Visa Inc. (V) Earnings Call Transcript & Summary

Okay. Well, good morning to everyone in the West Coast, which I think that includes Mike, and good afternoon or early afternoon to everyone in the East Coast. We're incredibly happy to have Visa joining us for this fireside chat. [Operator Instructions] So Mike was generous enough to publish an 8-K right before this chat, which we appreciate. So maybe you could just give us a little bit of a sense of an update on what you're seeing and if there's any kind of notable implications as we think about Q4 and such.

Right. So one, thank you for having me. And yes, we did the 8-K just for you, Josh.

I appreciate that.

Yes. So yes, I think what we're seeing, as you maybe saw in the numbers, is that the trends are mostly stable so far this quarter. So starting with the U.S., U.S. credit, the August volume was down 8% year-over-year, which is consistent with what it was in July. So stable for the last 2 months. Although if you look at the weekly trends that we showed, credit was improving sort of late in July, so sort of flat on a month-on-month basis, but some signs of improvement late in the month of August. U.S. debit is still continuing to grow incredibly strong. It's growing 24% in the month of August, which is down 2 points from July, but which in part is due to lower unemployment benefits. But still incredibly strong growth, and that's really being fueled by primarily from cash displacement, just the acceleration in cash displacement as well as some shift away from credit. Those are 2 of the biggest factors. When you look outside of the U.S., the trends are similar to -- in terms of payments volume, in terms of what we're seeing in the U.S., we're seeing a lot of improvement in markets like Brazil, U.K., UAE and Italy. So those are all markets that were already positive but have been continuing to improve through the quarter. And we highlighted a few other markets where they're positive, stable to where they were in July in markets like Japan, Germany and Canada. And then there are some markets that continue to be negative year-over-year but are improving through the quarter. We highlighted India and South Africa as 2 examples of that. So that gives you a little bit of a sense for the payments volume. In cross border, again, it's stable, mostly consistent with where we have been in the last several months, and that continues to be limited by the number of orders that are truly open where people can really move freely. So if you look at the results, our volume was, in the month of August, was negative 43%, so down 43% from last year, excluding intra-Europe transactions. And we exclude those again because the premium of the economics is not the same as cross border everywhere else in the world. And that is one point better in July. And so a small improvement, but generally speaking, cross border, it was negative 45% in May, negative 44% in both June and July, now negative 43% in August. So some small signs of improvement, but still fairly a very limited recovery at this point. We are seeing -- the good news is we are seeing positive signs when borders open. So on the earnings call, we highlighted, for example, travel from the U.S. to Mexico and the Caribbean. As those markets opened up, we know within 6 to 8 weeks, we saw a 40-point improvement in the year-over-year performance. And we were seeing the same things with travel within Europe, where a lot of the borders are open. And the most recent example of that is in Turkey, where Turkey opened their borders on August 1 to most of Europe and Russia and really that whole part of the world. It's now hoping it opened its borders. And we saw pretty significant improvement for travel into Turkey as a result. So the good news is that when the borders open, we are seeing improvement in performance, but the reality is that many of the borders are still closed. And so there aren't -- isn't a lot of improvement in the cross border business at this point. And then in process transactions, in August, it grew 3%, and exited the month at 5%. So it's continuing to improve through the month. And this is really being fueled by domestic transactions. So the entire recovery of process transactions to being positive growth from where it was just a few months ago is essentially all coming from domestic. And so it's sort of mirroring what you're seeing with volume. Our payments volume, as we've said, has trended back to positive year-over-year growth in many markets, but our cross border business continues to be heavily negative. And the same thing is being reflected in our transactions. So what that means is there's a little bit of a mix shift going on within our data processing revenue, where the transactions are much more a higher mix of domestic than cross border. So when you're thinking about our data processing revenue, it'll continue to benefit from the growth of our value-added services, as we called out in the quarter, but you're also going to have a situation where because domestic is growing a lot faster, the domestic transactions' growing a lot faster than cross border transactions. The revenue growth may not improve at the same rate as what we're seeing in the underlying transactions because of that mix change. That's one thing to note. And -- but otherwise, the quarter is mostly, I guess, as we would have expected and highlighted in our July earnings call.

Okay. Well, that's a really helpful update, obviously. A lot to unpack when we think about debit and domestic and some of these international economies that are starting to open and the yield and such. So that's really helpful. So thank you for that. So maybe just a follow-up because there's so much attention on cross border. I think you were quite helpful in explaining really pre-COVID, I believe it was 2/3 travel was roughly the mix, excluding some of the intra-European dynamics. So maybe just help us understand, like, as we go through this recovery process, and it's very difficult to project, but what's the key biomarkers that you're thinking about? How should we think about the relative importance of, say, consumer versus commercial? Just help us think through the path and what we should be watching over the coming quarters and year.

