Okay, great. Welcome everyone to the afternoon keynote session here at our 27th Annual Global Technology Conference. I'm Timothy Chiodo, I'm the lead payments processors and fintech analyst here at UBS. We are very, very glad and fortunate to have with us today from Visa, both Chris Suh, who is the chief financial officer, and also Jennifer Como, who is head of investor relations. So also for Chris, at least for me, and I think for Chris as well, this is a special occasion, given this is his first investor conference being on stage, being a part of the fireside. So it's an honor to have you here and to be a part of that moment for you, Chris. Thanks for joining us.
Thanks, Timothy. I'm super happy to be here.
All right, excellent. We have a great list of questions here, and if we have time at the end, we'll be able to open it up for some Q&A, either through the app or via a microphone. We will have a runner in the audience. So let's go to the first topic, which is a little bit more of a barbell topic and an opportunity for Chris to expand upon his thoughts on being at Visa. So the barbell there is really the first is the very, very near term, Chris, if you could please maybe give us some updates on some of the more recent trends since you reported earnings in late October.
Okay.
On the other end of the barbell, some of the things longer term that you're really excited about.
Yeah, no, it's two great topics. Let's spend a minute or two talking about what we're seeing in the business currently, and then, yeah, let's... I'd love to talk about some of the things that we're excited about longer term. So starting with the here and now, I think it's fair to acknowledge, you know, I see headlines like all of you and hear what other companies have to say about the state of their business. So I think it's fair to acknowledge that, you know, a certain level of macro uncertainty still persists. But based on our data, and which we have a lot of, we see the consumer as being generally resilient.
Specifically, as you look at our business drivers, through the first three weeks of November, we've seen our underlying business drivers remain quite stable, to what we saw in Q4. Specifically in the U.S., payment volume, payment transactions have remained pretty consistent, adjusted for fuel and days mix, which is some of the things that I did talk about in our October earnings. And the cross-border recovery continues, you know, continues to recover. Cross-border volumes continue to recover, and we're seeing incremental improvements in travel and cross-border volumes, relative to their 2019 index. So all in all, if there's a meta message there, I'd say, our underlying business remains quite stable.
Now, that said, I did want to reiterate a couple of things that I talked about in October as it pertains to our revenue guidance for Q1 and for the fiscal year, because there are some elements that impact the year-over-year growth. I talked about four of these things in October, and I think it's worth just sort of reiterating what those are, specifically in Q1 and, you know, maybe more broadly, even first half. So the first one being cross-border volumes. As we've all seen, you know, post-pandemic travel spiked. It continued to normalize through FY 2023, the first half, and in particular, in Q1 of 2023, we saw cross-border volumes growing 31%. That continued to normalize through the year. We're anticipating it growing at a lower rate. It's a, you know, comparable challenge in Q1.
The second one is FX volatility. I think we're going to talk about this one more, but as you know, volatility was at its highest point in fiscal 2023, in the first quarter of the year. That normalized through the course of the year. We think FY 2024 looks slightly like FY twenty... Like Q4, maybe slightly below, throughout the course of FY 2024. The third one is the non-recurring revenues, in particular, in other revenue, grew 31%. A year ago, benefiting from, you know, FIFA World Cup-related value-added services revenue that we realized in 2023, and the last one being client incentives and which is, you know, a broad topic, but suffice to say, we had lower than anticipated incentives in the first half of last year, in Q1 in particular.
We renewed a significant portion of that in FY 2023, which increased the second half, as well as the first half of 2024. Those all combined to you know, sort of have a shape of the year that's a little bit different. Even though we reinstated our guidance practices, gave a full-year guide, I did talk about the fact that Q1 would be the low point in terms of growth, and we'd exit Q4 at a higher point. The second part to your question, what are some of the things that we're excited about long term? We really are excited about the opportunity across all three growth pillars. We think about consumer payments, new flows, and value-added services.
In consumer payments, we continue to have this incredible market-leading position, where we're focused on growing credentials, growing authorization, and driving engagement with our customers around the world. New flows, you know, the opportunity for money movement beyond core consumer, we think is 10x the market opportunity that we saw with consumer payments. And so, that's a really incredible opportunity for us, and with value-added services, we continue to expand into new geos. We expand, deepen client relationships, and launch new products and services. So across all three of those growth pillars, we're very, very excited about the opportunities ahead.
Chris, excellent. All right, great way to start this off. Let's go into a question we often get, which is around Visa's performance in a potential recession scenario. We've often talked about incentives that have a little bit of flex. We've talked about some of the more discretionary areas of the operating expense base. Maybe you could just expand upon how you think about the business and how it would behave or perform in a recessionary scenario.
