Mastercard Incorporated

Mastercard Incorporated

$564.76
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Financial - Credit Services

Mastercard Incorporated (MA) Q4 2013 Earnings Call Transcript

Published at 2014-01-31 09:00:00
Executives
Barbara L. Gasper - Former Director Ajaypal S. Banga - Chief Executive Officer, President and Director Martina Hund-Mejean - Chief Financial Officer
Analysts
Christopher C. Brendler - Stifel, Nicolaus & Co., Inc., Research Division Craig J. Maurer - CLSA Limited, Research Division Jason Kupferberg - Jefferies LLC, Research Division Bill Carcache - Nomura Securities Co. Ltd., Research Division Moshe Orenbuch - Crédit Suisse AG, Research Division Robert P. Napoli - William Blair & Company L.L.C., Research Division David Togut - Evercore Partners Inc., Research Division Darrin D. Peller - Barclays Capital, Research Division Daniel R. Perlin - RBC Capital Markets, LLC, Research Division Kevin D. McVeigh - Macquarie Research Bryan Keane - Deutsche Bank AG, Research Division Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division Kenneth Bruce - BofA Merrill Lynch, Research Division David S. Hochstim - The Buckingham Research Group Incorporated Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division Donald Fandetti - Citigroup Inc, Research Division
Operator
Welcome to the MasterCard Fourth Quarter Full Year 2013 Earnings Conference Call. My name is Clifford, and I'll be your operator today. [Operator Instructions] Please note that this conference is being recorded. I'd now like to turn the call over to Ms. Barbara Gasper, Head of Investor Relations. Ms. Gasper, you may begin. Barbara L. Gasper: Thank you, Clifford, and good morning, everyone. Thank you for joining us for a discussion about our fourth quarter and year-end 2013 financial results. With me on the call 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 the queue for the Q&A session. Up until then, no one is actually registered to ask a question. This morning's earnings release and the slide deck that will be referenced on this call can be found in the Investor Relations section of our website, mastercard.com. The earnings release includes reconciliations of non-GAAP measures to their GAAP equivalents. The release and the slide deck have also been attached to an 8-K that we filed with the SEC earlier this morning. A replay of this call will be posted on our website for 1 week through February 7. All of the EPS figures in our press release and those discussed on today's call are presented on a post-split basis, consistent with the SEC's reporting requirements following our 10-for-1 stock split that was effective at market open on January 22. In order to provide a bridge for you between the pre-split and post-split EPS figures, we have added a page in the Appendix section of the slide deck that breaks out the 2013 EPS by quarter and full year, as well as the 2012 figures recalculated on a pro forma basis. Finally, as set forth in more detail in today's earnings release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance. Actual performance could differ materially from what is suggested by our comments today. Information about the factors that could affect future performance are summarized at the end of our press release as well as contained in our recent SEC filing. With that, I will now like to turn the call over to our CEO, Ajay Banga. Ajay? Ajaypal S. Banga: Thank you, Barbara. Good morning, everybody. So we're very pleased that we were able to deliver strong results in 2013. And those results basically were in line with our expectations. Our net revenue growth was 13%, both as reported and adjusted for FX. It was driven by solid operational performance in processed transactions, in gross dollar volume and cross-border volume growth. And we were able to deliver some margin growth in spite of investing more back into the business. For the full year 2013, excluding special items, we saw net income growth of 15%, or 14% adjusted for currency, and reported EPS growth of 19% or 18% on an FX-adjusted basis. And then for the fourth quarter, we came in about where we thought we would, even after signing more agreements than we had anticipated, some of which I will talk about in a moment, as well as putting money and investing some money back into the business. I'll let Martina get into the quarterly financial details a little later. So let's go to the global economic trends, starting with the United States, where it seems like the economy is beginning to show a bit of forward momentum. Our SpendingPulse data that showed that U.S. retail sales growth x auto for the fourth quarter was 3.9%, and includes the fact that holiday retail sales grew faster than last year with particular strength in the A&M commerce space. Economic indicators, such as housing and employment, also showed some improvement during the quarter, and consumer confidence bounced back from what was the low of October. We saw an increase in our United States business in the fourth quarter with volume growth of 7%, driven by improvements in consumer credit and in debit. In Europe, overall economic growth in the fourth quarter remained subdued, although there are some indicators of a potential recovery. Consumer sentiment continued a slow but very steady climb, as did business sentiment across our major markets. Northern Europe continues at a solid footing. Southern Europe is moving up, although it's coming off a lower base. Key contributors to our 14% fourth quarter volume growth in the region were Russia, Sweden, the Ukraine and Poland. In Asia Pacific, consumer and business sentiment levels declined in the fourth quarter across major markets, including Australia. In addition, worries about slowing growth in China go beyond being just a domestic issue and have broader implications, as you all know, for other markets that depend on Chinese demand. In Latin America, economic growth slowed a bit in the fourth quarter with consumer confidence declining in both Brazil and Mexico. But across the rest of the region, it was fairly positive. So despite these sluggish economic indicators in both regions, our Asia Pacific, Middle East, Africa GDV growth was 20%, and our Latin America growth was 17% in GDV, with transaction growth in the high 20s and the high teens, all for -- was a high 20% for Asia Pacific, Middle East, Africa, high teen for Latin America, all relatively similar to previous quarters. The fact that we had a significant proportion of our growth in emerging markets comes from the secular shift to electronic payments, which I think is relatively uncorrelated to some of the economic cycles that we see the emerging markets currently going through. Overall, it feels like the U.S. and Western Europe markets where we generate well over half of our revenue are slowly starting to regain their economic footing. The general consensus is the U.S. should have a decent economic growth in 2014, and there is increasing optimism about Europe. As these developed markets recover, it could be a catalyst to spark further growth in Asia and Latin America. So now, before we go to the business highlights, let me say a few words on the