Visa Inc. (V) Earnings Call Transcript & Summary

Thanks, everyone, for joining. This is the Visa session. My name is Tien-Tsin Huang. I follow the payments and IT services sector here at JPMorgan and wouldn't be a conference without Visa, and we're lucky to have Jack Forestell, the Chief Product and Strategy Officer back with us. He was here last year. I really enjoyed the conversation, learned a ton. And I know he's been really busy, for those that don't know, Jack joined Visa in 2014. He was Group President of Value-Added Services and Global Head of Merchant Acquirer Solutions. And prior to that, he was at Capital One. I know he's been really busy Visa Payments Forum took place last week. They announced a bunch of new products. So hopefully, we'll get to go through that. We won't geek out and talk too much about it, I hope. But if I had time, we would do that. But welcome, Jack. Thank you for being here.

Tien-Tsin, thanks for having me. It's great to be back. It's a great conference. So happy to be here. And I was hoping we could geek out a little bit.

Let's do it. Let's do it. So before we start, maybe just again remind everyone for their benefit and my benefit, just your mandate what you focus on with -- at Visa given the title that you have?

Yes, sure, no problem. Hi, good morning, everybody. I'm Jack Forestell. I am Visa's Chief Product and Strategy Officer. In short, on the product side, that means my teams and I design, develop and deliver the product road map for the company. And on the strategy side, we develop the corporate strategy, the business unit strategies and the local regional strategies. We do all of that hand in glove with our engineering teams, with our sales teams, with our local regional teams and our business unit teams.

Perfect. So before we get into the products themselves I think it would be helpful for us, given -- because Visa is such a big company and we've known you for quite a while. What's the approach towards product development and how you adopt new technologies. There are so many new technologies out there since we're at a tech conference, I figured we'd start with that.

Yes. Well, we -- for us, it all -- it's -- not surprisingly. It starts with the marketplace and our clients. We literally have over 1,000 scrum teams coming into work every day at Visa. And the main thing we ask them to do is to obsess about our clients and their users and the markets in which we operate. So those 1,000-plus teams are constantly challenging themselves to reprioritize, rethink how could I adopt another technology? How could I add a feature, how could I modernize, how could I develop a new product? So they're constantly, constantly doing that to optimize the return that we're getting on our broad-based R&D investment.

So from a product perspective, I know you didn't just start some of these products that you announced last week at Payments Forum. So how long did it take to develop some of these things and to actually roll it out for the public.

How long did it take? Well, as with many things in life, the answer to that is it depends. I mean certainly, some things could be a relatively straightforward feature enhancement might take us a few months. But if you start thinking about a new 2-sided network value proposition, right? And we can talk about some of these things as we get into them. Click-to-pay is a good example where we need the issuing and the consumer user side to be enrolled and engaged, then we need the merchant side to be consuming the APIs, those kinds of designs. They can take us the better part of a year or more to get the design and development work done, and then they can take even longer than that in order to get the ecosystem work done. So it really depends Tien-Tsin, it could be months, could be years.

Right. I mean there's a lot of players in the ecosystem that need to get certified and of course, test this. So I don't -- I can imagine it's quite a bit of effort. So we've had a lot of the players in fintech at this conference. We had Marqeta earlier, firms coming in right after you. Simon was talking quite a bit about Flex Credentials. I think he called it the most impactful or breakthrough product that he's seen in quite some time. He's a Yahoo guy. So but I'll let you take that in terms of ranking or talking about what you're excited about with all the products that you launched.

Yes. Well, as you mentioned, Tien-Tsin, you kind of caught me on a good week when it comes to product news. We had our big client conference last week when build 7 new and emerging products. I'll just [indiscernible] and then we can maybe talk about some of them and weave it through the next 30 minutes or so. We introduced a new set of tap-to features, right? You'll all be very used to personally tapping your phone or tapping your card. We're extending that capability to a set of new use cases. We introduced Payment Passkeys for digital authentication. We introduced a revamped click to pay experience and approach to deploying it. We introduced pay by bank as a brand-new payment option and network that we operate in Europe that we're bringing to the U.S. We introduced Visa Protect for account-to-account transactions. This is a fraud management tool that takes all the capabilities that we've developed over the years and deployed to Visa card transactions and starts to apply those to the fraud problem and account-to-account transactions. We introduced flex credential, which Simon and Max, as you said, are great partners on and love, and we love what they're doing with it. I can talk more about that later. And then lastly, we talked a little bit about an approach that we're developing to enable unlocks of payment data for the purposes of making better shopping and better buying, better discovery experience as we call it data tokens. So a lot packed in last week.

