Mastercard (NYSE: NYSE:MA) shares are trading near record highs and approaching the $400-a-piece threshold after rallying sharply in the last couple of months. The company’s market cap currently exceeds $375 billion.
The stock nearly touched the $400 mark in February 2022 before retracing 30% in the next several months to hit a multi-year low in October 2022. Since this swing low, Mastercard shares surged more than 40% as bulls seek to hit levels above the $400 handle for the first time ever.
Mastercard, alongside its key rival Visa (NYSE:V), has benefited from the recovery in cross-border travel after the COVID-19 pandemic. Most recently, Mastercard has benefited from value-added services, which rose 19% in the first quarter. The payments company has placed a high degree of focus on artificial intelligence (AI) and machine learning (ML) technology to improve the security and efficiency of its platform.
How Mastercard Performed in Q1
In late April, Mastercard announced its Q1 earnings, which sent shares trading a couple of percent higher. Revenue rose 11% year-over-year to $5.7 billion, beating the $5.64 billion that analysts were expecting.
On the bottom line, the adjusted EPS was $2.80, again higher than the $2.72 consensus. The operating margin contracted 250 basis points YoY to 54.6%, although the adjusted operating margin was 58.2%, up 70 basis points compared to the same period last year.
Investors were also pleased to see that cross-border volumes have continued to recover, up 35% YoY and easily ahead of the expected increase of 28.6%. Similarly, Mastercard said it processed 12% more transactions in Q123 than in Q122 with the volume rising to $32.46 billion. Consumer purchase volume surged to as much as $1.71 trillion.
“We delivered strong revenue and earnings growth this quarter, reflecting resilient consumer spending and the continued recovery of cross-border travel, “ said Michael Miebach, Mastercard CEO. “We are actively managing the business to capitalize on the significant digital payment and services opportunities ahead, and stand ready to navigate through any headwinds."
Mastercard also said that it repurchased 8 million of its shares and paid $545 million in dividends in Q1. While Mastercard didn’t share its formal guidance, the management did provide some color on the earnings call. Q2 revenue is expected to grow at the “high end of a low double-digit rate” on a currency-neutral basis, with the management highlighting tougher year-ago comps.
Mastercard’s Major AI/ML Push
Speaking on the Q1 earnings call, CEO Miebach described gen-AI as “foundational technology.” He confirmed that the company has been using AI “for the better part of the last decade.” As a result, this next-gen technology is “embedded in a whole range of our products.”
Miebach said that Mastercard has been mostly using generative AI technology in the cybersecurity space, as well as with customer service propositions. More particularly, the technology has been deployed to create comparable data sets to find potential threats.
Along these lines, Mastercard said this week that its AI-powered technology has helped 9 UK banks forecast scams in real-time and prevent crimes. Its ‘Consumer Fraud Risk’ solution has been launched in the UK to help 9 banks – including Lloyds Bank, Halifax, Bank of Scotland, NatWest, Monzo, and TSB – to identify scams before funds leave the problematic account.
“Using the latest AI technology, we are helping banks identify and predict which payments are being made to fraudsters and stop them in real-time,” said Ajay Bhalla, president of Cyber and Intelligence at Mastercard.
This particular solution is focused on tracking a series of “mule” accounts that are created to disguise a scam. Mastercard’s AI product follows the money flow through these accounts and then closes them down. The banks that are using this AI solution are able to intervene in real time, which is a major benefit compared to other similar solutions.
According to Mastercard, TSB has managed to dramatically increase its fraud detection, with the amount of scam payments prevented over a year totaling nearly £100 million. Mastercard said it will soon start deploying its Consumer Fraud Risk to other markets after a successful test period in the UK.
“Spotting fraudulent payments among millions made every day is like finding a needle in a haystack, with scams becoming ever more complex – so prevention and monitoring tools are key,” said Paul Davis, Director of Fraud Prevention, TSB.
Mastercard boosted its cybersecurity offering with the acquisition of Baffin Bay Networks in March. This way, the payment-processing giant has boosted its multi-layered protection against scams and cyberattacks.
The Sweden-based cybersecurity startup is focused on stopping cyberattacks. Their solutions, most of them being powered by AI technology, will now be incorporated into Mastercard’s single cybersecurity offering, including Baffin Bay’s RiskRecon data analytics solution and Threat Protection service.
“The addition of Baffin Bay Network’s instantaneous, predictive, and cloud-based AI technology to our existing analytical capabilities will deliver a leading, singular cyber solution," said Ajay Bhalla, president of Cyber and Intelligence at Mastercard.
The AI technology helps Baffin Bay’s solutions to automatically filter and counteract potential fraudulent activity. Mastercard added that the startup has a “proven track record of mitigating or preventing costly and potentially catastrophic breach cyber events,” which is likely the key reason why Mastercard moved to acquire the Swedish company.
Mastercard has a history of aggressively pursuing new technology, as it announced it would continue to expand its crypto card program back in April of 2023, despite significant regulatory scrutiny experienced by nearly the entire US crypto market.
Summary
Mastercard is making moves to further strengthen its cybersecurity portfolio, as well as AI-powered services and solutions in fighting payment scams. The company’s investments in recent years, as well as the recovery in cross-border travel, have helped push shares toward record highs.
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Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.