Visa Inc. ($V)

All right. Thank you, everyone, for joining this morning. My name is Tien-Tsin Huang, I'm the payments analyst at JPMorgan and it wouldn't be a tech conference without Visa. So excited to have Visa kick off the second day here. From Visa, we have Chris, the CFO, Chris, thank you for being with us.

Of course, thanks for having me. Thanks, everyone.

We have a lot of things to talk about. But I thought I'd kick it off just with -- I like Ryan talking about Visa being the hyperscaler of payments, hyperscalers, AI, there's so many big buzzwords now in tech, but I thought that was a pretty clever way to describe Visa. What does that mean to you as the CFO? .

Yes. I think it's a great analogy. I mean, simply put, at the highest level, it means we're curating an ecosystem, helping it be successful, helping our participants in an ecosystem be successful. And in turn, that's going to enable Visa to have more growth opportunities that will drive durable long-term growth for Visa. If I think about what that means, if I just even click down a layer deeper, maybe versus starting with like what do we mean when we call ourselves a hyperscaler, the leading global hyperscaler for payments, the way we define it, of course, is that analogous to a more classical sense, we enable an ecosystem, all the participants in the ecosystem to build on our stack. And in turn, that grows the stack, it grows the ecosystem and the participants in it, including Visa. And so if you think about the layers of our stack, we call it Visa as a service stack, again, quite analogous you start with the foundation layer, which is really our network. If you think about sort of the 175 million merchants, the 18 billion endpoints, the 200 countries that we operate in, that forms the infrastructure layer, if you will, analogous to that. Then you have the services layer, which is really the components, the building blocks that we've now componentized, but it's the building blocks of our service. So think about credentials, authentication, tokenization, security, those features now are componentized. The next layer up from that is our solutions layer, which we take the building blocks and the services layer, and we've created solutions that we make available to a broad set of clients and then finally, the access layer, which is really the client entry point. So I think client APIs as the best way to do that. And when you sort of wrap that up, it enables us to continue to win in consumer payments and commercial money movement. It enables us to expand our TAM associated with AI and agentic. It allows us to be the interoperability layer between stable coin and sort of traditional payments and then sort of just broadly expands the opportunity to continue to deliver success with VAS. And so when you put all that together, it's really the evolution of our network strategy. It enables the ecosystem to grow. It enables us to embrace innovation, grow our addressable market and continue to ensure that we continue to see durable long-term growth.

Yes, it seems to be working. Last quarter was probably the best quarter we've seen out of Visa in quite some time. So I thought we'd start with that before we go into the details. How would you characterize it, Chris? How the quarter landed, how does that inform your thinking for the rest of the year?

Yes. It was an outstanding quarter. It was the best quarter of growth that we've seen in over a decade, excluding kind of the pandemic recovery period. We can sort of go into like the different puts and takes of that, but maybe the first 2 statements, like the broad framing that I would offer is that, one, underlying consumer spend continues to be resilient in the U.S. and internationally, and we're seeing that across multiple dimensions. Happy to talk about all of that. And the second thing, just in terms of highlights, reflections on the quarter is that both -- the 2 areas that we call our growth pillars, value-added services and CMS or commercial and money movement solutions, they're really thriving, we're executing really well. Those are areas that we focused on for a long time, as you know, strategy, investment focus. And we're seeing terrific growth. VAS was $3.3 billion, 30% of our revenue last quarter and grew 27%. CMS grew 24%. So those 2 growth pillars, again, the fastest-growing parts of our business, are doing really excellent. So that's consumer resilience and strong execution across CMS and VAS. As we click in, there are many sort of puts and takes into the quarter. We saw stronger volatility than we anticipated, still a drag year-over-year, but it's certainly better than we anticipated. We saw incentives coming in lower than we anticipated, deal timing, some performance adjustments, and so those are -- and then value-added services, of course, as I indicated, continues to be really strong. A lot of that pulls through to the full year. We were happy to take the strong half one combined with our revised outlook for the second half and raised our full year guide for both revenue and EPS, stronger volatility, stronger value-added services, too, which is really, again, a highlight. FIFA World Cup is only about 20 days away. We see great client enthusiasm for it and enthusiasm also translates into working with Visa to activate the brand, our investment in the FIFA brand and the logos, and we see that. I gave some examples on the earnings call. We talked about a client in LIC who has 20 million cards, and they did a campaign with us, and they've seen a 10% uplift in active cards, which drives more payments volume. So it's a great flywheel that's working as well and in years that we have something like a World Cup going on, it's even more tailwind to growth. So all in all, a really great quarter, growth in the areas we'd like to see and consistency, I think the pulls through to the full year.

