathanson -- Analyst

Perfect. Thank you.

Operator

Your next question comes from the line of Tien-tsin Huang with J.P. Morgan. Your line is now open.

Tien-tsin Huang -- J.P. Morgan -- Analyst

Thanks. Good morning. Just to build on your answer to Lisa's question. I'm curious on the timing of some of the new wins like L.L. Bean, Santander, Bank o f America, as you mentioned. Have we seen those kick in yet? I think some of that comes in next year, I know. Then also, as a quick follow-up, I know you mentioned some Challenger Bank wins, like M26 in Germany. Why have you guys done so well, do you think, with the Challenger Banks? I know Revolute and even Venmo PayPal, etc. issued under Mastercard. Why is that? Thanks.

Ajay Banga -- President and Chief Executive Officer

Tien-tsin, the first part, [inaudible] are all rolling and you know this business well and you know how it comes. I would tell you that the L.L. Bean stuff is very early stages, very, very. It's just begun, literally. The U.K. wins, TSP, Santander, they are all early next year. They're actually just not even coming yet. That's why in Lisa's answer I was saying you should expect to see more of these recent wins roll in later, but some of these earlier wins are showing up today. So, it's the nature of the mix of our business.

I think that on the whole, the trends on our share growth, as well as secular movement, are helpful to us at this stage. The aspect of digital banks. I actually believe that the reason we're winning digital banks is just that in addition to our good looks, we're guys who actually care deeply about the fact that the environment, the ecosystem is adapting and changing around the world, where digital banks are having a role to play that's smaller today. They're offering a different product sentiment, a different construct. You have to be capable of flexibly moving your product offering and your benefit system to suit what they want and the hold as valuable as compared to what a merchant may hold or a different kind of bank may hold. It's just different strokes for different folks.

I'm a believer that our future will be built on choice and on offering bundled solutions. Those are the two things I've very focused on building -- choice across every category of payment. So, we want to digitize every form of payment and we want to allow every form of payment to be available as a one-stop shop from us. You want it, we've got it. That's the approach that we're trying to use. You combine that with bundling both payments with all these other services solutions that a number of the newer banks want. They don't have capabilities of self-paid, fraud management, data analytics, processing, loyalty and rewards. If you can try and bundle these things together, then you get a good, attractive conversation going with them. I think that's probably what's helping us right now.

Tien-tsin Huang -- J.P. Morgan -- Analyst

All right. Good to know. Thanks a lot.

Ajay Banga -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Sanjay Sakhrani with KBW. Your line is now open.

Sanjay Sakhrani -- Keefe Bruyette and Woods -- Analyst

Thanks. Good morning. I'm just following up on VocaLink. I believe there's also an initiative to overhaul the fast ACH infrastructure. Ajay, could you just talk about how that might affect VocaLink and maybe it's positioning there? Then just one quick question on FX. Martina, I know you mentioned the cross-border volumes were in line with expectations and they were obviously quite strong. I'm just curious if there's any signs of impact from a strengthening dollar. Thanks.

Ajay Banga -- President and Chief Executive Officer

I was in the U.K. last week or the week before. This idea of looking at the fast ACH infrastructure is actually not something that's got either clarity or dimension to it. VocaLink, the faster payment system, the banks are all talking to the payment systems regulator and the others there about what the future of faster payments in the U.K. should look like. What other feature functionality should be built into it and the like. So, as far as I'm concerned, even if you look at VocaLink itself, the technology being used to drive faster payments in the U.K. it's scale, scope capability, speed, number of transactions, the amount of data that flows and back and forth with each transaction. You compare that to what currently we are bidding with in other markets with VocaLink and already there's a difference because that technology is moving very fast.

What we do is we build in another place and we roll that technology back into the prior market. it's a bit like we do with Mastercard. When new releases go back and they build the quality of the original infrastructure in the older markets as well. Honestly, we're involved with that discussion. I don't whether it's got legs here or not. I don't know what the dimensions will be, but we're very deeply embedded and involved with all conversations on faster payments in these countries.

Martina Hund-Mejean -- Chief Financial Officer

On the strengthening dollar question, we're seeing a bit of an impact on U.S. acquiring, so it's still double digits. It's in the low teens. It used to be high teens last quarter. Really what we're seeing is inbound from LAC and from Asia Pacific tempering a little bit. So, early days. We'll see if that has more legs.

Warren Kneeshaw -- Executive Vice President of Investor Relations

Krista, we're ready for the next question, please.

Operator

Your next question comes from the line of Harshita Rawat with Bernstein. Your line is now open.

Harshita Rawat -- Bernstein -- Analyst

Hi, good morning. Thank you for taking my question. Ajay and Martina, I want to ask about QR codes. As you know, QR codes dramatically reduce the cost of payments acceptance and it does appear that many emerging markets such as India will evolve to use that as one of the payment methods. I know you have the pilot QR code standard, which you are rolling out in other emerging countries as well. So, my question to you is, how do you envision competing with very nimble local players and internet giants in the QR code front when you often have to rely on banks as a distribution channel in many markets?