Yeah. No, it's a great question. Appropriate, it's timely. You know, as we've always said, we're not in the business of doing, you know, sort of forecasting macro... and hence our 2024 guide didn't, you know, assume one way or the other. That said, history has shown that our business is relatively resilient. And I think there's two ways to think about it. From a top-line perspective, you know, the spend set that we're exposed to is one of the broadest and most diverse anywhere, whether it's, you know, credit or debit, discretionary, non-discretionary, domestic, cross-border, high spend, low spend, travel, et cetera. And so there's a natural diversification.
Within that, I think, you know, what you've seen historically, debit, which is generally associated with more everyday spend and non-discretionary, does better, more resilient, in a period of economic downturn, than credit. And the other thing that I'd maybe point out is on the cross-border side. I think, you know, the nature of cross-border has changed, that there's a lot more e-commerce in that, in the nature of. And e-commerce, again, has a little bit more affiliation with everyday type spend items versus, you know, more traditional cross-border travel and tourism. And so we think those have some natural resiliency to them. And then, of course, the incentive line, which you talked about.
You know, in the event that we see payment volumes change or vary due to whatever is happening in the macro perspective, there's an offset, though, because those incentives are largely variable. On the cost side of the P&L, you know, it's the same decisions that are faced by most CFOs. You have to balance between short-term needs, long-term priorities. We have levers. If we think about personnel, people, and staffing, you know, many of those can be slowed. We can certainly take decisions to slow hiring, to reduce professional fees, travel, of the like. And on the marketing side of the P&L, I'd say about half of our marketing spend is variable. And so then again, we could, in theory, apply, we could slow spending there as well.
The other half is a little bit more long-term committed. And so there are levers to pull. I mean, we'll just be thoughtful about those things in the event that we have to react to something that happens on a macro basis. But, you know, like I said, we'll be thoughtful and we'll be decisive.
Excellent, Chris. Let's move on to, and you alluded to this earlier, the FX volatility topic. So there's two parts to this. Maybe first, we could just talk a little bit about the mechanics there in terms of the FX spread component to the international revenue line.
Yeah.
But then also, what other things should investors be thinking about related to that line in terms of the, the yield, if you will, whether it be things like quarter mix or pricing or, or other factors?
Yeah. A great question again. First of all, yes, cross-border, a really important part of our business. It generally has higher yields. But what is it? So as we define cross-border, it's when the issuer is in a different country than the merchant who transacted the transaction. In many of those cases, we also provide currency conversion services. Given the volumes, you know, that we run through our network, we can offer competitive rates. We transact in approximately 160 currencies around the world. We settle in 25. And so from a mechanic standpoint, we have the ability, you know, on a daily basis, we publish a bid-ask spread, and, you know, which varies based on the volatility.
Obviously, more volatility, the spread widens, it has the benefit of, you know, increased revenue for us. We saw a lot of volatility in FY 2024. That's, you know, we saw it come down through the course of FY 2023, I meant. We saw it come down through the course of the year, and we expect it to be roughly at or slightly below the levels that we saw in 2024. Now, that yield that I talked about, that you referenced, is better. We don't publish the yield specifically for international, but it, you know, is largely known to be better than the rest of the core business. It does benefit, you know, pricing does vary by corridor.
And then obviously, when there's more volatility, that really helps the yield as well in international. So, this will be a year, as I talked about on the earnings call, like FY 2024, likely is to be a more normal year than we've seen in a while. So we're anticipating a little bit more stable environment for volatility, and at the same time, cross-border travel continuing to recover.
Perfect. Thank you, Chris. Let's move on to the next topic, which you also alluded to earlier, which is around incentives.
Mm-hmm.
So when we look at incentives on a basis points or percentage of payments volume, when we look at it over time-
Yep
... the incentives have sort of gone up at a pretty measured pace, sort of 0.2 of a basis point to 0.3-0.4-0.5 of a basis point. But the last two years, the incentives have gone up a little bit more than that, relative to the historical pace. The guidance this year, you're calling for incentives to grow at a slightly slower pace than they grew last year. I believe 19% was the absolute dollar growth, so something less than 19%. So the question really is: Has there been anything that's changed? Is there anything that really drove the last two years of maybe slightly elevated increases?
Yeah.
Should we exit this year sort of back at a more normal cadence?
Yeah. Yeah, there is a lot of interest, as I've learned in my four months here, in the incentive line, so it's probably worth spending, you know, a few minutes talking about it. You know, at the end of the day, incentives for us, you know, what are incentives? For us, you know, they're a way to align interests, our interests, with that of our clients, to drive common outcomes, which, you know, in the simplest sense, is more volume, more share volume, and drive more revenue for us and for them. And so to that extent, you know, it can vary significantly with the nature of a renewal, and hence, you know, what you see in our P&L. You've mentioned that, you know, in recent periods, it's grown a little bit faster.
