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•	direct regulation of the payments industry (including regulatory, legislative and litigation activity with respect to interchange fees, surcharging and the extension of current regulatory activity to additional jurisdictions or products)

•	the impact of preferential or protective government actions

•	regulation to which we are directly or indirectly subject based on our participation in the payments industry (including anti-money laundering and economic sanctions, financial sector oversight, real-time account-based payment systems, issuer practice regulation and regulation of internet and digital transactions)

•	the impact of changes in laws, including the recent U.S. tax legislation, regulations and interpretations thereof, or challenges to our tax positions

•	regulation of privacy, data protection and security

•	potential or incurred liability and limitations on business resulting from litigation

•	the impact of competition in the global payments industry (including disintermediation and pricing pressure)

•	the challenges relating to rapid technological developments and changes

•	the challenges relating to operating an account-based payment system in addition to our core network and to working with new customers and end users

•	the impact of information security incidents, account data breaches, fraudulent activity or service disruptions on our business

•	issues related to our relationships with our financial institution customers (including loss of substantial business from significant customers, competitor relationships with our customers and banking industry consolidation)

•	the impact of our relationships with other stakeholders, including merchants and governments

•	exposure to loss or illiquidity due to settlement guarantees and other significant third-party obligations

•	the impact of global economic and political events and conditions (including global financial market activity, declines in cross-border activity, negative trends in consumer spending, the effect of adverse currency fluctuation and the effects of the U.K.’s proposed withdrawal from the E.U.)

•	reputational impact, including impact related to brand perception

•	issues related to acquisition integration, strategic investments and entry into new businesses

•	issues related to our Class A common stock and corporate governance structure

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•	adding new players to our customer base in new and existing markets by working with partners such as governments, merchants, technology companies (such as digital players and mobile providers) and other businesses

•	expanding capabilities based on our core network into new areas to provide opportunities for electronic payments and to capture more payment flows, such as B2C transfers, B2B transfers, P2P transfers, including in the areas of transit and government disbursements

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•	driving acceptance at merchants of all sizes

•	broadening financial inclusion for the unbanked and underbanked

•	creating and acquiring differentiated products to provide unique, innovative solutions that we bring to market, such as real-time account-based payment, Mastercard B2B Hub™ and Mastercard Send™ platforms

•	providing value-added services across safety and security, consulting, data analytics, processing and loyalty.

•

expanded our use of Masterpass globally, which is live in dozens of markets around the world. Masterpass is a global digital payment service that allows consumers to make fast, simple and secure transactions on any device and across any channel. Over the last year, we have enhanced the browser and in-app checkout experience globally and made significant platform improvements to make it easier and faster for consumers to checkout. We have also launched a new merchant onboarding experience and a new package of software to make it easier for merchants to integrate with Masterpass.

•	continued to expand and scale Mastercard Send™ capabilities, using HomeSend, to connect more people, businesses and governments to facilitate the transfer of funds quickly and securely both domestically and cross-border in over 100 markets.

•	broadened our acceptance solutions to offer Quick Response (“QR”) codes under a common set of new global specifications developed in conjunction with EMVCo and other industry players. Masterpass QR provides people with mobile phones the ability to safely make in-person purchases without a card and avoids the need for expensive point of sale equipment.

•	acquired Brighterion, Inc., a software company specializing in Artificial Intelligence (“AI”), that enhances our networks, improves our existing product suite and helps us build the next generation of solutions to tackle fraud and cybersecurity threats.

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•	acquired NuData Security, a global technology company that helps businesses prevent online and mobile fraud using session and behavioral biometric indicators, to enhance security of the internet of things (the “IoT”), including device-level security and authentication.

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launched Early Detection System™, a service that provides issuers with a unique predictive capability to identify accounts with a heightened risk of fraud based on their exposure to security incidents or data breaches. Early Detection System determines if an account is at risk and sends an alert to the issuer with a quantification of the level of risk. The issuer then uses the level of risk to more accurately prioritize what action to take; from monitoring transactions more closely to proactively issuing a replacement card.

•	embedded AI across our network with Decision Intelligence™, a comprehensive decision and fraud detection solution that utilizes our networks to increase approvals and reduce false declines. This solution now applies AI scoring to every processed transaction on our networks and is used by multiple issuers globally.

•	expanded Safety Net, a technology that intelligently detects and blocks large scale fraud events resulting from cyber-attacks against our issuers. This technology now features new advanced detection capabilities, and acts as an extra layer of defense for every issuer we work with globally, monitoring every processed transaction on our networks.

•	helped stakeholders to increase approvals and reduce declines for consumers with our account continuity solution, Automated Billing Updater. This solution automatically updates expired card numbers at merchant card-on-file locations and is increasingly used by major digital merchants.

•	leveraged MDES to tokenize Masterpass and enable third-party token vaults compliant with EMV® (the global standard for chip technology) to tokenize Mastercard-branded products and services and extended the utility of MDES to tokenize credentials-on-file.