legal and regulatory front. In December, as you know, Judge Gleeson issued final approval of the U.S. merchant litigation settlement. We anticipate that most of the larger merchants who opted out will initiate separate actions. And based on that analysis, we have taken a $95 million pretax charge in the fourth quarter. The cases filed to date are in the early stages, but most have been consolidated under Judge Gleeson's court. Also, in mid-January, both the Federal Reserve and the merchant claim desk presented oral arguments to the appeals court in response to Judge Leon's July decision on the Fed regulation around implementing the Durbin Amendment. But the Appeals Court will likely issue a ruling sometime in 2014. And with regards to the proposed European legislation, you've probably all seen the Rakuten [ph] amendments to the EC's initial proposal. But you should know that there are also more than 300 amendments submitted from other members of Parliament. So the process is quite complicated. A committee of Parliament will now deliberate and vote on all of this in late February. And a vote by the full Parliament is currently scheduled for April. Also in late February, the Council of Ministers is expected to start a separate parallel review of the legislation. So we kind of continue to believe that the time line for final adoption appears ambitious. But obviously, we are watching that situation very closely on the ground. We were disappointed to learn yesterday that the Advocate General of Luxembourg issued an opinion siding against our appeal of the European Commission's 2007 decision regarding our intra-Europe cross-border interchange rates. The court now has to rule, and we'll find out what they'll say at some point this year. But keep in mind that we had already modified these interchange rates to 20 and 30 basis points for debit and credit, respectively, in mid-2009. So in effect, this changes very, very little in that space for either the banks or the merchants or us as of today. So now, let me move on to some of our recent business activity. As I mentioned, we finished the year signing even more deals than we anticipated, which is good. It sets us up well for future growth. But let me just sort of call out a few of these that I personally found interesting. So first, we were very pleased to be able to continue and, in fact, enhance our partnership with Citi on the American Airlines portfolio. That's an important co-brand for both of us. As you know, American Airlines is now the world's largest airline after its recent merger. Second, we recently completed a new agreement with Chase for their U.S. commercial card portfolio, providing corporate purchasing and fleet cards for their customers across many industry sectors, and these customers range from midsize companies all the way up to large multinational corporations. In December, we also renewed our agreement with the Bank of Montréal, which for us is a very important partner in Canada and the United States. And in fact, in the U.S., we expanded our relationship to include consumer credit. And we also recently extended our agreement with Tesco Bank. And as you know, Tesco Bank is a part of the third largest retailer in the world for their U.K. consumer credit card portfolio. That's a very good partnership for us with lots of future scope for expansion. And finally, capping off a year of advancements in Africa, from a $13 million identity card pilot being launched in Nigeria that we've talked about to the NedBank conversion in South Africa, we have now recently signed an agreement with Ecobank. Ecobank is the largest pan-African bank. It has a presence in 23 countries in Africa, reaching 65% of Africa's population. The bank will now issue our debit, credit, prepaid and other payment solutions. And also, it allows us to expand our acceptance in these markets. Meanwhile, MasterPass. Momentum in our MasterPass continues. And by the end of last year of 2013, we are now live in 5 markets with actually many more in the pipeline. You probably saw our U.S. advertising campaign with J.Crew and MasterPass over the holidays. But we also had a number of other major global retailers agree to accept MasterPass, including Brooks Brothers, Always [ph], Live Nation, Ticketmaster, Singapore Airlines, that brings the total number of merchants to more than 30,000 with most of them already live. We're continuing to add new banking partners around the world as well, including Unicredit in Italy; the 3 largest banks in Sweden, SEB, Swedbank and Nordea; and Caixa in Brazil. And this adds on to ones we signed up in previous quarters, such as the [ph] one in MasterPass. Now another big area of focus for us is processing. And that goes beyond our traditional role of switching transactions but also includes providing processing services on either side of that switch to surround the transaction. Now some of you heard from Gary Flood at Investor Day back in September, the more transactions we touch, the greater our ability to deliver a wide range of services and generate additional revenue. Touching a transaction, even if we don't switch it, can be very valuable to us. So let me give you a flavor of a few recent initiatives in this area. We have now completed our acquisition of Provus, a provider of issuer and acquirer processing, prepaid solution and ATM processing services in Turkey. That's going to enable us to increase our processing presence in the high-growth markets in the European region. TREVICA, an issuer and acquirer processor in Poland, will provide processing services to all the largest retailers in Portugal. In the first half of this year, that retailer is expected to roll out a new store card that will be able to accommodate credit, prepaid, private label and installment payments. And we recently announced a partnership with BICS, B-I-C-S, a Belgian telecom company, and eServGlobal, a mobile money solutions provider. We have formed a joint venture that will enable their HomeSend platform to connect to any financial institution across the MasterCard network. That service is already offered in 50 countries with mobile network and money transfer operators. And as we build our P2P initiatives, this joint venture, along with our relationship with Western Union, gives consumers more places to send money, both domestically and internationally. And finally, before I hand this over to Martina, let me talk about the topic of safety and security of payments, which has received a great deal of attention given all that's happened in the recent past on data breaches. In last quarter's call, we discussed safety and security in some depth. The fact is, this is fundamental to everything we do, and it's what consumers expect and what they deserve. In the United States, migration to EMV is a necessary and critical step. It makes stealing data much more difficult. And also, it makes stolen data less valuable to a fraudster. That's why we announced 2 years ago our plan for the U.S. migration from mag stripe to chip technology starting October 2014. Earlier this month, we reiterated that we are holding firm to that date because we believe it's the right thing to do. Beyond