Okay. Good morning, everyone, and welcome to Visa's Investor Day, for those of you in San Francisco. Hello. For those of you joining us on the webcast, welcome as well. I'm Jack Karski.
I I oversee Investor Relations here at Visa. On behalf of the entire management team and the entirety of Visa, Thank you for coming. We think we have a pretty exciting day planned for you. It's a triennial event. We're hoping to make it more frequent than that.
And you'll all have an opportunity to weigh in on that in a post Investor Day survey we'll be sending out to you and I encourage you to please respond to it. Okay. As you can see from the accompanying slide, we have a pretty deep up today, we're going to commence the morning with Charlie Sharp, our CEO, who will provide you with an overview of today's program, share his thoughts on our current and future business opportunities and his strategic vision for Visa. Next up, Bill Sheedy and Elizabeth Buse, who I know many of you have met with in the past, both at conferences and on-site Visa. Rather than speak to the geographies they historically managed, Bill and Elizabeth will split the the world into emerging and developing markets and will focus their respective presentations on what it takes to be successful in those sometimes similar, but just as often widely divergent geographies in terms of how we approach them.
After that, we're going to have a brief Q and A session with just the 3 of them and I'd ask that you pose questions of them hold off on tech questions and so forth until we have our second all in Q and A when those speakers will be up here on stage answer that type of thing. After that initial Q and A, we'll have about a 30 minute breakout or bathroom session, if you will. I encourage those of you who haven't been over to the Innovation Showcase to take the time to go over there. There's some really interesting stuff we got and I think it's going to help you in a lot of respects separate some of the rhetoric from the reality that really is swirling around, not just Visa, but the tech space in general and certainly in terms of mobile and so forth. When we resume, Jim McCarthy will bring you up to date on some of these newer initiatives and will I think help bring a lot of that innovation showcase to light for you.
Jim will then bring up the people who actually are in the trenches dealing with these technologies every day. That would be Sam Scharger, Bill Gatta, Mike Walsh and also IR. So there is a future for me somewhere else in Visa apparently. If Silvio will have me. They'll be followed by Byron Pollitt.
And I just want to pause there for a moment and mention, most of you don't realize that last night Byron was inducted into the local CFO Hall of Fame given a Lifetime Achievement Award as one of the Bay Area's remanent CFOs. Huge honor. And after that, Charlie will come back with a brief wrap up and then we'll have the general Q and A session and and that will be more of the focus for tech related questions, if you'll please hold them for that. At the luncheon, which is in the same room as the technology showcase, Showcase. Management will be present in addition to all today's presenters.
We'll have other folks from Visa, risk, finance, so forth. It will be open seating, so just pick your favorite visa and sit down accordingly. And again, spend some in the showcase, it will really be worth your while. Before the ceremonial reading of the forward looking statement, which is what I personally live for, Of course, I'd like to acknowledge the other members of the Visa IR team, Victoria Hyde Dunn, who is somewhere in the back and Patrick Laney, without whom a good portion of today never would have occurred. And then copies of today's slides distributed before the meeting.
For those of you listening via webcast, they are on the IR section of the the website. And so with that the forward looking statement, we always mock it in the IR industry, but we take it seriously here Visa's Chief Executive Officer, Charlie Scharf.
Thank you, Jack. Good morning, everyone. I too just want to take a second and congratulate Byron on his achievement. We are it is a real honor. Byron has done an unbelievable job for Visa and obviously before that at his prior companies, but the company would not have had the success that it just had without Byron in a position that he's in.
So thank you, everything, So I'm going to just talk a little bit about some of my thoughts on where we've come from and where we're going. And I guess I just want to start by Just telling you all how I wake up every day and I think about how lucky I am to be at Visa. And that's really what today is about is we're going to hope to why I feel that way, why the rest of the team feels that way. Part of it's our history. So we're going to talk a little bit about how we've done and how we've gotten and what we're doing to capture our fair share or more than our fair share as time goes on.
As Jack said, plenty for Q and A. We do have the demos, which we encourage you to go see. So I want to put in a plug for that. And we have a broader group of the management team here, other in addition to people that you're going to hear from who are going to be around at lunch to talk to. I also want to introduce Ryan McInerney, who is right over here on my right, on your left.
Ryan joined us 3 days ago. So we're going to give him a reprieve from being on stage. Give him at least 4 days before we actually allow ask him to do that. But it's I think it's great for the company. I've known Ryan for quite some time.
We worked together, known to many of our consolidate all of the client facing functions into one place as opposed to where they had been, take all of our regional heads that we have across the globe, have them report directly up to Ryan. It's allowed us to take Bill and take Bill's skills and talents and knowledge and let focus across the world as opposed to just part of the world. And the same thing for Elizabeth, running what we call global solutions, which is really think about it as the pieces, which we are heavily reliant on for the future. So arguably the most important the things that we have, which is mobile, data, processing, digital wallets among other things. So very excited to be able to do that.
And then it's also enabled us to have Jim, who most of you know, who's going to be up here later today, spend full time on innovations, partnerships, how the world is evolving and what our place is in it. So, hold on. I just want to look for the clicker. Right over here we go. All righty.
So with that, to move on. We're going to start with the key themes, which you can read up here. And again, it's our company is Certainly helpful to address. Talk a little bit about the progress that we've made and the consistency of where we're going with some acceleration of some things. And the message that you're going to hear consistently is the company has invested materially for growth and we're going to continue to do A little bit about our business for a second.
We have an enviable business for sure. Dollars 4,000,000,000,000 in payment volume. I'm sure you know a lot of these numbers. We can process 24,000 transactions a second. We have 36,000,000 acceptance locations across world and that does not include MPOS, mobile point of sale, which we're going to talk a great deal about, which is extremely exciting to us.
It's a huge opportunity to expand the acceptance of our products across the globe. Square alone, we think has over 4,000,000 merchants most of which we believe are new to accepting our products and they're just one provider of these services across the globe. And again, you can see here Strong performance in our revenue and our growth and our EPS, both over the past 5 years and over the past year. So again, I had nothing to do with that. It was the rest of the team that you're going to hear from, but certainly worth Calling out.
Our business and our success, we feel very, very strongly when we look at where we've come from It's the leverage we get from working with these fabulous partners that we're lucky enough to call partners across the globe. It's critical important For us when we think about what we're doing and what our opportunities are that we think about it as it's a very diverse set of partners. That means geographically as well as partners of all sizes. Everyone always likes to talk to us about the big deal, the big client, the big thing we announced with one of our partners. But the reality of our business is, we have the leading share of 7 of the top 10 issuers in this country.
We have long term contracts with more than with more than 600 financial institutions here. We have leading share with the Credit Union and Commercial Bank an initiative with ICBA, which is the group that represents the Community Bankers Association to offer real time offers to people that are part of that association. So it's just example of it's not just big people, it's small banks and there's a deep commitment from us. They're a very important part of our business and going forward. And our business outside the U.
S, we all know is growing faster than the business inside the U. S. Again here too, 3,000 non U. S. Clients leading share in 17 of the top 2560 percent were smaller banks.
So again, it's a very diverse group of partners that help drive our success. In addition to the financial institutions, our partners go beyond just of thinking about merchants as our clients, as our partners. It's a big part of our CyberSource business that we have. It is our CyberSource business. In the world.
Again, here too in the U. S. 7 of the top 10 co brands are the majority of Visa. And beyond Co Brands and Merchants, we think of governments as great partners for us. And we're going to talk a lot about that in both Bill and presentations, but as the world evolves and our opportunity to penetrate the world, the world's under bank population becomes an increasing reality for us.
It becomes a real strategic opportunity for us to think of governments as partners. And then we get lots and lots of questions about new payment participants. So I'm not going to do the specifics here. But from our point We welcome them. People ask us all the time about our concerns and how we feel about it.
And we have a great asset here, which we're going to talk in terms of what our network is and what our capabilities are, very hard to replicate. But there are huge opportunities for people to help figure out how to grow electronic commerce the world. And we welcome the opportunity to talk with them, work closely, let them do what they're good at, let us do what we're good at. And it's all of our goals to grow commerce and grow the electronification of payments. And again, Jim will discuss much more of this.
We're also, as we know, in addition to these partnerships, figuring out where we should be building our own solutions. So even though we love to engage with people on the outside, we are building our own things like V. Me, which is our digital wallet, which is very issuer and acquirer centric to help us tackle the opportunity alongside the partnerships. So let me just move on now and just talk a little bit about the Visa story as I about it. And I think about the path that we're on as falling into 3 distinct periods.
I'll just do this very quickly. But the first almost 50 years of our life was life as a financial institution owned association and there were multiple associations across the globe that operated fairly autonomously, connected through interoperability agreements and brand agreements and whatnot. But what that meant was very regional focus, very regional resourcing and focus on
the owners in
that case, which was the in that case, which was the banks. Then 2,007, 2008 comes along, merged these entities together excluding Europe. So huge task to do these concurrent mergers at once. Company goes public.
And then just to get that work done to create
one great global company, huge internal focus initially. And the
company, huge internal focus initially. And the idea of taking a company from an association to a for profit institution is just it's a sea change within the company with just a lot of focus on doing what's best for Visa. And then after those Couple of years, the work began to focus more externally. And you saw the acquisitions of CyberSource, Fundimo and PlaySpan as part that. And then I just kind of said 2011 beyond really creates a whole new part of our story here.
The world is going through huge technological changes we know mobile is a reality and the things that we can do with mobile both with smartphones and non smartphones are very different than what in the world 3, 4 years ago. We all know about regulation in the merchant voice as being something which is changing the dynamic and changing the dialogue and tells us we need to change how we think about them as well. And so all these things just tell us that it's this idea of We are a maturing organization. The opportunities that exist in the world because of what's happening with technology, things like the opportunities at point of sale, the opportunities to use data suggest that we do need to continue to evolve and actually accelerate our adaptability in New World. Just talk for a second about the macro trends and why we feel so good about our place in the technology oriented payment space.
Our business really grows several ways. And number 1, we're lucky enough to grow along with the global economic growth. And that's what you see on the left hand side. This is PCE. And you can see that in our countries, Going back to 2,009, it's up 6% with 10% growth in the emerging world and 3% in the developed And so as people spend more, we're the beneficiary of that.
And on the right hand side, you also see a combination of a couple of This is our penetration of cash our penetration of PCE. And so this is as the world continues to and as we continue to either do a good job or a bad job with our share gains relative to our competitors. And here you can see the progress that we've made 6% to 9% in the emerging world, 19% to 22% in the developed world. And you'll just here that it's flat over the prior year on that bar chart on the right. And just note, remember, we had Durbin affect us, offset by strong gains that we've had in our credit business.
And so these things are obviously important drivers for us as we think about our future because we feel confident that these trends will continue. And then if you just take apart what has actually driven our growth historically, so this just takes our revenue growth from 'eight to 'eleven on the right hand side in 2012 and decomposes where our growth came from. And so in this case, you can see that PCE growth is has been about a quarter of our revenue growth in both periods of time. And then when you look at our penetration, it's about half. And then what's on the bottom is, it's pricing and some other things.
You can see the number is half of what it was. And the reality in 20 12 is that pricing the effect on pricing and our revenue growth is negligible. And so we get lots of questions about how we feel about our opportunities to increase price. And we look at our opportunity in this world to grow volume and believe that pricing is not the lever that we have to pull in order to get the revenue growth that we think is right for a company like ours to attain. And all of this points towards the repeated theme, which we're going to continue to talk about, which is that cash is the single biggest opportunity, bar none for us.
Again, This is our markets. So we're not in the European market. So these numbers might not tie to what you see across the entire globe. But remember, there's $11,000,000,000,000 of cash in checks still in the world for us to penetrate. And that number is growing.
And of that $11,000,000,000,000 people get surprised a little bit when they see 5 of the developing world. I'm sorry, 5 is in the developed world and 6 is in the emerging or developing world. And obviously, that's because that the business outside the U. S, especially in the emerging world, but we think we still have plenty of opportunity to grow in both developed and undeveloped and Bill and Elizabeth will each take you through all those pieces as well. And we're also excited these days and we're going to talk about this potential for the acceleration of electronification.
