Visa Inc. (V) Earnings Call Transcript & Summary

Yes. I couldn't hear everything, but I think I got the gist of it, but you'll correct me if I'm on the wrong path. I don't know, but I think it's likely. As your audience member was saying, the dynamics of this time period are very different than the financial crisis in that, for the most part, this hasn't been a consumer credit-driven crisis. If you look at the consumer balance sheet in the U.S. and in many other markets around the world, it is quite healthy. Savings rates are up. Credit repayments on credit cards and other loans is up, but consumers are not using credit cards more for consumer behavior and preference-driven reasons. We always see for certain segments during periods like this, people revert back to spend the money they have versus money they borrow. So that's similar to what we saw in the financial crisis. But in this situation, I think there just isn't the ability, especially for more affluent consumers, to spend on things that they otherwise would like to spend on, things that we were talking about earlier, like travel, international travel, entertainment and the like. And I do think there's going to be a period of time when travel and entertainment is going to become the toilet paper of March and April, right, where we saw kind of consumers all around the world scrambling to buy toilet paper and other food goods. I do feel like there's this big pent-up demand. And when people are given the opportunity to get on an airplane, to go to a stadium, you're going to see a massive spike in spending. And those are purchases that people tend to make with credit cards, both because they're higher-ticket purchases but also because they're rewards-driven purchases. So I think there's a good chance that it will snap back a bit quicker than we saw in the financial crisis.

I want to just kind of pivot to Plaid. I know the termination of the deal was a little bit of a setback. I mean, maybe you could just talk about your strategy about Plaid and some of your engagement with -- how will that change? Do you feel like you're disadvantaged in any way relative to your peers? Or do you think that...

No. It's a great question. Listen, our strategy to engage with the fintech community doesn't change. And by the way, it's as important as ever. We've made fantastic strides all around the world over the last many years, ensuring that Visa is the preferred partner and the preferred network for fintechs to work with all around the world. And we very much see that as the case right now, and we'll continue to invest to ensure that, that is the case. When -- as it relates to Plaid, as you've heard us say, we disagree with the Department of Justice. We believe we would have won a trial, but it was just simply going to take too long. And when we look out around the world, we don't feel disadvantaged at all. In fact, we feel quite advantaged. We feel like we have a position of strength. We feel like we have a great set of capabilities to continue adding value via our network-to-network strategy, especially focused on the application and the services layer of money movement around the world, which is where the overwhelming majority of the value is. So we've got great capabilities. We have our Token ID platform, which we acquired a few years ago, to enable tokenization of bank accounts and other kind of nonpayment credentials. We have Verifi, which provides the very important dispute capabilities that are needed. Cardinal provides authentication capabilities. We have our loyalty, our security, our analytics services. We recently acquired YellowPepper, which also differentiates us in the space. So we feel great about our position, great about our strategy. And engagement with fintechs is as important as it ever has been, and we'll continue to lean into that space.

There's another question from the audience that asks about Brazil and some of the share losses that you guys have seen. Do you have any comments on sort of what might be driving that?

We actually feel great. If you look at our performance in the last couple of quarters, we've been winning back share in Brazil. We have a great team in Brazil. We've reestablished our leadership team in Brazil. We've invested in proprietary products and capabilities built for the Brazil market specifically. And what you're seeing in the numbers over the last couple of quarters and I believe will continue to see is us continuing to win more share, grow our business in Brazil and continue to see Visa as the preferred brand and preferred partner in the Brazil business. As your audience member noted, if you go back a few years, we have some losses. And the good thing about a competitive market and a competitive business and having competitors is when you lose a few things, they can really force you to relook at your business, your team, your products, your capabilities, and we've done that in Brazil, and we're winning and will continue to win.

Okay. So I got 3 big topics that I want to get through in 15 minutes. So let me start with crypto, right? A lot of discussion around all over the place, obviously, generally up in terms of value. I'm just curious if sort of the Visa view on crypto, sort of how you intend to sort of go at it in terms of packet. Obviously, your peer talked about enabling it. Maybe you could just talk about how you guys are thinking.