•	European Union

Ø

In 2015, the European Commission issued a statement of objections related to the interregional interchange rates we set and our central acquiring rules within the European Economic Area (the “EEA”). The statement of objections preliminarily concludes that these practices have anticompetitive effects, and the European Commission has indicated it intends to seek fines if it confirms these conclusions. We submitted a response in April 2016 and participated in a related oral hearing in May 2016. Since that time, we have remained in discussions with the European Commission and expect to obtain greater clarity with respect to these issues in the first half of 2018.

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Ø

E.U. member states were required to finish transposing the EEA’s revised Payment Services Directive (commonly referred to as “PSD2”) into their national laws by January 2018. This directive requires financial institutions to provide third party payment processors access to consumer payment accounts, which may enable these processors to route transactions away from Mastercard products by offering certain services directly to people who currently use our products. This directive also requires a new standard for authentication of transactions, which requires additional verification information from consumers to complete transactions. This may increase the number of transactions that consumers abandon if we are unable to ensure a frictionless authentication experience under the new standards.

Ø	In 2016, the European Parliament passed the General Data Protection Regulation (the “GDPR”), a new data protection regulation that will increase our compliance burden for using and processing personal and sensitive data of EEA residents. We have implemented an approach to achieve compliance by the May 2018 deadline.

•	United States

Ø

Merchant Class Litigation. In June 2016, the U.S. Court of Appeals for the Second Circuit reversed the approval of a settlement of an antitrust litigation among a class of merchants, Mastercard, Visa and a number of financial institutions. The court vacated the class action certification and sent the case back to the district court for further proceedings. The parties are proceeding with discovery while at the same time are involved in mediation.

Ø

Tax Cuts and Jobs Act. On December 22, 2017, the U.S. passed a comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “TCJA”). Among other things, the TCJA reduces the U.S. corporate income tax rate from 35% to 21% in 2018, puts into effect the migration towards a territorial tax system and imposes a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”). The enactment of the tax legislation has resulted in additional tax expense of $873 million in the fourth quarter and year ended December 31, 2017, due primarily to provisional amounts recorded for the Transition Tax and the remeasurement of U.S. deferred tax assets and liabilities at lower enacted corporate tax rates. These provisional amounts are based on our initial analysis of the TCJA and may be adjusted in 2018. See Note 17 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion of the TCJA.

•	United Kingdom

Ø

Beginning in May 2012, a number of retailers filed claims or threatened litigation against us seeking damages for alleged anti-competitive conduct with respect to our cross-border interchange fees and our U.K. and Ireland domestic interchange fees. In 2016, a tribunal in one of these cases issued a judgment against us for damages, and we entered into settlements with additional claimants. In January 2017, we received a favorable liability judgment on all significant matters in a separate action brought by ten of the claimants (who were seeking over $500 million in damages). Both the negative judgment and positive judgment for us are being appealed before the U.K. appellate court.

Ø	In connection with the Vocalink part of our business, we expect to enter into a period of consultation with the U.K. Treasury regarding the possible extension of the U.K. payment systems oversight regime to include Vocalink’s role as a service provider.

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China - In 2017, People’s Bank of China issued the Service Guidelines for Market Access of Bank Card Clearing Institutions, providing more guidance and clarity in addition to the 2016 regulations on license application and operational requirements for network operators, including international networks such as ours, to process domestic payments in China.  We have been engaged with regulators and other stakeholders in connection with steps required to advance an application. In the meantime, we continue to work to expand issuance and acceptance of Mastercard-branded products in the Chinese market to support our existing cross-border business and to prepare for potential domestic opportunities.

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Interchange Fees. Interchange fees reflect the value merchants receive from accepting our products and play a key role in balancing the costs consumers and merchants incur.  We do not earn revenues from interchange fees.  Generally, interchange fees are collected from acquirers and paid to issuers to reimburse the issuers for a portion of the costs incurred. These costs are incurred by issuers in providing services that benefit all participants in the system, including acquirers and merchants, whose participation in the network enables increased sales to their existing and new customers, efficiencies in the delivery of existing and new products, guaranteed payments and improved experience for their customers.  We (or, alternatively, financial institutions) establish “default interchange fees” that apply when there are no other established settlement terms in place between an issuer and an acquirer. We administer the collection and remittance of interchange fees through the settlement process.

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Additional Four-Party System Fees.  The merchant discount rate is established by the acquirer to cover its costs of both participating in the four-party system and providing services to merchants.  The rate takes into consideration the amount of the interchange fee which the acquirer generally pays to the issuer. Additionally, acquirers may charge merchants processing and related fees in addition to the merchant discount rate, and issuers may also charge account holders fees for the transaction, including, for example, fees for extending revolving credit.

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Authorization, Clearing and Settlement. Through our core network, we enable the routing of a transaction to the issuer for its approval, facilitate the exchange of financial transaction information between issuers and acquirers after a successfully conducted transaction, and help to settle the transaction by facilitating the determination and exchange of funds between parties via settlement banks chosen by us and our customers.