So what's the theme that you would say, Jack, across all of those?

Here's -- What I say. I -- forgive me for [indiscernible] -- it was 50 years ago last month that Visa processed its first electronic authorization. I think that was the beginning of the migration from analog payments, analog money to digital money. It was a long 45 years, from then until about 5 years ago, a long, slow process where we had to invest in investment [indiscernible] then we saw over the last 5 years, a massive acceleration and adoption of digital payments on the part of the consumer, on the part of the seller on the part of our entire ecosystem. And so the thematic here is these are products that we are designing for a digital-native world. . In the past, we've had the design products and services that straddle, that hybrid, that can be used in a physical world that can be used in the digital. But if you think about everything I just said, and we get into the details of it, these all just presume digital native behavior on the part of consumers, on the part of sellers and the part of our old ecosystem. So we're sort of turning the corner into fully digital, and we're going to invest heavily in the right product set to deliver the most seen secure experiences payment experiences that we can for that world.

Yes. No, I like the way you frame that because maybe we'll start with flex credentials because that from a digital perspective, right, everything is on demand. The consumer wants to be able to choose things and before the merchants are curating what you see in terms of checkout. But now I think this sets the table for the consumer to make a decision with what they have with one point of contact from Visa. Am I correct? So -- so tell us why that's important?

So think about how we created the ability for a user to choose how they fund the transaction using our card-based val prop in the past because we couldn't assume a 2-way interface with a card, right? You can't talk to a card and tell it what to do. We were confined to hard coding the functionality of a card into the credential into the plastic itself. Credit card is always a credit card, co-brand card is always a co-brand card, a debit card is always a debit card, a card equipped with pay-in-four is always pay-in-four card. And then we ask the user to make a physical decision of what to pull out of their wallet at the moment of purchase. Well, in a digital world, no such constraint. We have a 2-way digital surface that is constantly and always there with the seller and with the buyer, and we can assume that. Flexible credential takes advantage of that by saying, we're going to give any -- we're going to enable an issuer, a financial institution to issue a single credential to their user at the beginning of their relationship. And we're going to enable the financial institution and their user to configure that however they want. So imagine you go into your mobile banking app, simple controls that say these categories, these types of purchases are going to be pay in full debit transactions. Those ones will go to my revolving line. These ones could be pay-in-four. Those ones could be funded by rewards. Eventually, you can add capabilities like initiation of account to account, right? It's a flexible chassis off of which multiple different forms of payment can hang. And we don't have to be constrained by the card form factor anymore. It's a fully digital capability. One last thing [ I'm ] excited about this product. As a financial institution, we -- because of the way things were structured in the past, you had to go through a process of continuously reunderwriting your customer. Tien-Tsin on day 1, I give you a debit card, maybe 2 years later, I want to give you a revolving line of credit. Now we have to have a new set of interactions around that new card, new account, new [indiscernible]. One credential at the beginning of the relationship, can latently deliver all capabilities, we just have to let you know and engage you along the way with that very same credential. So one credential for life evolves for everything.

Perfect. So I know that that's going to bring a lot of questions around pricing and how it goes about. But I think -- the thing that I've kind of observed and tell me if I'm wrong, Jack, is this is already in the market in some places, right, with debit plus conceptually, you have a Buy Now Pay Later that can rotate into debit into any bank account and talking to Simon yesterday, it feels like there's a lot of movement on the ground with it already. Am I correct? This is something that is already active. You just making it more broadly available.

Yes. This one actually started a couple of years ago in Japan. It's another thing I love about this product. So many of our products start here in the U.S. This one, we started with SMBC, one of our largest clients in Japan. And they've been delivering this now for almost 2 years with a product called Olive in Japan. There are, I think, around 2 million new accounts into the process. So their customers are absolutely loving it. We've been working with them to develop the product, to refine the product. Affirm is about to launch the product in the next few months. You mentioned debit plus. They already have a debit plus product in the market. This is a new fit-for-purpose chassis that they're going to be able to put debit plus on to and build even more functionality over time. And then, of course, Mark had a great partner with Affirm and with Visa. And I know Simon is excited about all the inbound inquiry that he's had about how he could deploy this with the whole rest of the Marqeta client base. So just lots and lots of activity around this in the last year.

