Mastercard CEO: AI Shopping Agents, Machine-to-Machine Payments, and the New Infrastructure of Commerce

0:02Who sits in the middle and drives interoperability and makes sure all of this connects and is not a spaghetti, you know, a plate full of spaghetti? MasterCard. So we're closing this quarter an acquisition of a company by the name of EVNPay, which is the largest stablecoin platform out there to connect all of this for the world.

0:26That was Michael Miebach, CEO of MasterCard. on why the fragmented world of stablecoins and digital payments needs someone to hold it all together, and why MasterCard intends to be that someone. I'm Motley Fool producer Bart Shannon. Last week, in part one, Tom Gardner and Michael covered how MasterCard's payment network works, the$15.6 trillion cybersecurity threat, and why stablecoins are more opportunity than threat. This week, in part two, they get into the future, AI shopping agents, machine-to-machine payments, how MasterCard thinks about capital allocation, and what the AI revolution really means for employment and consumer spending.

1:08Hope you enjoy. Let's talk about agentic commerce, where AI becomes the customer's main relationship, and that transaction then starts to look for the cheapest alternative. Maybe we can talk about AP4M as well. I don't know if GPT should have allowed this, but I created an image here of AP4M. It actually put the MasterCard logo in the center there, which makes it questionable as whether GPT should be able to place logos. But anyway, I'd like to hear a little bit about AP4M and I will stop my third screener there. So let's talk about Gentic Commerce first and hang it up a little bit higher before we come to AP4M.

1:54And I can also decipher what that actually means when we get there. um so agentic commerce so what's actually happening is so in straightforward online commerce what happens today is you might go and go to your favorite search machine search website and just put in whatever you're looking for and it will give you a bunch of sponsored links um and then gives you a set of more links and then you you pick where you go or you might be just uh irritated by all of that and just go straight to your favorite marketplace Those are all things that we probably have experienced as consumers. Now, you just referred to NLLM where you created this lovely image just now.

2:34ChatGPT is the example that you used. So what you might want to do today is get a potentially better and more holistic answer for whatever you're trying to do. Let's say you want to go on a camping trip and say, what do I need for a camping trip? And it gives you 15 things. and because it knows your history it could have given you 25 things but already knows it knows you have a tent so it's not offering the tent to you it's giving me all the things you don't have that for that particular destination actually makes sense so if you have that result then imagine you still have to go to every single website and say all right i'm going to find that tent now or i'm going to find that little cooker or whatever the ingredient is and then you're all over the place and you have just wasted half a day planning your trip uh wouldn't it be much easier if you could check out right in that moment on whatever that recommendation is from the favorite LLM of your choice and say I'm going to check out right there I'm going to delegate the checkout to the agent to an agent which in this case would be the LLM that does all the checkout for you and it uses a mastercard behind it and everything works would be so much easier now for that to happen we need to recognize that suddenly there's an entity in between that never existed before or that's the agent.

3:51And then back to cybersecurity. How do we know that this agent is actually an agent that is known, and it's not a fraudulent agent? That the agent is actually what you're trying to do, buy stuff for your camping trip and not ordering something else. Or that the agent actually makes mistakes or not. It orders two grills instead of one. So how do you prove that in the end when your card would be debited? So those are all things that we thought about that today in the world of MasterCard payments, straightforward payments work very easily. You have a chargeback. You always protect it. You say, it never happened.

4:24I never ordered that. And you just undo the whole thing. So we created AgentPay. And AgentPay is basically a protocol that ensures that an agent is recognized, is accredited as an additional party in the ecosystem. So that could be an LLM or it could be a very large retailer that has an agent for all their brands, et cetera. so that's registered the next thing is that this transaction is fully tokenized what that means is every bit of data associated with this transaction is captured so there can be as a you know a proof point to say this is exactly what the consumer wanted to do then the various parties in the ecosystem the bank of the merchant and the bank of the consumer everybody knows and it flows the same way as it does today at a mastercard transaction so it's very very technical so i'm going to keep it at that level.

