Visa Inc. (V) Earnings Call Transcript & Summary

Good morning, everyone. I'm Harshita Rawat, senior analyst covering payments at Bernstein. I'm delighted to be joined today by Ryan McInerney, Visa's CEO. Ryan, thank you so much for joining us today.

Thanks for having me. Great to be here.

So let's kick off our conversation, Ryan, with the overall consumer spending environment. What are you seeing in terms of current spending trends, both domestically and in cross-border?

In a word, stable. In the second quarter, we talked about payments volume growth at about 8% year-over-year, up 6% in the U.S., 11% outside of the U.S. I mean there are some ups and downs in different places of the world. I talked about a little bit of deceleration in parts of Asia. But overall, very healthy, very stable growth. If you look at cross-border, cross-border in the second quarter was up 16% year-over-year. If you look at cross-border travel, up 17% year-over-year. And those numbers are all relatively consistent with the last several quarters of performance. If you look at the first 3 weeks of May through May 21, we've seen continued stability: U.S. payment volume, payment transactions, cross-border have all been similar to what we've seen in the second quarter and before that. So stable growth around the world.

And so Ryan, more than a year ago, when you became CEO of Visa, I remember that you announced a new organizational structure focused on your 3 growth pillars. Can you maybe talk about how that's trickling down into the organization, kind of impacting your go-to-market and also your momentum in new flows and value-added services?

So it all started with our strategy of identifying the opportunities and the growth levers for our company. And then, as you say, establishing an organizational model, starting with my direct reports and then all the way down to the front line in our countries that lined up specifically against those growth levers and against our strategy. What we've been focused on over the last 1.5 years or so is building an operating model around all of that: performance management, compensation, metrics, scorecards, sales motions, clarity of client assignment, client segmentation, all the things that make the organizational structure turn into results. And at this point, we feel really good about where we are. Maybe if I just bring that to life with an example. Antony Cahill works directly for me and I announced when I took over as CEO that he would lead our value-added services businesses. Antony has a full-stack management team: a CFO, a Head of Marketing, a Head of Legal, et cetera, et cetera. He's got a leader of each of his 5 business areas: acceptance, issuance, risk and identity, advisory, open banking. They all then have team leaders in each of our regions and groups of countries around the world. And what this has done is it's given us the ability to have clarity of focus, clear transparent metrics up and down the organization. Antony's OKRs are visible to every employee of Visa, [ as our mind ], by the way. If you or anybody that works at the company, you can see exactly what his goals are for the year in terms of revenue, in terms of A&R, in terms of product deployment, all those types of things. And the same if you were to visit one of our countries, say, in Mexico or Australia or Germany and sat with our Country Manager and ask them, "Show me your scorecard," you would see very clearly, for value-added services in this example, what their expectations are for the year in terms of revenue growth, A&R and all the things that go along with that. The other thing we've been able to do is give these teams their own product resources, technology resources. They're able -- they're empowered to make decisions about how to move their scrum teams around so that we can deliver a product pipeline that is very focused on meeting client needs, in this example, for our value-added services portfolios all around the world. So clarity of focus, accountability, speed to market, sales disciplines, performance management up and down is the operating model that we've built around this new organization structure that I announced, and we feel really good about where we are and the progress that we're making.

So you mentioned the organization. Let's talk about new products now. So I -- a few weeks ago, you hosted your annual Payments Forum, where you announced a number of new products. Tell us about how you're changing the Visa card and what implications that may have on how we will pay in the future.