No, good. Like I said, I think it's a big change. So maybe unless there's other questions or topics on that. Let's talk about tap-to everything, I think, is how you labeled it. And -- and I was going to ask the question you always give this update around tap to pay. I think we get it every earnings call around how it was driven a lot more transactions on the face-to-face side, post pandemic, including in the U.S. Is this going to maybe bend the curve on more transaction penetration with this tap to everything concept?

I think it will help. I actually think the curve is already bent. We're outside of the U.S. We're already at about 80% of all face-to-face transactions are tap to pay. In the U.S., we're at about 50%. I've never seen a market stall. So quite confident that we've got the terminalization in place. We've got the cards in place. The consumer behavior is coming along nicely. We need to keep doing our work. I think for example, transit use cases are really important to instigate the initial set of tap behaviors in some markets. So we continue to work with transit operators across the U.S. to make sure that we're covering that off. But we think the curve has probably already bent, we're already going to get there. What we've seen is like we processed last year over 80 billion tapped transactions. That's a 3x more than what we processed just 4 years earlier. When users do something 80-plus billion times growing at that rate, they are telling you something. They're telling you they love this. And so what we said is, well, how do we take this thing that humanity love so much, the ability to simply tap and have the secure seamless experience and then deliver it to a bunch of new places. Where is there a friction that we could take out using it. So we came up with 4 new experiences. One is tap to phone, which can enable anybody with a mobile device to accept payments, basically takes payment acceptance and turns it into something as easy as downloading an app, got a phone, download an app, you can start accepting payments. The second one is what we call tap to confirm, you've all probably experienced disruption in a payment transaction where some of this, hey, there's something going on here. I think there's some risk involved. I'm going to send you a onetime pass code blah, blah, blah, very disruptive experience. Instead of doing that, you can just tap your card to your phone, confirm, keep going. Load, how often have you had to try to load a card into an app or into a card on file situation? [indiscernible] is a minimum of like 25 numbers, it's not a good experience. Why can't you just tap your card to your device in order to load you can now with tap to load. And then the last one is Tap to P2P, right? I don't think I have you in my contacts for P2P Tien-Tsin, so if I did want a P2P, here we would be typing in contacts or showing each other QR codes, why can't I just tap my card to your phone and make that payment happen like that, we can now.

So the enablement for all of this to take place across those 4 different options. What needs to happen just for all of our benefit.

Yes. I mean the underlying use cases on our end, are already there, so we can already get that done, then it becomes a question of certification and deployment with the endpoints on either side of our network. So that's where the second chapter of that product story I was telling you starts. We've done our work. We're ready to go. We're ready to launch. We've got a launch schedule that's lined up by geography and test clients in different places. But it's always a process to get the last mile laid down in a 2-sided network like this.

Yes. I mean the tap to phone, the test I've seen are great. I would imagine to certify as well that experience fits so well with value-added services in terms of risk and security. Is that the vision, Jack, around breaking into some of these new categories and driving some new revenue streams?

Yes. I mean just picking on the tap to phone example. That was one that we launched a couple of years ago. We did a big pre-certification program. Apple has been a great partner on that front. Last year, we processed I think it was about 100 million tap to phone transactions, up 700% from the prior year. So once you get the flywheel spinning and it's a great experience, we tend to really see the scale come behind it.

Okay. So one of the products you talked about was pay by bank. Coming to the U.S., I know open banking was a big topic, of course, for Europe. But with that coming in into the U.S., what's Visa's role with that? How do you see that developing?

Yes. Pay by bank is -- look, it's a business we've been in for a little while now. We acquired a company in Europe called Tink in 2022. It is a native pay by bank and open banking capability. In the ensuing 2 years since we've owned Tink, we have seen our payment initiation volumes in Europe grow exponentially, right? So there is clearly appetite for pay by bank solutions. We've always been intrigued at the complementary pay by bank and card in the U.S., right? That even predates our 2022 acquisition of Tink. So as we gain the experience with Tink as we refine the product, we've been working behind the scenes to create the foundations for deploying it here. That includes bank connectivity that includes agreements with banks and processors, to make sure that we've got high-quality ability to authenticate customers and link back into them. We've signed some pilot customers, and now we're ready to go and launch a pay by bank service. What that means, by the way, is you imagine the trust and the reliability, the security, everything that we build into a Visa transaction, including the branding of Visa Vet surrounds it, in a very simple digital experience that you'll encounter in certain vertical use cases where your seller is going to say, hey, would you like to pay by bank facilitated by Visa, it will be as simple as clicking that button authenticating with your bank and the payment will happen.