I talked a A second ago about mobile acceptance. We're going to talk in detail about what we're doing in mobile acceptance, how this actually works reality. But for us mobile acceptance is it's a huge driver of increased acceptance. I But you just look at the number below that, the number of mobile terminals grew from 4,500,000 in 11,000,000 to 9,500,000 in 2012. And Bill is going to talk about where
that's projected to go. And again, so that both in
developed worlds and to go. And again, so that both in developed worlds and developing worlds creates a huge opportunity for us to have our product financial inclusion is trying to work with the 2,500,000,000 under banked people across the globe, 1,700,000,000 of which have It's economically good. It aligns what's good for us is good for governments and good for individuals And you think again, it's easy to think about what's going on here in the U. S. And think about the relationship that we and our competitors have had have had with the merchant community in the United States.
And it's hard to believe that they've been working really hard to help drive our business, right? I mean, that's obviously not been the case. And so we believe there's a great opportunity to work differently with them, to engage them in a way where they actually like our products and they can actually be a partner of ours over time to help drive not just their success because that's how we're going to win their trust, but ultimately we'll be a beneficiary of that on the That's both because of the e commerce opportunity and what we think our products can bring to them as well as things that we can do at the physical point of sale, again, which we'll talk about as go through the day. And then I just want to touch for a second on one of our core assets. When we think about our core assets, we have global acceptance at those 30 1,000,000 or so merchants plus mobile point of sale.
We've got the intellectual property that exists and has been built up over a long time within Visa. But at the core, we've got our network. It's what we call And then just this just shows you just a little bit of how it's evolving. And as we think about the future, the value of the core work, we actually think is growing, not being diminished in any way shape or form, but it's obviously very critical that we continue to the edges of it, extend the uses and extend the capabilities. And again, we're going to talk through that.
And so you think about how the network has evolved, we think about access. And you think about historically there was this basic point of sale and ATM acceptance. Today, new segments being opened up, small tickets on the Internet and things like that. And as we think about the future, that our network really becomes a platform for merchants and issuers to experience to help customize their experience and grow their business. Transaction processing, again, also great changes.
We've gone from centric as we continue to grow our network. And now we're entering a world where we've got the ability to create highly customized processing solutions. And driving the processing solution As you've heard about and we'll hear more about from Bill and Elizabeth, key driver to our margins over time. And then the opportunity to continue to grow out our business intelligence and platform tools. Again, here we've gone from years ago just basic reporting to people who participated in our system to what we think are some pretty advanced risk and fraud management tools, really hard to duplicate the way we've got them today.
So just true value added, but the opportunity is to go well beyond that, to connect issuers and merchants, let them use their data, our system in a way that they can't do on their own. And the ability to do that is because we sit in the middle of those transactions with the network that we have. Our investments that we have been making, I just thought it would just help you give you a little bit of quantification because we talk a lot about things. But again, I'd also think about this in the context of those great results you saw on the beginning pages. Those were not done at the expense of not think those were not done I'm going to have too many like a triple negative here.
Those were done with the eye for growing the future. So there was no skimping going on relative to investing in things that we between 2013 2011. It adds up to $700,000,000 of annual expense addition to our total base, of which you can see what the pieces are and that's on top of the 2,300,000,000 we spend on the acquisitions of the 3 companies I mentioned earlier. You can see $125,000,000 of incremental expense going into non U. S.
Market focus. This is people, it's technology, it's marketing, it's helping build out acceptance. It's all the things that you're going to hear about in a little bit. And then product innovation, We talk a lot about V. Me, CyberSource, mobile and things like that.
Again, additional $300,000,000 in our expense base. And then just basic technology, technology, hugely important. That's what we are at the core of what it is. Our network is a technology business. And as we think about the future here, we can think of that as couple of different ways.
This is a huge amount of money. We feel great that we've spent it because that puts us in a position to capture that opportunity. Over time, we do believe we can more efficient. And that then becomes a lever for us to think about what do we want to do going forward. That means we can continue to reinvest and move on to the things that Jim and the team are going to be focusing on or it becomes a lever to do something different with that depending on what we see as the outlook.
So again, I feel that we've actually spent the money, it's embedded our numbers and it creates not just a great future for us, but a whole lot of optionality. I've spoken a great deal about being flexible and being adaptable over the past 7 months since I've been here. So I just wanted to touch on it again, because I'm not sure everyone in the audience has heard it. As we mature as a company and as we go from what was again a financial institution own business that wasn't focused on its own results initially to all of a sudden you're a public company and you've got to focus on your results. We're in a growth business, big expectations, huge huge focus on what's right for Visa.
Over time, the only way we're going to be successful as a business is to put our customers first. And as I've talked about consistently, defining customers broadly, not just issuers and about what our future is, that our future is supporting those partners that we have today. We're not interested in competing with them. We're not interested in being divisive amongst them. Our job is to bring all of the tools that are available to us given where we sit in the payments value change and help every one of them big, small, U.
S, non U. S. And financial institutions all the way through to the merchants, absolutely critical for us. But we're also very, very keen that we've got to do all of this, while we that part of that's our own mindset in terms again who we view as customers and things that we should be doing in this evolving world. It's also going to be things like rules, which we've heard a lot about, our ability to be Flexible.
And it's something that we have to do. There are too many new opportunities in the world that didn't exist 3, 4, 5 years ago, whether it's again things at the globe that are trying to figure out how to do that. And we believe we're in the best position to do it. So again, we're going to do it. We're going to be principled.
We're going to do things
that support the Visa brand, safety, soundness and security.
Nothing will stand in the way of That's the core of who we are. We won't do something that advantages one client versus another. If they have differentiated capabilities. That's up to them to figure out how to compete with each other. But we're going to do something that we think allows everyone to compete.
And whatever we do with someone It's got to add value to our network. So again, lots of opportunities for us to do things of companies with all sizes. You've seen some of the big things that we've done. But as I mentioned earlier, the announcement we made the other day is in fact something and it's an example of what we want do with smaller companies. So I just thought the last slide I would use at this part of the section is this page, which is strategic was put up at the last investor presentation.
So we just thought we'd go back, take a look, say, what did we tell you all? And do we think we've accomplished what those things are. And I'm not going to go through each one of them individually, but you look at all of them and we are on track to deliver all of them by 2015, if not sooner. Just want to point out 2 small, but significant modifications, which are notes on the right. When we talk about entering new businesses, we're thinking about that just a little bit differently, right?
We that you're going to hear about are all about driving more transactions by creating more value for all the participants in our to run through the VisaNet system. Great opportunity to do that, because of where we it because of the capabilities that we have. So it's not about entering new businesses. It's about continuing to extend the network on the edges and doing the things that we think we can do to help drive more transaction to us that are proving that will prove to be more valuable for all of our partners in the process. And then the last thing you can see here is, we had talked about being a top 25 company by market cap and the way and the reality is inside the company.
This isn't a change inside the company. There's really no talk inside the company about market cap. The talk inside the company is about total shareholder return. And we talk about the pieces we talk about the importance of driving revenue growth and EPS growth because that's what we control. It's doing all the things that we can do to help drive that over a period of time.
That obviously will drive the price, but it's also about using capital wisely and making sure that we return it in a way that makes sense for you all. And Byron is going to cover that, so I'm not going to talk any more about that. But as we look forward, all of these things that are on here are still absolutely critical for us. This opportunity to extend the mobile through to extend the network through mobile, through e commerce, these data driven solutions, thinking about working in partnership with a broader group of people, all these things we think accelerate our opportunity. And I'm just going to close with just a reminder, we love space that we're in.
We love the assets that we have. We actually get very excited, not worried in any way shape or form about technology's role and what it's doing to the payment system and believe very strongly that will be the beneficiary of that. And so with that, I'm going to turn it to Bill, who's going to start taking us through the developed world, and I will see you all a little bit later.
Thank you, Charlie. If I can find the clicker. So, building on many of the same themes that Charlie just walked you through. The next couple of presentations will touch on I'll hit the developed markets. Elizabeth will come using the same exact framework that you see on the chart in front of you to walk you through the ways in which we're thinking about growing and investing in our emerging markets.
I think many of the questions that we get as it relates to the developed markets is relates to do we have a strong and long runway for growth given the size and the significance of our business in the developed markets and the importance that it has to the business today, can we continue to drive growth as a growth company? And it won't surprise you that the answer to the question is yes. Hopefully, if I answer no question over if I only answer one question over the coming slides, it will be where do we view the primary sources of our growth in the developed markets. I'll touch on, to a certain degree, the how. But Jim McCarthy and the panel We'll touch on, to a much greater degree, the ways in which we're investing to deliver against that growth.
I'll break it down by a product perspective. Certainly, as we think about growth, As we think about growth, it's 1st and foremost driven by the fundamental economics that Charlie talked about. PCE is going to be a common theme in my presentation, Elizabeth's presentation, the breakdown by product. Certainly, the acceptance of the product is fundamental to the consumer value not just the terminalization of the world, but the engagement with merchants, the ways in which we incorporate innovation in the product and the engagement with additional clients outside of our financial institution clients, in particular with government. So starting with personal consumption expenditures, you can see here, I'm going to focus throughout my presentation most of globally, roughly by measured by revenue as well as volume.
And you can see here, even across these 7 markets, you see varied mix of cash and check volume in these markets, the $5,000,000,000,000 in volume, Charlie referenced this on his slides, this more than The cash volume in these markets on an aggregate basis year over year continues to grow. So not only is the opportunity for us to penetrate over the long term as we continue to execute against our business and ride sort of the secular shift as consumers and businesses go toward electronic forms of payment, but the pie continues to grow. 2nd most important point, as a company that historically in support of financial institutions who are issuing products to bank consumers. Certainly, our focus is on personal consumption expenditures. But there's an enormous opportunity.
There are 2 enormous opportunities that aren't even reflected in PCE. Commercial consumption expenditures globally. Another $5,000,000,000,000 we believe is cardable and we are only roughly 1% penetrated even in the developed market as it relates to B2B expenditures. And none of this speaks to the even larger opportunity as governments transact with their population. So we look at all three of those as very significant and compelling sources of our growth.
Before I talk a little bit more specifically about sources of growth in the products in the market segments, I want talk just for a few minutes about the ways in which we think about yield. It's a question that we often get, particularly given our margins. How do we think about the changes in yields and the investments that we have as we invest in local markets. And one thing that surprises many investors and analysts is that when we invest in local markets and we drive what we consider to be more and more healthy growth in our country, it has the effect of driving down our yields. And let me explain why.
The highest yielding transaction we have globally is a cross border transaction. Roughly globally when they happen cross border run over our network. So those yields are very attractive. We like that business very much. But a stronger source We consider to be long term fundamental growth is when we start driving domestic volume and domestic growth.
And you can in the left hand side of this chart that when that happens, it's certainly a sign of health in participating in the local economy. It's a lower of volume because it tends to be more stable over time, but it's lower yielding. So that tends to drive down our yields. Likewise, and many of the things that Jim and the panel going to talk about as we invest in information products, processing services, those require significant incremental investment. It differentiates us from the competition, but have lower yields than what has been historically the case with our processing services and our branded services where we have very low incremental costs associated with moving those transactions on the network.
So just to illustrate the example in Chile, We go back to 2,008, we had a business that we like very much in Chile. It's a fast growing market. We have strong bank relationships in the market. 90% of the business was domestic in 2,008, 10% international. Was domestic in 2,008, 10% international.
The growth in the domestic business was a concerted push. Falabella is a very retailer in that market, increasing our share position with the financial institutions, lots of marketing with a fast growing middle class, particularly over the last 4 years in that market. And in doing so, we developed a stronger franchise in the market. Sorry. I figured how do we get back on this one.
You hit bread. And in doing so, we dropped the yields in Chile by close to 10 But over that 4 year period, we increased aggregate revenues in Chile by 80%. So lower yields, higher net revenue or total revenue of the company and a stronger market. Next few slides, I'm going to walk through a product perspective in ways in which we think about sources of growth. When affluent credit is an increasing portion of the ways in which we think about the growth within company.
Over the last 5 years, affluent credit has moved from just north of 20% of our total credit business to today in these developed markets, it is 40% of our total credit volume. And you can see in this column across the 7 markets, the affluent credit 1, the investments that you're seeing on the right hand side with co brand partners and in marketing programs and in sponsorships, primarily historically designed toward the mass affluent consumer. In the U. S, households that have over $100,000 in annual income, mass affluent, they only represent 20% of the households, but they drive 70% of the spend. And these mass affluent consumers put more than 50% of total household expenditures on cards.
