Visa Inc. (V) Earnings Call Transcript & Summary

So first of all, good morning again, and thank you, everybody, for being here. Again, I'm Darrin Peller, for Wolfe Research covering FinTech and Payments. Really happy to have Visa with us. And I think many -- some of you have met before with Chris, some of you have not. But he's been now -- well, how long has it been -- have you been CFO?

Yes, it's been since August.

So about 6 -- 9 months, actually, in the seat. And he's been great. We've had opportunities to meet with him with investors before and really learn about the business even more from someone who's been there only 9 months. So with that said, thank you for being here.

Appreciate it. Thanks for having me.

Look, like I just said, it's been about 9 months. So what have been your biggest learnings so far as part of the company?

Yes, it's been about 2.5 quarters now. It's been great. I've really loved my time here at Visa. For those who don't know, I'm new to the industry, but I've spent almost 30 years working in tech, most of it at Microsoft. And so it has been a new adventure for me. It's been great. Really, a great company, I think we have a great market position and really great people, earnest, sincere, hardworking, great culture and the opportunity in front of us, I think, has never been bigger across our growth pillars. We're really focused on making sure that we could build the company and make good decisions to ensure that we have continued sustained success for the next decade.

Any challenges you faced? Or that you found?

Well, as I was saying, I do think that we have a huge growth opportunity in front of us. And in many ways, bigger than we've ever had before, across consumer payments, across value-added services and across new flows. And it's really now incumbent on us as a management team to make really good decisions, to prioritize our investments, to think about what are our biggest bets that we're going to go after to make sure that we continue to see the success that we've had.

Sure. You've recently stated, just going to trends now, that there's been pretty stable trends versus your fiscal first quarter, calendar fourth quarter results. So I think you said through February 21, in your most recent data, that it's been pretty stable. Does this reaffirm your conviction that January's decel was more weather-related and not anything on the consumer?

Yes. You're right. I did give an update recently, and it's probably, for those that haven't heard, it's probably worth just reiterating a little bit of that. So at this point -- at the point that I gave the update, which was around the middle of Q2, so through February 21, we said payment volumes year-on-year growth through February 21 had been relatively stable to what we saw in Q1. That applies -- in our payment volume business, that applies in the U.S. in major markets around the world. I also reiterated that on our cross-border business, we also saw relative stability in the first half of Q2 to what we saw in Q1. So that all said, I guess that does mean thankfully, the weather-related issues did abate and...

Right, January was softer, but in order for it to be stable with the quarter, it obviously came back up in Jan, February. Yes.

Correct. Correct. Correct.

And any other insights you're seeing in terms of consumer behavior in the first part of the year?

Yes. I just -- consumer continues to be resilient, and we continue to see very stable environments across different spend categories, across different geos. And so that makes us feel real good.

You talked about cross-border travel hopefully being 20%, right, as part -- or 20% plus growth for fiscal '24. I think it started off at about 16% when you think about where we've been in the last couple of months, right, last few months. Help us understand what gives you the conviction in the 20%.

Yes. Let's maybe break that down a bit. Because cross-border is such an important part of our business. I'll first start by reiterating our Q1 results. Total cross-border volumes grew 16%, as you said. But within that, travel grew 19%, which is 142% indexed to 2019, and e-commerce also had a good quarter coming in better than we expected. And so that's sort of the 2 pieces of cross-border. Within each of the areas and again, this sort of comes back to what we're seeing now in that stability, by region, you see certain regions that have continued to be strong, better than pre-pandemic levels. And so you think about Latin America, Europe and CEMEA as 3 specific areas that are continuing to grow at -- currently, at 145% to 170% of 2019 and continuing to see sustained strong travel. There's 2 areas when we gave the planning assumptions that we referred to for the full year back in -- at the start of the year, back in October, there was 2 areas that we said were key to our continued growth through the year that we needed to see improvement in, right. That was inbound into the U.S. and that was inbound and outbound out of Asia. And as we talked about at the end of first quarter, we did see improvement in both of those areas in Q1 relative to Q4, with the U.S. inbound improving a few points and then Asia in and out, growing plus 3% and plus 4% relative to the 2019 index. But that said, that was a little bit slower than we saw in the Q4 period. And so those are some of the puts and takes we saw in the total cross-border business, with e-commerce doing better and travel being a little bit light. In Asia, in particular, we talked about Australia and Japan being part of the reasons why the recovery in AP maybe slowed from Q4. When I think about it, it really actually highlights the strength and durability and diversification of our business because total cross-border in great shape. The mix is maybe a little bit different through the first part of the start of the year. And so when we look at the total cross-border business, we feel really good about it. We'll have an update obviously, we're a few weeks away from the end of the quarter. We'll update you on how the rest of the quarter played out and likely update our assumptions for the rest of the year in terms of travel.