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Cross-Border and Domestic. Our core network switches transactions throughout the world when the merchant country and issuer country are different (“cross-border transactions”), providing account holders with the ability to use, and merchants to accept, our products and services across country borders. We also provide switched transaction services to customers where the merchant country and the issuer country are the same (“domestic transactions”). We switch approximately half of all transactions using Mastercard and Maestro-branded cards, including nearly all cross-border transactions. We switch the majority of Mastercard and Maestro-branded domestic transactions in the United States, United Kingdom, Canada, Brazil and a select number of other countries. Outside of these countries, most domestic transactions on our products are switched without our involvement.

•	a distributed (peer-to-peer) switching structure for transactions that require fast, reliable switching to ensure they are switched close to where the transaction occurred; and

•	a centralized (hub-and-spoke) switching structure for transactions that require value-added switching, such as real-time access to transaction data for fraud scoring or rewards at the point-of-sale.

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Delivering better digital experiences everywhere. We work to enable digital payment services across all channels and devices. We are using our technologies and security protocols to develop solutions to make digital shopping and selling experiences, such as on smartphones and other connected devices, simpler, faster and safer for both consumers and merchants. We also offer products that make it easier for merchants to accept payments and expand their customer base and are developing products and practices to facilitate acceptance via mobile devices. The successful implementation of our loyalty and reward programs is an important part of enabling these digital purchasing experiences.

•	Securing more transactions. We are leveraging tokenization, biometrics and machine learning technologies in our push to secure every transaction. These efforts include driving EMV-level security and benefits through all our payment channels.

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Digitizing personal and business payments. Through Mastercard Send, we provide money transfer and global remittance solutions to enable our customers to facilitate consumers sending and receiving money quickly and securely domestically and around the world. These solutions allow our customers to address new payment flows with the goal of enabling the movement of money from any funding source, such as cash, card, bank account or mobile money account, to any destination globally, securely and in real time.

•

Simplifying access to, and integration of, our digital assets. Our Mastercard Developer platform makes it easy for customers and partners to leverage our many digital assets and services. By providing a single access point with tools and capabilities to find what we believe are some of the best in class Application Program Interfaces (“APIs”) across a broad range of Mastercard services, we enable easy integration of our services into new and existing solutions.

•	Identifying and experimenting with future technologies, start-ups and trends. Through Mastercard Labs, our global innovation and development arm, we continue to bring customers and partners access to thought leadership, innovation methodologies, new technologies and relevant early-stage fintech players.

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•

The “Prevent” layer protects infrastructure, devices and data from attacks. We have continued to grow global usage of EMV chip and contactless security technology, helping to reduce fraud. Greater usage of this technology has increased the number EMV cards issued and the transaction volume on EMV cards. While this technology is prevalent in Europe, the U.S. market has been adopting this technology in recent years.

•

The “Identify” layer allows us to help banks and merchants verify genuine consumers during the payment process. Examples of solutions under this layer include Mastercard Identity Check™, a fingerprint, face and iris scanning biometric technology to verify online purchases on mobile devices, and our recently launched Biometric Card which has a fingerprint scanner built in to the card and is compatible with existing EMV payment terminals

•	The “Detect” layer spots fraudulent behavior and cyber-attacks and takes action to stop these activities once detected. Examples of our capabilities under this layer include our Early Detection System, Decision Intelligence and Safety Net services and technologies.

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The “Experience” layer improves the security experience for our stakeholders in areas from the speed of transactions, improving approvals for online and card-on-file payments, to the ability to differentiate good consumers from fraudsters. Our offerings in this space include Mastercard In Control®, for consumer alerts and controls and our suite of digital token services available through our Mastercard Digital Enablement Service (“MDES”).

•	Issuer solutions designed to provide customers with a complete processing solution to help them create differentiated products and services and allow quick deployment of payments portfolios across banking channels.

•	Payment gateways that offer a single interface to provide e-commerce merchants with the ability to process secure online and in-app payments and offer value-added solutions, including outsourced electronic payments, fraud prevention and alternative payment options.

•	Mobile gateways that facilitate transaction routing and processing for mobile-initiated transactions for our customers.

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•	cash and checks

•	card-based payments, including credit, charge, debit, ATM and prepaid products, as well as limited-use products such as private label

•	contactless, mobile and e-commerce payments, as well as cryptocurrency

•	other electronic payments, including ACH payments, wire transfers, electronic benefits transfers and bill payments

•	Cash, Check and legacy ACH. Cash and checks continue to represent one of the most widely used forms of payment. However, an even larger share of payments on a U.S. dollar volume basis are made via legacy, or “slow,” ACH platforms. When combined, cash, checks and legacy ACH payments represent 90 percent of the $225 trillion of addressable payment flows.

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•

General Purpose Payment Networks. We compete worldwide with payment networks such as Visa, American Express, JCB, China UnionPay and Discover, among others. Some of the competitors have more market share than we do in certain jurisdictions. Some also have different business models that may provide an advantage in pricing, regulatory compliance burdens or otherwise. In addition, several governments are promoting, or considering promoting, local networks for domestic switching. See “Risk Factors” in Part I, Item 1A for a discussion of the risks related to payments system regulation and government actions that may prevent us from competing effectively for a more detailed discussion.