Well, if you think about our deal flow, both new and renew, a typical deal is roughly, on average, five to seven years, and it's really priced, the incentives are really priced based on the anticipated volume over that period. And so you will see that lumpiness. You will see it vary depending on the timing of deal flows, the timing of deal expirations, the anticipated volume, and of course, competitive dynamics play a factor in all of that as well. But again, like I said, it's really in service of driving more volume and driving more revenue over a period of time. In 2023, you know, I talked about the fact that incentives came in lower in the first half of the year, in 2023, when I was talking about the year-over-year comp in the first half.
But we did renew, you know, in the middle of the year, in the back half of the year, we renewed a pretty significant volume of PV. If you sort of take the five-seven-year expiration math, let's say that it translates to about 15%-20% of payment volume in any given period, being available for renewal, and in 2023, we renewed a little over 20% of that. And so that drove the higher increase that you saw. It impacted H2 incentives. It flows into the first half of this year.
Some of that renewal in 2023 was pulling forward from 2024, and so what we anticipate seeing in 2024 is that we'll renew probably close to the 15% mark of the, of the, you know, the 15%-20% range that we typically see, which again, translates to a little bit lower year-over-year growth in 2024. The important thing, though, from my perspective, as CFO, we look at the yields, you know, we look at every large deal that comes through. You know, I'm part of the discussion and the review and approval, and we're really focused on maintaining and growing yields over time. We're, and it's variable, like I said, based on what we anticipate the growth to be over the next, period of the renewal, and we're really focused on growing net revenue.
Hence, you heard me talk about that a little bit more focused on net revenue growth, which I guided to inclusive of whatever the impact of incentives would be, throughout the course of the year.
Excellent, Chris. Thank you, and we would agree that when you look at the net revenue yield over time, it's been remarkably stable over literally a maybe 10-15-year period with a slight upward trend. So to that point, incentives are just one piece of that net revenue puzzle.
Right.
There's two other sides of it, and we can touch on each of those now, the first being pricing and the second being value-added services. So on your earnings call-
Mm-hmm.
You recently mentioned, as you were talking about sort of the revenue lines, you mentioned that there were some pricing benefits, specifically for service fees, for data processing, and for other revenue. Maybe you could just add a little bit of context around these pricing increases, the value that you've added that has allowed you to take this pricing.
Yep. Yeah, it's a great question. Pricing, again, at the highest level, you know, pricing is a factor of the value we provide to our clients. And then secondarily, you know, obviously, competitive and cost-to-serve dynamics play a role as well, but it's really, you know, the unlock is really around, you know, pricing to value. We've continued to... You know, Visa plays an incredibly important part in the overall payment ecosystem, security, resiliency, integrity. The whole value chain is... You know, we provide a lot of value into the ecosystem. And so, you know, from that standpoint, we believe that we continue to have the ability to price the value. As we introduce more value into the system, we invest a lot in security. We invest a lot in fraud.
Further, as we think about, you know, our new growth pillars, let's think about value-added services and, and the ability to bring new innovation to the market, we'll continue to, again, be able to price the value. You know, our expectation for 2024 is that the pricing benefit will be roughly the same as, as we saw in 2023, but it is a lever that we can continue to exercise.
Perfect. Thank you, Chris. The second one there is value-added services, which are now about 20% or maybe a hair more than 20% of your revenue. During COVID-
Mm-hmm.
I think it was a little bit easier for us in the investment community to get our head around the increasing value-added services attached, given generally there's an understanding that a card-not-present or an e-commerce transaction
Yeah
... has a slightly higher attach rate. Now that we're kind of moving past that, can you just talk a little bit about the remaining and still long runway that you have for value-added services attach?
Yeah, it's one of the areas that we're really excited about. You've heard, you know, Ryan talk about it. You've heard me talk about it. Jennifer talks about it all the time as well. There's a tremendous TAM opportunity in front of us. I think we, you know, all can see it, quite honestly. We're focused on, you know, three primary approaches to continue to grow our value-added services. One is to expand and deepen our existing client relationships with our existing product portfolio. Two is to expand geographically, and three is to bring new product and innovation to the market, and I think we're doing well across, you know, all three of those dimensions.