Okay. Putting that all into perspective for a minute, I mean, you commented on the call also about seeing the low double-digit payment volume growth for the year overall, right? And when we think about that in context to U.S. growing about 5%, international about 11%. It still doesn't really work out quite to the double-digit range. I mean transactions might be better, but help us understand why you're confident there, too?

Yes. This again goes back -- we shared at the start of the year, we shared a number of planning assumptions for the full year. And one of them as you said, Darrin, was our expectations around full year driver growth. Payment volumes, I think, is what you're referring to. It's helpful, at least the way we think about it to break that down into transactions and average ticket sizes because those are kind of the 2 elements when you do the math. Transaction growth in the first quarter of the year, grew 9.4%. Healthy transaction growth across the board and kind of just south of the double-digit mark that we saw. Our teams, our client-facing teams in the regions around the globe continue to execute really quite well. We've seen continued growth in transactions outside the U.S., inside the U.S. LAC is a great example of that. We've grown our processing share there from effectively 0, a few years ago. We expect to end this year at 80% share processing in Latin America. And so the regions continue to execute really well. And there's a number of growth initiatives that we have that are in play that we're seeing good traction on that we anticipate will take that 9.4% we saw in Q1, and we'll see a bit of an acceleration into the second half of the year. So that's part one. Part two is then what's happening on prices, inflation, all these things that have impacted ticket sizes over the last few years, it's been quite uneven. Let's separate out U.S. versus rest of the world for a second. In the U.S., our data has shown over the last -- that up and down I talked about, but over the last year or so, we've been in a bit of a down period. Fuel, the decline in fuel prices, the moderation of inflation over the last year has led to average ticket size in the U.S. being negative over the last year. Just cyclically, we go into the second half -- our second half of the year, we're seeing a more stable inflationary environment. And we continue -- and we're lapping those sort of the down period, the trough that I referenced. And so our analysis would say that we get to flat to positive in U.S. ticket sizes in the second half of the year, again, combined with what we're seeing on transaction volume. And then internationally, there's a number of markets that inflation has been high, continues to be high. Argentina, for example, is one that stands out. And that will continue to persist through the second half of the year. And so when you add up -- when you sort of do the math with what we view as a small tick up in transaction growth, with a better ticket size environment, we do expect double-digit payment volume growth in the second half of the year.

Okay. So to your point on second half, I mean, your guidance implies an accelerated growth rate for overall revenues also for the company in the second half versus the start of the year when you're talking about 10% full year or low double -- but you're saying exiting the -- it would imply based on the start exiting maybe 12% is what we've calculated. Is that indicative, and if it is, of the normalized growth profile for the company? Maybe help us with building blocks. How are you getting to that point in terms of breaking down payment volume trends you'd expect medium term, VAS contribution to growth? What are you seeing in the company that you'd answer to that?

Sure. I talked about the drivers and what we expect with transactions and ticket sizes that are underlying our core consumer payments business. There are -- let me break it down a little bit differently, meaning talk a little bit about the Half 1 dynamics and the Half 2 dynamics on revenue because that's implied in the revenue guide. To your point, Half 2, we lap some of the -- we had some grow-over things in the first half of the year, namely with FX volatility, with cross-border businesses continuing to normalize and a number of other sort of onetime things that benefited a year ago that impacted the Half 1 growth rate on revenue. The drivers were fairly normalized, but -- outside of cross-border, but it did impact revenue growth in the first half. And so we lapped those things and second half becomes a little bit more of a normal year-over-year growth number. In terms of -- but then zooming out and saying, where are we in terms of our theory of growth, if you will. I do think about it across our 3 growth pillars. I think about consumer payments. Certainly, there's still a massive amount of cash and check globally left to digitize still, and that continues to be a tailwind for us. We're driving more -- the 3 levers that we've talked about consistently, we're growing credentials. They grew 6% in Q1. We're growing acceptance locations, they grew into the teens in Q1. And we're driving engagement on things that are great for a digital cash payment, like tap to pay. And so the consumer payments business with the large amount of cash and check out there and the actions that we're driving, I think, continues to be a real source of growth for us. Value-added services that you talked about, I'm happy to talk about that more. $2.1 billion in Q1, growing 20% across a very broad spectrum of services and still plenty of runway ahead. And then our new flows business, which is really about expanding money movement from our traditional consumer to business and -- transfer to all sorts of other forms of money movement, B2B, P2P, G2C. And that's a $200 trillion market opportunity in front of us where we're still quite early days. And so as I think about the contribution of growth across all our 3 growth pillars, I'm very, very optimistic.