5:14So all of this is what is happening and the ecosystem is ready and these transactions are starting to flow now. So for us, is this a growth opportunity? It is. It is because tokenization is a service that we sell. All these transactions are fully tokenized, which is very different in the real world today. Not every transaction is tokenized just yet. So that's a growth opportunity. The related cybersecurity solutions for these transactions is a gross opportunity for us, etc. Will people buy a lot more? Bottom line, will they buy five tens instead of one? No. So it's a bit of a replacement of existing flows, but with additional service opportunity for MasterCard.

5:57Am I wrong to just insert one thing? Am I wrong to think that it might lead to more transactions because it becomes so much more frictionless? Once I have a representative acting on my behalf, I might be buying new things that I wouldn't have found myself. It could. you most likely will have a better recommendation. So your propensity to buy something might increase. The other thing for us is there is a big, there is a transaction growth multiplier. If you would have instead today gone to a marketplace and have bought everything from one merchant vis-a-vis go to different merchants and have different individual transactions.

6:31So there's a transaction multiplier. We basically facilitate transactions. That's our business model. So it has that kind of an impact for us, But it's still overall GDP will not dramatically rise because you still need one to end on not five. But now here's the other side of this. And this is very interesting. Now we're coming to AP4M, which means agent pay, MasterCard agent pay for machines. So if you think of the context of B2B commerce, one company with another company, think about the procurement, the chief procurement officer. buying stuff on behalf of the company from some provider, some supplier.

7:14So today, this is all from happening account to account. Invoices are being paid, all of that. But imagine the digital content that a company is buying. That could be APIs. That could be digital content. That could be data. That could be compute power. It could be all of those things. Why would you send an invoice and do that? you will want to do this as you use your compute power. So I need 10 % more. You dial it up, you dial it down, and you pay as you need. If you pay as you need, your working capital efficiency is going to dramatically increase. So how do we get a payment ecosystem that can facilitate always on high-velocity, micro-fractions-of-a-dollar kind of payments?

8:02Payments that don't exist today. Well, that's what the chief procurement officer wants. It's total optimization. That's what the treasury wants, what the CFO wants, to really use the capital of the company in the most efficient way. So we've launched just very recently the AgentPay for Machines protocol, which basically is a further evolution of AgentPay, which I described a bit earlier, and it just facilitates all of that. I spare you the technical details because that goes even further, but it does facilitate immediate high-velocity micro-tickets between different machines at machine speed, at machine scale, with the same protections and with everything else that MasterCard promises behind them.

8:49The underlying rails and infrastructure are likely to be different than card rails. It could be stablecoin. It could be other rails for that. That is essentially going to come down to the choices of companies and what they want to use. We're pretty agnostic about that. But the protocol to keep the trust and interoperable layer on top is critical. Now, here's the last thing on stablecoins. So agent pay, stablecoins, agentic commerce. This is a whole new way of doing commerce going forward. and if you just play that out over the next year you're going to have multiple chains you're going to have multiple stablecoin currencies that might be powering all of this in the background and along with card systems and account to account so you have this very complicated world so you're company a i'm company b and we just want to do machine to mean machine payments with each other but your your choice is stablecoin a and my choice is stablecoin b how are you going to pay me and how am I going to receive that stablecoin from you?

9:50Who sits in the middle and drives interoperability and makes sure all of this connects and is not a spaghetti, you know, a plate full of spaghettis? Ask the cards. So we're closing this quarter an acquisition of a company by the name of BVNK, which is the largest stablecoin platform out there to connect all of this for the world. That's what we do in cards today. And that's what we will do in the brave world of stablecoins.

10:17trading at schwab is now powered by ameritrade unlocking the power of thinkorswim the award-winning trading platforms loaded with features that let you dive deeper into the market visualize your trades in a new light on thinkorswim desktop with robust charting and analysis tools all while you uncover new opportunities with up-to-the-minute market news and insights thinkorswim is available on desktop web and mobile to meet you where you are it's built by the trading obsessed to help You trade brilliantly. Learn more at schwab.com slash trading. You just found out that your sales team is at risk of missing quota.