Ajay Banga -- President and Chief Executive Officer

So, first of all, QR codes reducing acceptance costs drastically. Let us parse that statement a little bit. What it actually does is reduce the initial capital cost of installing a terminal in a merchant's store, as compared to a QR code system which could be a static code which is put on a merchant's counter; which, by the way, has all kinds of issues involved with ensuring that it is managed well. Compared to a dynamic code which could be generated and put onto a mobile phone either by the merchant or the consumer and clearly has more security features built into it. That capital cost is substantial in terms of an older terminal, which could cost $500.00. But that capital cost is not that substantial a difference when you're comparing it to a dongle, like a Square dongle, or someone else's dongle.

So, what I'm trying to get across to you is the actual story around the cost of acceptance of QR codes needs to be understood in its entirety, not in one of the buzzwords that get passed out by companies that believe that QR codes are the answer to the future of mankind on acceptance. I would tell you that acceptance growing from current 50 million merchants to get it to the next 50 million or in to go from the current India 3 to 4 million, which is a dramatic growth over the 1 million of a year ago, to get to 60 million, which is the opportunity in India, that QR codes may not be the only solution. It'll be a mix of dongles, QR codes, and terminals that'll go through the system.

Within QR codes, it will be static QR codes versus dynamic QR codes and within dynamic QR codes, it'll be consumer-presented ones versus merchant-presented ones. That is a fairly complicated ecosystem. I'm not trying to compete with somebody else building out their own QR code. I'm just trying to say when you've got that kind of complexity, there is a benefit in having standardized ways of rolling these out.

The standardized way of rolling out QR codes that EMVCo is putting out there, which as you know, is supported by all the members of EMVCo, which include Visa, AMEX, Discover, but also China Union Pay, is that we are trying to put these standardized QR codes out there as a way of making it simpler for acquirers and merchants to integrate one time, as compared to multiple times. Not different to the story of secure remote commerce to single checkout button online, which also is trying to take away from the complexity of merchant and acquirer integration for online payments.

So, I kind of view all this as a developing ecosystem and I view us as being people who place bets on every one of these acceptance expansion systems as compared to picking winners and losers because our job is to create standards that the rails can be built on so that we can get to scale. I am participating in all of these activities. Whether it's in India with BharatQR. Whether it's in other markets across Pakistan, Africa, parts of Asia where I consider this to be a real opportunity, but I want to do it with standardization and I want to do it with safety and security and I would prefer to do it therefore in collaboration not just with banks, but, for example, in India with the payment banks.

We're only out there with a bunch of offers with ETel Bank and with the Indian Post Office Bank for quite a while in India. Not now. We're doing ETel Bank sort of issuing and acquiring for a while. To be honest with you, I think of QR codes and SRC as an ongoing evolution of acceptance efforts, just as dongles were a great evolution from the older terminal.

Harshita Rawat -- Bernstein -- Analyst

Perfect. Thank you very much.

Operator

Your next question comes from the line of Ashwin Shirvaikar with Citi. Your line is now open.

Ashwin Shirvaikar -- Citigroup -- Analyst

Thanks. Hi, Ajay. Hi, Martina. You guys mentioned the global deal with Worldpay. So, a two-part question related to that. One is any thoughts on pay-by-bank rolling out beyond the U.K. and the opportunity there? Secondly, maybe use the tokenization comment to kind of parse out the monetization opportunity associated with tokenization broadly?

Ajay Banga -- President and Chief Executive Officer

So, on the tokenization and monetization. We don't either try to monetize tokenization by charging a fee for it. Neither do we force that method of steering any transactions around that. That is not our way. Our attempt with tokenization is to raise the level of water in the river so that the [inaudible] finds it tougher to swim. You don't do that by charging fees for raising the level of the water. What we are trying to do here is make it safer for the industry as a whole.

The effort is to get digital transactions and then card and file transactions and then eventually every account-to-account-based transaction. You have the benefit of a secure cryptogram protected token in front of you. That's the visualization of where we are going over the next few years. That's the journey we're on and I think that's a journey most people in the industry are on. It's a way of raising the level of the water in the river. That's the idea.

So, back to pay-by-bank. Pay-by-bank is a really interesting idea, but you've got to make sure that it has real acceptance in the marketplace. In the U.K., it's very early days because it's only now with HSBC, Barclays, WorldPay as I mentioned, the wildcard guys, and I'm beginning to think of the U.K. having a certain amount of scale, being attached to rolling out pay-by-bank, at least for online purchases for consumers to pay with their mobile banking app.