Yes. I mean, look, the natural mix shift to more new flows and value-added services growing well into the double digits, 20% in some cases, it theoretically should drive an overall acceleration to the overall business as long as consumer payment side holds up at what we've been seeing, right, the high single-digit rates more or less?

Yes, I mean, mathematically, as you said, consumer value-added services and new flows together are growing into the teens and above versus a more stable growth rate in consumer payments and if that continues, as we certainly anticipate that it will, the mix shift will certainly be in our favor.

So just honing in on that a little more. I mean value-added services become a very important and a much bigger part of your business now, as you mentioned. We've talked about issuer as a big part of it. I'm talking about issuer processing. Acceptance, risk and ID advisory, data analytics. Maybe just help us understand what you see as the most exciting opportunities in VAS that you're investing most of your capital and time in?

Yes. That's great. You did a great job of sort of outlining what's -- how diverse that business is. It's -- we talk about value-added services as if it was -- and sometimes we talk about it like it's one business. It's many different products and services. We tend to categorize it around 5 lines of business. The first one is issuing solutions, really helping our issuing partners. We think about DPS, our debit issuer processor, card benefits. That's part of that revenue. Our Buy Now Pay Later services are part of that issuing solutions. We've seen tremendous DPS alone in 2023, we processed $2.5 trillion in authorizations in the debit side for DPS alone. So that's the big part of our business in issuing solutions. The second is around acceptance solutions, CyberSource. It has been a big part of that as well as our fraud services. We've done a tremendous amount of business both in the U.S. and outside with Acceptance Solutions. That's another significant portion of our business. Third would be risk and identity. The real highlight in risk and identity is VAA and VRM, that's Visa Advanced Authorization, Visa Risk Monitoring. Those businesses have had tremendous success helping our clients. We did a study last year. VAA and VRM together prevented nearly $30 billion of fraud between mid-2022 to mid-2023. Those continue to grow at healthy rates, both in and outside the U.S. Let's see, that's 3. The fourth one is advisory, that includes both consulting and marketing services. This has been a real fast growth business for us. We've done over 3,000 engagements over the last year, helping clients deliver billions of incremental revenue opportunities for them. And then the fourth one is open banking, which is probably the most nascent among the 5 lines of business, primarily leaning -- leveraging our Tink acquisition, but continuing to see -- early days, we're continuing to see growth across those 5 businesses. So it's a super diverse set of businesses, each are succeeding in their own ways in an area of the business that we're very excited about.

And these are -- I mean, it seems like it's still relatively early days for a lot of these. I don't know if you kind of ranked which ones are growing the fastest or have the most opportunity?

Yes. I tried to highlight within each of them some of the big parts of the business. They are growing differently. Like I think about -- if you really sort of -- I talked about it in the 5 business that we really think about in terms of how we go to market with these things. There's a couple of ways to think about it. Like on the -- I'll start sort of on #4, like the advisory business. That's really a people-powered business. We see plenty of demand. It's really for us to pick where we think that we could add the most unique value. It's investing in people and building out that part of our business globally. There's a whole host of products and services that are more platform-like solutions. If you think about DPS or CyberSource or Verifi, these are businesses that we invest in innovation. We invest in R&D. We invest in enhancing the services that we offer working with our clients. And so that grows both with our transactions, but also there's a unique opportunity to grow outside of Visa net transactions and grow in a card -- in a network-agnostic way, and so we're investing there as well. And so you have people-powered. You have product innovation. And then, of course, we've been somewhat acquisitive in this space as well. I talked about a couple like Verifi. But we continue to think about expanding the solution set that way. We recently closed the Pismo deal, as an example.