Yes. Well, crypto seems to be a hot topic in the payment space in the last couple months and quarters. The good news for Visa is we've been investing to be the leader in the crypto space for years now. And you're starting to see, as you often do in this business, the results of investments and a strategic choice that we made several years ago. Let me step back because the word crypto gets thrown around and like it can mean different things to different people. So when we think of the crypto space, there's really 2 different market segments that we think about. The first is so-called cryptocurrencies. These are currencies that represent new asset classes like Bitcoin is obviously the most known example. And they're dominantly held as assets. They tend to be very volatile, and they're not in really use as a form of payment, at least in any significant way. And then there's digital currency or stable coins that are directly backed by existing fiat currencies, and these are emerging payments innovation that could -- they have the potential to be used for global commerce just like a fiat currency did. So we look at those 2 market segments very differently. And in this space, we're focused and have been for the last several years on 4 opportunities. The first is simple bread-and-butter and working with wallets and exchanges to enable people to purchase these currencies using their Visa credential. I mean, that's our core business, and we work hard on that every day. The second where we've made quite a bit of traction is enabling the users of wallets and exchanges to be able to cash out using a Visa credential to make fiat purchases anywhere you can use your Visa card at 70 million merchant locations around the world. This has been a really fast-growing space. Visa has clearly emerged as the leader here. We have 35 of the leading digital crypto platforms and wallets around the world that have chosen to work with Visa. Anywhere you go, look, whether it's Coinbase or Crypto.com, BlockFi, Fold, Pippin, the list goes on. So this is a big opportunity. And the partners we already have today represent an opportunity for 50 million incremental Visa credentials. The third area where we've been focused is enabling our FI and fintech partners that currently lack a crypto offering to quickly develop one and enable their users to buy and sell crypto. So we just announced a set of crypto APIs that we've put out in the market, and what these APIs do is they make the infrastructure available to enable our clients to provide their users the ability to purchase custody, to trade bitcoin, all kind of held by a partner of ours called Anchorage, which is a federally chartered digital asset bank who has an exclusive relationship with Visa. And actually, the first partner that's rolling out these APIs is a company called First Boulevard, which is a digitally native neobank who's committed to closing the wealth gap among the Black community. They're the first to pilot these APIs, and we're really excited about that. And then Sanjay -- to, I guess to the last part of your question, which gets at the fourth area that we've been focused on, which is settlement. We have enabled our network to be able to accept settlement starting right now. We started the investment I think it was about over 18 months ago, upgrading our infrastructure so that financial institutions can settle with Visa in digital currencies with stable coins. So we're going to start that with USDC. Just like our issuers can -- their customers can transact in 160 currencies today and settle in 25 different currencies on the Visa network, we've started supporting digital currencies as an additional settlement currency on our network. So just like issuers can settle with U.S. dollar today, they are now able to settle using USDC. And the mechanics of how we receive those funds is a little different than we do with the U.S. dollar. We've also partnered here with Anchorage to help enable that. So starting next month, we're going to announce issuers that will be highlighting the settlement capability on the Visa network, and we look forward to expanding it to more issuers and then acquirers over time. So the crypto space, there's obviously a lot going on. As I said, we made it a big strategic priority in the company a few years ago, and you're now seeing the results of that.

Great. Congratulations on that. I guess, second question, before I get to my last one is the buy now pay later trend. Definitely lots of activity there. You guys, obviously, have a product that you're launching in conjunction with banks. I mean, how do you guys view buy now pay later? Do you view it as an opportunity or a threat because you could kind of look at it either way?

Yes. So far it's been viewed as an opportunity. We've -- the way we thought about the BMPL space is in 2 different parts. One is we want to partner with all the existing players that are offering proprietary solutions. We -- going back several years, we invested in Klarna. We invested in PAYD. We've established deep partnerships with Afterpay, with Affirm, with ChargeAfter, with Splitit. And we found lots of ways to create mutual benefit with these types of players. People use their Visa card, again, bread-and-butter to repay these buy now pay later loans that they take. And so in this instance, what would have been maybe 1 visa transaction can become 3, 4, 5 or 6 as the installments get paid with Visa, debit cards in smaller pieces. We found that virtual cards are very helpful to installment providers who are looking to use them to settle with their merchants. We found that installment providers want to provision digital visa credentials to their users so that they can, I guess, to your earlier question, try to take their app and become more of a super app and expand the payments that their users can make to places where Visa is accepted. And we've also found that both our value-added services are helpful. Our risk products, our data products as these players are looking to become more sophisticated in their fraud and risk management capabilities as well as Visa Direct as a way for them to pay merchants. So one part of our strategy has been go deep and partner with all the leading players and make our capabilities available for joint partnership opportunities. And then the second piece is, as you said, our own Visa installment solution, which we think there's quite a bit of market space for a platform that enables ubiquitous solution for merchants, no friction or sign-up required and enables a lot of the open to buy that already exists out there in the world to be put to work in new ways of the point of sale. So we're excited to both kind of invest in and expand our network-based installment solution and continue to partner with the other players that are having success as well.