•

Debit and Local Networks. We compete with ATM and point-of-sale debit networks in various countries. In addition, in many countries outside of the United States, local debit brands serve as the main domestic brands, while our brands are used mostly to enable cross-border transactions (typically representing a small portion of overall transaction volume). Certain jurisdictions have also created domestic card schemes that are focused mostly on debit (including MIR in Russia).

•

Competition for Customer Business. We compete intensely with other payments networks for customer business. Globally, financial institutions typically issue both Mastercard and Visa-branded payment products, and we compete with Visa for business on the basis of individual portfolios or programs. In addition, a number of our customers issue American Express and/or Discover-branded payment cards in a manner consistent with a four-party system. We continue to face intense competitive pressure on the prices we charge our issuers and acquirers, and we seek to enter into business agreements with them through which we offer incentives and other support to issue and promote our payment products. We also compete for non-financial institution partners, such as merchants, governments and mobile providers.

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Real-time Account-based Payment Systems. Through our acquisition of Vocalink, we now face competition in the real-time account-based payment space from other companies that provide these payment solutions. In addition, real-time account-based payments face competition from other payment methods, such as cash and checks, credit cards, electronic, mobile and e-commerce payment platforms, cryptocurrencies and other payments networks.

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Alternative Payments Systems and New Entrants. As the global payments industry becomes more complex, we face increasing competition from alternative payment systems and emerging payment providers. Many of these providers have developed payments systems focused on online activity in e-commerce and mobile channels (in some cases, expanding to other channels), and may process payments using in-house account transfers, real-time account-based payment networks or global or local networks. Examples include digital wallet providers (such as Paytm, PayPal, Alipay and Amazon), mobile operator services, mobile phone-based money transfer and microfinancing services (such as mPesa), handset manufacturers and cryptocurrencies. In some circumstances, these providers can be a partner or customer, as well as a competitor.

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Value-Added Products and Services. We face competition from companies that provide alternatives to our value-added products and services, including information services and consulting firms that provide consulting services and insights to financial institutions, as well as companies that compete against us as providers of loyalty and program management solutions. In addition, our integrated products and services offerings face competition and potential displacement from transaction processors throughout the world, which are seeking to enhance their networks that link issuers directly with point-of-sale devices for payment transaction authorization and processing services. Regulatory initiatives could also lead to increased competition in this space.

•	globally recognized brands

•	highly adaptable global acceptance network built over 50 years

•	expertise in real-time account-based payments through our Vocalink acquisition

•	adoption of innovative products and digital solutions

•	Masterpass global digital payments ecosystem

•	safety and security solutions embedded in our networks

•	Mastercard Advisors group dedicated solely to the payments industry

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•	ability to serve a broad array of participants in global payments due to our expanded on-soil presence in individual markets and a heightened focus on working with governments

•	world class talent

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•	The European Union’s adoption of its Interchange Fee Regulation in 2015 regulating electronic payments issued and acquired within the EEA, including caps on consumer credit and debit interchange fees (described in more detail in the risk factors below) and the separation of brand and switching (which Mastercard implemented in 2016)

•	Several jurisdictions’ creation or grant of authority to create new regulations that either have or would enable the authority to regulate or increase formal oversight over payment systems, including the United Kingdom and India (both of which have designated us as a payments system subject to regulation), as well as Brazil, Hong Kong, Mexico and Russia

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•	The EEA’s implementation of the revised PSD2, which requires:

Ø	financial institutions to provide third party payment processors access to consumer payment accounts. This may enable these third party payment processors to route transactions away from Mastercard products by offering account information or payment initiation services directly to people who currently use our products.

Ø

a different standard for authentication of transactions (strong customer authentication (“SCA”), as opposed to risk-based authentication). The new authentication standard requires additional verification information from consumers to complete transactions and may increase the number of transactions that consumers abandon if we are unable to ensure a frictionless authentication experience. An increase in the rate of abandoned transactions could adversely impact our volumes or other operations metrics.

•	A Statement of Objections issued by the European Commission in July 2015 related to our interregional interchange fees and central acquiring rules within the EEA, to which we have responded and remain in discussions.

•	Legislation regulating the level of domestic interchange rates that has been enacted, or is being considered, in many jurisdictions (for example, debit interchange in the United States is capped by statute for certain regulated entities).

•	Merchants and consumers are also seeking interchange fee reductions and acceptance rule changes through litigation. See Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for more details.

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Governments in some countries are considering, or may consider, regulatory requirements that mandate switching of domestic payments either entirely in that country or by only domestic companies. In particular, we are currently excluded from domestic switching in China and are seeking market access, which is uncertain and subject to a number of factors, including receiving regulatory approval. In 2017, People’s Bank of China issued the Service Guidelines for Market Access of Bank Card Clearing Institutions, which provide some guidance on the 2016 regulations on license application and operational requirements for network operators to process domestic payments in China. We have been engaged with regulators, business partners and other stakeholders in connection with steps required to advance an application. Additionally, Russia has amended its National Payments Systems laws to require all payment systems to process domestic transactions through a government-owned payment switch. As a result, all of our domestic transactions in Russia are currently processed by that system instead of by us.