Yes. So first, let me just explain what Visa Payments Forum is. So annually, in regions around the world, we bring together our clients and our partners to share with them our product road map, the services that we're bringing to market, the trends that we're seeing in the ecosystem. We have main stage presentations. We have breakouts. We go super detailed on a lot of different things. And the meeting that you're referencing that we had a few weeks ago in San Francisco was our Americas Visa Payments Forum. So we had about 1,800, I think, clients and partners from all over the Americas there. And we use this as an opportunity to announce several new products. The first, I'll call it, suite of products that we announced is kind of tap for everything, we call it. So one thing that we found in the last many years is that buyers and sellers around the world love to tap. Here in New York, they love to tap. I think on my last earnings call, I mentioned that 75% of all Visa transactions in New York City now are taps. It's kind of amazing when you think just from a couple of years ago where it was. So we expanded the suite of services to really allow users to do what they love, but to tap for everything. So I can tap my Visa card to your phone to make a payment if you're selling me some services. If I owe you money from maybe a dinner that we went to together, I can make a P2P transaction by tapping my Visa card to your phone. If you want to add your Visa card to your favorite wallet or your favorite merchant, you can just tap your card to your phone as opposed to having to enter the credentials in yourself and so on and so forth. So tap for everything was a suite of services. Another suite of services is something we call Visa Payment Passkeys. So the idea here is to make it as easy to make a transaction on your phone as it is to open your phone with your face or open an app on your phone with your face. So rather than having to tap really anything into your phone, whether it's your card number or your CVV or anything like that, we have embraced the open FIDO biometric standards. We've put those to work in what we call Visa Payment Passkeys, which will enable our users to basically pay for anything using a Visa card by just either scanning their face on their phone or using their thumbprint. We talked about how we rolled that out in Europe with Visa click to pay. We've had great success in Europe rolling that out, higher authorization rates, lower fraud rates, but most importantly, buyers and sellers that are just a lot happier that it's easier to make a Visa transaction using their biometrics. Another product that we rolled out that I'm very excited about is the Visa flex credential. So what we did with the Visa flex credential is we kind of took a step back. We said in 2024 with all of the technology that's available today, if you were going to redesign the Visa credential today, how would you do it? And what we came up with was a single Visa credential that allows a user to pay using debit or credit or installments or rewards or any way that they want to pay. One number. And what it does for our issuing partners is that it allows them to issue one Visa credential to a user that they never have to change over time. Maybe you're a student that graduates from college, you get your first Visa credential that's a debit card. Over time as you grow in your financial life, you can add credit, you can add installments. As you build rewards, you can add that without having to reissue or give you multiple plastics. So we piloted the flex credential in Asia. We've had some great success. The bank partner that we partnered there with had huge demand for the product, and now we're rolling that out in the U.S. and across the Americas. We also announced some exciting things in pay by bank. We're going to roll out pay by bank with our Tink platform here in the U.S. We also announced a fraud solution called account-to-account protect. What that does is it takes all of our data using artificial intelligence and machine learning and our fraud protection tools and expand them to A2A transactions. So one of the problems that our clients are having around the world is A2A transactions are growing, but there's a lot of scams. There's a lot of fraud. And so we're able to take our data, our analytics and our tools to help merchants and issuers reduce scams by significant amounts. We've piloted this with a couple of RTP systems around the world. We've had great success, and we're rolling that out. So those are a few examples. We announced some others. Maybe I'll kind of hit on those as we work our way through some of your questions.

Very exciting. I guess I also want to ask a little bit about AI. I know you've used machine learning for a number of years, right, in your offerings around risk and fraud. Tell us about how Visa is using AI to deliver better experiences to consumers and to reduce fraud.

Yes. First of all, just broadly, if you think about the impact that generative AI is going to have on our ecosystem, the first thing I would say is it is a great time to be a consumer. Everything about shopping and payments and commerce is going to get easier, more curated, more personalized. And a lot of the friction is going to come out of just how we all live our lives in terms of shopping and paying for things. As you mentioned, we've been using artificial intelligence at Visa for more than 30 years. We have architected our data in such a way that we can put it to work with all the available generative AI tools that are now on the market as well as building our own tailored, specific large language models. The first benefit that we've seen is productivity. And you would have heard this and seen this from a lot of companies. But we're seeing real benefits inside of our company in terms of productivity. We -- about 2 months ago, we did a hackathon across the company. And we've been doing this for years. This was -- this hackathon that we did was the biggest participation we've ever seen in the company. One in five employees participated across the whole world, by the way, obviously, not just in product technology, but in HR and risk and finance and in all of these different areas. And we built a huge pipeline of ideas and opportunities that we're now working through in the company. And specifically, with regards to our engineering resources, we're seeing very high prompt acceptance rates now, across the whole team north of 30%. So that's driving a lot of productivity. We give our engineers access to all the available tools, whether it's GitHub Copilot or GPT-4, et cetera. So big momentum on productivity. We're seeing a lot of great ideas in terms of product design, development and innovation. One of the things we actually announced at Visa Payments Forum that was on our product road map is something we call data tokens. So you all use your Visa credentials for shopping. We are gathering your data when you make those purchases. And the idea behind Visa data tokens is to empower users with their own data to make a decision when they want to make that data available to sellers and empower you to make that choice. And when you do, we would power your data with generative AI to give signals to e-commerce merchants, for example, so that they can tailor those experiences to you based on your preferences and shopping patterns only for the merchants that you want to enable that. So that's an example of a product innovation that we're bringing to market with generative AI. We announced a $100 million venture capital fund that we're using to identify companies and start-ups that we think can have a positive impact on the payments and commerce ecosystem and give them some funding and partner with them to help them kind of get going. And I think the last thing I'd mention in this front is just putting generative AI to work in the same way that we've put predictive AI to work and machine learning to work for many years to combat fraud. So I mentioned earlier, account-to-account protect. We've also been putting generative AI to work in meaningful ways across our whole suite of risk and identity services to combat fraud, to combat scams and to ultimately help the shopping experience be better by increasing authorization rates and decreasing fraud. So a lot of work going on across our whole company, and we're very optimistic about the impact it's going to have for all of us as users in the payments ecosystem.