We like that very much. We'll talk in a bit about the fact that we are still underpenetrated as you move up into higher net worth categories. So we view that as an incremental opportunity going forward. Debit in the U. S, the largest portion of our business, is a place where we're very Why?
There's many truisms in payments.
But one of the universal truths is that when you look
at consumers around
the is that when you look at consumers around the world, almost irrespective of geography and demographic, consumers want to transact money that they have, not money that they borrow or have preloaded. And we like this business those other businesses very much. But over the long and all of the market research that we do drives that home. There's 2 sources of growth that we'd like you to think about as it relates our debit franchise. Certainly, the cash and check that I just referred to, but also as you move around the world and I'll explain the data on the chart here in a moment.
As you move around the Many of the local debit markets are driven not by business that we currently enjoy, but by local players, domestic debit schemes. Sometimes they're switches. Sometimes they're strong incumbent players. And as you can see in the U. S, given that 61% of Visa's business is debit.
We've done a very nice job of growing that category. Around the world, as you move on the right hand side of this chart, the you see here that are very large developed markets where we haven't really even started. And when you look at markets like Canada, where Interac 99% of the debit market in Hong Kong and Japan as well. We view the services that you're going to hear from Jim and the panel, the ways in which consumers are going to increasingly look to be able to transact with their debit accounts, not Just in a physical world, pin or chip enabled environment, but online and in multiple channels, the concerns that financial institutions, governments and consumers have risk and our network's ability to better manage and support those transactions as compared to local players. We think that there's an opportunity to grow this category, not just by changing consumer behavior around cash and check, but by penetrating the share that's currently enjoyed by players.
And when you look at the Australia example, where we have 20% of our business on debit, we've been able to grow that very nicely at the expense of fPos, a player. Now, the debit business in the United States has been rather challenging. It's certainly been something We've all talked about, it's covered in the press, certainly with analysts, a lot of uncertainty within the industry and particularly given Visa's share position, lots of discussions. I'd like to spend a few minutes talking about U. S.
Debit. As you know, pre Regulation Visa and Boyd enjoyed a very strong position in U. S. Debit. We were roughly 60% of the category when you look at signature and pin based debit.
And that volume our share of that category has absolutely declined. It's come down about 15% from 60% of the category to just about 50%. And that share position decline is going to be something on those cards. It's just the reality. The good news is, from an investor standpoint, the volume that went away that will likely stay away, as we've talked about, is lower yielding and frankly a portion of the business that was more competitive.
So when you look at the aggregate revenue associated with the U. S. Business, which is our largest business globally when you look at it from a geography or product perspective, it's still about 20% of our global revenues. We like it very As you can see, and then as Byron and Charlie talked about in recent earnings calls, we've now lapped the 4 or 5 quarters worth of very significant decline in EnerLink. And we will now reach a portion, as you can see in the top hand part of the chart, where we'll growing right alongside with the rest of the industry.
Now if you go back around Dodd Frank and the Durbin Amendment, there was lots of concern about the health of U. S. Debit and how the business would move going forward. What I can tell you and I think the data bear this out. The U.
S. Consumer, frankly, has continued to power through and use their debit accounts. They it continues to be the market research says that 50% of consumers in the U. S. Continue to look at their debit card as their preferred form of payment.
And when getting back to the point Earlier, where consumers want to pay with money that they have, when you look at the range of options that consumers have to access their demand account, check, cash, other forms of payment. It continues to be the most convenient for them to use their debit And even though the economics have certainly been hurt by
the interchange regulation, the debit card continues to be the
most profitable access device for financial institutions. To be the most profitable access device for financial institutions. There's no question the banks have dialed back investment. We've seen a pullback in rewards. As I mentioned, our share position has declined and we've had to explain that over last 4 or 5 quarters.
But we've now, I think, settled out in a position and we like this business very much. It's, I think, a sign that while regulation certainly something about which we need to be concerned. My new role, certainly something that I'm going to help the company focus on. The reality is the consumer values debit whether it's the U. S.
Or in these markets, and we continue to think that it's a very strong business irrespective of any regulatory uncertainty or headwinds. The other point I want to make in this chart, and we'll talk a bit about the merchants here in a moment. Sort of a lemons lemonade situation as it relates to the debit challenge. We came out, we positioned our debit product. We also made a very active push with the merchant community and with the acquirers and the processors.
When you look at our incentives, historically, They've been traditionally positioned on the issuing side of the business, which has driven most of the competition and most of the share. We've now, over the last couple established over 100 routing agreements with merchants, with acquirers, with processors. And I think that that's been a healthy development in our business to bring about balance, but it's also enabled us, I think, to weather this transition and position us well to grow. I want to talk now a bit about prepaid, something we talk Less about, we don't break it out in as a business for you. But when we look at the prepaid volume opportunity Globally, it's $3,800,000,000,000 in market opportunity.
In the United States alone, we see this opportunity at $2,200,000,000,000 Now this would encompass general purpose reloadable, which is a product category that the banks have now moved into in addition to some of the non bank players, Green Dot NetSpend others who have been strong partners of ours and helped this category grow. It includes the opportunity With payroll, we now have over 40,000,000 consumers who are outside of the banking system being marketed by their employers with Visa and some of our processing and financial institution partners to take that paper check, the expense, the risks associated with that and move that onto a card. We see is an enormous opportunity as well as to partner with governments. There are 95,000,000 individuals receiving government benefits around the country. We see that as a $400,000,000,000 cardable opportunity.
There's 100 programs in 40 states and we continue to see interest across the market to continue to grow prepaid. So, we're very bullish about prepaid. It's our fastest growing consumer product globally. In the U. S, if you look back a handful of years, we've been sustaining 20% to percent growth rates in prepaid.
So, we're very encouraged about the opportunity to penetrate prepaid. It's in part because of the increased focus and increasing size of the Mbank population. So that's the product view. I want to talk for a few minutes in the next few slides about the importance that we place on And I think that when you look at the business in the developed markets, in particular in North America, we've talked for quite some time about the ways in which we link very closely the brand, the relationships we have with financial institutions, the health of our franchise with VisaNet and the processing of transactions over our network. It enables us to deliver consistent services, distribute product much more effectively, lower costs, lower risk.
And as you're going to hear in ways that we like. We're well positioned in Canada, U. S. And have been for quite some time. One of the benefits of the global merger that Charlie referred to in 2,007, 2008 is this emphasis that we had always had in North America was something that we to globalize.
And when you look at the progress that Elizabeth's team made in AP CEMEA the last few years, you can see that the rest of the company has absolutely gotten on board. You have a market like Japan where we still have situations where merchants deployed multiple terminals at the point of sale and we're compelling more and more transactions coming directly over our to switch through the network as opposed to directly from the point of sale. The situation in Australia, where direct partnerships with merchants has compelled those merchants like Kohl's to route transactions through us as opposed to bilateral agreements through financial institutions. And again, as I said, the more transactions we see, the more opportunity we have to lower costs and distribute more effectively the product innovation platforms that we'll talk about over the course of the rest of the morning. This isn't just a developed marketplace.
Charlie showed you the $100,000,000 $700,000,000 of investments that we've layered into the company's annual expenses. A good portion of that is focused on building processing in these local markets. So when I focus just for a moment, I'll deviate from the developed market view to an emerging market view. You see here, Brazil, Southeast Asia, South Africa, we've also been very successful in driving processing. And very often, you're going to see in a moment, making investments in driving domestic processing pays off and very often takes years to take a foothold.
In Brazil, we now have our 2nd largest population of transactions moved over the network. This upcoming year, we'll hit north of 90% of the transactions in that market moving over the network. Very important that we turned on debit in Brazil to transact online, which is roughly 30% of our business. So We have an opportunity to drive organic growth there. And the local market is very interested in our ability to support them there, because we're to lower risk by real time risk scoring of those transactions over the network.
South Africa, likewise, we've been able to increase our penetration in that market, not just by lowering costs and bringing our scale of our global network, but by reinforcing to the clients that market that our risk tools work better than their domestic processing options. As you can see, they've responded accordingly. Now I think about earlier stage developed markets, most of them Russia, but at the moment, we're not processing any transactions in Mexico or Colombia. And if you talk to the country managers in those two markets, they would tell you it's a top tier priority initiative of theirs. Charlie and I were in South America a month or so ago, meeting with members
of the central bank as well as
the financial institution and local processors in order to establish foothold in these markets. It's critically important to drive terminalization. And the fraud rates in the Latin markets are unfortunately high and we think that we have an opportunity to grow the market there and tap into even greater growth that we're seeing across the region that is already driving fantastic growth for us. And the Russian market, huge business for us as a country, growing faster than any other country We have within the global franchise and we've made some progress in domestic processing. The acceptance in Russia outside of the metropolitan areas is not where we want it to be.
We think we can be a partner and not only for the financial institutions, but for the government as well. Big part of processing is merchant. It's being We like to say internally that probably the highest return on investment that we have within the company is deploying new terminals. And you can see that over the last 10 years, if you went back, there was lots of discussion even 10 years ago about the U. S.
Being a sure acceptance market. When you look over the last 10 years, even in the United States, we've increased terminals and merchants accepting by over 70%. And when you look at the other developed markets on this chart, if we just bring them up over the next 10 years to where the U. S. And Australia are now, we have an opportunity to layer on an additional 5,000,000 merchant locations.
And Japan, Singapore and Hong Kong are not as terminalized today as the U. S. Was 10 years ago. So we think that that's a real opportunity. As is and Charlie You saw on Charlie's charts, the mobile terminalization has more than doubled from 2011 to $12,000,000 to over $9,000,000 Our projections are by 2017 that that number is going to exceed $38,000,000 That's additive to these numbers.
So, if we do nothing else, same cards, same financial institutions, same products and market, just by giving consumers new places to use their cards in these developed markets, we should see fantastic organic growth. Marketing partnerships merchant partnerships, excuse me, Charlie made reference to this. I'm not sure that there's much that I can do to build on Other than that, I would tell you that outside of North America, we have many very, very strong merchant partnerships. And when you look at the investment that we have in the cyber That's a big part of how we're thinking about the engagement opportunity globally with merchants, not just to terminalize, to engage them and to increase and improve the health of the payment system. On innovation and Jim and the Institutions.
If we accelerate the growth of the e commerce channel by marketing to consumers the safety and security of using their cards facilitating for banks and processors and merchants to move online. Our share position, our growth will happen naturally because as you can see, our share position in the physical world relative to all forms of payment is 20%. As it moves online, it approaches 50%. So that movement, that migration in and of itself will grow our business because of our stronger position, which is only going to be strengthened further based on the VDOTME initiatives that you'll hear from the panel a bit later. Processing services, very important, not only for the reasons that I talked earlier, but in the U.
S. As an example, we are the world's largest debit processor with our DPS platform. We are not only the brand on the product, But when we're touching that transaction from a processing standpoint, it's a stickier relationship because very often these processing relationships with the financial institutions are customized and the yields per transaction are 30% to 40% higher. Likewise, I think that there's been much that's talked about the use of data, leveraging of information. Very few organizations probably as much information as do we.
I will tell you that the focus internally is to be very careful in that our focus an organization is to drive value through our financial institution and merchant partners. We are not going to do anything with information that they don't support. You're going Charlie made reference to the ICBA bank card announcement, giving even local financial institutions, community banks and ideally unions, if we can deploy the service more broadly, the ability to deliver targeted value offers to consumers in their portfolios And over time, given the ability to redeem those in the point of sale, we see that as a point of differentiation and a significant growth opportunity as well. The last slide I want to talk on before I wrap up is on government. Shifting the dialogue with government is key.
Again, It's we're going to view the relationship with governments more and more as a client. And an example in Brazil, where it was very clear to the local financial institutions, Banco DO Brasil, Bradesco, as well as the government, it was very important for them to position the local brand Hello, we're a partner for that. We're not going to compete with these local brands. We view that as an opportunity to grow the category and create an opportunity for these local brands to evolve into our business and we are supporting those transactions over our network. Likewise, Driving efficiencies, I already talked about the size of government programs.