the 0 liability protection, for which our rules already provide, consumers should not be at risk of having their personal information stolen and face enormous inconveniences and distress as a result. While EMV works to protect in the physical space, we also do need to make sure that we are ahead of this issue in the digital space. And that is why we announced tokenization standards with all our other partners back in October. What we would now like to see is that all players within the payments ecosystem come together with a sense of urgency to ensure that the highest payment security standards are put into place. This is not easy, but it's key to doing the right thing and sustaining consumer confidence and trust. So with that, let me turn the call over to Martina for a detailed update on our financial results and operational metrics. Martina? Martina Hund-Mejean: Thanks, Ajay, and good morning, everyone. As Ajay already said, we are very pleased with our 2013 performance of 13% net revenue growth. EPS growth was 21%, adjusted for foreign exchange and normalized for discrete tax benefits in 2012, which is consistent with the calculation of our long-term EPS performance target. I will now focus on the details of the fourth quarter results, excluding the $95 million pretax charge that we took this quarter related to the opt-out in the U.S. merchant litigation. Let me begin on Page 3 of our slide deck. And here you'll see the differences between as-reported and FX-adjusted growth rates for this quarter, ranging from 0 to 2 percentage points for each line item. And all of my comments today will pertain to the FX-adjusted growth rate. So net revenue grew 11%, driven by strong underlying operational metrics but primarily offset by an increase in rebates and incentives as a result of signing a significant number of agreements in the quarter. Based on our net revenue and operating expense growth, net income increased by 11%. EPS growth was 16%, benefiting from our share repurchase program. During the fourth quarter, we purchased 9.8 million shares of Class A common stock at a cost of approximately $750 million. Quarter-to-date through Friday, an additional 4.2 million shares were repurchased at a cost of approximately $350 million with $3.3 billion remaining under our current authorization. We continue to look to repurchase shares on an opportunistic basis. And cash flow from operations was $1.2 billion. And we ended the quarter with cash, cash equivalents and other liquid investments of $6.3 billion. Now let's turn to Page 4, and here you can see the operational metrics for the fourth quarter. Our worldwide gross dollar volume, or GDV, was up 14% on a local currency basis to over $1.1 trillion. U.S. GDV grew 7% with credit volumes growing 6%. U.S. commercial credit growth was in the low teens, down from last quarter. U.S. consumer credit growth of over 3% was about the same level as what we saw last quarter. And our U.S. debit growth was 9%, driven by solid growth across our consumer and commercial debit and prepaid programs. Now outside of the U.S., volume growth was 17% on a local currency basis. And this continues to be driven by Asia Pacific, Middle East, Africa with 20% growth and mid- to high-teens growth in both Europe and Latin America. Cross-border volume grew 18% on a local currency basis, including more than 20% in Latin America and Asia Pacific, Middle East, Africa and growth in the mid-teens in Europe. Let's turn to Page 5. Here you can see processed transactions growing 13% globally to more than $10.4 billion. We saw double-digit growth in most regions around the world with particular strength in our Asia Pacific, Middle East, Africa region, driven by Australia and South Africa. And compared to last quarter, this growth rate was down slightly. However, when normalizing for the number of processing days, processed transaction growth for the fourth quarter was similar to what we saw in the third quarter. Globally, the number of cards grew 9% to almost 2 billion MasterCard and Maestro-branded cards. Now let's turn to Page 6 for some insights on our revenue. We're very pleased with the 15% growth in gross revenues, which was in line with our expectations and driven by increased volume and transactions, along with some contribution from pricing. In addition, beyond the 2 functional currencies that we adjust for, revenues were slightly impacted by the strengthening of the U.S. dollar and the euro versus other currencies. However, net revenue growth of 11% came in a bit lower than expected as a result of signing more deals in the quarter, which Ajay already called out. So the rebates and incentives line increased by 23%, but we view this as a good thing for long-term revenue growth. Growth in domestic assessments continues to be driven primarily by stronger volume growth outside of the United States, much of which comes at a lower yield. And one last note on revenue. Excluding pricing, cross-border revenue growth was 12%. The resulting GAAP between cross-border volume and revenue growth continued to be mainly due to the higher mix of intra-Europe activity. Moving on to Page 7. You can see that total operating expenses were up 11% in the quarter as we took the opportunity to reinvest more back into the business, similar to what we did actually in the third quarter. First, the 12% increase in G&A expenses continues to be primarily driven by investments related to all aspects of our growth strategy, including initiatives such as MasterPass and tokenization. Part of our investment was in people, and we ended 2013 with approximately 8,200 full-time employees, up 9% from year-end 2012. And what's more interesting is that the people that we've been hiring for the last couple of years are coming from sectors such as technology, retail, consumer goods and government, which has been helping us to execute in these areas. Second, advertising and marketing was up by 8% mainly due to higher customer marketing support and media spend. And while not on these slides, I would like to note that the other income-expense line was $9 million negative, i.e., it was an expense, in line with our expectations and primarily due to a number of our joint ventures, such as the 2 with Telefónica. As we ramp up these initiatives, you can expect this line to continue to be negative. Let me now turn to Slide 8, and here we discuss first what we have seen in January through this past Tuesday. Each of our business drivers were flat but slightly higher in the period compared to the fourth quarter. So the numbers through January 28 are as follow. Globally, our cross-border volumes grew about 18%, and that's about equal to our fourth quarter growth rate. In the U.S., our processed volume grew 9%, about 1 percentage point up from what we saw last quarter, due to improvements in consumer credit. Processed volume growth outside of the U.S. grew 17%, and that's also a slight increase over the fourth quarter. In particular, our European processed volume growth was in the teens, a continuation of the growth rate that we saw throughout 2013. Globally, processed transaction growth was 14%, and that was also up about 1 percentage point over