I consider pay-by-bank to be an interesting app in other markets where let's assume, if there is an ACH or fast ACH system in a country in which we cannot play directly -- somebody else is outbidding that fast ACH, then we have a choice. We could help get that fast ACH to operate more like a scheme by providing chargeback dispute management, revenue sharing rules, and then add the app on top of it. Or if the scheme is also running locally, still provide the app to our member banks and to merchants and non-banks, digital players as a way to get to enable consumers to pay directly with their bank account.

I view pay-by-bank as having many different roles, only one of which is the U.K.-type role, where they're also the infrastructure. There could be roles in other markets where they're not the infrastructure or where they're part of the infrastructure. You will see over the next few years effort on this space. These things have a longer gestation period because it's a difference in the way bank or a merchant has to interact, as well as a difference in the way the consumer has to think about paying.

The same thing is true of commercial B2B things. This these don't change on a dime. You put our product, you put out capability, and then you've got to work you way into ecosystem for people to care about them and switch onto to them and scale. Both pay-by-bank and our commercial efforts are things we're putting into the pipeline for the next 3, 4, 5, 6 years of driving our revenue.

Ashwin Shirvaikar -- Citigroup -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Jim Schneider with Goldman Sachs. Your line is now open.

Jim Schneider -- Goldman Sachs -- Analyst

A question on your B2B strategy for a moment. Could you maybe talk about your sales and distribution strategy for B2B? You talked a lot about the technology solutions in the past, but can you maybe talk a bit more about the ways you're going to market? Is it sufficient for you to go to market through partner banks? Do you intend to open up other distribution channels or maybe even direct distribution channels? Then collectively, when might the B2B opportunity start to be material in terms of revenue where it's notable to us on the P&L? Is that 2, 3, 5, or more years out?

Ajay Banga -- President and Chief Executive Officer

It depends what you mean by B2B. B2B is a very big word. Inside that, it's thought that it's very material in our P&L today, which is our commercial card business. [Inaudible] cards, fleet cards, virtual cards, that is material today in our business. Growing handsomely. Giving us good margins and, in fact, delivering good returns for us, not just domestically but also cross-border.

Then there's the B2B space that comprises of things we could do with Mastercard Send or VocaLink or HomeSend, as I was talking earlier, or combinations of those. Those products are both for consumer reasons, but also B2B, also B2C, also P2P. That stuff is what you see over the next 2, 3, 5 years being done.

The distribution channel for that, as compared to the traditional commercial business, the distribution channel for that is, in fact, very effective through banks because of one very simple reason. Most banks tend to be focused on larger-sized transactions in the cross-border B2B space. There is a great deal of space in the relatively smaller cross-border B2B space, which is inefficient both in terms of the [inaudible] settlement times involved, involved, but also relatively inefficient in terms of the data that is exchanged at the point of payment and the fraud opportunities that exist in that system. All of which we can bring to the party through these larger banks as their partner to extend their target market as well.

But there's also other ways of getting to that marketplace. There are ways of getting to that marketplace which go through distribution channels run through a digital company, but very often they will need partner banks anyway because those companies are not banks and without being a bank, how do you operate a digital or other cross-border P2P or B2B business of exchanging money? You need banks in the system.

So, you have to be careful about what you mean by distribution. Does distribution mean getting to get someone to start understanding the product to then use it? Or does distribution mean that the rails still need banking to run? I will tell you, in most places, the rails still need banks to run them. The question is how you get them to those SMEs or those middle-sized companies. You could do it directly through banks or you could do it in terms of change that you could utilize over time. We're doing all. We're doing all of them. For we believe that banks are great partners in this case because they need to play the role where the money needs to be exchanged. They play a very critical role in that process.

Martina Hund-Mejean -- Chief Financial Officer

Jim, first of all, what Ajay mentioned in terms of our commercial business that we already have, I just want to remind you it's about 11% of our global volume, so clearly significant. In 2017, it grew in the mid-teens. The secondly, in terms of the distribution channel and how Ajay had described it, a real example of that is what he has actually mentioned in his remarks, which is AvidXchange. AvidXchange works with the distribution channel of the bank, so we can avidly bring the power of those relationships to it and making sure that these great products are getting to the smaller companies and medium-sized companies. That does not mean that AvidXchange is not working and we are not working with other fin-techs, but it has to get distributed to those small companies and the connection point is through their banks.

Ajay Banga -- President and Chief Executive Officer

I'm really glad you asked this. You take, for example, the work we do with commercial payments. We've partnered with WEX for the last 15 years across multiple geographies, and multiple verticals: travel, cable, media. We're growing our business together in both those verticals and emerging verticals. We're doing joint business develop campaigns with them. We do virtual card acceptance initiatives. We've done research studies with them focused on travel trends and vertical deep dives. So, actually, partners like WEX, partners like [inaudible], partners like ENet, these are interesting and incredible ways to distribute the product that we've been building for the years that I can recall being a part of this company.