•	Geopolitical events and resulting OFAC sanctions, adverse trade policies or other types of government actions could lead jurisdictions affected by those sanctions to take actions in response that could adversely affect our business.

•	Regional groups of countries, such as the Gulf Cooperation Countries in the Middle East and a number of countries in South East Asia, are considering, or may consider, efforts to restrict our participation in the switching of regional transactions.

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Anti-Money Laundering, Counter Terrorist Financing, Economic Sanctions and Anti-Corruption - We are subject to AML and CTF laws and regulations globally, including the U.S. Bank Secrecy Act and the USA PATRIOT Act, as well as the various economic sanctions programs, including those imposed and administered by OFAC. We have implemented a comprehensive AML/CTF program, comprised of policies, procedures and internal controls, including the designation of a compliance officer, which is designed to prevent our payment network from being used to facilitate money laundering and other illicit activity and to address these legal and regulatory requirements and assist in managing money laundering and terrorist financing risks. The economic sanctions programs administered by OFAC restrict financial transactions and other dealings with certain countries and geographies (specifically Crimea, Cuba, Iran, North Korea and Syria) and with persons and entities included in OFAC sanctions lists including the SDN List. We take measures to prevent transactions that do not comply with OFAC and other applicable sanctions, including establishing a risk-based compliance program that has policies, procedures and controls designed to prevent us from having unlawful business dealings with prohibited countries, regions, individuals or entities. As part of this program, we obligate issuers and acquirers to comply with their local sanctions obligations and the U.S. sanctions programs, including requiring the screening of account holders and merchants, respectively, against OFAC sanctions lists (including the SDN List). Iran, Sudan and Syria have been identified by the U.S. State Department as terrorist-sponsoring states, and we have no offices, subsidiaries or affiliated entities located in any of these countries or geographies and do not license entities domiciled there. We are also subject to anti-corruption laws and regulations globally, including the U.S. Foreign Corrupt

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Financial Sector Oversight - In the United States, we are subject to regulation by a number of agencies charged with oversight of, among other things, consumer protection, financial and banking matters. These regulators have supervisory and independent examination authority as well as enforcement authority that we may be subject to because of the services we provide to financial institutions that issue and acquire our products. It is often not clear whether and/or to what extent these institutions will regulate broader aspects of payment networks.

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Real-time Account-based Payment Systems – In 2017, we completed the acquisition of a controlling interest in Vocalink. In the U.K., the Bank of England has expanded its oversight of certain payment system providers that are systemically important to U.K.’s payment network. As a result of these changes, aspects of our Vocalink business could become subject to the U.K. payment system oversight regime and be directly overseen by the Bank of England.

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Issuer Practice Legislation and Regulation - Our financial institution customers are subject to numerous regulations, which impact us as a consequence. In addition, certain regulations, such as PSD2 in the EEA, may disintermediate issuers. If our customers are disintermediated in their business, we could face diminished demand for our integrated products and services. In addition, existing or new regulations in these or other areas may diminish the attractiveness of our products to our customers.

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Regulation of Internet and Digital Transactions - Proposed legislation in various jurisdictions relating to Internet gambling and other digital areas such as cyber-security, copyright, trademark infringement and privacy could impose additional compliance burdens on us and/or our customers, including requiring us or our customers to monitor, filter, restrict, or otherwise oversee various categories of payment transactions.

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•	Within the global general purpose payments industry, we face substantial and increasingly intense competition worldwide.

•	In certain jurisdictions, including the United States, Visa has greater volume, scale and market share than we do, which may provide significant competitive advantages.

•	Some of our traditional competitors, as well as alternative payment service providers, may have substantially greater financial and other resources than we have, may offer a wider range of programs and services than we offer or may use more effective advertising and marketing strategies to achieve broader brand recognition or merchant acceptance than we have.

•	Our ability to compete may also be affected by the outcomes of litigation, competition-related regulatory proceedings, central bank activity and legislative activity.

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Parties that process our transactions in certain countries may try to eliminate our position as an intermediary in the payment process. For example, merchants could switch (and in some cases are switching) transactions directly with issuers. Additionally, processors could process transactions directly between issuers and acquirers. Large scale consolidation within processors could result in these processors developing bilateral agreements or in some cases switching the entire transaction on their own network, thereby disintermediating us.

•	Regulation in the EEA may disintermediate us by enabling third-party processors opportunities to route payment transactions away from our networks and towards other forms of payment.

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Although we partner with technology companies (such as digital players and mobile providers) that leverage our technology, platforms and networks to deliver their products, they could develop platforms or networks that disintermediate us from digital payments and impact our ability to compete in the digital economy. This risk is heightened when we have relationships with these entities where we share Mastercard data. While we share this data in a controlled manner subject to applicable anonymization and data privacy standards, without proper oversight we could inadvertently share too much data which could give the partner a competitive advantage.