what we saw as a growth rate in the fourth quarter, driven by higher growth in the U.S. and in Europe. Looking forward, let me first start with our long-term performance objectives for the 2013 to 2015 period. We remain confident that our business can deliver an 11% to 14% net revenue CAGR, which includes a modest contribution from pricing over the 3-year period, and an at least 20% EPS CAGR. These growth rates are on a constant currency basis and exclude new M&A activities. We also remain committed to our annual operating margin target of at least 50%. Now just one other comment about our EPS CAGR objective, which we said was based on a normalized tax rate that excluded the impact of several onetime benefits that we were able to achieve in 2012, which, you will recall, resulted in a pro forma EPS number of $21.44. But after adjusting for our recent stock split, you should now be modeling EPS growth beyond 2012 using a base of $2.14. So now, I'd like to share with you some thoughts about 2014. With respect to net revenue, we have signed, as you just heard, a significant number of deals over the last couple of years. And as the new deals onboard, they will provide a tailwind for 2014. However, we are also expecting a headwind from 1 portfolio conversion to a competitor. As you all know, back in 2012, we lost our portion of Chase's consumer credit portfolio. And while we expected some attrition would occur in 2013, that did not happen. We don't have any specifics on how these cards will migrate, but we are now assuming an impact in 2014. Given the size of this portfolio, we can offset some, but not all, of this attrition with our wins and, as we expect, net revenue growth for 2014 to come in at the lower end of our 3-year range. We also expect to return to more normal growth rates in rebates and incentives in the second and third quarter this year versus what we saw in 2013. We anticipate total 2014 operating expenses to grow less than the 9% that we saw in 2013. As we have always said, any upside to top line growth may provide the opportunity to reinvest more back into the business as well as determine how much, if any, operating margin expansion we can deliver in 2014. As I just mentioned, the impact of new M&A activities is not reflected in our long-term performance objectives. At Investor Day last September, I talked about how we are looking more actively at potential M&A opportunities that address our strategic priorities and provide us with critical capabilities. We're pleased that we recently completed the Provus and HomeSend deals, both investments that add to our capabilities. And they will contribute some revenue, but together with their base expenses and our integration work, we expect to see $0.01 to $0.02 dilution to our 2014 earnings per share figure. We will continue to update you as we go forward on these numbers as well as on the impact of any additional M&A activities we may have. For your modeling purposes, you should assume a full year tax rate of about 32%, which does not recognize the impact of any discrete item such as what we've seen in the recent past. Finally, with respect to foreign exchange, if rates remain similar to where they are today, with the euro trading at about the 1.35 level and the Brazilian real at about the 2.42 level for the rest of the year, the net impact of the euro and the real would essentially offset each other for full year 2014. And as I mentioned earlier, foreign exchange had a slight impact on our fourth quarter beyond adjusting for these 2 functional currencies that we typically call out. Given the current volatility in the FX market, especially with an appreciating U.S. dollar and euro versus other currencies, we're carefully managing those exposures, but we could see some impact depending on how these currencies behave in 2014. Now let me turn the call back to Barbara to begin our Q&A session. Barbara? Barbara L. Gasper: Thank you, Martina. [Operator Instructions] Clifford?
Operator
[Operator Instructions] Our first question comes from Chris Brendler from Stifel. Christopher C. Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Can you give us a little color on the progression in 2014 of the cross-border price increase? I think you mentioned still about 1,000 basis points of benefit on your cross-border revenue growth. When does it start to anniversary? And is there any limiting impact from additional price increases on your cross-border revenue growth? Martina Hund-Mejean: So Chris, we put the cross-border acquiring price increase in place in April 2013. So you will see that basically anniversary in our -- also at the end of the first quarter of 2014. Christopher C. Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Any additional pricing actions that could mitigate that? Martina Hund-Mejean: No. I said as part of our long-term objectives, you will only see some modest pricing. So this is still a big one that is basically going to anniversary.
Operator
Our next question comes from Craig Maurer from CLSA. Craig J. Maurer - CLSA Limited, Research Division: The advertising and marketing, can you just provide some additional color on what drove that number up in the fourth quarter, what opportunities you saw? And does the Chase deal include the same kind of network separation as you're seeing from Visa? Ajaypal S. Banga: It's Ajay. I'm not sure I understood the second part. If you are talking about the Chase commercial deal, and that's just a regular deal like we would do with any other institution in our commercial business. So that's how that's done. The part of our advertising and marketing, actually the fourth quarter has been the maximum transactions occur across most parts of the world. And we've been trying for some time to get our advertising and marketing to fit and match the right time periods for when it should be correlated to our transaction spend. And it kind of depends how it works. In some cases, you get the right opportunities. In others we didn't. In this particular one, we got a great deal of opportunity around the end of the year to sign up a few things, to participate in activities in social media and physical media around the New Year in different places. So it gave us a chance to put ourselves back into people's eyes and minds at the right time of the year. That's kind of what that is about. So it wasn't out of normal -- if you look at our fourth quarter spend on advertising and marketing. We should be spending this kind of money to correlate back to the kind of revenues and transactions that happened in the fourth quarter, gross revenues. Martina Hund-Mejean: And let me just add a comment to 2014 because I'm sure everyone of you would like to know a little bit about the cadence of our A&M spend. And the cadence will be relatively similar to what you saw in 2013. The only thing that we're trying to do, and Ajay had already referenced that, is maybe smooth out a little bit the first and the second quarter. So you might see a little bit more in the first quarter when we're talking just a bit more, taking it out of the fourth quarter. The second and the third quarter should be, from a cadence point of view, very similar.