Jim Schneider -- Goldman Sachs -- Analyst

Thank you.

Operator

Your next question comes from the line of Andrew Jeffrey with SunTrust. Your line is now open.

Oscar Turner -- SunTrust -- Analyst

This is Oscar Turner on for Andrew. Just had a follow-up question on B2B payments and the Avid partnership, specifically. I was wondering if you can provide insight on how the B2B hub is progressing versus your internal expectations and I guess, specifically, how is the bank partnership and merchant pipeline looking? Also, could you give any color into the feedback you've been receiving?

Martina Hund-Mejean -- Chief Financial Officer

First of all, we told the market some time ago that the product is first rolling Fifth Third. It has started to roll out. And so we are going to see what kind of feedback we are getting, but obviously they are a key client and depending on how it's going, it's very early days. We're talking literally a few weeks that it has been in the market. Depending on how this is going, we actually have a whole pipeline of clients stacked up that are also wanting to expand on this product. Remember, this is a product that goes really for mostly small and medium-sized companies and there are only two handfuls worth of banks in the United States who are really reaching those kind of clients, and those are the ones that are interested in it. But first, we're going to have to get through the initial couple of months with Fifth Third.

Ajay Banga -- President and Chief Executive Officer

I actually think of the B2B hub as having incredible applicability as an idea in markets in Asia and the like as well, because that's where SMEs drive a very large part of the business, both domestic and export. It's close to 60, 65% of the GDP of some of those countries comes out of the SME export and manufacturing capability in those countries. And so you will have to do it differently there. That's why this requires a real [inaudible] both in terms of technology and partnerships to the earlier question. We are deep in the midst of that.

Warren Kneeshaw -- Executive Vice President of Investor Relations

Krista, I think we have time for one final, quick question.

Operator

Your next question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.

Warren Kneeshaw -- Executive Vice President of Investor Relations

Dan, are you there?

Dan Perlin -- RBC Capital Markets -- Analyst

Can you hear me?

Warren Kneeshaw -- Executive Vice President of Investor Relations

Yes.

Dan Perlin -- RBC Capital Markets -- Analyst

Warren Kneeshaw -- Executive Vice President of Investor Relations

Now we can't.

Ajay Banga -- President and Chief Executive Officer

Dan, you went off again.

Operator

Dan, your line is open.

Warren Kneeshaw -- Executive Vice President of Investor Relations

Dan, we're having trouble. I think we'll just go to the next caller. Sorry.

Operator

Your next question comes from the line of Jason Kupferberg with Bank of America Merrill Lynch. Please go ahead.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

-- tell us when we'll get an update and extension of the long-term guidance. I know it expires at the end of this year, but we're --

Warren Kneeshaw -- Executive Vice President of Investor Relations

Sorry, Jason. We're having a little trouble hearing you, but I think the question is when will we update the long-term guidance?

Martina Hund-Mejean -- Chief Financial Officer

Jason, yes. At the end of this year, the long-term guidance will have run out. That is our three-year guidance. I told the market that I would like to make sure that we have a little bit more time with the revenue recognition rules so that we really understand how that is going to roll into the future. You should be looking forward, after we are closing off 2018 for our new long-term guidance. Again, it will be a long-term guidance period that we will be putting out.

Warren Kneeshaw -- Executive Vice President of Investor Relations

Thank you. Ajay, do you have any final comments?

Ajay Banga -- President and Chief Executive Officer

Yes, just a few closing thoughts. We've delivered a strong first half to the year as we continue to execute on what we've been discussing as our strategic priorities with you. I think we're pleased with our deal momentum. That came up in a number of questions a little earlier, in both consumer and commercial as we strike new relationships and expand existing ones. We're focused on building our product capabilities, all aimed at providing choice to consumers, to merchants, to bank partners, including solutions that reach beyond cards.

The services that we provide to advisors, loyalty, data analytics, and our fraud management systems and processing continue, I believe, to differentiate our business and provide a great support to our core payments operation. With that, thank you all for your continued support for the company. Thank you for joining us today.

Operator

This concludes today's conference call. You may now disconnect.

Duration: 62 minutes

Call participants:

Ajay Banga -- President and Chief Executive Officer

Martina Hund-Mejean -- Chief Financial Officer

Warren Kneeshaw -- Executive Vice President of Investor Relations

Robert Napoli -- William Blair -- Analyst

Craig Maurer -- Autonomous Research -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

Tien-tsin Huang -- J.P. Morgan -- Analyst

Sanjay Sakhrani -- Keefe Bruyette and Woods -- Analyst

Harshita Rawat -- Bernstein -- Analyst

Ashwin Shirvaikar -- Citigroup -- Analyst

Jim Schneider -- Goldman Sachs -- Analyst

Oscar Turner -- SunTrust -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

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