Good. So drilling in on volume, you gave an example there, Chris, just thinking about the volume acceleration, how much of it is cyclical versus secular and some of the things that you're promoting because even if I look at the U.S. accelerating, I think it's the fastest growth we've seen in 3 years. And to me, it quiet some of the worries around saturation and high card penetration. Cyclical versus secular, how would you describe it?

Yes. I mean, you're right. I mean, the first statement I'd say I agree with you, underlying drivers, I just call it consumer resilient, that's shorthand for -- across the breadth of the business. U.S. PV up about 1.5 points in the quarter. Some of that was tax return driven. We talked about that. There's, by all measures, higher tax returns landing in consumers' pockets, but also underlying fundamental strength we're seeing discretionary spend, nondiscretionary spend, be strong. we're seeing debit and credit to be strong. We're seeing spend across different from low-spend bands to high spend bands, all being quite healthy. So all the indications U.S. continues to be quite healthy. International PV as well, stable, strong in most markets with one exception being CEMEA, which was down 2.5 points, but that was really concentrated around the conflict and happy to talk about that as well. But all in all, sort of indications that there are good, strong underlying fundamentals across our drivers. We're seeing it in PV, we're seeing it in process transactions. We're seeing it in cross-border as well. And so that was all through Q2. And then in the period subsequent to that, I gave -- in my earnings commentary I gave the update through April 21. And we said, okay, at the end of Q2, we saw U.S. PV continue to remain strong. In fact, maybe up a little bit. I know it's only 3 weeks and then PT was kind of staying -- moderated a little bit, but sort of staying there. And the cross-border had moderated down a little bit, and I gave the reasons being timing of Ramadan as well as the conflict in the Middle East impacting travel. Just by way of update through now May -- yes, May 14, May 14, we've seen all those levers, U.S. PV process transactions, cross-border both travel and e-commerce, all improve a little bit from that April 21 date. It's up slightly since that time frame. And so again, it just shows -- it's not like one thing driven, some sort of secular thing. We're seeing broad-based strength, and it's consistent in all the metrics that we track.

Okay. Now that's a good update. That's encouraging for sure. So you mentioned the conflict, let's just drill in on that and cross-border. I think going into the quarter, Chris, you know this, there was a lot of concern around the conflict, airline capacity being drawn down. Of course, like you just say things are tracking pretty well. How do we separate these headlines from actual performance. We're always trying to, of course, get an edge and try to predict based on some of these signals, but it didn't quite play out. What is your exposure there? What signals do you watch? And what does the outlook assume specifically?