We have in the United States an enormous focus with 40 states, over 100 programs global in the government to electronify benefits that will continue to be viewed as a partner, not just domestically. We will continue to view government as a partner in these initiatives, not just in the U. S, but globally as we drive financial inclusion use of government. In driving economic growth, lots of examples. There's a $22,000,000,000 cross border flow of into the Thailand economy.
We've had an initiative last year that Elizabeth's team led to increase the efficiency of that marketing for tourism by over $750,000,000 We demonstrated that to the local government. And we've also been much more in quantifying the benefits of electronic payments to governments around the world. We did a study with Moody's that over the last 5 years in these seven developed markets, It's electronification of payments on which we believe Visa was a big part has had an accelerating effect to GDP annually by 0.8%. So we just need to tell that story. I think it's reinforcing a government the benefits of electronic payments and the imperative to partner.
So to wrap up, to partner. So to wrap up, the growth opportunity in even these developed markets, we believe is key. The Top of this, if we do nothing else, the fundamental economic growth is going to be a driver. When we look across the opportunity to partner with merchants to expand electronification at the point of sale to improve the engagement, the range of products and processing services here. Hopefully, you're convinced as are that we will continue to drive growth in the developed markets.
So with that, I'd like to introduce Elizabeth to come up and talk to you about more compelling growth opportunity in our emerging markets. Elizabeth?
Good morning. So as Bill said at the beginning, the themes are the same developed, emerging, the themes growth. But they manifest themselves quite differently in emerging markets. And I'm going to go through each of those five themes in turn and show you what they look like and what we're doing in emerging markets to accelerate our growth there and our penetration of PCE. So starting with the cash and check opportunity, Charlie already showed you this number, dollars 6,000,000,000,000 in cash and check primarily cash payments in emerging markets.
And when you look at the markets on this chart, have one thing in common with one exception and that is that more than half of PCE in most cases substantially more than half is still on cash and check. That's all opportunity. The one exception, of course, is China, which has a unique situation with UnionPay's domestic monopoly. The other one that stands out on this chart is Rwanda with its very small number. It's there for a reason, and I will get to that toward the end of my presentation when I talk about innovation.
But the opportunity is substantial. And Bill talked about the evolution from high yield, low frequency transactions to low yield, high frequency transactions. He used Chile as an example. That happens to be an emerging market. And so typically what we see is that every market, typically you will have inbound tourists.
That's an affluent credit product, high yield, high ticket, lower frequency. As the to more typically debit categories, everyday spend, more local markets in the Tier 2 and Tier 3 cities and then into the most frequent transactions which are ticketing and bill pay and on to prepaid. Giving you three examples at the bottom, and what you'll notice is that debit is growing faster than credit, prepaid is growing than debit as these markets are maturing. But if you go back to the left and look at the growth in credit, there is still robust growth in that product even as you can continue to see growth in the products that build a more robust and sustainable domestic payments markets. So while this trend is largely the needs and the particular clients' portfolios in that in those markets.
And I'm going to give you a few examples. We'll start with the UAE. You may remember, 71% cash in that market, very big market for credit, lots of travel. And the banks there tend to have pretty specific needs for their clients. So we partner with them to evaluate their portfolio, to identify the behaviors of their growth.
And you'll see at the top the success that we've had in winning new portfolios and the growth that we've had in cross border volume with those affluent credit portfolios where we've worked with this specific issuer to customize our offerings. In South Africa, Bill talked about the success that We've had penetrating domestic processing. That is strictly because our banks wanted access to Visa Advanced Authorization and Visa Risk Manager. They can only get that if we saw the transactions over VisaNet. The reason for that is that there By deploying Visa Advanced Off and Visa Risk Manager, we gave our clients the confidence to authorize those debit transactions at point of sale and accelerate that growth.
What you see here are the numbers of transactions going through Visa Advanced Auth and Visa Risk Manager. And then finally, in the Philippines, where we have a lot of growth in prepaid, you'll see the card, we had to use a different approach here enabled by mobile. People can add funds to their prepaid cards using their mobile phones. That has enabled us to grow this product and get cards into the hands of people who typically were un with Western Union agents because they were easier to get to than were financial institution branches. So these products are distributed through Western Union who also act as cash in, cash out locations.
So three examples of how the specific market will know the story of VisaNet Do Brasil. Brazil used to be a greenfield market for acceptance. We, in partnership in Brazil. It was owned by the financial institutions who issued the Visa products as well as the network hugely successful model. If you look at the Merchants per 1,000 households in Brazil, it's higher than Singapore, and it's coming up on Hong Kong's level.
So really successful. But we also recognize that when it got to a particular point of maturity, it was time for us to change the model. As you know, that company very successful. So we've looked at that. We looked at the needs of some other markets, and we're doing some other things that are quite different from the way that we approach acceptance in developed markets and allow us to do one thing that gets lots of acceptance locations.
In Indonesia, we just started an acceptance program, working with our issuers to fund broad acceptance in 2 categories that are critical for debit and prepaid: Tier 2 cities at small merchants and food and fuel. We hope to get that take the 25,000,000 cards, activate those, get more acceptance locations, which then encourages more issuance, particularly outside the Tier 1 cities. In Mexico, where today we have 500,000 merchant acceptance We partnered with Grupo VIMBO, the largest bakery in the world that distributes to small convenience stores around the country to take their drivers as a value added service sell terminals to those convenience stores, and we're expecting to get 160,000 POS terminals, a 30% increase in the total acceptance that we have in that country just through this one And we believe, as Bill mentioned, as Jim and the panel are going to address, that the biggest change that will see in acceptance in emerging markets is the proliferation of mobile POS providers. That we couldn't reach before. And what's interesting about it is that in the emerging markets, these devices are going to enterprise merchants.
In India, for example, the largest life insurance carrier is using them with agents to collect premiums via a mobile pause device. And you'll see across the bottom, the markets where we've already rolled those out and we expect those markets to climb. Another significant India Railways is one of the largest merchants in India. And until we enabled e commerce purchasing of online. It dramatically reduces their time.
It dramatically reduces the cost for the railway. And it's been a great business for us you can see here, we have more than 2,000,000 transactions per month. And because the government in India mandated Verified Visa for online transactions. We also can access debit transactions. So it's been a big accelerant of our growth.
Another huge concern in the e commerce channel as it is for debit at the physical point of sale is risk and fraud. Time you don't know if you're doing a cross border transaction in the e commerce channel. In Russia, where infrastructure advantages are particularly acute because the country is so large and so sparsely populated. This is a place where we spend time with our issuers. You'll see one example here where we worked with an issuer to increase cross border authorizations from 2 and 3 to 3 and or and climbing.
So those are examples of innovations that you might see as extensions of a business it's vaguely familiar, right? It looks like the developed market, but what we do is different. This is not something you're likely to see in a financial services in Africa. It's a payment account. It's a savings account.
These are cow horns that have been hollowed out her bills, sticks it in the cow horn, buries the cow horn, puts it under the bed and hopes that the money is still backed payments. But how do you get from that to that? Well, you all of course know the answer. The answer is those people who have cow horns, most of them have mobile phones as well. Getting from the place where they load their mobile phones, they buy their minutes to VisaNet through financial institutions is the opportunity and very importantly to VisaNet.
Sure, there are a lot of mobile operators who are investing in and establishing mobile payment systems, but they are not interoperable across operators. They're certainly not interoperable across borders, and a lot of this labor goes across borders. So How do we think we are going to penetrate uniquely this opportunity? Through the assets that we acquired and built. Fundimo is the leading mobile wallet provider.
That allows us to get a payment out of the cow horn onto the mobile. Visa mobile prepaid is a Visa account optimized for the mobile channel. And the Visa mobile managed service is the processing infrastructure that allows us to connect the mobile operator, the mobile wallet with the mobile together is Rwanda, hence its presence on my first slide. In 2011, we entered into a charter of collaboration with the government. 88% of the population unbanked, about 11,000,000 people in Rwanda.
And the government said, we The first thing that we did was establish VisaNet in the country, so settlement could be done in Rwandan francs, critical to the establishment domestic payment system. Then we connected ATMs to Visa, so that when all of us go to Rwanda to see the extraordinary gorillas, can put our Visa card into an ATM, get cash. It means we'll spend more money in the country growing our economy. We brought acquirers in to acquire merchants and enable them to accept payments. You see the numbers below.
We brought major businesses online. There was no e commerce. Even the domestic carrier, Ruan didn't sell its tickets online. And perhaps most importantly, that chart that I just showed you that's easy mobile branchless banking service. So this is the ideal approach to greenfield markets like Rwanda.
And the like Rwanda. And the government is absolutely critical. But markets don't evolve neatly either along that path that I showed at the beginning or the way that Rwanda did. Most markets that are emerging have some of both. They're what we call hybrid markets.
We've got great growth in our historic business. That's what you see from the yellow bars. And we have even better growth in the mobile business. So what you're looking at here is growth in cards in force in the yellow bars, growth in fundamental registered in the blue bars. The 2 exceptions here, so you see Nigeria, Pakistan, Uganda, Bangladesh and Ghana.
Ghana, the blue number is small. We just rolled out we just introduced Fundimo in Ghana, so you're going to see that number rise pretty dramatically. And particularly for those of you the back of the room, you look at Bangladesh. The only reason that that yellow bar looks small, it's in fact the largest number on the page at 28%, is that we're seeing such extraordinary growth in mobile because of the population there and because of the extreme infrastructure challenges. Markets.
And we think there's tremendous potential there now, obviously, as evidenced by the $6,000,000,000,000 and it's only going to Bro, the economic growth in these markets is extraordinary. Dollars 1,000,000,000,000 in growth in annual PCE. That's just the tide rising. Merchant acceptance, as I mentioned, particularly with MPOS, continues to be a And government is also going to be critical to accelerating our growth. They are central to financial to bringing the more than 2,000,000,000 people who today don't have access to traditional financial services into the electronic mainstream and to enabling a sensible domestic processing infrastructure.
So that's everything that wanted to cover specific to emerging markets. At this point, I will invite Bill and Charlie back on stage, and we'd be happy to take your questions. Thank you.
In terms of the Q and A, there are obviously people walking on microphones, if you would wait till they pass you on and then identify yourself and your company affiliation for the benefit of those listening via webcast, we'd appreciate that.
Glenn?
Hi. It's Glenn Votter from Autonomous Research. Excuse me, question for Bill. Appreciate your overview. Our view is that core U.
S. Consumer credit, not affluent or commercial, is doing very well. The core U. S. Consumer could be a pretty exciting opportunity for next year, given the growth prospects.
Just wondering if you could share some views us on the
gives and takes of what you expect
for that vertical market next year. Yes. So the question is core not Affluent in the U. S?
Correct, yes.
Part of the problem you see when you look at our numbers is that you're still seeing a lot of fundamental conversion of our core business into our affluent products. So, I think it does mask, Glenn, I agree with you. The economics of the credit business in the U. S, when you look at Funding costs, credit cycle, I think there's been our economist is very enthusiastic about the asked about the pent up demand. And when you look at just household expenditures that have been deferred over the challenging economic cycle, We would tend to agree with you.
And our forecasts show pretty strong cross growth across credit, even faster than As I said, when we report numbers, it may not show that way only because you continue to see some conversion of accounts from core credit into some of the mass affluent products.
I just want to just one thing real quick, which is, again, because Byron is going to talk later about guidance. He's going to talk about what we put in our 8 ks When we think about next year, I just want to be clear, we're not we don't see some huge recovery happening. I mean, is something possible? Absolute is possible. But as we plan for the year, it is a it's a continued relatively slow recovery that we're planning for when we talk about Over there?
Is it over? Yes. Yes. Yes. Okay.
Sanjay Sakhrani from KBW. I was just wondering, thank you for all the information, but I was just wondering if you could just hit on the top 1 or 2 products or strategies that are important Visa over the next 5 to 10 years. I think V. Me kind of probably is at the top of the list, but maybe you could just talk about its importance. And then second, I was just wondering if you could talk about any changes to your approach in educating or talking to legislators in D.
