Visa Inc. (V) Earnings Call Transcript & Summary

Okay. Welcome back, everyone. It's a great pleasure to welcome Chris Suh, Chief Financial Officer of Visa with us today on stage.

Great.

Great to have you. Why don't we just jump right in and talk about kind of the recent trends you're seeing? I thought the volumes in your most recent quarter seem to hang on pretty well after that sort of weather impact to January. Can you give us an updated view what you're seeing out there in terms of spending, in terms -- and then maybe more broadly, just after you do that, some thoughts on the consumer?

Okay. Great. Yes. Hi, everyone. Thanks for having me here. Yes, it's a good place to start, and let's recap Q2 a bit. Financially, it was a strong quarter for us. We started a 10% revenue growth, revenue and EPS exceeding our expectations. From an underlying driver standpoint, we continue to see relatively stable volumes. Total -- global total payment volume grew 8% in Q2, which was the same growth as in Q1. And then as you sort of look at by region, in the U.S., payment volumes was up 6%, which is, again, stable to Q1 once you normalize for the impact of extra day for leap year. And outside the U.S., we continue to see very strong growth in most of our markets. LAC, EMEA, Europe ex U.K. all growing at 19% or higher, and again, relatively stable with our first quarter. The one exception, which we talked about on the call was we did see a little slower growth in Asia in Q2 relative to Q1 primarily attributable to the macroeconomic conditions in Mainland China. And I guess it's important to also point out that, that volume doesn't drive a lot of revenue for us, and so it didn't have a meaningful financial impact. And so payment volumes globally relatively stable, as I said, from Q2 to Q1. Cross-border, which is obviously an important part of our business, grew 16% in Q2, also 16% in Q1, so again stable, with both travel and e-comm cross-border continue to grow very healthy. The last thing I'd say, just on recapping the quarter was -- well, actually outside of the quarter, we also gave an update on the first 3 weeks of April on the earnings call. And so the first 3 weeks of this quarter, where we did see -- in the U.S., we saw a slight tick down in growth in April, in the first 3 weeks of April, relative to the month of March, and we attributed that to the timing of the Easter holiday, which happened in March this year versus April a year ago. And then from a cross-border standpoint, first 3 weeks growing 15% in line, relatively in line, with what we saw in the second quarter. So all in all, I would say the word of the day was stable. We continue to see relative stability across the underlying drivers of our business. And to your second question on what does that mean from a consumer standpoint, that all points -- that stability and the strong financial performance all points to a resilient consumer. And that's what we've seen. We've seen the trends. When you look at our segments, between high and low spend categories, those trends have been relatively unchanged now for several quarters. And so consumer continues to be resilient. So we feel pretty good about the quarter and the underlying health of the business.

Great. Great. Another topic that I think might have come up on the earnings call, and certainly, it's a question that I get -- have gotten over the years from investors is just an ongoing secular tailwind for electronic card-based payments and that sort of cash-to-card conversion or Visa's opportunity when it comes to share gains versus total consumer spending. Give us your updated thoughts on what inning we're in. And I know that's a complicated question because it's probably a different answer for every city in the world. But give us your updated thoughts about that broader secular trend and sort of where we are in the process.

Yes. We still -- we view there's an enormous opportunity in front of us in the consumer payments addressable opportunity. We did give an update this last quarter. We see over $20 trillion of addressable opportunities still in front of us in the consumer payment space. We categorize that along 3 lanes. One is cash and check. Two is ACH and other forms of digital payment. And three is volume that runs on their domestic networks. It's an important topic. Let me maybe spend a minute on each of those. So first, cash and check. We size the cash and check opportunity at roughly half of the $20 trillion-plus opportunity that we articulated, that we shared. And if you look at it -- and this is sort of your point around country by country, it does have some varying dynamics. In emerging markets, there continues to be tremendous opportunity, cash opportunity, that exists. We're focused on growing credentials, growing acceptance, growing engagement, and we continue to make very good progress there. In more mature markets like the U.S., we've made tremendous progress over the last 5 to 10 years. Things like tap to pay continue to be a very important tool for us to increase engagement, to really reach into the small ticket cash transactions and continue to work to digitize those. In the U.S., we're approaching 50% tap to pay penetration. And that's continued to grow, which is great progress. But it's still meaningfully behind the rest of the world, which is in the -- ex the U.S. is in the -- into the high 70s now. Right here in New York City, first city in the U.S., the first major city in the U.S. to now reach 75% penetration, which really shows the impact that we can have if you have focused strategies on acceptance here. Transit has been a big driver of that. And so there's plenty of runway ahead as we think about growing that penetration. E-commerce is another important lever. E-commerce has continued to grow faster than face-to-face transactions. And so we can continue to penetrate into the long tail of cash in mature markets there. Second, with ACH and other forms of digital payment, there's lots of activity and lots of things that we're focused on. I would say we continue to work to extend Visa as a bill pay method for acceptance strategies around tuition, rent. These are historically underpenetrated card flows. And so you think about again, tuition and rent as 2 examples of that, where we can continue to make progress. And the third one is around volume that runs on other domestic networks, continues to be a big opportunity. Example is in Europe over the last -- since 2018, so over the last 5, 6 years, we've converted over 20 million cards from other domestic networks, local domestic networks to Visa Debit, and there's millions more in progress now. And so if you look across sort of the 3 categories of the $20 trillion-plus opportunity, we continue to be very optimistic about the opportunity ahead.