On, you know, on the client relationships and existing products, these are some stats that we shared, you know, in the earnings call. You know, if we look at our top 265, customers, clients, they, on average, are using, you know, 22, 20-plus, services within, their, relationship with us. And if you look at the rest of the client portfolio broadly, it's roughly half that. And so you could see our ability to, again, deepen those relationships, in a material way. As we expand, you know, geographically, there are, you know, value-added services, it's a whole host of services. Our risk services are, have been two of the more popular one, Visa Advanced Authorization, Visa Risk Manager, those have been two of the more popular services.
Together, there's—we have over 8,000 clients using those services globally, and in Europe alone, over the last three years, we've more than doubled. And so again, it's, it's, you're seeing our expansion geographically. And then from a new product and innovation, I mean, again, this is a very large product portfolio. We continue to. The cadence of innovation is rapid. We are launching new services literally, you know, every quarter. Like RTP Prevent is one that, you know, we've launched recently. It's, it uses deep AI learning models in the space of fraud prevention. And so again, rapid pace of innovation, lots of opportunity, great momentum in the business. We grew, you know, high teens throughout FY 2023.
We anticipate this business continuing to be, you know, accretive to our growth, into 2024 and beyond.
Great. Thank you, Chris. So we hit incentives, we hit pricing, we hit value-added services. Let's move to another increasingly important growth driver for the business, which is Visa Direct.
Yeah.
Oftentimes, investors are looking for great, bringing it to life type of concrete examples on the high end of the value/pricing spectrum for Visa Direct. A common example is the cross-border remittances use case. On the other end of maybe the lower priced or lower value end of it would be on the peer-to-peer side domestically. Maybe you could just build upon those two ends of the high and the low with maybe some additional examples. I think that would be really helpful.
Okay, great. Yeah, Visa Direct is one of our, you know, best growth opportunities that we see in front of us. It's you know, it's an incredible business, and we're in its early days. I think it might be helpful a little bit just to give a little bit of history of Visa Direct.
Please.
If you think about, you know, our core business, for many years, we succeeded based on this notion of allowing a consumer to pay a merchant. It was a one-way transaction from consumer to merchant. You know, a handful of years ago, we made some changes to our network that allowed that one-way transaction to become two-way. And that was a big unlock for us because it, it opened up, you know, many such use cases, not just, you know, now not just consumer to business, but now business to consumer, but you can think about, you know, P2P and B2B and many other use cases that really is about, you know, every node in the network. And so, you know, that's sort of the unlock, and that's, you know, why we're so excited about the opportunity.
You think about, you know, the use cases, as you talked about. So P2P is maybe the most common one, but, you know, but cross-border P2P is one that we're excited about. That has higher yields. That was up 65% in FY 2023. But there are, you know, many other scenarios. Think about, you know, send to wallet, send to account, many other such scenarios that opens up with Visa Direct, and we're, you know, very optimistic about that. Use cases, you know, in addition to P2P, you know, other things that you can think about, this is just sort of examples. You think about gig economy workers, think about earned wage access, merchant settlement or marketplace.
There are just many examples, and it's early days for us with Visa Direct, and like I said, we're really optimistic that we can grow this business, you know, outsized growth rate relative to our core business for years to come.
That's great. Thank you, Chris. Moving on from Visa Direct, let's talk a little bit about processing penetration. On the last earnings call, this was a topic. You talked about expanding processing penetration in certain markets, including Colombia. Maybe just talk a little bit about some of the runway that remains-
Mm-hmm
... for increasing processing share, and then what it means-
Yep
... in terms of your ability to attach more value-added services.
Yep, yep. You know, we process roughly 80% of the volume globally today. And that doesn't include... and that includes actually, you know, markets, large markets like China, where we don't process domestically. And so from that standpoint, you know, there's still ample, you know, runway, as we think about, you know, regionalizing and getting very specific about, growing our processing penetration. A great example of, you know, where we've done this successfully in recent times is in Latin America. We talked about Colombia, which you referenced, but, you know, if you sort of zoom out and look at the whole region outside of Brazil, we've grown penetration by 20 points, over the last 3 years, since 2019.
You know, really, as we took on domestic processing in markets like Argentina, Chile, Colombia, Ecuador, Uruguay, Uruguay, I think those are the primary markets that have driven that. In Colombia, we've grown, you know, internal processing. We expect that we'll end FY 2024 processing roughly 80% of the domestic volume. That's from zero in 2019, and that really was on the heels of a strategic alliance we did with CredibanCo, who is the largest issuer processor and acquirer processor in the market. So there's ample opportunity as we think about localizing our strategies and approaches. And, you know, once you... To your point, once we bring them in, you know, we're obviously earning data processing fees for authorization, clearing, and settlement.