Cool. The final question. Maybe you can get through it quick and we can get some more. But the big one I wanted to get is B2B. Obviously, you've got the network-to-network strategy. There's a lot -- there's a crop companies that are coming up in the B2B space, many going public, trying to sort of -- at different verticals, a lot of fragmentation. Could you just talk about how the pandemic has accelerated/changed the outlook on B2B and sort of how you might address it, whether it has, whether it's accelerated things? Maybe you can just talk about sort of B2B opportunity today post pandemic?

Yes, sure. I mean, the short answer is yes, absolutely. The pandemic has accelerated many, many different players in the supply chain of B2B around the world to accelerate their investments in digitizing payments and the entire supply chain. So we've seen a lot of people, especially early in the pandemic, a lot of businesses scramble to accelerate investments that we've been working on for many, many years. We've just learned the basics of acceptance. One of the things that we do quite regularly is we are out there on the phones, on the front lines, trying to get acceptance in the commercial card space. And one thing that we found early in the pandemic is 1 out of 5 companies that had told us previously that they didn't want to accept, they called us back and said, "We want to accept now." So we're seeing a lot of expansion and acceptance for Visa credentials in the space, which is great. The other place where we're seeing a lot of demand is in the virtual card space. We have a platform called Visa payables automation, which kind of enables issuers to efficiently offer virtual cards to their corporate clients and then send data back to the buyer to aid in reconciliation and other important tasks. And here, we've seen an increase of issuers and partners platform. I think it's by almost 50% just this year. So there's a couple of examples of what we're seeing, but the overall macro point is we're seeing the same level of enthusiasm, investment and excitement of digitizing money movement in the B2B space as we talked about earlier in the consumer space.

That's great. And I guess we have some time for some more questions. So I mean, I guess, is there an internal Visa goal on how big B2B volumes could be over the next 3 to 5 years?

Yes. But as I think you know, we don't give long-term guidance externally. But no question about it. We've got a full set of internal goals. We have a great team leading our B2B business around the world, and we hold them accountable for delivering the kind of results that we think we should be able to earn given the enormous opportunity that we have around the world. But those are internal goals and ways that we use to motivate and push our teams around the world.

You could share some secrets with us, if that's okay, of course. So I guess my final question on value-added services. You talked about how significant the growth has been there. I'm curious if you feel like there's more legs to the growth story and if you might want additional capabilities there that you might build or buy. Maybe you can just talk about sort of how you see the value-added services side because it's done really well through the pandemic because of the issuer needs and the merchant needs, but maybe you could just flush that out a little bit more for us, sort of give us a sense of where we're going.

Great. No. I think it's the third time you said your final question, but I don't mind. I'll keep going as long as you...

You're going really good and being efficient with your answers. Thank you.

So listen, our value-added services business is extraordinarily important. It's been very, very resilient during the pandemic. The reason we have this business, first off, is so that we can deepen relationships with our partners, and so we can help our partners grow, help them kind of improve their businesses. And it also then provides an opportunity for us to grow and diversify our revenue. During COVID, value-added services, I think it grew 19% in our first fiscal quarter. And if you look at all of last year, most of which was during the pandemic, it grew 18% year-over-year. So it's remained very resilient. Growth has accelerated in many of our value-added services areas. We've -- I guess if you say where are the areas where it's grown most, we've seen a lot of growth driven by our seller solutions. CyberSource has been a go-to capability for many sellers around the world as well as our risk and identity offerings, especially as e-commerce has grown and issuers and sellers and acquirers need to make sure they have the most sophisticated risk and security capabilities. We've made a number of acquisitions in the space, some of which I think I mentioned earlier, Bell ID, CardinalCommerce, Payworks, YellowPepper, Verifi, that have helped strengthen and expand our capabilities. We continue to invest organically in new products and services, so we'll continue to double down and invest here. So it's an area that's very important for our partners. They look to Visa for many different things, but especially be a partner that's going to be there with them day in and day out, helping them grow their business, which, actually, last thing I'll say, it reminds me about our great consulting and analytics teams around the world who normally would be in conference rooms with our partners and clients in countries all around the world but have really just done a fantastic job pivoting, working digitally together, like you and I are talking today, and continue to help our partners, help our clients work through this phase and navigate successfully into a post-COVID world. So really proud of all of our team members around the world and how they've been continuing to deliver and really over delivering in this environment.

Now we're actually out of time. So thank you so much, Ryan. You're really efficient, as I mentioned, and we appreciate all the context and color. And hopefully, next year, we can do this in person.

I look forward to it. Thank you very much.

All right. Bye-bye.