10:51Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce into a meeting-ready dashboard showing quota attainment, headcount plan, and monthly revenue to quota by region. In seconds, you'll see exactly what's behind your quota risk and fix it before it's missed. Question answered, action taken, crisis averted. When you have critical business questions that need answers, don't just file a ticket and wait weeks for an outdated report. Describe what you need and have Rippling AI build it instantly from your live people and business data.

11:27Whether it's a dashboard with detailed charts or automated workflows with the right triggers, conditions, and approvals. Ready to rule your business? Head to rippling.ai slash fool to get the only AI built to give you full visibility and take complex actions across your entire organization. That's R-I-P-P-L-I-N-G dot A-I slash F-O-O-L. Sign up for exclusive access today, rippling.ai slash fool. There's so many ways to express what MasterCard is doing. Just one question on the value added services in this component of the work that you're doing. Should we think of MasterCard as partnering even more deeply with a variety of companies to bring these systems forward?

12:09Or will you continue to be acquisitive, a balance between the two? What's the process of moving deeper and deeper into new technologies like agentic commerce, all the cybersecurity challenges, stable coins, etc.? So our approach to this is, you know, when you take our business a decade ago, so very focused on card payments, very focused on consumer card payments. Today, it is consumers, it is businesses, it is government in terms of customer set. It's much more global. And it's all forms of payments, as we discussed. It's also stable coins. It's also account to account. And it's a whole range of value-added services.

12:51We talked about the cybersecurity part of that. There's a range of loyalty solutions, consumer engagement solutions, personalization solution, anything that powers trade. So when you think that, our approach to this is bio build. That's always the first question. We never go out and say the valuation cycle, everything is cheap right now. Let's go and buy something. It's very strategy driven. We say, all right, we need more capability on the personalization side. So our customers, large retailers, what are they trying to do in this time? To cut through the clutter and the noise that exists in social media and everywhere to get the right offer to their right customer at the right time through the right channel.

13:33We do this at scale. We have a lot of consumer data, consumer behavior data, not personalized, I should add. So we bought one of the best personalization companies in the world. Why did we buy versus build? We just don't know much about personalization. But we said, why don't we buy the best partner? But when we buy a company like that, we can leverage our data set, our huge data set and our global reach and our network to take their solution and push it to our network to reach all those customers that we have around the world. That's dramatic synergy. So M &A works and acquisition works very well in such scenarios.

14:08There are other things that are very close to our existing payment solution. We're much better off building them ourselves. So we will continue to be very acquisitive at the same time. We're always very good stewards. We try to be very good stewards of our shareholder capital. Let's say, all right, we're actually better off building this ourselves. Well, you may or may not know that we've built a system at the Model Eful where we score every public company. We have an LLM-based AI-powered system with coders around the world working with our investors to evaluate companies across leadership, the quality of their products, their competitive advantages, the valuation of the business, the financial capabilities.

14:42Out of 4 ,700 companies scored in the U.S., MasterCard is number 14. Uh, we probably, yeah, as you were probably wondering why you're not telling you should be a top 10 company. So I have a top five company. I, I, and that's always that I will subscribe to your report there. We will, we will send it to you without requiring your subscription or, um, but, um, but capital allocation is such a, I mean, such an amazing strength of the business and you have a lot of options with the amazing rates of return on invested capital. But I'm just wondering how you make the decisions about, let's say, let's take an example of buybacks.

15:16I think you did additional buybacks this quarter. There was a moment in time there. I could pack seven questions together here for investors about this, but there was a moment in time where the stock fell to$470 or so. Now it's$570. So there's a subordinate question to how people should think as investors. As you might know, retail investors and a lot of professional investors transact too frequently and don't realize the length of the capability of that organization to create value for you over long periods of time. So I'm just curious how the share buyback process happens in a given quarter, how you determine how much to put against it and whether the movement of the price in that quarter matters.

15:54So the first thing that I would say when it comes to our capital allocation principles is always the first thing is reinvest in the business. So that is the best thing that we would do. And, you know, organic and organic, we just talked about that preference. start with organic. Reinvesting in the business, the first thing. Ensuring a strong balance sheet is the next thing because I mentioned a payment guarantee earlier that we have for every MasterCard payment so that requires a healthy balance sheet, et cetera, et cetera. When it comes to buybacks, so we're very opportunistic about that. We're not in the business of buybacks.