Yes. I want to ask about that. I mean Pismo is a good example of an acquisition that enhances issuer, I believe, and it certainly moves you more internationally into that category, too. So -- what's your goal on the issuer side for a moment and maybe just through M&A and value-added services?

Yes. Yes. We're excited about Pismo. That transaction closed in the first quarter. What is Pismo? Pismo is a cloud-native issuer processor for debit, for credit, for commercial. It's global, as you pointed out. And it's core banking. And so it really complements the set of services we have. DPS is primarily a debit issuer processor in the U.S. How does something like Pismo come to fruition within Visa, maybe even backing way up for a second and talking about kind of our thought processes and the logic, maybe the industrial logic behind Pismo or any other acquisition that we think about. These things are most typically born from our engagements with clients. We talk to our clients. We understand their needs. We understand what services that we can uniquely provide in the case of something like Pismo. Many of our clients were talking about their cloud transformation. They're modernizing their stack. Also thinking about global expansion. Those are all areas that they look to Visa as one of their most strategic partners to help solve some of those solutions. We recognize in Pismo a best-in-class technology and service that filled a lot of those needs, and were very complementary to what we had within Visa. And so together, I think we have a really powerful asset there.

We had a panelist, Jim McCarthy, who is an ex-Visa guy talking about issuer processing yesterday in a panel with us. And he -- in general, the thought is maybe Visa is also doing these and investing in issuer processing, so that could bring other Visa opportunities around the world that maybe the world wasn't ready for before you guys did that. Said another way, the technology needs to improve in some markets for you to introduce some of your offerings.

Yes. I think that's true. I think of it a couple of different ways. Pismo is certainly one. Another acquisition we did, that we announced, it's not closed yet. We announced that we're taking a majority stake in a company called Prosa in Mexico which Mexico is an important market, they're very, very cash heavy and we've not been able to process domestically there historically. And so this gives us the ability to go do that. And to tie it back to the question you're asking, whether it's Pismo, whether it's Prosa, I think getting in and being part of the core banking, part of the issuer processing business is good for our clients, good for the markets, but also it's good for us in the sense that it gives us the ability to really expand our offering set with value-added services. If you think about all the things that we talked about across the 5 lines of business in VAS and the platform solutions-like portion of that business. There is a very heavy, strong motion that attaches to our transaction growth. And so it's a great opportunity for us to grow value-added services, which again, is good for the whole ecosystem. If you think about tokenization, if you think about fraud, protection and dispute, that all accrues to a healthier ecosystem over the long term.

It sounds like you see VAS in general and some of these opportunities being able to sustain pretty strong rates. I mean I think that's what you said.

Yes, we're very optimistic about that.

All right. New flows, we'll shift there for a moment. Maybe just help us rank or understand the greatest opportunities you see to penetrate what was previously noncarded volume? And I'll just turn it to you.

Yes. New flows, we've talked about this enormous opportunity that we see with B2B. And also the other part of the business is around Visa Direct. Those are kind of the 2 biggest pillars within our new flow business. Visa Direct for us, is really our -- it's the best example of our network, of network strategy. We continue to see very high transaction growth, 20% again in Q1. It's really about expanding, again, money movement to -- beyond sort of consumer to business, to B2B, to P2P and primarily, which is the use case that we see primarily. With Visa Direct, let me, again, zoom out a little bit and talk about what Visa Direct. It's a set of services that enables that expansion of money movement. We have more networks. Our capabilities, we work with 70-plus different partners within that, we work card networks. We work with 10-plus RTP networks. It's really quite expansive from that standpoint. The use cases, P2P has been the primary use case that we see, and that's done really well. We partner with many other companies in that regard. But we're also expanding into cross-border. We've announced deals with Remitly, with Western Union that's going to give us a meaningful opportunity to grow the cross-border opportunity. We continue to invest in new use cases. We've talked about gig economy payout. We've talked about merchant settlement, most recently, we've talked about the partnership that we've done with Meta to enable content creator payouts. And so we're seeing great use case expansion. We're seeing great partnership, and that business continues to grow really well.