So Ryan, we talked about Visa's new organization. We talked about a lot of new products you're bringing to the market. You said the product velocity is accelerating, you're driving productivity improvements. So let me then ask your question around like how does it translate into Visa's growth opportunity? So I remember at the 2020 Investor Day, Visa kind of laid out this framework, provides revenue growth over the coming years should be better than the historical pre-pandemic run rates. And you have reiterated your confidence in that kind of expanded opportunity. Can you maybe talk about what's driving that greater confidence? Is it because of what you're seeing in terms of product, new flows, new tractions, value-added services your network is growing end points?

I think it's all of that. Maybe let me step back and put it in context for a bit. So as I said earlier, it goes back to the strategy and the work we have done to identify these opportunities and to go after these very large TAMs. I mean start with consumer payments. We've spoken about the fact that, that TAM remains more than $20 trillion annually around the world. About half of that, a little more than half of that is cash and check. The other half of that is ACH and domestic schemes and the like. $20 trillion TAM is an enormous opportunity. You look at the new flows opportunity, about $200 trillion. So a $200 trillion annual TAM, that's B2B, that's P2P, that's G2C, B2C, all these additional opportunities that we're able to go after. I mentioned earlier kind of value-added services as how Antony has kind of built the whole operating system through the company. We've done the same thing with our commercial and money movement services business across the company led by Chris Newkirk. So in the same way that we've built a product pipeline and sales disciplines and metrics and KPIs and OKRs and sales incentive plans and the like, we've done that to go after the new flows opportunity as well. And then finally, value-added services. The opportunity we have with issuers and the acceptance business and risk as a service, open banking and advisory. I mean the opportunity is very, very clear. The opportunities are very large. And so where we feel like we are in our evolution and why we have confidence that we'll be able to capture these opportunities is it's all about execution. It's about serving our clients, identifying opportunities, delivering them products and services that meet those opportunities, being in their offices, showing up, driving sales, driving execution and delivering that day in and day out in all the markets where we do business around the world. So we feel really good about our ability to deliver against all that.

Great. And Ryan, I want to kind of unpack some of the things you mentioned earlier. So let's start with the $20 trillion of addressable opportunity in core consumer. You talked about how that half of that is cash and check. The other half is kind of domestic schemes. As you reflect on this digitization opportunity and what you're seeing in the market versus where some of the perceptions are around already high card penetration, for example, in places such as the U.S., where do you think the biggest disconnect is between the perceptions and what you're seeing in the market?

I don't know for any one person how they view it. I think for a lot of people, they don't understand, first of all, how big the opportunity is, the $20 trillion, the more than $20 trillion itself. I think we just need to continue to educate people about the size of that opportunity and our tools, our brand, our people, our products and our ability to digitize that opportunity. If we kind of go through the pieces, you talk about cash and check as a little more than half of that $20 trillion. If you go back to some of the things I was talking about earlier, Tap to Pay, Tap to Everything, the flex credential, just continuing to innovate and bring new products and services to market that make Visa the best way to pay and be paid for buyers and sellers. And that's a playbook that we've been running for a long time. We know how to run that playbook. We're confident of our ability to execute that playbook. It's about opening up acceptance as well, acceptance in new categories that haven't traditionally been -- where you've been able to use your card, whether it's rent or debt repayment or things like that. It's also -- it's about pay by bank and us bringing new capabilities to market to enter in the A2A and the RTP space. So that's -- those are some of the reasons that we have a lot of confidence about our ability to continue to grow in that space and continue to digitize that enormous $20 trillion opportunity.

And Ryan, we have a lot of European investors in the audience. And I know Europe is one area in that opportunity where there's so much cash in the region. Can you talk about Europe? I know after Visa Europe acquisition, things changed quite a lot for you in Continental Europe. Can you talk about your growth opportunities in the region? And I'm guessing it's not just from cash but also from domestic schemes, something that you alluded to.