16:29We do that when it makes sense. So we had the AI trade dominating the market and we were a source of funds as a large, high-cap company. And while we have a lot to do and invest a lot in AI, we're not the AI trade in AI infrastructure. We're all about applied artificial intelligence. And so we were a source of funds. So the stock price was a little more volatile than I would have preferred, but it did exactly what you just described. It was at$470, now it's at$570, and we're getting closer in the right direction again. which is very good. But we were opportunistic. We said, okay, you know, this is we believe in the continued growth of the company.

17:14We know exactly what we're doing. We have a clear strategy. We're driving operating leverage for the long term, etc. So we're going to do some buybacks. So that's our approach. You know, this is always a tool that is used for such times, but it's not one that we use beyond that logic.

17:38They say leadership isn't just about where you're going. It's about the conviction it takes to get there. For those who demand the world and possess the drive to claim it, there's a vehicle of equal distinction. Dynamic by design and engineered for pure impact, the Range Rover Sport rises to meet you the moment you take the lead. This is the most advanced Range Rover Sport yet, a master class in uncompromised performance and unbridled agility. Inside, the innovation is seamless. You'll find an elegant 13.1-inch touchscreen that puts total control of the vehicle's systems right at your fingertips, but it's the refinement that sets it apart.

18:15Sculpted 22-way heated seating with built-in massage function ensures every journey is defined by peerless comfort. Whether it's through unique interior finishes or custom wheel options, the ways to personalize your Range Rover Sport are nearly unlimited. Command attention and experience ultimate luxury in motion. Exclusive offers are available now. Explore further at RangeRover.com. Support for the show comes from Fundrise. For the past 70 years, there's been a room in finance most people couldn't enter. A room where you could have invested in some of the biggest names in tech, companies like Airbnb and Uber before their multi-billion dollar IPOs.

18:52I'm talking about venture capital. Fundrise recently took a sledgehammer to those closed doors by launching a venture capital product that's available to anyone. Their mission is to give everyone the chance to invest in the best tech and AI companies before they go public. You can visit Fundrise.com slash fool to check out Fundrise's venture portfolio and get in early today. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. This is a paid advertisement. As you might imagine, I have more questions than this, but respecting your time, because, you know, 40 minutes was our target together.

19:28I want to just ask one question about employment. And I would say employment looks relatively strong. Wages look relatively strong. But at the same time, you have Elon Musk interviewed earlier this week saying we are five years away from AI exceeding the sum total of the human intelligence and virtually every job that I can see. Paraphrasing Musk is something that can be done as effectively and less expensively by artificial intelligence and breakthroughs in these technologies. So what are you simulating forward? You know, how far are you trying to see forward as the CEO of a company that requires that you're thinking as far forward as you can?

20:09And what do you think about employment dislocations and wage deflation? I'm, you know, last, last little portion of the question. I mean, what a time we live in that the largest technology companies with the highest levels of cash flows and the strongest balance sheets in human history are actually thinning their staff. You know, we're seeing the workflows change and we're seeing employment levels change even at the most prosperous companies. So what is this indicating? What will it mean for consumer spending? How do you think about it within the context of MasterCard? Very important topic, Tom, and I'm glad you're raising it.

20:42So clearly, when you think about artificial intelligence and what it could do, I think it's good to have a mindset that this is technology that needs to be explored. If it's deployed in the right way, it could drive a path to prosperity and growth. So that's all generally the direction that I think and that we think as well. It has downsides. We talked about AI-driven risk, cyber risk in particular. So there's always with everything up and down, up and downsides. So as technology is evolving, one thing we have to do, you know, because clearly in our in certainly in our industry, but most other industries comes down to having the best talent.

21:24We have to upskill our talent. So there's significant focus on, you know, making AI tools available and ensuring that we can upgrade the jobs in the company for people who leverage AI to do an even better job and do the things that machines cannot do. human-centered AI application is the focus that we're driving and saying, okay, use this tool to do a better job and don't do the redundant stuff. I've just created myself an AI assistant for emails. So, you know, so I don't have to deal with that any longer. That's great. I still take a look at it, but it does take some of the kind of menial tasks away from that.