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Competitors, customers, technology companies, governments and other industry participants may develop products that compete with or replace value-added products and services we currently provide to support our switched transaction and payment offerings. These products could replace our own switching and payments offerings or could force us to change our pricing or practices for these offerings. In addition, governments that develop national payment platforms may promote their platforms in such a way that could put us at a competitive disadvantage in those markets.

•	Participants in the payments industry may merge, create joint ventures or form other business combinations that may strengthen their existing business services or create new payment services that compete with our services.

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Technological changes, including continuing developments of technologies in the areas of smart cards and devices, contactless and mobile payments, e-commerce, cryptocurrency and block chain technology, machine learning and AI, could result in new technologies that may be superior to, or render obsolete, the technologies we currently use in our programs and services. Moreover, these changes could result in new and innovative payment methods and programs that could place us at a competitive disadvantage and that could reduce the use of our products.

•	We rely in part on third parties, including some of our competitors and potential competitors, for the development of and access to new technologies. The inability of these companies to keep pace with technological developments, or the acquisition of these companies by competitors, could negatively impact our offerings.

•	Our ability to develop and adopt new services and technologies may be inhibited by industry-wide solutions and standards (such as those related to EMV, tokenization or other safety and security technologies), and by resistance from customers or merchants to such changes.

•	Our ability to develop evolving systems and products may be inhibited by any difficulty we may experience in attracting and retaining technology experts.

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Our ability to adopt these technologies can also be inhibited by intellectual property rights of third parties. We have received, and we may in the future receive, notices or inquiries from patent holders (for example, other operating companies or non-practicing entities) suggesting that we may be infringing certain patents or that we need to license the use of their patents to avoid infringement. Such notices may, among other things, threaten litigation against us or our customers or demand significant license fees.

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•	Our ability to develop new technologies and reflect technological changes in our payments offerings will require resources, which may result in additional expenses.

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We work with technology companies (such as digital players and mobile providers) that use our technology to enhance payment safety and security and to deliver their payment-related products and services quickly and efficiently to consumers. Our inability to keep pace technologically could negatively impact the willingness of these customers to work with us, and could encourage them to use their own technology and compete against us.

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Governmental entities typically fund projects through appropriated monies. Changes in governmental priorities or other political developments, including disruptions in governmental operations, could impact approved funding and result in changes in the scope, or lead to the termination of, the arrangements or contracts we or financial institutions enter into with respect to our payment products and services.

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•	Our work with governments subjects us to U.S. and international anti-corruption laws, including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. A violation and subsequent judgment or settlement under these laws could subject us to substantial monetary penalties and damages and have a significant reputational impact.

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Working or contracting with governments, either directly or via our financial institution customers, can subject us to heightened reputational risks, including extensive scrutiny and publicity, as well as a potential association with the policies of a government as a result of a business arrangement with that government. Any negative publicity or negative association with a government entity, regardless of its accuracy, may adversely affect our reputation.

•	principal customers, which are customers that participate directly in our programs and are responsible for their own settlement and other activities as well as those of their sponsored affiliate customers

•	affiliate debit licensees

•	We may incur obligations in connection with transaction settlements if an issuer or acquirer fails to fund its daily settlement obligations due to technical problems, liquidity shortfalls, insolvency or other reasons.

•	If our principal customer or affiliate debit licensee is unable to fulfill its settlement obligations to other customers, we may bear the loss.

•	Although we are not obligated to do so, we may elect to keep merchants whole if an acquirer defaults on its merchant payment obligations, or to keep prepaid cardholders whole if an issuer defaults on its obligation to safeguard unspent prepaid funds.

•	Our customers may:

Ø	restrict credit lines to account holders or limit the issuance of new Mastercard products to mitigate increasing account holder defaults

Ø	implement cost reduction initiatives that reduce or eliminate payment product marketing or increase requests for greater incentives or greater cost stability

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Ø	default on their settlement obligations, including as a result of sovereign defaults, causing a liquidity crisis for our other customers

•	Consumer spending can be negatively impacted by:

Ø	declining economies, foreign currency fluctuations and the pace of economic recovery, which can change cross-border travel patterns, on which a significant portion of our revenues is dependent

Ø	low levels of consumer and business confidence typically associated with recessionary environments and those markets experiencing relatively high unemployment

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Government intervention (including the effect of laws, regulations and/or government investments on or in our financial institution customers), as well as uncertainty due to changing political regimes in executive, legislative and/or judicial branches of government, may have potential negative effects on our business and our relationships with customers or otherwise alter their strategic direction away from our products.

•	Tightening of credit availability could impact the ability of participating financial institutions to lend to us under the terms of our credit facility.