Great. And then the other part of the business, which is value-added services, has evolved into an important growth driver, I think, over time. Can you help us break that down a little bit in terms of what are some of the more important kind of product level contributors in there, how fast are they growing, et cetera?

Yes, we're really, really pleased with the performance results, the execution with our value-added services business. In this last quarter, over $2 billion of revenue growing 23%, a very robust 23%. Value-added services, a broad array of products and services. We think of them along 5 solution areas, and I'll talk about each of those and maybe -- and a little bit of highlights in each because I think they are different and interesting in its own -- in their own right. The first is our issuing solutions business. This is DPS, which is our card processor, issuer processor, card benefits, account control, buy now, pay later, this all sort of gets into the issuing solutions. We processed -- for example, in FY '23, we processed over 2.5 trillion in card authorizations in DPS alone. The second solution area is our acceptance solution, so they're the tool for our merchant partners. So think CyberSource and disputes primarily. We sold over 2,600 in FY '23, 2,600 acceptance services to customers and clients in over 100 markets in FY '23. So great momentum there as well. The third one is risk and advisory services. This is Visa Advanced Authorization, Visa Risk Manager, VAA, VRM you'll hear us talk about and other AI-powered solutions that help clients manage their risk. A study we did in '23, VAA and VRM alone, we prevented over $29 billion in fraud from hitting our network in -- just in the 12-month period from summer 2022 to summer 2023. And so really powerful and impactful services that we're offering to our clients. The fourth one is advisory, advisory and consulting and marketing services. We -- in '23, again, we did over 2,000 consulting engagements that drove over $3 billion of incremental client revenue in '23, really powerful and impactful again. And with the Olympics coming on, we're seeing demand increase in our marketing services as well. And so we're seeing traction there. And then the fifth one is open banking. With Tink, we have an industry-leading solution. They have over 6,000 connections to banks in 18 markets today, and we just announced our entry into the U.S. market. And so continuing to see great momentum there as well. So across the board, value-added services is continuing to perform really, really well across the breadth of services. We don't disclose individual growth rates, but the growth has been broad-based. We're continuing to expand the set of services that we offer, new markets, new geos, new services and new products. We're excited about the opportunity, and we'll continue to share the progress along the way.

Sounds exciting, and you guys definitely have a lot going on. How should we think about penetration rates or levels with the value-added services, if we think about the opportunity in your existing customers. And I guess there's another opportunity outside your existing book of customers, but how should folks think about what stage we're at with that?

Yes. I mean the -- maybe the simplest way to think about our -- the profile of the business is you can sort of see that in the way that we report the results. And so roughly 2/3 of the business is -- reported is related to our data -- so our CyberSource, DPS, many of the platform and network-like services are reported as part of our data processing revenues, whereas about 1/3 are roughly split between other and service revenues, which is more of the card benefits and consulting and advisory. And so said another way, a good portion of the business has a natural attach and an affinity toward our network volumes. And so you could think about it having a very similar growth file for that and then the ability to grow as we expand into new markets, new services and things that are not directly attached to the network volumes like consulting and advisory services.

And of the many things that you just mentioned, acceptance was one. And what are the growth opportunities with acceptance? It feels like the point of sale only gets more and more fragmented and maybe even ubiquitous year after year, but it also seems like there may be a tremendous runway there. How do you think about growing that? What are the opportunities for Visa on the acceptance side?

Yes. So it is one of the key pillars of our growth strategy in consumer payments as we've talked about, growing credentials, growing acceptance and growing engagement. We have a tremendous acceptance footprint around the world, over 130 million locations. And even at that scale, we've continued to grow in high teens for the last 5 quarters consecutively. And so both scale and growth opportunities are vast. I would say one of the things why we've been so successful in growing acceptance locations even at this scale is that we really take a localized approach. And it really is country by country, and you think about the unique attributes of the market and the way that we can approach that to grow acceptance. A few examples I can share with you that we've talked about recently, in Bangladesh, we partnered with a company called bKash, who's the largest mobile financial services player in the country. With bKash, we have 15 million -- over 15 million Visa credential holders in Bangladesh. Now they can use their in-app QR codes to access payments at bKash' 550,000 merchant locations in the country. And so that's 0.5 million right there in one country. In India, we're partnering with Razorpay to allow Visa Debit cards to be used to purchase mutual funds. There's another unique solution. In Japan, we've partnered with the Japanese government on their vision for a cashless future, which they are seeking to increase their PCE penetration to -- double it by 2025 to 40%. And we've done that by focusing on contactless. And so transit, in particular, we have nearly 90 transit projects in play currently in progress in Japan as we focus on the contactless experience. There are many more examples. And you used the word ubiquitous. I think that might apply at least commonly thought is like the U.S. as a place where that word might apply most. And even in markets like the U.S. where Visa is everywhere, we continue to focus on underpenetrated acceptance, things like, again, like rent and tuition. And we talked about transit and parking as examples of places that we can. And so we have, like I said, a global strategy, a localized approach. I would also say as we think into the future, while the 130 million sounds like a lot, it doesn't address hundreds of millions of micro and small businesses around the world that are not part of the Visa network today. And if you want to think even bigger, think about a future where the billions of individuals who all have a smartphone can effectively become acceptors of tap-to-phone technologies rolled out at greater scale. And so we're big today. The opportunity still is quite vast, and it continues to be a focus for us.

I always like talking with you guys because the numbers are so vast, they're...