C. Post urban?
I guess, I'll take a I guess we just spent an hour going through it. So but if I had to narrow it down to a couple of things, I think the opportunity, As we've talked about in mobile is significant. Again, very different type of opportunity in the developed growth that has already occurred. Think about what Elizabeth just went through in terms of how it can transform the way money is used in the developing world and not feel great about our position in that. So again, we're going to talk a A lot more about that when Jim comes up and Bill Geita is going to talk about it.
Mobile is obviously extremely meaningful for us. And then I guess the second thing I talk about is this idea of adaptable customized solutions across the world, and especially acquirers and the merchants and getting them to work together in a way that really hasn't occurred predominantly in this country. Hold on. There was a second question about DC.
I had this job for a week. Sorry. So DC is challenging. I think we can all agree that the company and the industry got caught flat footed in when Dodd Frank the Durbin Amendment happened. The engagement wasn't there at the level that we would like.
I would say that we approached it looking back in a way that was more confrontational than what was productive. And I think that when we look at the model of engagement with governments around the world, where more often than not, it's a productive relationship and we're viewed as a force for good. I think that there's been quite a bit in education, even through a challenging time, about what we do and why we do And I think that the relationships have been built. We just need to deliver on the promise of supporting government initiatives, 1st and foremost, I think on the in support of the underserved in the electronification of government benefits. But it's going to take a while in D.
C, I think, to repair some of the challenges, but we're committed to doing it. And I think if you look at the resources that we've put in the hire that we've made, we brought in a new Head of
which is what you're everything that we've seen in D. C. Over the past 4 or 5 years, that's not D. C. Is not the cause, That's the effect of what the entire industry and all of our partners done to each other.
And so absolutely, we have we I think this is a broad comment, not a comment and as much from my prior job and my own role in that is I think we all could have done a much better job engaging early on, educating, make sure that the decisions are headed down the right path. But again, that's ultimately, you got to solve the underlying problem. The problem is we have merchants across this country that are talking to politicians and talking about their unhappiness. So, this all a lot of what we're talking about in terms of this adaptability and flexibility and getting issuers to work with merchants and point of sale discounts and things you're going to hear about later, that's all targeted at getting at the underlying issue, not trying to deal with it after the fact, because if that's the case, we'll always lose.
Jason Kupferberg from Jefferies. I wanted to pick up on the discussion around processing because obviously that's a big push for you guys to increase the percent of transactions going over VisaNet. And it seems like that will be an important driver of growth and yield over time. So can you just give us some general idea in terms of maybe where you were 5 years ago, where you are today and where you might be 5 years from now in terms of on a global basis percent of transactions that you're actually able to process. Yes.
The challenge, if you look Quantitatively, because we've seen enough interlinked transactions in the U. S. Move off the network. That sort of masks the fact that we have seen good, steady progress in around the world and driving more transactions on the network. So, at the moment, globally, we're about 78% we are 78% of the Visa transactions on the network, which I think is an impressive number.
We do see that number steadily I mentioned, we've in every one of the developed markets outside of North America, we see progress there. The fact that North America
is such a large portion of
the denominator, You probably wouldn't see that move up globally as impressively, but I think you're going to see a steady increase where the 78% certainly into the mid-80s.
And just a quick follow-up on China, so maybe for Elizabeth. We've seen UnionPay introduce a prepaid card here in the U. S. And obviously, there's a sense sooner rather than later that there'll be some new rules put in place to allow yourselves and others to get into the from a competitive standpoint globally between yourselves and Mastercard with UnionPay, is that how you see it playing out?
I think UnionPay has been tremendously successful internationally. They've been very sensible. I mean, if you go to their website and look at their aspirations, they clearly want to be a global scheme like Mastercard and Visa. And they are looking to participate globally. And we are equally enthusiastic about the opportunity to be able to participate in the market in China.
We are eagerly awaiting the terms of what that is going to require. And we're excited because we have fantastic partnerships with all of the chip Chinese banks. And we're looking at being able to looking forward to being able to compete on a level playing field with union pay as we do with our other global competitors.
And if I could just add just a little color on that from my perspective, which is, again, as Elizabeth, union Pay clearly has global ambitions. There's no question that that's And ultimately, it's one thing when you have a monopoly inside the country. It's another thing when in Bank of America's offices and saying there's a compelling reason for you to issue our cards. And this is not just true for Unipe. It could be anyone who wants to network.
And so that's why for us, it's well be it's not price. Price is a component of the decision. It's all the things that we've talked about, not the least of which exist today, which is hugely important, which is the size and the scale, the reliability of our system, the way we're willing and And all these value added services that quite frankly, the people that have came before me have spent 60 some odd years You don't build that in a couple of years. So for anyone who wants to become a network, even if you're able to build it off of a strong domestic base,
It's
a long road to build what we have here. Not something that we look and say isn't doable when you've got the resources that the Chinese have. But it's just I think it's a comment about how we feel about what we have here.
Thank you. Gil Lurie, Wedbush. I want to follow-up on first of all, thank you for the presentation. It's been extremely helpful in terms of I wanted to follow-up on one of the items you talked about during the presentation as well as to one of the answers, which is that you are now reaching out to tailors and trying to help them understand the value of what you're doing as opposed to be to have them going in So a couple of and you also made similar comments about the technology innovators that are working right now to advance the cause of payments. Two parts to the question.
The first part is the U. S. Retailers haven't seemed to reach back to you. Yes. They've escalated on the litigation front, at least some of the really big ones.
And they have a Very broad initiative to compete with you in U. S. Domestic debit. Do you think we've passed the point of no return in terms of engaging the retailers? Or do you think you can still convince them not to go down the path of direct competition and to try to go from Purchase New York has chosen to go down the path of considering them as competitors and penalizing their business model as it seems today, especially Google and PayPal, the ones that have kind of broken to the front.
You've hinted in the last few weeks months that you're to find a way to stop their progress? Or is it going to be more down the path of trying expand the shared path.
Yes. Why don't I take a shot and then Bill feel free to chime in. On your first Is it too late? Absolutely, it's not too late. Is it easy?
No, it's extremely hard to change the dialogue that we have and we're not naive about this. It's going to take a long time to change listen, it took us 10 years or so. When was the first lawsuit, in 2002? 2,001. 2,003.
It took us 10 years to get where we are, where we've been facing each other across the courthouse steps, it's going to take a long time to change that dialogue. It's also complicated right now because of where we are with this, the existing MDL litigation that exists. But it's ultimately, retailers are in a they're in a business and we can convince them that we can help them do a better job and sell more and make a reasonable amount of money and that we're charging a fair amount for our and all of our partner services that will change the nature of the dialogue. Okay. Yes, we got to resolve the litigation and you're going to hear lots of noise about that between now the time it all gets resolved, but that's a meaningful conversation that we didn't have in this country in a meaningful way.
By the way, it's a hard thing to do when you're in the middle of trying to resolve legal disputes, but it's something we're committed to going forward with because we think and you're going to hear more about it after the break, we think we've got lots of assets that can actually help them do a better job. And it's up to us and the participants in our network, the rest of our clients to prove it to them. So again, it's that's on us to prove, but it logically makes sense. And if we can actually get some proof points in the marketplace, as some of our clients have referred to that they're close to doing, then that's what will make a difference or not. Anything you want to add on that?
The one thing I do want to add on that, and I agree with Charlie, there's lots of noise litigation in Washington posturing, it's difficult to understand what the true nature of the challenge with the merchants, particularly in the U. S. Is. The difficulty at a fundamental level with the merchants is that when they view your product and your service as a cost of goods sold, there's going to be natural tension and you become just a cost line item in the posturing about managing that number down. I would argue that when the business involved very simple form factors in the card and very simple terminals at the point of sale, then it was there was a natural way of over time becoming dial tone and being commoditized and creating that price tension.
What you're going to see and I think we can all see it is that
in the form factors
and the in the sophistication of the point of sale, we have an opportunity if we invest in the right platforms to be not just the movement of money and the movement of electrons in support of that transaction, but deliver our value added services, delivering the merchants more information so they can better understand their customers, because we have a lot of them that are carrying Visa products and helping merchants not only reduce their costs, but market themselves better. If we do that I think that's the best path to improving the dialogue with the merchants. That doesn't change the fact that you're dealing with 1,000,000,000 and 1,000,000,000 of dollars in interchange and merchant discount. And I just think that there's naturally going to be a buyer seller tension there.
And then on the second question about and PayPal and some of our competitors. So directly answer your question, we're not currently contemplating a fee like that. When we think of the role these people play and the issues that they've raised, I'm not we don't see that solution as solving the problem. It might be a way for us to make a little bit more money, but our way but our focus is to figure out just what's changed and how should we deal with it. And what's changed is a lot of these people started out, which we had a lot of respect for, they built great They started out small tickets, Internet focused, transactions where it wasn't easy to use other general purpose cards.
Fast forward 10 years later, We're not designed for something like that. And what we're the position that we're in is, they're sitting there in a position where whether they're doing it or not, we can argue about, but they're certainly encouraged to steer away from our cards even though 50% of the activity in PayPal's case is on general cards. And the way the data flows, our issuers are being disadvantaged. And then it creates other complication in terms of whose transaction is whose customer service, whose rules apply. So when you go through all That just tells you we need to rethink what we've allowed to happen over these past 10 years because this is all dramatically changed over last couple of years.
So what we are thinking through is how we do that, what it means to pricing, what it means to the rules, what it means to the flow of data. And what we'd love to critical in this because they're being hugely disadvantaged today in this is that we believe that those transactions really are incremental and they don't lose anything in that relationship as time goes on. So we're working on it. We've got nothing to report now, but that just gives you a sense of how we're thinking about it.
Tien Tsin Huang?
Yes. Kind of building on that last question, yes, it's Tien Tsin Huang from JPMorgan. How should we measure sort of The success or the risk of some of the changes that are happening, the relaxation of the rules, for example, pushing value onto the edge of the network. Should we see greater incentives as a result and or is it greater merchant acceptance for example we should measure before we get to greater volumes. And thinking about mPOS that was mentioned a few times by all three of you.
Is that creating more risk to the network? I'm curious as you're opening it up and putting it to the hands of the consumer.
Why don't we just can we defer the second question And have make sure the panel addresses that. So, Jack, do you need to make and then if not, we'll make sure we cover it in the Q and A that follows because it's a big part of it. And the first part of the question was how are we How
are we
going to measure it? Yes. Listen, you're going to see I mean, you're either going to see it in our volume numbers and ultimately our net revenue numbers. And That's where it will be.
In the interim, I guess, where I was going with this is there's an investment to get there, right? Is it are we going to see a higher level of incentives, for example, to get there or some change in the face of the P and L to get there?
Again, people can answer it themselves. See if you think differently unless Byron Reed comes up later. As we thought of, we're not thinking about this as a big driver of additional I mean, we're thinking about this. The investment to get this done are those operating expenses that we put into system to build the products out that didn't exist 3 or 4 years ago. And again, Jim is going to actually show you what's been rolled out over a period of time.
So and it's a huge amount of expense that's embedded in the place, so that we can actually show up on the merchant's doorstep and have a conversation that we quite frankly weren't able to have 3 or 4 years ago.
That makes sense. Just quick follow-up. I don't know if it's quick, but or appropriate to ask now or later. But MBL1720, any change in your confidence Charlie and getting that settled as is?
No, no change. Opt outs look like they're around 25 percent. As best we can tell, it will the number will be reported to the court in a little bit. I'm not sure exactly when. And we think it changes the outcome of our position or the courts.
Chris? Hey, thanks. Chris Brendler Stifel, just very curious about the processing, a follow-up there. I wasn't clear exactly how I'm sure it varies market by market, How you're driving increased profit sharing share? What are the strategies that you're employing?
And then if you could potentially give us a little more insight on the countries that It could be highlighted in 3 years from now your next annual Investor Day. Are there going to be certain countries that you have a significant opportunity in processing share? Are there certain countries you're probably not going to have potential opportunity and as sometimes local regulations and governments can play a role there. Just help us frame And then a more broader question, all this discussion so far has been about the opportunity for Visa and the tremendous potential for growth. What do you see as sort of the biggest risk right now in the competitive front?
Thanks.
Processing. Okay. So Processing is a big opportunity in most of the developing markets. And I'll take your Sort of turn your question around. The places where we're not going to see we're not likely to see significant increases in Domestic processing first, where the government has said it's something that has to be done domestically by a domestic owned operated competitor.