Yes. Europe has been -- it's been great for us since we closed on the Visa Europe acquisition. We closed on Visa Europe, I think, in 2016. To put it in context, since 2016, we've essentially kind of doubled a lot of the key metrics in our Europe business. We've effectively doubled PV. We've doubled the number of people that we have in Europe. We've doubled the number of acceptance points in Europe. One of the things I'm most proud of is we've doubled our NPS scores with our clients. We have an NPS of 70 with our clients now in Europe. We've doubled that since 2016. So it shows you that our clients who, by the way, many of which used to own Visa Europe right before 2016, have significantly increased how happy they are with our ability to serve them. So we've made a lot of progress. I think if you look at the continent as an example, since 2019, we've had great success across the continent. Going back to the opportunity that we talked about earlier, we've converted -- I think we've grown our cards 50% since 2019. We've also said that if we look into our pipeline, we're going to convert another 40 million cards across the continent over the coming quarters and years. So it's just -- it's a lot of opportunity. If you dive into a country like Germany, for example, Germany has historically been a very cash-centric country in terms of payments. Since 2019, we've effectively grown our Visa Debit business from something that was -- we had kind of 0, close to 0 cards at that point to more than 20 million cards that we have now across maybe 16 million cards that we have now in Germany. The domestic scheme, which had largely been the dominant way people had used debit, historically, we've invested in our acceptance in Germany to grow out more acceptance than the domestic scheme there. Last year, I think we grew our payments volume about 25% and our payment transactions, 33% or 34%. So overall, Visa Europe, a ton of progress since we bought it. Just look at the continent as an example, we've had great progress there. Germany is kind of a case study country, great success. And by the way, it's been great success with our traditional clients. We've also had great success in Europe with fintechs. And so most of the leading fintechs have become Visa issuers. Most of the leading players that are innovating with Visa Direct and others in Europe are our partners. So we feel really good about the progress that we've made.

Yes. And I guess a lot of these domestic schemes, I think people often do appreciate it that they're also quite underinvested, and Visa obviously can bring so much more capability to the market. I want to switch gear then talk about new close, and I'll start with Visa Direct. I know the growth continues to be quite robust here. You have been expanding kind of end points. And I know you had some very interesting partnerships, I think JPMorgan acquiring this quarter. I know the initial kind of product market fit with the person-to-person payments. What new use cases are you excited about with Visa Direct? And I guess for investors, under what time frame should we expect to see this also coming through in revenues?

Okay. So first of all, just maybe backing up. I think Visa Direct is a great example of how innovation happens at Visa. It started with a pretty simple idea that one of our scrum teams had, which is for many decades at Visa, when you use your Visa card to buy a coffee or something like that, we pulled money from your account and we gave it to the merchant. And that's what Visa did for many decades. And this team came up with the idea of why don't we just reverse the flow of the transaction and create a push transaction? And if we did that, what could happen? And we didn't imagine all the use cases that we now have this team didn't when they came up with this idea. It was just -- it was a product idea that we then invested in and then we built out, we expanded so that you can push money to any Visa debit card or any Visa credential over time, then we added other payment cards, other accounts, other networks. And now we have this money movement network with 8.5 billion end points around the world. We run transactions over card networks, domestic schemes, RTP networks, ACH networks, payment gateways where we're able to reach all of these end points around the world, and we've invested in that network and grown it over many years. And what's happened is we've been able to proliferate use cases all around the world. I think we have 65-or-so use cases that are now live on the platform. As you said, the initial use case and I think where we had the most traction has been person to person. Two of the use cases I'm most excited about, one would be, I'd say, remittances, so cross-border remittances for a number of different reasons. One is, I think it's a terribly underserved market. It's a very big TAM. It's a great use case for our platform and our network. And we have a lot of partners that are interested in using Visa Direct to enhance their business and enhance their user experience. I think you had Devin McGranahan on stage yesterday from Western Union. Western Union is a great example. We announced a partnership with Western Union recently. We're bringing Visa Direct into their ecosystem so that they can move money from the U.S. to other countries and from other countries to the U.S. in a safer, more reliable, cheaper way. We're also partnering with them, I think, in 40 countries, not only to move money but to issue credentials to their users so that the end user experience when they receive money on a Western Union transaction, they don't have to go pick up the cash. They could just use a Visa credential to go pay for things at the point of sale and those types of things. So I think that's a good case study example of one of the use cases I'm very excited about. Another use case I'm excited about is Visa Direct is increasingly becoming the payroll platform for the digital economy. So what are some examples of that? If you're a gig worker, you're increasingly getting paid kind of at the end of the day by having money pushed to your Visa card. If you're a worker at a company that offers earned wage access, you have the same experience, the ability to get paid daily or every few days as opposed to every couple of weeks and have that money pushed to your Visa card. We partnered with some fintechs that are actually enabling waitresses and waiters to get their tips sent to their Visa card at the end of the day, so they don't have to deal with cash or waiting to get a paycheck 2 weeks from now. So it's exciting to see this use case proliferate where I think this platform is becoming kind of the next-gen payroll platform for the digital economy. All of that is creating incremental transactions. All of that is creating incremental revenue, and all of that is fueling kind of this platform that I talked earlier, where we've got 8.5 billion end points around the world. So we're very excited about continuing to build out that in many different use cases.