Yes. I almost want to sort of -- we talk about the conflict and the impact of the conflict in general. But I go back to the statement that I just made, which is across our cross-border volumes, consistent strength and stability that we've seen, not just this last quarter, but for many quarters. We've continued to be strong. But let's unpack because there are a lot of puts and takes. In the quarter, we did see travel in the CEMEA region, in particular, in March as the conflict accelerated, if that's the right word, the travel was impacted. But there was offsets. There was strength in the U.S., notably, which we called out and strength in the U.S. comes from lapping -- there's 2 or 3 things I would call out, lapping low inbound volumes from a year ago from Canada that helps both travel and e-commerce. There was strength in LAC because actually some currencies in LAC, notably Brazil, Mexico, Colombia had strengthened versus the U.S. dollar, and that always has an inbound -- historically has an inbound lift. We're seeing that. That also travel and e-commerce. Benefiting travel from AP was strong OTA volumes that we saw that helped on the travel line. And so those things, we're seeing stronger commercial volumes in there as well, commercial cross-border volumes. And so those are the puts and takes that got us there, which then got us to a pretty strong number in Q2, offsetting the March impact. And then the update. Now it's kind of like what I just did with total volumes just to drill into the cross-border thing a little bit deeper. As I indicated in my -- in your last question, cross-border did tick down. And there was 2 things that I called out. One is the timing of Ramadan. It just -- we were lapping the post-Ramadan surge from a year ago in the first week of April. And then the conflict in the Middle East. And so through May 14, we're actually seeing cross-border in total kind of be aligned to the levels that we saw in February. And if you recall what I said on earnings, we said, if you just normalize for the Ramadan timing, it actually -- that April stub period, the 21 days would be -- would have been close to February as well. And so the implication of all that is we've seen some strengthening in fact in the post-April time frame to get us back to the February levels in total. And so again, a lot to unpack, but we're seeing even in spite of some variation from region to region, we're seeing strength in consistency and healthy travel and e-commerce volumes. And I think the second part of your question is like, well, why do we see that, and I do think it goes back to the we talk about this regularly. We talk about the fact that the exposure to Visa's business is one of the most diverse anywhere. And that applies to cross-border. It applies to the fact that no single region is more than 25% of our inbound volume. We've talked about that consistently. Also the fact that e-commerce is now a bigger percent of total cross-border, about 40%. And e-commerce has more association with everyday spend. And then there's things like more cross-border commercial volumes and other things like that, which just again, the diversity of the business provides for great resilience, consistent health that gets reflected in aggregate.

Yes. So mix diversity is the answer, right? That's driving a lot of the resilience that you see overall in the performance of the business. One more, if you don't mind, Chris, just I always hate to ask it, but just with FX volatility, you mentioned it. How big of a contributor could that be? Or is that to the model?

It's -- as I indicated, it was one of the sources of outperformance relative to our expectations. It was a drag year-over-year because we had some high volatility a year ago, but this is kind of notoriously hard to predict, I would say, given how much variability, how much volatility there has been in the volatility line. Maybe if I could just take a minute to step back and explain because I can't size it for you in the same way -- in exactly the way that you asked, but I could give you some -- I could try to dimensionalize it a bit. the place I'd start is sort of understanding what it is -- how we monetize volatility. And maybe just working backwards, how do we report it out so that when you all look at it in our P&L, we have a line in our revenue reporting called international transaction revenue. That's primarily driven by our cross-border volume and -- but it's not all our cross-border volume. Cross-border revenue can land in different places, but international transaction revenue which is defined as when the merchant and the issuer are not in the same country. So that's cross-border by definition. And so it drives off of -- and so we monetize that cross-border volume in 2 ways in international transaction. One is we collect fees on that volume. And then secondly, because we transact in 160 currencies and settle in 25, at our scale, we can offer currency conversion services to our clients. And when that happens, that's the second part of the fee structure in international transaction revenue. And when -- and so mechanically, every day, we publish a bid-ask spread. And then as volatility goes up or goes down, it changes the size of the spread, and therefore, how we monetize it. And so that's been, when we guided to Q2, January, if you remember at the beginning of January, volatility was pretty low, and then it went up significantly throughout the course of the quarter. And so hence, we overperformed. And then we are lapping some high numbers from a year ago. But that all said, we've kind of reverted back to where we started the year in terms of the full year volatility number. Yes. So that's how volatility lands on our P&L. Now we're anticipating sort of a normal year in total. Obviously, geopolitical events and things like this can impact that. And so we'll have to see how it all plays out.

Yes. Well, despite the drag, despite the conflict and everything else, right? Like we said earlier, the results have been really quite strong, strongest in quite some time. So let's pivot -- just for the sake of time, let's do value-added services, right? You mentioned 30% of revenue, it has been growing mid-20s plus for, what, a year now. You mentioned a few like FIFA, some projects that you do. So my question here is what's more episodic, onetime type revenue versus structural growth that you're seeing from value-added services to get you to that mid-20s number in the end?