There are a smattering of those markets around the world. 2nd is where there is a government interest in preserving some domestic payments infrastructure. Korea would be a great example where the bars do the domestic processing. But outside of that, Markets that have a strong issuing base, you should expect to see that absent government intervention, we will be able to network and the risk and fraud products. We've had a couple of markets where they've dabbled with a domestic processor, usually starting with ATM, then you start seeing outages, you start seeing fraud spikes and that becomes a which is something Bill touched on, I touched on and we're going to do more comprehensively.
Governments can be a massive accelerant to domestic processing, of payments. Governments increasingly are interested in doing that because it leads to economic growth. As Bill said, it reduces corruption and it transparency. So it's a trend that you're going to see broadly.
Okay. At that point, we're going to stop here. Oh, want to?
2nd question was biggest risks. I guess the 2 that come to my mind that we think about all the time are number 1 regulation and legislation, which we've talked about. And so building relationships with the government, engaging becoming more of a partner as well as solving the underlying issue with the merchants is the way of going about that. And the second has to be that you don't miss something when it comes to technology. And so again, we got the whole next session is dedicated to that, so you can make your judgment to whether think that we are or not.
We talk about it all the time. We talk about all the things that are going on in the world, all the capabilities to make sure that we're not. But you always have to re ask that question.
Okay. So we're going to break now. Please be back here
As evening turned to dusk, the children rushed back home. The neighborhood fell silent. The silent darkness became the destiny of our neighborhood. But the power to change our destiny is in our hands, my brother told me. He was young, but so much wiser.
He showed me how to use my Visa debit card on the Internet. Say bye bye. It's safe, he said. It gave me access to my money It got to turn the plane back to our land. Visited dream to advance.
Visa PayWave. Is under $100 Just wave and go.
David Bodiam will make over 25,000 practice dives in a year. That's like diving off the highest building in the world over a 180 times. All the more reason to cheer for one perfect dive right now.
Let's get your attention here. We've got a great fan of the San Francisco 49ers, Paul. Paul, you got some words for the squad?
I
I thought it was last year. Turns out I was wrong. You're 49ers. You're you're mining for
I forgot what I was going to say.
Victory!
When you go out there and you score more points than the other
A game like this It's huge against a team like this. Next question.
I have a question, mister Lewis. Do you like to play football?
Well, I really love to play football. Do you like pancakes or waffles? Do I like pancakes Are we going to miss tackling people? I don't know. I don't know.
As evening turned to dusk, the children rushed back home. The neighborhood fell silent. The silent darkness became the destiny of our neighborhood. But the power to change our destiny is in our hands, my brother told me. He was young, but so much wiser.
He showed me how to use my Visa debit card on the Internet. Say bye bye. It's safe, he said. It gave me access to my money Enter things far away. My Visa debit card gave more power to my feet and to my dream.
With this power, I built a cycle generator to bring light and cheer to my neighborhood. It got the thunder plane back to our land. These are the dream to advance.
Visa PayWave. The purchase is under $100 just wave and go.
David Bodaya will make over 25,000 practice dives in a year. That's like diving off the highest building in the world over a 100 And 80 times. All the more reason to cheer for one perfect dive right now. Lisa, supporting athletes and the Olympic Games for
Let's get your attention here. We've got a great fan of the San Francisco 49ers. Paul, Paul, you got some words for the squad?
Yeah. I am. What's that? Go ahead. It's like a pregame speech.
Let's talk about heart and guts. This is our year. I thought it was last year. Turns out I was wrong. You're 49ers.
You're mining for victory. You're not settlers. You're 49ers. Settlers churn butter. You're Patrick Willis, I know that you know.
I forgot what I was going to say.
A game like this is huge against a team like this. Next question.
I have a question, mister Lewis. Do you like to play
I really love to play football. You like pancakes or waffles? Well, I like pancakes or waffles. I like pancakes. Love to go
What's your day at home?
I went to Vienna once.
Do you like puppies?
Do I like puppies? Yes, I like puppies. Are you going to miss tackling I don't know. I don't know. These are the best, best conference questions I've ever been
As evening turned to dusk, their children rushed back home. The neighborhood fell silent. The silent darkness became the destiny of our neighborhood. But the power to change our destiny is in our hands, my brother told me. He was young, But so much wiser.
He showed me how to use my Visa debit card on the Internet.
Hey, bye bye.
It's safe, he said. It gave me access With this power, I built a cycle generator to bring light and cheer to my neighborhood. It got the Thunder Plain back to our land.
Visa Pay wave. The purchase is under $100 just wave and go.
David Bodaya will make over 25,000 practice dives in a year. That's Slight diving off the highest building in the world over a 180 times. All the more reason to cheer for one
Let's get your attention here. We've got a great fan of the San Francisco 49ers. Paul, you got some words for the squad?
I, what's that? What was the speech? Go ahead. It's like a pregame speech.
Let's talk about heart and guts. This is our year. I thought it was last year. Turns out I was wrong. You're 49ers.
You're mining for You're not settlers. You're 49ers. Settlers churn butter. You're big, strong, confident men. They are gonna What you guys know, and Patrick Willis, I know that you know.
I forgot what I was gonna say.
Victory. When you go out there and you score more points than the other team, then I guarantee you, you will win
A game like this is huge against a team like this. Next question.
Have a question, mister Lewis. Do you like to play football?
I really love to play football. Do you like pancakes or waffles? Do I like pancakes or waffles? I went to Vienna once.
Do you like puppies?
Do I like puppies? Are you going to miss tackling people? I don't know. I don't know. These are
As evening turned to dusk, the children rushed back home. The neighborhood fell silent. The silent darkness became the destiny of our neighborhood. But the power to change our destiny is in our hands, my brother told me. He was young, but so much With this power, I built a cycle generator to bring light and cheer to my neighborhood.
It brought the thunder plane back to our
Visa PayWave. The purchases under $100 just wave and go.
David Bodaya will make over 25,000 practice dives in a year. That's like diving off the highest building in the world over a 180 times. All the
Paul, Paul, you got some words for the squad?
Yes. What's that? Go ahead. It's like a pregame speech.
Let's talk about heart and guts. This is our year. I thought it was last year. Turns out I was wrong. You're 49ers.
You're you're mining for victory. You're not settlers. You're 49ers. Settlers churn butter. You're big, Strong, confident men.
They are gonna lose by so many, many millions of points. Okay. This is what I like to call the motivational part of the speech.
A game like this is huge against
I have a question, Mr. Lewis. Do you like to play football?
I really love to play football. Do you like pancakes or waffles? Well, I like pancakes Do I like pancakes or waffles? I like pancakes. Love to go fishing.
What's your best time?
I went to Vienna once.
Do you like puppies?
Do I like puppies? Yes, I like puppies. Are we going to miss tackling people? I don't know. I don't know.
As evening turned to dusk, the children rushed back home. The neighborhood fell silent. The silent darkness became the destiny of our neighborhood. But the power to change our destiny is in our hands, my brother told me. He was young, but so much wiser.
He showed me how to use my Visa debit card on the Internet. Hey, bye bye. It's safe, he said. It gave me access to my money Enter things far away. My Visa debit card gave more power to my feet and to my dream.
With this power, I built a Cycle generator to bring light and cheer to my neighborhood. It got the sound of plane back to our land. Viza did dream to advance.
Visa Pay waive. The purchases under $100 just wave and go.
David Bodaya will make over 25,000 practice dives in a year.
Get your attention here. We got a great fan of the San Francisco 49ers, Paul. Paul, you got some words for the squad?
Yes. Go ahead. It's like a pregame speech.
Let's talk about heart and guts. This is our year. I thought it was last year. Turns I was wrong. You're 49ers.
You're you're mining for victory. You're not settlers. You're 49ers. Okay. This is what I like to call the motivational part of the speech.
What I know and what you guys know and Patrick Willis, I know that you know.
I forgot what I was gonna say.
Victory! When you go out there and you score more points than the other team
If everybody now it's on. If everybody could take their seats, please, we're going to get started
I went to Vienna once.
Do you like puppies?
Do I like puppies? Yes. I like puppies. Are we going to miss tackling people. I don't know.
I don't know. These are the best, best conversations I've ever
Okay. We're ready to commence once again. I'd like to introduce Jim McCarthy, who is Global Head of Innovation and Strategic Partnerships. Jim?
Thanks, Jack. Son. Okay, great. Thank you. So I have the great job of following up after the everyone's stealing our thunder morning on the innovation space.
So it makes me feel good about the work we've been doing. Thanks everybody for joining us this morning. I'm Jim McCarthy. As Jack said, I manage and I had the privilege of managing really what has been the innovation agenda at Visa for the last 3 years. And what I'd like to talk about today is how we are very excited position we occupy with respect to the future of this business, primarily because of the way in which the network asset that is VisaNet is transforming, and I believe in ways that will only fundamentally accelerate our business model.
So to that end, as Charlie, Bill and Elizabeth all talked about the way I tend to think about Visa is really 2 different networks. The first network, which you heard a lot about today and one that we can't enough is the network of our financial institution partners globally that we have a commercial relationship with and we share a brand with that we license the Visa brand 2. And over the last 50 years, that partnership has succeeded to the extent that through them, we've been able to distribute over 2,100,000,000 cards around the globe and have created relationships through the acquirers with over 36,000,000 merchant locations. And that commercial relationship, that relationships that bound by the brand that's on the card and on that merchant storefront is a very, very powerful important one to us, and we'll continue, and you'll hear that throughout the day when we talk about distribution, even in this new inherently digital world. But the equal and I would argue really differentiating network that we share is when those 2,000,000,000 and how that physical network is evolving to embrace and expand the edge of the network, as Charlie talked about, to move beyond what has traditionally been a kind of point to point issue or acquire a network to embrace the changes that are occurring around the globe, primarily driven by the Internet of Things.
So when I think about VisaNet and the traditional edge of the network. When I got here to VISO over 14 years ago, we were still running on an IBM system architecture, 3,270 network, more or less point to point that ended somewhere in the back office of an acquirer or a merchant location. Play forward 14 years and look at the numbers when you think about scale and the scaling of our over 2,000,000,000 2,400,000,000 Internet connections globally. We, in 1999, 2000 re architected VisaNet to take advantage of the coming change that was driven by the Internet. We moved from that SNA network architecture to a TCPIP Internet protocol to actually extend the edge of our network and see beyond the back office of a retailer.
You play forward over the last 5 years. Not only are we talking about Internet connections, but we're talking about social connections, consumers talking to merchants, merchants talking consumers talking to others, creating again a large network effect that's predominantly connected by again this wired Internet environment. And then as you heard earlier today, mobile, when you think about the numbers, they're just staggering. 7,000,000,000 over 7,000,000,000 subscribers connected to mobile devices around the globe in every one of the markets we serve and others that we're not in yet. And every one of those consumers is connected and making payments or making transactions.
And we have the opportunity to extend the edge of the VisaNet network today well beyond the borders that we currently exist, still within the in the confines of those commercial relationships that are very important to us, but extend the edge of those commercial relationships that are very important to us, but extend the edge and address the needs of a growing population of connected consumers and merchants and new transactions that we've never serviced in the past. So when we think about that, we have to put all of our strategy in the context of what's really happening at the furthest edge of our because while we will continue to serve and our customers will be financial institutions, governments, merchants, In order to win in this space, you have to think about the end users of our products and services, who are predominantly consumers and merchants. So when we think about
this environment and why we get really excited about the
opportunity is, these And why we get really excited about the opportunity is these consumers that have traditionally been bound by a form factor, which was a plastic factor that only worked when they could find a terminal that was connected to a wired telephone line and with electricity that was working. We now find ourselves in an environment where consumers with these new devices, be it an iPhone, a flip phone, an phone, they're always connected and they're always on, which means they're always ready and able to transact. More importantly, versus The card form factor where in the past, this was always ready if you could find a terminal that was up and running, that not only are these things connected and on, but they're highly personalized. I imagine the vast majority in the room have an iPhone or an Android device. And while the hardware may be very similar, the actual desktop, the deck that you have is very different.