Operator
Your next question comes from Jason Kupferberg from Jefferies. Jason Kupferberg - Jefferies LLC, Research Division: So can we just get a little bit color and clarity on the full year 2014 rebates? I mean, do you think they'll be -- will they grow faster, slower or about in line versus gross revs? And do you guys think you can grow U.S. consumer credit in '14 with the Chase volumes coming off that you mentioned? Martina Hund-Mejean: Well -- so first of all, with your last question, we are obviously growing credit because, otherwise, we wouldn't be able to offset some of the losses that we might see from the Chase portfolio in 2014, right? That was in my prepared remarks. What was your first question? Ajaypal S. Banga: On rebates and incentives in 2014. Martina Hund-Mejean: Yes, rebates and incentives. So let me just tell you, rebates and incentives, we think that is -- from a cadence point of view, it's going to go back much more normal to what we have seen prior to 2013, right? So in the second quarter and then the third quarter, you see normalized growth rates. It's very tough for us to be telling you what you should be thinking about as a percentage of growth revenues. But I would -- when I look forward, I would look -- it's something not too different to what you saw in 2013, which would also suggest that, overall, the annual growth rate is not too different for 2014.
Operator
Our next question comes from Bill Carcache from Nomura Securities. Bill Carcache - Nomura Securities Co. Ltd., Research Division: In Europe, you guys are significantly outperforming one of your key competitors who's still operating under an association structure, and it seems like you're able to offer much greater value to both banks and merchants given your much more innovative offerings. Can you talk a little bit about your confidence and your outlook for market share gains in Europe, and perhaps just give us some color around, competitively, how you feel you're positioned there? Ajaypal S. Banga: So we -- look, we enjoy our position in Europe. And I've said a few times that I actually consider Europe to be a decent growth market for our company, even the developed markets of Western Europe, primarily because of the relatively high levels of cash that still exists in some of those economies. If you take out the Nordics, where cash is actually very small. If you come to Germany or France, there's still an overwhelming majority that's in cash, and those are very attractive markets. We have a good position. We've been gaining shares, that's absolutely correct. We're doing a lot of things with data analytics, with contactless, with fraud early warning systems, with inControl. And so all those help us win deals. And now, we're focused on trying to process more and more of the transactions in Europe as we go along. So even this quarter, our processed transactions grew by 14% or so in Europe, in SEPA. So that's a good thing for us. And we're focused on that. And a lot of the work we're doing with Provus and TREVICA are all aligned around that set aspect. So between digital and advisors and data, in addition to what we already do in our core business, we have a decent line of sight to where Europe is going. But Europe is not without its challenges. It has regulatory challenges that are unique to the way Europe is constructed and the way it functions. And I talked a little bit about those in the form of the EC legislation as well as this recent ruling by the AG [ph]. The AG ruling doesn't impact anything directly because the raise [ph] is already there. But could that spill over tomorrow into some other way of looking at regulatory arbitrage or thinking in that space in Europe? Sure, it could. And that's something we are always conscious of. And we're always trying to make sure that we work well within that environment.
Operator
Our next question comes from Moshe Orenbuch from Crédit Suisse. Moshe Orenbuch - Crédit Suisse AG, Research Division: Could you maybe give us a little bit about that kind of give-and-take between the 2 pieces of the Chase relationship, like how do you see the growth on the commercial side versus the -- kind of the risk of kind of deconsolidation on the consumer side? Ajaypal S. Banga: Tough to say, because I really can't give you that much detailed information about one set of clients and books. But you should know that Chase is a very, very large consumer bank with a very large consumer portfolio. And they've got a strong corporate banking business that's growing, but there's no way that those 2 are comparable. So I don't see us making up what we are losing in the consumer side if it goes away in 2014. I have no way to estimate what will happen. I'm kind of assuming it's going away. And I've heard the earnings call that VISA had, where they talked about getting it. So I'm assuming that they're both thinking similarly, that 2014 is the year that it goes from us to them. Sidemark [ph] you're going to make up for that, but it will help, just as all the co-brands will help. And there are co-brands that we haven't been able to announce because of certain circumstances with those retailers and those issuers, which will all become clearer to you over the next few months. So I'm hoping that we'll eventually come up in the right place. But 2014 is going to be the year of transition. We've tried to factor that in when Martina said that we think revenue could be at the lower end of our long-term guidance. Now if it comes in better, that'll be great because if the attrition is slower or these co-brands come on quicker, that'll be great as well. But typically, our co-brands, after we announce it, takes somewhere between 1 year and 1.5 years to start onboarding and kicking in. So there's a timeline in our business and that's what we are providing for. Look, underlying trends in our business in the U.S. and elsewhere have been good in our fourth quarter. Our growth revenue actually came in better than our plan. And what happened is that we signed more deals and I'm actually happy to sign those deals. And so that's what I'm thinking about this whole circumstance around how to think about where our revenues and our company is going over the next couple of years.
Operator
Our next question comes from Bob Napoli from William Blair. Robert P. Napoli - William Blair & Company L.L.C., Research Division: I just wanted to follow up on some of your macro discussion, Ajay with -- when I look at the payments volume, the purchase volume by region, there's a decent slowing in pretty much every market except for Latin America. And I mean, I think you were suggesting that you thought you were seeing a little more strength incrementally. I guess the January numbers do suggest that you see a pickup from the fourth quarter. But do you think -- I mean, given the slowdown that you see across the board in payment and purchase volume, doesn't that suggest that the economy at best is stable and, at worst, maybe we're seeing a little bit of a global weakening? Ajaypal S. Banga: I actually don't see it that way. I see the U.S. as -- if you just look at the U.S. as a whole, if you look at the drags on U.S. economic growth that contributed to whatever happened in 2013, and 2013 turned out to end in a stronger way than people expected. So there were lots of drags, a lot of drags from the sequester to all the other kinds of stuff that happened there. So I don't see the U.S. as being slowing in any way. I see it improving. Actually Europe, showing signs of life as well. Northern Europe, even the U.K., which 1 year ago people talked about as being in very difficult and dire circumstances, has clearly showed a recovery in where it's headed. That brings us to Asia. And Asia is dominated by what happens between China, Japan, Australia and India. And if you think about China -- yes, China's growth has slowed, but China's growth has slowed first in domestic expenditure, which impacts us very little because we don't get to play in the domestic processing yet, right? Japan is actually beginning to show signs of life. Australia depends a great deal on what happens with China because Australia's economy relies a great deal on the exports into China. And India is just India. India is being India right now. It's going through all that it's doing with its elections and all that's -- underlying it. But India's economy is 2/3 consumption. And that consumption is still growing. And while China and India may be growing slower than in the past, they're still growing in very attractive numbers beyond the 10. So yes -- perhaps the question about slowdown, you got to remember the number of days in the fourth quarter, the number of processing days. And Martina went a couple of times to explain that if you took out the impact of the smaller number of days and look at the normalized data, you will find this kind of similar growth. But if you went to Asia and you went back 4 quarters in Asia, you would find Asia today is a little slower in PCE growth than it was 4 quarters ago. That's what I'm addressing when talking to you. I'm not addressing the specifics of the processed transactions, because I think Martina addressed those a couple of times in her opening remarks.