Yes. So there's -- so there's a few things I would highlight. So one is just from -- in terms of consumer versus business, our cross-border volume is very consumer oriented. So we've said and we disclosed that our payments volume is about 12% is B2B. So we're 88% consumer, 12% B2B. And we've said our cross border business is even more consumer oriented than our overall payments volume. And a lot of that stems from large business travel. The airline tickets in particular is something we tend to not capture our cards. So because a large business would tend to go through some sort of travel agent, sort of an online booking tool, and so that means our cross border business is very consumer oriented, which we think is good because we believe consumers will still value experiences, want to see friends and family. And so we think that part of travel will come back sooner. The 2 dynamics to watch is, one is the proximity of the travel. So when borders open, will people be willing to go as far as they did previously? And what we're already seeing, at least at this point, although there's very small recovery in travel, it is a little bit better among countries that are closer to where the person's home country is than maybe we had seen before. So the growth improvement is a little better among countries that are a little more closer to home, which, again, is relatively intuitive, and that's a trend we're going to keep watching to see what that means for the business. The good thing for us is our economics are really based on you going to another country. So whether it's the country next door or it's halfway on the other side of the world, not -- no real big implication for us. But really, the critical thing is the borders' opening. As I mentioned, there's still -- the large majority of countries, there's still a lot of restrictions in terms of quarantine if you go there. And so it really -- what we can't decipher yet is are people not traveling because they don't want to or they're not willing to or because they can't? And at least where we see the borders open, we are seeing a significant improvement. Maybe not all the way back to 2019 levels of spend, but we're seeing a pretty meaningful change in the trend once the border opens, and that at least gives us some confidence and some optimism that if more borders were to open, we'd see some improvement. And then, of course, anything related to therapeutics or a vaccine is also likely to help, particularly because, again, it's likely to help with the border closings. And so that's really what we're watching closely.

Okay. Yes, I can definitely vouch as a pent-up demand customer to do some consumer travel. So I think that is a real thing. But I also wanted to talk a little bit about e-commerce. So that's an area that we certainly have seen a surge in, which is fairly intuitive. And we have started to see a bit of a gradual reopening, as you mentioned, some of the domestic strength. So I'm wondering, has that really maybe come at the expense of e-comm where it slowed down? Or maybe has the strength persisted there? Any color you can share on that front?

Yes. That's one of the most powerful trends that we're seeing is that actually, as markets are reopening and consumers and small businesses are getting more and more out doing commerce in a face-to-face environment, we're not seeing a big slowdown in the card-not-present spending. And that's a really positive sign. So if you take the U.S., for example, because we disclose these trends, our -- since mid-April, our card-not-present growth has consistently been over 30%. So incredibly strong growth, and that has been consistent now for several months versus if you look at the card-present spending, it was more than -- it was down more than 40% in April. And since sort of July and August, it's been down year-over-year only in the single digits. So there's been a 30-, 40-point improvement in card-present and the card-not-present growth remained steady over 30%. So -- and this is something we're seeing in a lot of other markets around the world, where even as the markets are reopening again and people are going back out and shopping in a face-to-face environment, a lot of the behavior in the shift online appears to be sticking. And as those card-present numbers even get into positive growth, I guess, we'll see how much of that last. But at least at this point, pretty dramatic improvements we're seeing in card-present and the card-not-present growth sustaining.

Okay. That's really helpful. So one of the other questions I wanted to ask is about the face-to-face that you're seeing with this domestic resurgence. Certainly, contactless has, I think, probably become a stronger value proposition in some ways. I think it was always there, but it's one of those things that I think is more top of mind. You gave some helpful stats about the number of terminals that are capable and the issuance of cards. So maybe just help us think about the adoption of contactless and maybe how that curve could be bent really because of everything that has taken place.

Yes. So there's no doubt that that's one of the things we're seeing. And contactless, particularly, is effective at displacing cash at the lower ticket levels. But it's really taken off in this environment as people are not wanting to handle cash. And we mentioned on our earnings call that we had about 50 countries where our contactless penetration of face-to-face transactions improved by at least 5 points just since the previous quarter. So from the March quarter to the June quarter, a 5-point increase in penetration at least in 50 countries. So it's a pretty significant change in adoption that's coming as a result of this. And most of that is fueled by is outside the U.S. As we've talked about many times, there's a big difference between what's happening in the U.S., where we're quite a bit behind in the rest of the world, right? So outside the U.S., 2/3 of all of our face-to-face transactions are now contactless that we process. So we already are well over the majority versus in the U.S., we're still in the mid-single digits. So where we are in the U.S. is we have issued over -- there are over 200 million cards out there now, and we expect to have 300 million contactless cards by the end of the calendar year. And so we're making good progress there, but the penetration remains in the mid-single digits. The good news is that, as we've talked about before, we have many markets. So there's over 50 countries where at least 1/3 of face-to-face spending is contactless. And so we have a lot of adoption curves we can look at. And where the U.S. is at this point is where we would expect it to be, what we've seen in other countries. So we've said it takes 2 to 3 years for the adoption of contactless to really take off. It takes a couple of years for there to be enough cards in the market and enough merchants who are expecting where consumers can feel like they can tap almost everywhere they go. And then once that happens is when it really takes off. And so the U.S. really started in the early part of the last calendar year. So we're still, say, 12 to 18 months away from when we would really expect to see a significant ramp in the adoption. But all the pieces are in place. As you mentioned, we're getting more and more merchants to accept it, more and more cards are being issued. And it's just going to take a little time, like everything in payments, we're the chicken or the egg, and we do expect that ramp and that increase to come. It's still just going through the process of establishing enough ubiquity on both sides of the ecosystem.