The operating systems and the software that are running on these devices allow us to have a very different discussion and dialogue with the consumer, one that's highly personalized and therefore highly relevant. So when we think about the opportunity not only around Payment, but Commerce, the ability to get out of this business of pushing information, but allowing the consumer to create their preferences, expose those preferences and allow commerce to occur seamlessly and easily on a 20 fourseven basis gets us really excited because what we're seeing is for the first time is really the mash up, you will, of commerce and payments coming together. Again, when I started 14 years ago, not only did Decinet stop in the back office of the retailer, but as you've heard, a lot
of the friction you hear about when we talk
about in developed markets around merchant, you hear about when we talk about in developed markets around merchant interface or interactions with merchants was created by the fact that payments was a last thing, as Bill described, was a cost of goods sold. But in this new environment, payments is absolutely core and critical to commerce. They're blending together. And again, this is last point about taking friction out of the commerce experience. If you've got a great retailing experience online or on a mobile device, but the payments experience requires And what we're finding for the first time is this concept of search to purchase that the whole thing is wrapped up that we have a seat at that table and an ability to
fundamentally shift the way consumers are interacting and
transacting on these devices. Shift the way consumers are interacting and transacting on these devices. And as I said, it's not just the consumer, it's the merchant. These devices, as you from Elizabeth and Bill and Charlie are fundamentally changing the way merchants are interacting. So a retail storefront that used to be open from 8 to 5 Monday to Friday is now now can open 20 fourseven, always on, always connected.
And again, you've heard a lot about the mobile point of sale devices that are coming out the globe, certainly putting this on this device turns it into a point of sale. And as Elizabeth talked about, I mean, there's a lot of growth in her markets with respect to mobile But again, back to the Internet of Things, it's not just small merchants and micro merchants in the long tail, but we're fundamentally seeing a shift even developed markets as merchants have the ability to take this technology along with payment, move from behind a sales desk, move to the front of the store, interact with consumers in ways they never had before, again, highly targeted, highly relevant. You can check-in. They know who you are. They can share information with you.
They can bring you into a experience that again is fundamentally tied to payment because the payment piece can be integrated, so making that a better shopping experience. And further, when we segments like quick service restaurants, they have the ability I guess it was 2,003, 2,004. One of the greatest things we didn't within my lifetime at Visa from an innovation perspective was do something called no signature acquired. With a stroke of a pen back to the power rules, we changed the way in which a Visa transaction could occur at the McDonald's location. You no longer need to get a signature, a printer receipt, hold We allowed commerce to take off in the QSR environment and fundamentally changed our share position in a category that up until that point was really underpenetrated.
What happened as a result, if you play forward 10 years, payment is not the pain point in quick service restaurants anymore. It's the queue at the end of the line. So I went into Starbucks this morning, bought my coffee. That line moves quickly, so I can make payments quickly. But now we're going to queue up around the barista and the espresso bar.
Well, those retailers are now looking at another pain point, which is how can I people to not only pay in advance, but order in advance? And again, these devices hold the key to that. And so we have the ability for the first time to really change the way commerce payment are interacting because of these devices, because of the mobile POS application both in emerging and developed markets. The key to this though and what's oftentimes lost in the discussion and I'm sure we'll have lots of questions around this is lots of competitors, lots of new business models, lots of interesting things happening in this
space, a lot of really smart people innovating
in this space. In the space. A lot of really smart people innovating in this space. But we always have to focus back on the consumer and the merchant on ease of use, ubiquity and taking friction out the process. Oftentimes, the discussion we have around the management table is there's a lot of interesting things we look at that we think we could do.
But really the question is, is should we do it? Are we helping the retailer close the sale? Are we helping the consumer get out of the checkout with the goods they want reliably, securably with security, all the things we've done in the past that made Visa the brand that it is today. So again, the opportunity is really huge for us. And when we think about innovation in the space, it's really forward and something that Charlie referred to earlier.
It's all about VisaNet. So taking the needs of that consumer, the needs of that merchant, which are inherently living in a connected environment, an always on environment looking to take friction out of the system, how do we take the edge of the VisaNet network and expand it further to embrace these new technologies, the Internet, social networks, personal payments, remittances and commerce in these new form factors. And our belief is that we're starting in the best position of anybody because we have VisaNet, which is already built for this. And really the challenge of us, the opportunity in front of us is to effectively scale our network to embrace these new environments and move into this new electronic age. So as Charlie referred to, and I'll spend some time on this, the last 3 years since this last investor meeting has really been all about starting this journey.
I had the benefit of having a lot of great work in front of me and the fact that vSAN that was already IP TCP IP enabled. But when we started to think how can we really penetrate this market, how can we move forward with an accelerated approach, we really started to think about the capabilities that would be in developed and emerging markets and what will you need to do to build that out. So when we think about a developed market, it's all about click, touch and The fact of the matter is consumers are transacting in large numbers still over wired line Internet connections. But with mobile devices, we're just at the early stages of mobile remote payments, the ability for consumers to use the browser on the phone to make purchases. Again, we need to make that easy.
We're also seeing the convergence of these devices, as I mentioned, at the physical point of And that game is still being played out. The big challenge that we all have is that, that card, that no signature required experience creates a really high barrier to entry, not only for consumers because they know what to do, but merchants as well. So the capabilities we've been investing is really to think about how we take our network, how do we take our capabilities and solve for those pain points for the consumer and for the merchant. And since the last time we had this meeting, we've been making significant investments in this space. So 4 of them that I'll refer to this morning.
The first one is the developer center. And again, as I said, on the software on the phones, the software on e commerce devices. One of the major macro shifts in this space has been the fact that software developers are having a much greater impact on the convergence of commerce environment and the payment environment. And so one of the things we realized we have to do and back to what Visa has done historically very well is publish standards and APIs and make it easy for those that are licensed to use the Visa brand to connect to our network. It just happens to be generally speaking an authorized clearing or settlement message.
Those are our words for our APIs. But going forward, we realize we have to create a way to expose these other capabilities to third parties to software developers, so they can use the power of the mobile phone, the computing power of the tablets and notebooks and other form factors to expose the edge of our network. And so we stood up a developer center, and you're going to see greater emphasis on this going forward, so that we can actually integrate more closely with those that are innovating on the edge of The next thing we did, we had a payWave application, a payWave specification that most of you know on a contactless As you heard throughout the day, mobile is taking off and mobile is an important form factor for us in developed markets. So one of the first things we did was we took the PayWave application and made it available on mobile phones. But more importantly, we took the next step and have created a reference application that we've actually published along with APIs and software for third parties to begin to integrate the PayWave application natively into their devices.
For those that saw the announcement in Barcelona this year at the Mobile World Congress, you saw the first announcement with a major handset manufacturer, Samsung, where they are now embedding the PayWave application natively onto the deck on their phones on the Galaxy S4 and the Note 3 tablet. That's one piece of the equation in the PayWave ecosystem to And again, we're beginning to make progress there. But the second and equally fundamental piece that's often lost on folks is, how do I get that card information onto the phone? Issuers for years have gotten really good at producing plastics, and they have there's a whole ecosystem of companies that the personalization of cards. That ecosystem does not exist today in the phone space.
So Visa has stood up a service called the Visa Mobile Provisioning Service, which is our trusted services manager that allows for us to help the banks on behalf of them to provision that card information onto these So like we've done in the past, we're creating an ecosystem approach to not only make it easy to get the applications on the devices, but help our clients put their card information onto those and close that loop. And then the last piece of the equation and something that you guys are all aware of is our investment in V. Me. And again, I think we tend to really kind of ground consumers first on V. Me as a consumer wallet, but I want to stop and make the point really clearly.
It's really about merchant experience and helping merchants drive sales conversion in these new digital form factors. If you look at our in e commerce the last 10 years on the traditional wireline Internet environment, you didn't see us make the move into the wallet space or a new acceptance mark, primarily because our cards actually work very well today in those environments. But as Charlie noted, looking forward, mobile is not lost on us. We have to evolve like we've done the last 50 years to make it easy for our products to work not only for consumers, but more importantly for merchants. For wireless to take off, wireless web and wireless commerce, we need to have an easier way for consumers to use that Visa credential for a merchant.
But again, if you want a proof point for how we're thinking differently about the business and about merchants in particular, you'll notice that V. Me, the first thing we did, we make it Visa only. While I'd love to say it's a Visa world that we're all living in, it's not the case. And if you ground in the merchant value proposition, what merchants want, is to Charlie's point earlier, retailers is to sell their goods and services. They want to take all tender types.
They want to drive sales conversion. So So V. Me supports all the major general purpose card brands out of the gate. We want to make it an easy one click experience for that merchant to check you out regardless of the digital channel you come through. So we made significant advancements in that space.
We're making progress on the issuer side and the merchant side, again, to create a effect much like we did with the Visa brand 50 years ago, and you'll hear more about that. When we start to think about the we follow with oftentimes debit and we move to prepaid and again in predominantly urban centers while leveraging travel corridors to build the traditional approach. She also showed you the rise of the mobile wallet in a lot of these markets. There are today, I think, over 150 closed loop mobile money schemes appearing across the globe, addressing the needs of the oftentimes unbanked and underserved consumer who has money. They want to transact.
They have bills to pay. They want to buy a train ticket, as Elizabeth described. They want to remit either from a rural center sorry, from an urban center to a rural The way they're doing it today is not with cards. They're doing it today over mobile devices. And again, those 150 closed loop mobile money schemes have popped up to serve those unique needs.
So instead of like playing past that and looking strictly at the traditional Visa model purchase only in these urban categories. We've embraced this, and we're focused on opening these closed loops. So if I take you back to license that brand to a new company that could partner with other banks to create an open network connecting these closed loops, if you will, these pockets of consumers and merchants that were acquired and issued by different banks to create the business that today is Visa. While we find ourselves in a very similar position in these markets. These 150 closed loop networks that Elizabeth referred to that do service their consumers very well have a and it's fundamentally scale because you can only transact within that closed loop, within that mobile network operator's mobile scheme.
So you send money to your relative who's in the same country on a different mobile network. You can't send money across the globe to your relatives in a different country. You can't top up their phone remotely. You can't do e commerce transactions. Is create a focused effort on open loop prepaid.
So in essence, taking a 16 digit Visa account number and overlaying it on this 10 digit phone number so the consumer can send money using that flip phone to any person on the Visa network around the globe. So that's a fundamental strategy for us is to figure out ways to open these closed loops. The second piece, as I mentioned, is these transactions aren't traditionally what you think of as a Visa So you heard oftentimes this morning about PCE, personal consumption expenditure, which is more or less a purchase metric.
Well, a
lot of these transactions are what we think of as purchases. Some are, but a lot are just remittances. And so what we've done with Visa Personal Payments, which is our product, which is based on a unique transaction within the Visa system called the original credit transaction, we've enabled any tender type, credit transaction, we've enabled any tender type through any channel to send money to anyone around the globe to any Visa card, credit, debit or prepaid. So when you think about the combination of these open loop mobile prepaid devices, where now I have a Visa card associated with my mobile phone and now the ability to send money from any tender type over the Visa network to that device is extremely powerful. It's a new transaction type and a new combination of the form factor along with this transaction type really opens up the edge of our network.
And then the last piece, mobile point of sale. Again, a lot of time and on this, because again, when you think about 7,000,000,000 devices that if I can put a dongle or a device on that phone and turn it to a point of sale device, again, compared to the 38,000,000 sorry, 36,000,000 merchant locations we have today. You can see just as we talk about just the numbers, just making those into mobile point of sale devices changes the entire trajectory of our business. And so we focus there as well to not only work on models of aggregation, work with partners from a business from a business model perspective, but work to certify new devices. So again, over the last 3 years, what have we been doing?
So the first thing is we acquired And again, FUNDMO is really important to us for two reasons. I'll come to the next one on the next slide. But fundamentally, FUNDMO gives us access to the largest number of closed loop mobile wallets in the world. So it's a great starting point. Remember, Visa has dealt only with financial networks.
And we realize that the mobile networks, it's a different language, it's a different game. We need to really start to understand and how the telcos think. And so fundamental really helps us not only from a positioning perspective, but truly understanding how to work with telcos effectively. The second thing we did was Visa mobile prepaid. So we announced the Visa mobile prepaid product, which is again fundamentally different than a prepaid product because we don't require you to issue a companion piece of plastic.