Operator
Our next question comes from David Togut from Evercore. David Togut - Evercore Partners Inc., Research Division: Two questions. First, Martina, you said that OpEx would probably grow a little less than 9% this year. Can you give us a sense of where you might have the most operating leverage this year? Martina Hund-Mejean: So David, what we are doing is -- I didn't say a little less, I actually said less than 9%. There is a little bit of a difference on those kind of numbers. And what we are really doing is, as we said, we opportunistically put some more money into the business in the third quarter and into the fourth quarter. And when we look at our budget going forward, we are not assuming that we are going to have a repeat of that. But as we have said before, depending on how our top line will develop, right, and our top line is subject to what we just discussed on the potential migration of cards from the Chase portfolio, we might be putting extra money into the company if we can do it, okay? But it all depends on how we see the top line developing and the bottom. So at this point in time, the budget basically just said operating expenses will grow less than 9%.
Operator
Our next question comes from Darrin Peller from Barclays. Darrin D. Peller - Barclays Capital, Research Division: Just to dive a little deeper on the underlying trends in volume, and we saw in the fourth quarter the trend shifts from about 9% down to 7.5% and back to 9% again, you're saying, in January. If you could just explain a little bit about what's driving that first? And then really going forward, I mean, we're seeing underlying standards loosen a little more at the banks, which I think should support more credit growth going forward as well. And when you couple that with the trends you're talking about with all these deals, does that -- is that helpful for you on pricing? If Chase comes off, I imagine the pricing on that, given the size was a little bit tougher than what you're bringing on, is that a fair way to look at that? And then just one quick follow-up, what drove other revenues up 22%? Martina Hund-Mejean: Okay. Let me take the easy one first, which is what drove other revenues up. Other revenues were predominantly driven by our advisors' revenues as well as Access Prepaid. So the other things that we are really focusing on from a service point of view, and Ajay had already said something that we are really focusing on putting advisors out on the globe. And you're actually seeing a really great benefit from that and that's why you see a 20% increase in other revenues going up. Ajaypal S. Banga: That tends to be fee-based revenues, just to be clear. Martina Hund-Mejean: Yes, yes. Not volume or transaction-based, this is all fee-based revenues, right? Darrin, you are asking us one tough question on the underlying trends, okay? In terms of really figuring out why a quarter moves up or down from 1 or 2 percentage points is pretty tough to do. All we can say is when we triangulated with the data that Ajay was already referencing, from a GDP and from a PCE number, that we actually felt that the fourth quarter, both in the United States as well as in Europe, was pretty healthy, okay? So even though we had some move in the growth numbers, it was pretty healthy. And you could see that on the credit side and you could see that on the debit side. Now Latin America, Asia Pacific, we know that there was some impact, given what is happening from a China production point of view. And hopefully, if the world gets into a better footing, that will resolve itself. But it's very tough to be putting that down to very specific changes.
Operator
Our next question comes from Dan Perlin from RBC Capital Markets. Daniel R. Perlin - RBC Capital Markets, LLC, Research Division: So just quickly, on the G&A, you mentioned, Ajay, MasterPass and tokenization were 2 of the key reasons for that to be up. But there's a lot of incremental people that have put into that, and that seems to be disproportionate for those kinds of technologies. So I'm wondering is this back half kind of ramp, let's call it $161 million or so, is that a function of also putting more feet on the street with these deals that you've done in order to get the local market processing? Ajaypal S. Banga: So we are adding people in different areas. It's not just in MasterPass and tokenization, although that did add a fair number of engineers and development teams. But we are adding people in sales. We're adding people in client delivery. We've added people in product management. And when we open new countries -- China has people in the control functions, so they open in a way that is well handled for the future. That kind of -- all those things add up. We have opened a number of new offices around the world as well over the last couple of years. All that tends to add up. What we're really doing is adding people who bring to us a different perspective on how we look at our business. So we're adding people not just from banking and consulting, although that still is a good source of people, we're also adding people from consumer product companies and from technology companies and from marketing organizations and from government background and experience. So when you pull all of that together, that's the kind of people we're adding. It's not anything specific in the fourth quarter or in the third quarter or the second quarter. We've been adding people consistently over the last couple of years, as we've tried to create the ability for us to have the right footprint and the right infrastructure to go into so many new areas. So when you see us talk about advisors and generating fee revenues from advisors, I can't get them without a certain quantum of people, to have feet on the street as well as people who are doing analytics. When you talk about Access Prepaid Worldwide, that didn't exist in our book a couple of years back. So when you sort of add all that together, our company is changing and morphing. And in that change and morph, what I'm trying to do is to maintain our operating margin at a very healthy level, but put money back into building the skills, capabilities and technologies that is going to be required for this digital physical convergence, combined with the data opportunity that our company is talking about. So that's kind of what I'm trying to do.