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•	our stockholders are not entitled to the right to cumulate votes in the election of directors

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•	our stockholders are not entitled to act by written consent

•	a vote of 80% or more of all of the outstanding shares of our stock then entitled to vote is required for stockholders to amend any provision of our bylaws

•	any representative of a competitor of Mastercard or of Mastercard Foundation is disqualified from service on our board of directors

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•	Net revenue increased 16%, or 15% on a currency-neutral basis, in 2017 versus 2016, primarily driven by:

Ø	Switched transaction growth of 17%

Ø	Cross border growth of 15% on a local currency basis

Ø	An increase of 10% in gross dollar volume, on a local currency basis and adjusted for the impact of the 2016 EU regulation change

Ø	Acquisitions contributed 2 percentage points of growth

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Ø	These increases were partially offset by higher rebates and incentives

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Operating expenses increased 17% in 2017 versus 2016. Excluding the impact of Special Items, adjusted operating expenses increased 16%, both as adjusted and on a currency-neutral basis, in 2017 versus 2016. The impact of acquisitions contributed 6 percentage points of growth for the twelve months ended December 31, 2017. Other factors contributing to the increase were continued investments in strategic initiatives as well as foreign exchange related charges.

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The effective income tax rate increased 11.9 percentage points to 40.0% in 2017 versus 28.1% in 2016, primarily due to the Tax Cuts and Jobs Act (the “TCJA”). Excluding the impact of the TCJA and other Special Items, the 2017 adjusted effective income tax rate improved by 1.3 percentage points to 26.8% from 28.1% in 2016 primarily due to a more favorable geographical mix of taxable earnings, partially offset by a lower U.S. foreign tax credit benefit.

•	We generated net cash flows from operations of $5.6 billion in 2017, versus $4.5 billion in 2016.

•	We repurchased 30 million shares of our common stock for $3.8 billion and paid dividends of $942 million in 2017.

•	We acquired businesses for total consideration of $1.5 billion in 2017, the largest of which was VocaLink Holdings Limited (“Vocalink”), which expanded our capability, among other things, to process real-time account-based payment transactions.

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The TCJA, enacted in 2017, will reduce the U.S. corporate income tax rate from 35% to 21% beginning in 2018, imposes a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”) and puts into effect the migration towards a territorial tax system. While the enactment of the TCJA resulted in additional tax expense of $873 million in 2017, it is expected to have a favorable impact on our effective tax rate in future periods. See Note 17 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion of the TCJA impact.

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In 2017, due to the passage of the TCJA, we incurred additional tax expense of $873 million, $0.81 per diluted share, which includes $825 million of provisional charges attributable to the Transition Tax, the remeasurement of our net deferred tax asset balance in the U.S. and the recognition of a deferred tax liability related to a change in assertion regarding reinvestment of foreign earnings, as well as $48 million in additional tax expense related to a foregone foreign tax credit benefit on current year repatriations (collectively the “Tax Act Impact”). See Financial Results of this section and Note 17 (Income Taxes) to the consolidated financial statements included in Part II, Item 8 for further discussion of the TCJA.

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In 2017, we recorded a pre-tax charge of $167 million ($108 million after tax, or $0.10 per diluted share) in general and administrative expenses related to the deconsolidation of our Venezuelan subsidiaries (the “Venezuela Charge”). See Impact of Foreign Currency of this section and Note 1 (Summary of Significant Accounting Policies) to the consolidated financial statements included in Part II, Item 8 for further discussion of the Venezuela Charge.

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In 2017, we recorded a pre-tax charge of $15 million ($10 million after tax, or $0.01 per diluted share) in provision for litigation settlements expense, related to a litigation settlement with Canadian merchants (the “Canadian Merchant Litigation Provision”). In 2016 and 2015, we recorded a pre-tax charge of $117 million ($85 million after tax, or $0.08 per diluted share) and $61 million ($45 million after tax, or $0.04 per diluted share), respectively, in provision for litigation settlements expense, related to separate litigations with merchants in the U.K. (collectively the “U.K. Merchant Litigation Provision”). See Note 18 (Legal and Regulatory Proceedings) to the consolidated financial statements included in Part II, Item 8 for further discussion of the Canadian Merchant Litigation Provision and the U.K. Merchant Litigation Provision.

•	In 2015, we recorded a settlement charge of $79 million ($50 million after tax, or $0.04 per diluted share) in general and administrative expenses, relating to the termination of our qualified U.S. defined benefit pension plan (the “U.S.

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•	domestic or cross-border transactions

•	signature-based or PIN-based transactions

•	geographic region or country in which the transaction occurs

•	volumes/transactions subject to tiered rates

•	processed or not processed by us

•	amount of usage of our other products or services

•	amount of rebates and incentives provided to customers

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1.

Domestic assessments are fees charged to issuers and acquirers based primarily on the dollar volume of activity on cards and other devices that carry our brands where the merchant country and the issuer country are the same. Domestic assessments include items such as card assessments, which are fees charged on the number of cards issued or assessments for specific purposes, such as acceptance development or market development programs.

2.

Cross-border volume fees are charged to issuers and acquirers based on the dollar volume of activity on cards and other devices that carry our brands where the merchant country and the issuer country are different. In general, a cross-border transaction generates higher revenue than a domestic transaction since cross-border fees are higher than domestic fees, and may include fees for currency conversion.