Cross-border, I want to touch on that for a minute because again, you had 20% growth in transactions on Visa Direct last quarter, and I think it was 65% on P2P cross-border transactions using Visa Direct. So maybe just what would you say is the biggest focus of the Visa Direct initiatives broadly? Is it more -- I mean cross-border tends to come with better economics...

It totally comes with -- very true. If I think about -- again, historically, P2P has been the primary use case. We -- we've talked about many of the partnerships there and the success that we've seen there. Cross-border for us is a growing focus area. We do cross-border in Visa Direct. We do cross-border with larger ticket items through B2B Connect, which is a little bit outside of Visa Direct. It is higher yielding. We're seeing strong growth across cross-border as well. And so that is a focus area for us, and it's yield-accretive across our core and new flows business.

And when you think about other types of systems and real-time networks around the world, whether it's in Brazil and Pix or it's -- I mean even just RTP or FedNow. I mean, Visa Direct tends to offer services that can usually do similar things to what RTP is trying to do, right? Help us understand how you see the competitive landscape around that.

Yes. It's interesting. We've certainly seen RTP networks growing, especially in certain markets. But here's how we think about it. Like if you zoom out again, RTP networks have existed for a long time in many markets with varying levels of penetration and success. We tend to think about -- and we've worked with them, by the way, in many of these markets for a long time. RTP -- I think RTP networks have uniquely done well in recent times in places where there is an unfulfilled market need. And so the ones that I think you're referring to are places like India and Brazil. And you see -- in particular, you're seeing sort of an underserved market need and in India, for example, in micro transactions, that's an area where the existing payment ecosystem really wasn't serving the needs of the consumer and of the market. And so you saw something like UPI growing. Well, we're doing really well in India as well. We are continuing to grow debit above the micro transactions. We think broadly anything that brings more people into the financial payment system is good for the ecosystem broadly. And so we're continuing to see growth above micro transactions in debit. We're continuing to see growth in credit. We're continuing to see growth in affluent. And we have an opportunity to continue to bring more people into the ecosystem and graduate them up. And so that's been part of our strategy and our success in India and Brazil and other places like that. But it's also sort of instructive to think about what's the difference between what an RTP network is and what a payment network like Visa is. The RTP networks are relatively simple account to account, but they're also permanent. They're one way. A network like Visa is a much more robust set of services. It really provides all the safeguards that you may not see in an RTP network. And so we think that there's a lot of value that we bring. And again, it really is case-by-case dependent and market-by-market dependent, and we're continuing to see great success alongside RTP networks.

Okay. Just to wrap it up on the new flows and Visa Direct for a minute. So Visa Direct, the main use case is in real world that we can kind of point to, you're seeing the most. Probably, what, P2P has come up a lot?

P2P, yes.

Remittance, I guess. Right? Maybe what would you say are the top 4 or 5?

Well, P2P has certainly been the most, and that's where we saw the early success through the partnerships with fintechs and many other partners through the whole ecosystem. We are focused on growing small ticket B2B, cross-border remittance. Other new use cases through all of the enablers that we've talked about. The big ecosystem...

Like payouts, right? Insurance payout things like that?

Insurance, like all the different use case -- so it really is -- so again, think about like the ecosystem, the infrastructure layer that requires -- that's underlying what Visa Direct can be. You have use cases. We have over 65 use cases. We have 500-plus enablers, and we have thousands of programs, 2,800 different programs, and those programs are expansive into all the things that you talked about, whether that's gig economy payout, whether that's insurance payouts, merchant settlement, marketplace settlement. These are all places that we're investing in and we're seeing -- they're smaller, but they're growing faster.

One of the things I want to touch on before we wrap up is your Class B conversion that I think if we could just help investors, a, understand what's happening with it again and then the dates to keep in mind now that your S4 was filed. When could shares start beginning to convert?

Yes. We're in the middle-to-later innings of the process. We've been in a period of SEC review and commentary. We've had some back and forth. We filed an amended S4 recently. And now we're pending sort of further commentary and review from the SEC. Assuming we get through that in reasonable order, and that there's no further sort of commentary that requires a further delay, we'll then open -- we'll file a press release. We'll very publicly open the offer up. The offer will stay open for a minimum of 20 business days, at which time shareholders, B holders...