Operator
Our next question comes from Kevin McVeigh from Macquarie. Kevin D. McVeigh - Macquarie Research: I wonder if could you give us a sense, just the uptick in data breaches, how that's impacting the value proposition as you go out to clients, and ultimately, what's been the feedback on that? Ajaypal S. Banga: Great question. Right now, fortunately, I haven't seen a great deal of impact coming out of that. And as we just told you, our first few days of January looked like they're actually a little better than the quarter that went by or similar. It's a little better in some cases. But there's no one specific data breach that causes trouble. It's an ongoing feeling that consumers get about their safety and the security of their information. And these recent data breaches are not just about cards, they were about other consumer data, tens of millions of stuff that went away. And that creates its own angst in everyone's mind. Fortunately, our technology, the technology of our competitor networks, combined with some of the great tools that the banks and merchants have built along with us over the years has meant that people are trying to keep fraud under control and trying to help the consumer. So I'm really -- that's less of the issue. I'm far more concerned about getting the right things done so we get ahead of this as we go forward. Otherwise, they're going to have this keep coming. And it -- the more often it happens, the worse it feels. So that's what I'm looking at. And it's not about who did what and it's not about finger-pointing, and it's not about I said this and they said that. I really want to get past all that nonsense to the real stuff which is, we need to get EMV in place. In January, Chris McWilton issued a letter to all our issuers and the merchant partners saying, "We are standing by our deadline." We need to get this going and everyone needs to be on the bandwagon. Banks need to be there, merchants need to be there, governments are clearly there. We need to get the networks there and the acquirers there. And I think there is a lot of progress on that front. I know a large number of the big merchants are very committed to -- they have new terminals and new terminalization. I know that the terminal manufacturers have geared up for that. I know that a number of the banks have begun to issue chip cards already. You can see people are making all the right efforts. This should only redouble our desire to get this done quickly. That's what I'm talking about.
Operator
Our next question comes from Bryan Keane from Deutsche Bank. Bryan Keane - Deutsche Bank AG, Research Division: I just wanted to follow up on the Chase migration. Has Chase told you guys how much to expect to come off and when? Because I'm just trying to figure out how much... Ajaypal S. Banga: No. No. Martina Hund-Mejean: Bryan, no. That's why we said that we are assuming some impact in 2014. And I actually said that we assume that something would have happened in 2013 and it did not. Bryan Keane - Deutsche Bank AG, Research Division: Okay. And then just how much are you expecting in 2014, like 2 to 4 points of revenue or how much? Ajaypal S. Banga: Good try. Good try. I can give you marks for trying.
Operator
Our next question comes from Chris Donat from Sandler O'Neill. Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division: I wanted to ask -- getting back to the fraud issue. With your experience and what you've seen around the world, the move to EMV, how significant is that in reducing the -- either the sorts of things you've had in the United States or just really the fraud that existed in places like Europe, before they went to EMV, or even Canada? Ajaypal S. Banga: Very significant. It's very significant to the views of the impact of breaches. Look, every time a chip card is used, it uses the technology inside to create a unique data point for that transaction. That kind of bolsters the security and the certainty of that transaction. That's why chip transactions are virtually impossible to fraudulently replicate. And of course, because the darn chip is there, it makes it hard to counterfeit the card in the first place. So if I say it differently, EMV would not prevent a data breach. I mean, look, in the Target case, there were stuff with cards, there were stuff with data that happened in the Target system. EMV is not going to protect from that data breach. What it will do it makes that -- any data stolen, much, much, much less valuable to a fraudster because it's tough to counterfeit the card and it's almost impossible to duplicate all the unique data that flows for that transaction to get approved. So it's kind of got double layers of protection inside it. That's what it's about. But you need to understand that while it's good in addressing counterfeit fraud, it's not the only solution, a lot of single solution to drive security in the payment space. There's going to be a ton of things that will happen with how data is secured, how it's kept, how it's encrypted in motion and address things that we all do, things that very often -- you cannot expect small merchants to do in the same way, or smaller acquirers to do in the same way. That's one of the reasons why, in the future, with digital technology, tokenization is actually a key because in tokenization, that data doesn't even go to be stored in that location. It's encrypted with a key that only the networks and the banks recognize. And therefore, the concept of that data line in the weakest link in the chain will go away. So it's both EMV, tokenization, fraud tools, all the things that are going on. It's not one thing, but EMV is a really big arrow in the quiver.
Operator
Our next question comes from Ken Bruce from Bank of America. Kenneth Bruce - BofA Merrill Lynch, Research Division: You've pointed out on a number of occasions that you're moving into processing. I would like to ask specifically what you see as the strategic imperative and the financial implications beyond the EPS solution that Martina mentioned, as you are looking at the issuer and acquirer processing? Ajaypal S. Banga: So the strategic implications really are back to what Gary and all of us talked about it on the Investor Day. If you -- of course, obviously, if you switched the transaction, as you know, we only get to do a little, around 50% of our transactions. And I'd love to be able to get beyond that because as you switch the transaction, first of all, it will be much stronger position in the system. Second, you'll see all aspects of it coming and going. And if you -- in addition, even if you don't switch it but you see it pass through, because you're either helping the acquirers process or helping the issuers process, then you'd still have a lot of data that you can then use for developing fraud scores, behavioral scores, the advisor's fee revenue, all that kind of stuff. So getting in front or behind of the transaction is useful for someone like us. I don't want to be just a payment switch, that's not the business that, long term, can give us the ability. And by long term, I mean out a decade. I'm not -- I'm trying to be more than that. I want to be using our data to create the right revenue streams from data. I want to be able to use in the digital world all the things we can do from before, during and after the payment. You can't do all that if you aren't a little smarter about processing. So that's what we're trying to do. Now in countries like the United States and Brazil, we process almost all of our transactions. However, when you get into some of the emerging markets and, of course, as you know, in China, we don't process domestic transactions. When you get to places in the emerging markets or the high-growth markets in Europe, that's where these things can help us. And as you know, SEPA opened up the ability for us to reenter the processing market in the developed countries of Europe, which we are trying our best to do and they're making very steady progress on that as well. So it's a long way to answer -- that being in the center of the transaction and being there before, during and after the transaction, being on both sides of it are very, very useful for this company. Martina Hund-Mejean: And just add to this, we already own a processor in Poland, which is called TREVICA, and now we are owning the processor, the independent processor in Turkey, Provus. And when you look at these processes on an isolated basis, of course, they have a lower margin profile than our business. But when we found that all the work that we did around TREVICA in the last couple of years that, that really helps our main business and that we are able to win deals, that the deals are more sticky and that we're actually able to give more services to the client because we actually saw the transaction. So we really think, from a strategic and from a financial point of view, this is a very good way to go. Barbara L. Gasper: Before we take the next question, I just got an email from somebody in our fraud area. And going back to Chris' question about how significant has EMV been in reducing fraud when it's been adopted? We have seen anywhere between 60% and 80% decrease in counterfeit fraud after EMV has been installed in markets.