3.	Transaction processing revenue is earned for both domestic and cross-border transactions and is primarily based on the number of transactions. Transaction processing includes the following:

•	Switched transactions include the following products and services:

Ø	Authorization is the process by which a transaction is routed to the issuer for approval. In certain circumstances, such as when the issuer’s systems are unavailable or cannot be contacted, Mastercard or others, on behalf of the issuer approve in accordance with either the issuer’s instructions or applicable rules (also known as “stand-in”).

Ø	Clearing is the determination and exchange of financial transaction information between issuers and acquirers after a transaction has been successfully conducted at the point of interaction. We clear transactions among customers through our central and regional processing systems.

Ø	Settlement is facilitating the exchange of funds between parties.

•	Connectivity fees are charged to issuers, acquirers and other financial institutions for network access, equipment and the transmission of authorization and settlement messages. These fees are based on the size of the data being transmitted and the number of connections to our network.

•	Other Processing fees include issuer and acquirer processing solutions; payment gateways for e-commerce merchants; mobile gateways for mobile initiated transactions; and safety and security.

4.	Other revenues: Other revenues consist of other payment-related products and services and are primarily associated with the following:

•	Consulting, data analytic and research fees are primarily generated by Mastercard Advisors, our professional advisory services group.

•	Safety and security services fees are for products and services we offer to prevent, detect and respond to fraud and to ensure the safety of transactions made on our products. We work with issuers, merchants and governments to help deploy standards for safe and secure transactions for the global payments system.

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Loyalty and rewards solutions fees are charged to issuers for benefits provided directly to consumers with Mastercard-branded cards, such as access to a global airline lounge network, global and local concierge services, individual insurance coverages, emergency card replacement, emergency cash advance services and a 24-hour cardholder service center. For merchants, we provide targeted offers and rewards campaigns and management services for publishing offers, as well as opportunities for holders of co-brand or loyalty cards and rewards program members to obtain rewards points faster.

•	Program management services provided to prepaid card issuers consist of foreign exchange margin, commissions, load fees, and ATM withdrawal fees paid by cardholders on the sale and encashment of prepaid cards.

•	Real-time account-based payment services relating to ACH and other ACH related services.

•	We also charge for a variety of other payment-related products and services, including account and transaction enhancement services, rules compliance and publications.

5.	Rebates and incentives (contra-revenue): Rebates and incentives are provided to certain of our customers and are recorded as contra-revenue.

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•

Personnel expenses increased 21% and 6% in 2017 and 2016, respectively, versus the prior year. Excluding the impact of U.S. Employee Pension Plan Settlement Charge of $79 million recorded in 2015, personnel expense grew 10% for 2016 versus 2015. The 2017 and 2016 increases were driven by a higher number of employees to support our continued investment in the areas of real-time account payments, digital, services, data analytics and geographic expansion. The impact of acquisitions contributed 6 and 1 percentage points of growth for 2017 and 2016, respectively.

•	Professional fees consist primarily of third-party services, legal costs to defend our outstanding litigation and the evaluation of regulatory developments that impact our industry and brand. The increase in 2017 was primarily due to merger and acquisition related consulting costs. The increase in 2016 was primarily due to higher legal costs to defend litigation.

•	Data processing and telecommunication charges consist of expenses to support our global payments network infrastructure, expenses to operate and maintain our computer systems and other telecommunication systems. These expenses increased in both 2017 and 2016 due to capacity growth of our business and higher third-party processing costs.

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Foreign exchange activity includes gains and losses on foreign exchange derivative contracts and the impact of remeasurement of assets and liabilities denominated in foreign currencies.  See Note 20 (Foreign Exchange Risk Management) to the consolidated financial statements included in Part II, Item 8 for further discussion. During 2017, foreign exchange activity negatively impacted general and administrative expense growth by 2 percentage points versus the comparable period in 2016, due to greater losses from foreign exchange derivative contracts versus the prior year. During 2016, foreign exchange activity negatively impacted general and administrative expense growth by 4 percentage points versus the comparable period in 2015, due to the impact from foreign exchange derivative contracts and the lapping of balance sheet remeasurement gains in the prior year.

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Other expenses include costs to provide loyalty and rewards solutions, travel and meeting expenses and rental expense for our facilities and other miscellaneous charges. Other expenses increased 25% and 8% in 2017 and 2016, respectively, versus the prior year. In 2017, other expenses increased due to the impact of the Venezuelan Charge of $167 million. In 2016, other expenses increased primarily due to higher cardholder services and loyalty costs.

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•	lowers the corporate income tax rate from 35% to 21%

•	imposes a one-time deemed repatriation tax on accumulated foreign earnings (the “Transition Tax”)

•	provides for a 100% dividends received deduction on dividends from foreign affiliates

•	requires a current inclusion in U.S. federal taxable income of earnings of foreign affiliates that are determined to be global intangible low taxed income or “GILTI”

•	creates the base erosion anti-abuse tax, or “BEAT”

•	provides for an effective tax rate of 13.125% for certain income derived from outside of the U.S. (referred to as foreign derived intangible income or “FDII”)