22:01So I think we need to be very thoughtful about that. Currently, when I see where our customers are on that, so the number of customers that want to talk to us about agentic commerce, stablecoins, all the topics that we think about, we use a lot of AI to prepare for those conversations because there's a lot of public data that's out there about those customers. There's a lot out there about the technologies available. We bring it together and we save ourselves a lot of time to have more engagement with our customers on the topics that actually matter. Artificial intelligence and cybersecurity, 180 billion transactions a year.

22:35How do we keep them safe? Leveraging Gen AI and threat intelligence data is all about technology. And that was always about technology in MasterCard. So that's not about people because we've always been a network company, actually with a very light, you know, if you think about our market cap, and we think we're only 40 ,000 people across 220 countries and territories. is so yeah our industry is not the one way you would start to think you know fundamentally rethinking that um you know if you uh think about some of our services um who will win and who will have a challenge in the world of ai um the companies that set themselves apart are the ones that can use all types of different models but have proprietary data that they can feed the model with and then drive their business forward we're one of the companies that have the most unique data sets, transactional data.

23:28So those are all things that I think give us longevity and give us right to and license to play. And we're going to push forward on that basis. And if you had the chance or will have the chance to listen to our earnings call today, the last thing I said on our earnings call today is I thanked our employees for driving all those numbers and that output for us and our customers. Last question. Running a company with a market cap of$500 billion with as much change, this isn't well, every business is going through so much change, but I would say having gotten to know leadership at Starbucks over the last 25 or 30 years, there's a lot of continuity of what they're doing every day.

24:03They know what product they're putting out. There's not as much, as many different decisions to be made on acquisitions all the way through to the technologies you're choosing, your workforce, et cetera. What is your approach to personal health, to sustaining yourself through and your leadership team? Because obviously the top 15 people at MasterCard are connected into the business 24-7, in some ways have to be. So what is your approach to unplugging, to sustaining this level of output? Obviously, we're very happy and hope you'll be CEO for the next 25 years. So how are you going to do that? Yeah, so I think it's a really important point.

24:43And the first is to recognize how important that point actually is. So across our leadership team, yes, it is 24-7. At the same time, it's not 24-7 for everybody all the time. So we're a global leadership team, and that's a good thing. So somebody's awake over in Singapore, and they can do their part. And so we manage in a somewhat balanced fashion around that. Divide and conquer is very clear. This is a strong team, and this is true for the broader population at MasterCard. I have to say, I personally value vacation. i think it's a really important thing i was having a conversation with um as somebody uh that works directly in my team and i said hey you know what are you planning for the summer he said yeah i might take a few days off and i said you should consider maybe like taking two weeks off um so maybe this is growing up in europe i don't know what it is but i find that is important um you know but then you have to find these other moments uh where you just can uh just think about something different.

25:45So I'm involved in a set of activities outside of the companies on the nonprofit side. I just find that's important, takes my mind off. It's a source of energy. And then of course, you know, being a good German, a lot of walking and a lot of talking. So with my wife, these are things like that. And I mentioned it to you at the outset before we started, I do like motorcycling and skiing, those two activities that focus your mind completely. and at the end of the day you're physically very tired and you don't think about anything else much on that day so different ways different uh kind of approaches for everybody um one thing i regret uh which is i don't read as much as i probably should i read much more summaries and newsletters and i um i have taken the last couple of uh kind of long weekends that uh that came around to actually grab a book again.

26:40And I find that was a really good idea. So I'll try to do more of that. Same. I mean, that's a commitment we'll hold each other accountable to. Michael, thank you so much for this time. We began investing in MasterCard more than, maybe it was around 2013, but the stock below 50. We have more than, I think - Had a good run. More than 30 investments, but more than 25 investments. And yes, we've had a good run and we're very thankful. We loved the work of Ajay Banga, obviously. And I mean, we didn't even talk about your succession in the middle of COVID. That was fascinating. That's gotta be a good chapter of at least one book that you write at some point.