Yes. totally, value-added services has been a continued highlight. We had a particularly strong quarter at the 27% growth rate, It's 30% of the business today. And if you think about where in 2019, the combination of VAS and CMS was about 23% of the business, and today, just VAS alone in Q2 was 30%. So we've come a long way. I just -- I do think that we've been benefiting by clarity of strategy, clarity of focus, going after big addressable markets where we have -- that are either core or core adjacent where we have a great position to capture and it's a big TAM, and we're early days in that, and we've invested behind it, both in product and go-to-market. And so like those are all the things you'd want, I think, a company to do to go after a big addressable opportunity. VAS is -- that all said VAS is, I know sometimes like it's not as easy to understand what all the pieces are. And so there's a lot of services, value-added services is not a product. It's a sort of a growth division. We have hundreds of products and services. We categorize them into 4 portfolios, each of them are big. The last time we shared the numbers that the smallest with $1.3 billion, the biggest was $3.5 billion that applies to FY '24 numbers, and they were all growing in the mid-teens or higher. And so you're seeing breadth across the business. They're issuing solutions, which are services and products and services targeting our issuing clients really driven off of Visa transactions. The second are acceptance solutions for the namesake products and services, targeting acceptance clients on the merchant side of the house. Those are really driven by all payment transactions, Visa and non. The third is risk and security solutions. It really is about protecting the ecosystem and also the underlying base is all transactions. And then the fourth is advisory and marketing services, and that's really driven by engagements. Now just sort of like go into your question a little bit more in terms of what's driving it episodically, the strength, as you know, has been not just this quarter, not just this year, in the 3 years that Visa, I think we've grown more than 20% every single quarter. And over the last 4 quarters, we've seen that even accelerate a little bit more. And so that just go -- and if you go back to all the earnings commentary that we make, you see that different things drive growth in any particular quarter, which all just is indicative that the business is quite healthy across the broad breadth of things. And maybe the final thing I'd take, I just -- sorry to spend so much time on VAS, but it's really important. And the message that I would also convey is when we think about that breadth of business that we talked about, the 4 portfolios, the hundreds of services, the billions of dollars that it's driving, the vast majority of that business is very deeply connected to our card network business, that's transactions, that's accounts. So -- and cards, and so across the breadth of the business, there's a very durable underlying fundamental connection to the core business, and that gives us great comfort. And then we continue to expand, geo expansion, product expansion even through acquisitions like Pismo and Feature Space, those are going to be additive to going to capture that TAM, the ability to continue to add more value, which means we have the ability to price to that value. And so when you add that all up, both the past performance and our outlook for value-added services, it's a business that we continue to be very optimistic about.

Sure. No, that makes sense too. So I thought we'd just drill into one. I picked issuing, if you don't mind. Let's do issuing and think about Pismo had a lot of success since you acquired it. You just mentioned it. And you mentioned on the call that you picked up some new business with Wells Fargo, which has gotten a lot of attention there. So tell us about the thesis there. Why is it important for you to own so own Pismo, own processing assets? We have a lot of other issuer processors that are here at the conference, Chris. So why is it important and differentiated for Visa to own that?

Yes. I'll try to -- those 3 -- I think 3 different questions sort of embedded in there. One is the thesis behind Pismo. Pismo is cloud native issuer processor core banking platform. It's very complementary to our existing. We didn't really have a core banking platform. And we had DPS, which was primarily debit, primarily U.S.-based, and so -- and Pismo was debit, credit, commercial and it was, like I said, cloud native, and it was international. And so they were sort of good complements to that. We've seen -- you mentioned -- you referenced the Wells Fargo win. I think it's indicative of our strategy. We're going -- it's a global strategy. It addresses clients from large to small, the Wells Fargo deal is a great example of the confidence that we have in the service as well as now endorsed by a very significant client. Obviously, it's early days, and we're going to have to prove all that out. But that's all on plan. We've expanded Pismo 5 new countries expanded. I talked about geo expansion in FY '25. That's 15 new countries that we've entered since the acquisition. So geo expansion, product expansion, kind of consistent with that thing that I talked about with value-added services to capture more TAM through that way. The combination of the 2 is powerful. You can really have an end-to-end solution across issuer processing, core banking platform and our payments network, the distribution that Visa brings to an incredible technology that we found in Pismo that now has a global distribution platform with Visa, with our client engagements. I think it makes for a really compelling story and a compelling value prop for our clients.

So you also bought Prisma and New Pay and so now you're combining that together, it feels like with Pismo. I mean we have to pay attention, right? Because any time Visa buys something, you put it on your network, you're going to amplify the growth rate. Why was it important to fill it out? Specifically, I think Argentina is the geo there.