Operator
Our next question comes from David Hochstim from Buckingham Research. David S. Hochstim - The Buckingham Research Group Incorporated: Can you just clarify, the Chase consumer portfolio, you're talking about the old continental co-brand program or it's something else? Martina Hund-Mejean: No. We're talking about the entire Chase consumer portfolio. Continental co-brand is different. Ajaypal S. Banga: Continental co-brand actually has a lot -- has cards that are issued on MasterCard are protected for the life of those cards. That's different. But when Chase did the relationship that they did with VISA on the network, at that time, one of the items that VISA and Chase both announced was this migration of the consumer book inside of Chase, the rest of it, to our competitor. It didn't happen in 2013. That's what we're referring to.
Operator
Our next question comes from Sanjay Sakhrani from KBW. Sanjay Sakhrani - Keefe, Bruyette, & Woods, Inc., Research Division: I don't want to -- mean to beat the dead horse, but I just want to make sure I understand the Chase assumption that you guys are making. For 2014, you're basically assuming some piece of that goes away and there may be residual impacts as we look out to 2015 and onwards? Ajaypal S. Banga: No. I'm assuming that it goes away in 2014. And by the way, who did you call a dead horse?
Operator
Our next question comes from Tom McCrohan from Janney. Thomas C. McCrohan - Janney Montgomery Scott LLC, Research Division: A close look on EMV, we -- I think people are aware that it reduces counterfeit fraud, but fraud migrates to the online channel. I'm just wondering if the tokenization efforts that you're working on, are they going to be packaged with any EMV implementation? Because currently, it doesn't really address that, and that's what I think merchants are kind of digging their heels on. They want some sun or line of sight into protecting the online as well. Ajaypal S. Banga: Yes, absolutely, that's what we're doing with tokenization, and that's exactly why we're at it. And we're actually hopeful that it will all get done and start being out there in the marketplace, as we said, sometime in 2014, and then it'll keep rolling along from there. And it's going to accept everything from secured elements to SIM-based solutions to other kind of efforts to get secured information into MasterPass and the tokenization. We are very committed to that.
Operator
Our last question comes from Don Fandetti from Citi. Donald Fandetti - Citigroup Inc, Research Division: Ajay, just to kind of wrap up on the strategic side. We've seen Apple and Amazon talk a little bit more about payments. I was just curious what your perspective is, how that might change up the payment landscape and is it sort of in line with your expectation and timeline of what those companies might be doing? Ajaypal S. Banga: Sure. Don, thank you. I actually -- it's actually what I expected. You all know that they're all thinking about this. And the fact that Google is out there first and actually doing something, doesn't mean that the others weren't working on it. They're all working on it. And they're all trying to figure out what the right role to play for their respective strengths and weaknesses are, as this payment opportunity evolves. And it's not just payments. When you talk to most of them, they will tell you it's about the before, during and after the transaction. So Google tends to think about it as a metric to look at enhancing their advertising and consumer outreach business, not really as a payments business. Others think differently. And everybody comes in from a different perspective. So that's why what we're trying to do is to partner with as many of them as we can. And we've managed, I think, well to shift the dialogue from one of distant mediation to one of partnership, because we bring some very strong assets to the table in terms of what we haven't possess and also what we're investing in. And so that's kind of where they're going with it. That's our -- I'm not the least surprised. I believe it's the right thing to do anyway with all the strong players in the digital world. We'll have a role to play in some way to enable payments for their consumers. It's the right thing to do. So let me leave you with a few closing thoughts. We had a very good 2013. We delivered on our expectations. We saw strong revenue and EPS growth. We continued to invest back into our products, our technology and our people. Overall, it seems like the economic environment is improving, especially in the U.S. and Europe. I understand that emerging markets are going through a bumpy patch, which we will continue to watch. But remember, they are starting in a much better place than they were in previous crises. And so I believe that over a period of time, that should stabilize. Now looking ahead, for the next couple of years, the world generally seems to be headed towards a better economic cycle than what we have seen in the recent past. And I hope those are not famous last words, "That's kind of where my head is." Our business continues to have strong momentum as it shows in our GDV and our gross revenue numbers in the fourth quarter. We are focused on driving the conversion from cash to electronic payments and at the same time, very, very focused on creating solutions and working with governments and other partners to advance financial inclusion. Investing in our core solutions remains important. So we're making investments in new products as well, in new services and new capabilities, all of which will help expand our presence in the area around payments as well, not just the payments but before, during and after. And for sure, we will continue our efforts to ensure that we make the best possible impact on ensuring safety and security for everyone in the physical payment space while carrying those competencies into the digital world as the 2 invariably converge over the next few years. So thank you for your support, and thank you for joining us on today's call.
Operator
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating, you may now disconnect.