And that can happen when?

That can happen after we're done, after we filed the amended S4. We're waiting for the SEC to...

Okay. That was about a 50-day period or something like that? In total?

Well, no, it doesn't have to be -- yes. When we -- typically, when we first started the process to file the S4, we typically have seen historically that, that would take about 30 days. They came back with some comments. We filed a response back to them. And so now we're sort of in the final stages of that review. And again, it just depends on if they have further questions or not. And assuming that we're in the -- that we'll wrap that up in the next few weeks, then we'll have the opportunity to open the offer up. Again, we'll do that very publicly. We'll file a press release. We'll let everyone know. It will stay open for a minimum of 20 days -- business days, at which time B holders have the opportunity to participate. Once that -- that offer is closed, then there's a lockup period where they can convert those shares and sell at 1/3 approximately in the first 45 days, 2/3 in the 90 days and then it opens up...

And as a reminder, that's -- it's -- I think it's about half or it's $48 billion, more or less, of the $96 billion total of Class B, that's even eligible for the holding, right...

That's eligible. That's eligible.

And we know a lot of that is hedged, a lot of that is -- it's up to the bank I guess, right?

Yes. That's the eligible population.

Okay. Okay. And then just last question is just on the regulatory front. I mean, I think you mentioned noticing a modest impact in first -- in fiscal first quarter to U.S. debit volumes from the Reg II. Maybe just comment on that. I mean what gives you confidence in Visa's differentiated product relative to the regional networks that obviously are trying to make some headway on the back of Reg II?

Yes. Exactly right, again, to reiterate, Reg II went to effect in the summertime. So we've essentially had 2 quarters of experience in the first quarter. We said the impact was not meaningful in the second quarter. I think I characterized the impact as modest, as you put it. But it was modest and it was stable since the beginning of the quarter. So that's a little bit of the fact pattern, just to reiterate. I think the thing that I go back to is the thing that -- Ryan talked about this in our last earnings call. He said, "Hey, listen, since the implementation of Reg II, it's given us an opportunity to really meaningfully engage with all of our clients and really highlight what we think is the value proposition of Visa and processing on our network relative to what might be competitive choices out there." And it's just given us a chance to engage with clients and have a very productive conversation in that manner. And that's been, I think, helpful in the grand scheme of things. At the end of the day, merchants have choices. Cost is one of them, but they also understand capability differences between us and what is, historically, a pin-based debit network. Dual message versus single message as a capability as an example, that pin-based debit networks don't typically support pin -- single -- dual message where Visa does and dual message for those that are unaware is when the final transaction may be different from the initial ones, so think about tipping or hotels or things like this. And in an e-commerce world, it's very applicable because you can't bill until you ship. And so we have to ship in multiple packages, then again, dual message is very supportive of that versus single message. So there are very much capability differences. There's liability differences. We've invested in tokenization and authorization. We've invested a lot in fraud protection in our network. And so we continue to think our value proposition is differentiated, and we'll continue to share our view with clients around the world.

Maybe I'll have time for one quick question, but really before that. I mean, what do you see as the biggest goals for you for this year? What would be a successful year in your mind at the end of this year?

Yes. Well, certainly delivering on the plan. We've set what we believe is a healthy...

Financial plan.

Yes, delivering on both the financial and the execution plan. We have a lot of very ambitious goals inside. Darrin, I was telling you, this week is a week once a quarter, Ryan and his leadership team come together in person. We get together and we really talk about how we're doing, progressing across all of the things, financial and operational, and we've really focused a lot on our go-to-market capabilities as well. So we expect a good amount of time this week in business reviews talking to all of our regions on how we're doing against those priorities. Certainly, so delivering on all of our internal and external goals is a big priority. And where I started the conversation, we're now getting into the second half of the year and so we're getting into planning again for next fiscal year. And I really do look around the world and see such huge opportunities. And part of -- one of the most important things that we'll do as management team is to pick those bets, like prioritize what we go after and with all the choices that we have and all the resources that we have at our disposal, I think, that's one of the most strategic things that we will go do.

Yes. It's great way to end. I mean I don't know if we really have much time, but anyone have a quick one? Okay. Why don't we leave it there then, guys. Thank you very much, Chris.

Thanks, Darrin. Appreciate it.

Appreciate it.