Yes. It is Argentina exactly.

Why is that so important?

Well, it is a very Argentina-specific strategy. We bought 2 companies really there in 1 transaction, Pismo and New Pay and Pismo credit debit issuer processor. And New Pay is an RTP network, plus an ATM network. And that's a little bit new for us. But it makes great sense given Argentina RTP and ACH networks comprise 45% of the PCE in Argentina. And so that's an interesting opportunity for us to -- in a single market go do that. I think Pismo has a lot of the same attributes that I just described with Pismo in Argentina, the combination of the Visa distribution and the brand can really have that end-to-end solution for clients. It's a very comprehensive way to engage from a go-to-market standpoint. And we could also bring a lot of -- I mean, Prisma had a lot of success in the market, they have good -- a lot of clients and a deep penetration into that market. But now we can also improve by bringing our global innovation and technology platform we could bring more advanced technology, whether it's around risk and authentication or tokenization we can invest in that market. And I think the combination of that, as I said, the RTP share of the business, the issuer processing side of the business, combined with Visa's the strength that Visa brings, I think we can really accelerate growth in Argentina.

Okay. That's fair. That makes sense. You mentioned tokenization and it feels like owning some of these assets, it gives you an advantage to deploy some of these tokens. But can you update us -- we're quite bullish on the tokenization opportunity for Visa. So a decade plus in building that out, and it feels like it's gaining more momentum. So maybe quickly just go through tokenization, where you are you with penetration? What's next for us to expect in terms of growth? I know Agentic gets a lot of attention there. We can talk about that separately if you like. But just tokenization, where is it? Where do you see the momentum going?

Yes. I mean, like consistent with what you just said, we've been bullish if that's a great word on tokenization for a long time. We've been investing behind it, broadly, meaning innovation adoption. We've been really pushing on adoption. And to date, I think we're pretty happy with where we're at, where over 50% of e-commerce transactions are now tokenized and that's 30% up year-over-year. And so good progress as we -- on kind of the look back, if you will. We think that we can get to a state where the vast majority, near 100% should be tokenized in an e-commerce transaction basis. And so there's still a lot of work to do. Even though we've come a long way, there's plenty of growth to go. I think there's -- we're working across the ecosystem. There's all the benefits, and I won't repeat all those, but at the highest level, higher auth rates, lower fraud, modern credentials, programmable credentials in some sense. I think we can go after new markets. we can go after in terms of tokenize additional sort of getting the other 50%. You can go after use cases like stored credentials. That's a decent-sized opportunity out there, and we're working with a lot of parties to go penetrate deeper into like store credentials. You can go after lots of sort of different use cases as well. And so we're going to continue to grow, I think, the tokenization utilization. Agentic, as you mentioned, it becomes a critical enabler for those scenarios. And so that's another place of focus for us as well. And so we're going to continue to drive adoption, utilization. And like I said, we've proven out I think to the ecosystem broadly that there's a lot of benefits to a tokenized transaction.

Yes. I think it's a tech conference. So I have to ask you about agentic commerce that actually we feel like tokenization could be foundational especially network tokens for agentic to take off, not just here in the U.S. but globally. I think we had a bunch of companies, we had Accenture yesterday talk quite a bit about how excited they are about the agenetic commerce like OpenAI probably will talk about it as well here later on the same stage. So how do you see agentic playing out? You have such an important role here in developing the framework for it. What should we be watching? It feels like the 4-party model will stay intact, but there are different motivations for different players to promote it. What's your view on it?