But we have the ability, again, to add more value-added services, which, you know, is the growth lever that I talked about, previously. The Colombia example, if you look at, you know, again, going from 0% to 80% in the, you know, a matter of a couple of years, we're seeing clients, banks add somewhere between, you know, four and five to 10 to 12 value-added services in, in every deal. And so it's, it's opportunity rich, as we continue to expand, and it's a virtuous cycle that expands beyond our core processing into value-added services too.
That's a great example, and the timeline as well was also helpful. Okay, let's move on to another topic that is definitely top of mind for investors, given it's kind of something happening/evolving as we speak, which is Reg II for U.S. online debit routing. I think in general, the investing community is comfortable with the notion that there are sort of two sides to this story, right? There's the direct aspect, which is the interchange and network fees associated with some of the secondary networks, but there's also, compared to Visa's offering, there's relative levels of fraud to consider-
Yep.
And also features. Maybe you could expand upon all of that, really.
It's again another very sort of timely topic. You know, the first place I'd start, you know, is acknowledging that we've operated in a, in a regulated debit environment for a long period of time, and we've done it, you know, I would say successfully, for a decade or more. And from that context, you know, we're, we're—we've built that muscle, and we'll continue to operate and, and, you know, manage ourselves and, you know, as regulations continue to, to evolve. What is Reg II, for those that aren't familiar? It's basically regulations that, in the U.S., issuers are required to have two unaffiliated debit networks on, on cards that are issued, in the U.S., which again, gives merchants or acquirers the, the option to route those transactions, those debit transactions, to...
And again, this is card-not-present, sorry, just to be clear, give the ability to route those transactions to a, to a second network. As I said in October on the earnings call, we've not yet seen meaningful impact of this and, you know, we'll continue to keep you all updated, in the event that, you know, we do see, impact of it. But I think the important point is the one you brought up, which is, you know, cost is a variable. It is a factor, but there's many other considerations. You know, you pointed to features and liability, and I think that's the same ones that I would, I would anchor on.
From a feature perspective, you know, if you think about the capabilities that Visa offers, which are really unmatched, you know, one example is, you know, Visa supports dual messaging, whereas traditional PIN-based debit networks are single message. And what does that mean? Well, it's a scenario. Like, think of a scenario where the initial amount varies from the actual amount, so maybe a hotel bill or a car rental bill or a tipping scenario where those things are different. Those aren't supported by single message networks, whereas, again, the capabilities in our network are more advanced. And then the third one, which is really important, is liability and fraud.
In an e-commerce world, merchants bear the liability for fraud, and Visa has invested significantly in fraud detection, authorization, tokenization, like, all the things that give us a material step function advantage in that particular space to minimize the liability that merchants may, you know, incur. And hence, when you sort of look at the totality of things, we're confident that Visa's value prop is very good.
Excellent, Chris. Okay, I think we are. We only have a few minutes here. I think we could maybe attempt to take one question briefly from the audience, if anyone wanted to jump in. If not, we have another one that we'll wrap up with. Okay, let's wrap it up with tokenization. So the number is getting huge now.
It is.
So it's 7.5 billion tokens as of the last earnings call, and I think it's just a nice one that we could wrap up in terms of the benefits there to authorization rates, but also how the reduced interchange rates work in terms-
Yep
... of providing a discount for using this tool that allows for higher authorization.
Yep. It's a great question. It's a technology, you know, it's right in the what we were talking about with fraud and fraud prevention, because I think that is one of the incredible value propositions that Visa brings to our clients and to the payments ecosystem. Tokenization, for again, for those unfamiliar, it replaces the traditional 16-digit account number with a token that can really only be unlocked by Visa, that then therefore provides an extra layer of security and protects the information that underlies that token. As you pointed out, 7.5 billion, it really is you know a remarkable sort of growth that we've seen as the e-commerce and you know sort of digital commerce continues to grow.
It's become even more, the value prop has grown higher. To your point, we don't charge for the token. We think there's massive benefits to the ecosystem in exactly the things that you pointed out, which is fraud, reduction of fraud, and improvement of authorization rates. And if you look at some recent numbers, you know, those that use tokens versus that don't have seen a nearly five-point improvement in authorization rates and 30% less fraud in those transactions. And so it's pretty compelling.
We think there's, like I said, there's incredible value, and it'll increase total volumes, in total, and so it's not something that we monetize separately, but, but it, you know, again, it's, it's something that we, along with our partners, are really excited about as we think about the future of digital commerce.
Chris, well, that brings us to a close of your first presentation at an investor conference here. It was a pleasure to be up here with you, and we really wanna thank you and Jennifer for making the trip to Arizona. Thank you, Chris. Thank you, Jennifer.
Thanks so much, everyone.