Yes. I mean we're incredibly excited and it's early days. I'd say both those things. And the excitement, again, shorthand, means we've been actually meaningfully putting a lot of work into this for a long period of time. We rolled out our initial view of Visa Intelligent Commerce, now it's been more than a year ago when we had the product drop event. And so this is something that we view as sort of beyond linear, like it's the evolution of e-commerce into agentic commerce. From an opportunity standpoint, maybe I'll start there. We think it accelerates our opportunity to grow. And it does it in probably 4 meaningful ways. One, it digitizes -- it accelerates the digitization of transactions further of payments. Two, we think it enables B2B scenarios to rapidly accelerate. That's been -- we've been looking at B2B scenarios, B2B money movement for a long time, and it's been more elusive to penetrate. Three, we think agents will just create more transactions. We think they'll intelligently split transactions. And for us, transactions are a very important unit of measure in our business. And fourth, when you add that all up, us and many others who forecast this would indicate that GDP growth would accelerate by something between 80 and 150 basis points depending on whose forecast you're looking at. So when you add that all up, that's just a bigger pool of opportunity for Visa to go after. And so that's important. So again, I talked about our framework for looking at structurally large TAM opportunities to go after. There's a lot of work to do in that. I think with any sort of payments when you get into the payment side, it's -- there's lots of layers to it. You've heard us and many other parties talk about protocols and standards. I think that's a really important layer. There needs to be trust in standards and protocols at many layers between the consumer and the agent, the agent and the merchant and then all the way through to complete the payments experience. We've put our views out there with Visa Trusted Agent Protocol or VTAP, which without going into gory details just basically at the end of the day, if you want to use a Visa Card, we're going to support that, if you want to use a card, you're going to support that through the protocols. That's 1 layer. There's a lot of work going in on the issuing side to help merchants have issuers get ready. There's a lot of work going on, on the acceptance side as you think about enabling merchants to initiate agentic payments in a trusted way. There's work going on with developers. We're working -- we've talked about Visa CLI, which is a Command Line Interface, which is really letting developers experiment using the protocols put out by tempo. And so there's work at every layer, but I think at the end of the day, for payments to really work in a seamless, frictionless way, the trust and security layers are probably the most important. And this is where plays into Visa's strength. And so we think we have a great position to help enable this future scenario and we'll keep at it.

Yes. And I'm sure there's going to be more to study, but the foundation is being laid. It feels like, and Visa has been very, very -- playing a big role in that. No, thanks for walking through that. I know we're almost out of time. I thought we'd ask just maybe a couple more. I didn't ask you about CMS. It did accelerate. So just quickly on that, it does feel like the commercial side is maybe getting a little bit more momentum. Is that a fair characterization? Or is there other factors that are driving some of the CMS? We're all using our commercial cards that get here today.

Yes. I would agree with the momentum statement. And some of it is more, and some of it is consistent, like Visa Direct has been a consistent performer for a period of time that you see the transaction growth, which we publish every quarter has been strong. It was I think, 23% in the second quarter. You've seen commercial payment volumes, PV accelerate. That's been the part that's better. A year ago, it was high single digits. And this quarter, it's at 11 points of growth, 1 point above where it was even last quarter. And so that's been good to see. We did see strong revenue growth this quarter. It was aided by some deal adjustments that we call the performance adjustments. And so there's a little bit of timing in that as well. But nonetheless, underlying fundamentals continue to be strong. And one of the important growth levers in our business that we've talked about consistently.

Yes. B2B has been something we've been talking about for a while. So we're always going to ask you about it, Chris. So we're just about out of time. I think I started with the hyperscaler question, and we're thinking about the evolution of Visa it does feel quite different than when I first got to know it whatever it was 2 decades plus ago. The card conversion story, it feels like it's yesterday, and now we're talking about value-added services, agentic and CMS. So help us organize how you think of Visa over the next decade? Is this really this push towards VAS and that's going to dominate the conversation a little bit like we had today? Is it going to be more CMS led? It would be agenetic? How would you encourage us to organize it?

All of it. I know we have like 20 seconds. So I'll give like the highest level answer that's the most comprehensive, which is at some moment, our strategy is working. We've been working -- we've been at this for a long time. We've been focused on the right addressable market. We've been investing behind this from a product and service standpoint. We've been executing really well. And it takes time in the payments ecosystem for these things to pay off. And it's really actually gratifying to see that our strategy is working that the durability of our business and our network is playing out the way that it has over the course of time as we've gone through innovation and shifts and as we have in the past many times. And it gives me great optimism that we'll continue to be able to do so as we navigate through this next generation of innovation shifts, whether that's agentic or stablecoin. I think we're in a great position to continue to grow.

No, for sure, it feels that way. I know you're working hard, and it's nice to see it all come together. Chris, you've been traveling everywhere. Thank you for being here with us. It means a lot to me. Thanks so much.

Thanks so much. Thanks, everyone.