For a number of these people, they'll never see a terminal. So we want to give flexibility to the issuers in this case to issue the 16 digit Visa card only on the mobile phone, and again, turned those closed loop mobile wallets into open loop Visa prepaid cards. The third thing we did was the personal payments application. So we've had Visa personal payments for a number of years. But in the last 2 years, we've made significant inroads because we introduced a new fast funds requirement that allows the sender to send money and get it to the receiver with guaranteed within 30 minutes.
So oftentimes, these are funds that are emergency funds. Folks need to get it back to the home to top up the prepaid to pay a bill. And again, with guaranteed payment, guaranteeing settlement, it's really changed the trajectory of that transaction type across the globe. And then last, most importantly, and I think this goes to point earlier around security on mobile point of sale devices, one of the things we announced at the Mobile World Congress was a new Visa certification process. And I think this goes something we don't talk enough about is Visa is in the business of standards.
We're in the business of making it easy for folks to transact on our network, but also about liability and with security. And so what we announced was a new program that we would actually certify mobile point of sale devices. And so yesterday, we announced 3 new participants in that program, iZettle, SumUp and Swift. We're trying to create an ecosystem, a standards based ecosystem. So not only our acquirers, The consumers and merchants will know that these devices have been certified for security PCI standards across the Visa network.
And so the Visa Ready program is really intended to help drive an ecosystem approach around standards and reliability in space. So capabilities are great, but again, this is a fast changing space. Our issuers, our customers, our Acquirers are confused oftentimes about how to get started. So we've taken our capabilities and we've rolled them up into a set of platforms, predominantly focused on making it easy from a turnkey key perspective for our customers to get involved in this new and changing space. So when we think about, again, platforms, again, as I said, the first recognition, and it's a big change for us from the past, was to say, it's not just a Visa environment.
So when we think about platforms, we have to think about a real open and flexible approach. It has to go beyond Visa. And so when we think about what we've done to support other brands in this space, both on the issuer processing as well as the acquire side is really the way we've been developing our platforms. 2nd is core to the Payments business, trust is absolutely at the core of who we are. Payments is all about trust.
And so one of the things we've done in every one of the processing platforms that we stand up on behalf of our clients is build risk management into that. As you heard from Elizabeth, it's a key driver for our ability to open up not only new segments and new channels, but to really drive authorization and approval rates that we need to really grow this business. So we continue to bake risk management and risk tools into our platforms. And then last but not least is payment analytics. Especially when you think about the platform business from perspective, it's all about conversions.
They need to understand what payments are converting. They need to understand what times of day they should be open. The information that's embedded in the payment stream is absolutely critical to their analysis of their business and driving their business forward. So we bake payment analytics into all of these platforms. And again, so over the last 3 years, been busy rolling out platforms to make it easy and a turnkey way for our customers to engage here.
So the first is, as Bill talked about, Visa DPS, been around for a while, the world's largest debit processor, but we continue to innovate on that platform. So what have we been doing? So prepaid processing, as you heard, big growth industry for us from a branded perspective. Prepaid is absolutely critical to the DPS platform. We continue to not only innovate on the core enhancements for prepaid but the reliability of the Visa debit and prepaid processing service.
More importantly, we've also invested in our relationship with Monetize to create a mobile banking and mobile payment platform on that service. So we're taking DPS and bringing it forward into this mobile Charlie referred to the CyberSource and Auth dot net acquisition. And again, Mike will be up here in a second. But it's absolutely critical to again, the growth of our network, the reach of our network. And so what we did was to stopping the channel conflict, we got out of the acquiring business and on the value added services that we can provide to acquirers to take the CyberSource platform and extend and provide services, sticky services to merchants.
So a lot of the capabilities I described, we want to be able to make it easy for that last mile of merchant connectivity to take advantage of, both domestically and globally. And then last in the processing space with Fundimo, which had been traditionally an enterprise software sales organization, we've taken that business and actually turned it into a processing service called the Visa mobile managed service, which is like DPS for
mobile phones. So helping the telcos in large parts of the world no
longer have to invest in phones. So helping the telcos in large parts of the world no longer have to invest in fixed cost infrastructure, but ride our variable cost processing rails, get the extension that they're looking for and get into the marketplace in an easy to use turnkey way. And at the end of the day, all of these things, again, back to the 82,000,000,000 we saw last year. It's all about the information we see and how we can play that back to help our customers grow their business and take risk out of their business. So again, when we think about and how they can do a better job of servicing their portfolio, getting activation, getting penetration, getting usage.
We're investing a lot of energy in world class payment analytics, business intelligence tools to help our issuers visualize their business and figure out better ways to serve their Equally, we're doing the same on the merchant side of the business. When you look at our share position on a global basis, we have a unique set of insights to help understand how their business is working, where they should put their stores, how they should interact with their customers. Again, payments is at the core of that we're beginning to create visualization tools to help them understand more effectively how to run their business. Traditionally, information business, though, however, has been focused on risk. Again, what we've done effectively is seeing those $82,000,000,000 transactions.
We've been able to run all sorts of data models. And as both Bill and Elizabeth spoke to, take those data models and in real time make a risk decision and risk score and hand it to the issuer as that transaction moving from the physical point of sale back to that issuer. And as a result, we've been able to drive not only fraud out of the system, but approval rates higher. And both are not only good for Visa, but they're great for it's great for merchants and it's great for our clients. And that model will continue.
We continue to make big investments in the fraud space. But when you think about it, if you flip the fraud model on its head and we're in fraud models, we're looking to find the bad transactions, start to think about those 82,000,000,000 transactions to do propensity modeling, meaning if a consumer is shopping at a certain time of day, we know how that card usually behaves. Cards like this in a
certain zip, at a certain merchant are
more than likely to make Zip at a certain merchant are more than likely to make another transaction that looks like something, we can start to expose intelligence to our clients, our issuers and our merchant clients to better understand how to effectively not only deepen their relationship with those customers they already but effectively acquire new customers for the first time. Now a lot of people say they can do that because they've got data, and certainly data is one piece of equation. But back to the message we want to leave you with today is, more importantly, what we have this thing, a network called VisaNet. That is a real time network that we see these transactions coming across our network. And so we can actually effectively act on them on behalf of issuers and acquirers to more effectively deepen the relationship with consumers and merchants.
So what have we been doing again in this space for the last 3 years? So we continue again, as I said, to make investments in advanced authorization system to not only make the data models better, but also effectively create new tools like the Visa Risk Manager and Visa strategy manager to effectively allow issuers of all sizes to automate the risk decisioning process. So that's great in the World transaction, is it an Internet transaction? I mean, if I go to the Apple Store and use my Apple Store app, the EasyPay app make a purchase. I'm standing in the store, but I'm making a card not present transaction.
The issue is the form factor itself doesn't really present itself being able to send all that Magstripe information we usually got to see. So when we think about this, we need to start thinking about how we effectively authenticate the customer, I mean the customer standing in that store to the transaction and buying the 2, but also do that in a way that doesn't friction in the system that drives down the transactions. So we've taken the data models that we've built for Visa Advanced Authorization and we're now applying them to a new tool you see on the page here called VCAS, which stands for Visa Customer Authentication Service, which in essence effectively where we use the risk score that we used to use in advanced authorization flags the transaction as being higher risk based on the behaviors of that card in the past. We can now step up level of authentication and ask the customer to authenticate themselves back to their issuer over the real time nature of the network. So as the question was asked earlier about how do we about some of these aggregator models and these tokenization models, we have the ability to start actually codifying when a customer is present, but the card actually is not presented to us.
So a lot of what you see here on this page related to information is going to be the key to the way we think this new converged world of customers being in an environment, but the traditional data not being passed. So that's the risk To the data side as it relates to offers and deepening customer relationships, Charlie and Bill mentioned the relationship we yesterday with the ICBA to take our offers platform and provide an offers capability to a number of the small banks and credit in the U. S. But I think you have to go down a layer because when we talk about offers, we often talk about it again as a platform, but it's a set of capabilities that are unique to Visa here that I think really make this story compelling. So the first is, again, we have 80,000,000,000 transactions.
We have 2,100,000,000 cardholders that we can start to look at how they behave. So we can help issuers again through payment analytics and business intelligence to effectively tailor solutions where they can provide offers to their customers. Once those offers are provided, we have the ability to link those offers to the card or to the mobile device or the mobile wallet such that that card is used regardless of channel, we see that transaction in real time. And where in the past we've used again that transaction to trigger a fraud alert, we can use it to trigger an offer, an offer redemption. And when that occurs, you see the last piece of the slide, POS redemption, for the first time, instead of having a promo code where you have to tell the what the code is to key into the register or have a statement credit delivered via the settlement message back to your card issuing statement.
We have the ability to actually do an in line adjustment as the transaction is coming through VisaNet and take the discount before it gets back to the merchant point of sale and you see it on your receipt. And again, it's the combination of the point of sale and you see it on your receipt. And again, it's the combination of the data position that we occupy. It's a combination of the distribution that we have through issuers and but more importantly, the network and the real time nature of it that allows us to differentiate our capabilities here and package it to something called Visa offers. So when we think about all this, and by the way, when I talk about capabilities, I want to be clear.
These aren't just made up things that we're thinking The things you see here in yellow, and again, I encourage you, as Jack did earlier, to go down the hall and see these things. Every one of these things in yellow is these out the door, but we believe again that if you think about these capabilities, they can fundamentally change the way we engage with our clients and through them with customers and merchants. So as I think about the story you've heard a lot about today, and it is a growth story and it is a story about evolution. The 50 years has been wonderful. And the commercial relationships that we have with financial institutions around the world and through them with consumers and merchants is a great story.
But I believe the next 5 to 10 years really will fundamentally accelerate the story you've heard about the 50. Because when you look at the numbers we're talking about and the connectivity and the edge of our network, if we are able to fundamentally punch through and actually on behalf of our clients more effectively engage, take in this case, this connected consumer, this connected merchant, do what we've done with the physical form Further, we can do it with relevance and in a way that's customized like never before. Remember, it was only less than 10 years ago, if you got
your card from your issuer, it
was a gold card or a platinum card. There was very little difference from any card in that an issuer gave to you. Well, now we're talking about the ability to actually the experience for both the consumer and the issuer. So it's really exciting. So that's the consumer merchant piece.
Access, you've heard a lot about mobile But I'm here to tell you because a lot of the discussion today in the room, I'm sure, is about what about EMV and what about QR codes and what about NFC? The fact is Visa, at its best, is always agnostic. The edge of our network doesn't care whether it's a QR code that's presented, whether it's an NFC where it's an NFC contactless card, and we're going to continue to drive more access, more openness on the edge of that network because as we talked about, mPOS is scratching the surface. We want to make it easy to get a transaction onto our network. So we are going to be agnostic and we're going to create standards like we've done in the past to make it easy for those that are to get access to our network to get on our network.
Then when you think about the platforms, better distribution. I mean, when I think again about our position with respect to 15,000 FIs globally, there's no better distribution, and we're going to continue to invest in those relationships. But as But as Charlie, Bill and Elizabeth also said, we're going to become more local. And those platforms and the services and capabilities I've talked about, when we expose But we'll never lose sight of the reliability and security that we owe you, we owe consumers, we owe merchants, and that will always be a piece of who we are. And so when we do We'll always do that with that as a first order priority.
And then last but not least, so what? Why Visa? Well, again, why Visa? Because we have starting with 2,000,000,000 consumers. We're starting with 36,000,000 plus merchant locations.
We're starting with 82,000,000,000 transactions. And all that data information, not only can we expose it to help our clients run their business better, but we're using it to differentiate who we to do a better job of interfacing with our customers to solve for a lot of that merchant friction because we can help them grow their business.
And in
the past, we haven't packaged it for easy consumption. Well, we're doing that now. More importantly, we can then customize it. So we can actually not only have a very different discussion, but we can actually have a very relevant discussion with both issuers acquirers with consumers and merchants. And most importantly, when we do that, we differentiate.
So again, we're going to stick to standards. We're going is it again grounding consumers and merchants who inherently live in an open environment. They make all sorts of choices every day. That's the way we're going to build. But at the end of the day, if we do it the way we've discussed with our network allowing easy access to merchants and issuers in this new converged sorry, merchants and consumers in this new converged world, we will differentiate and win in the marketplace.
And from a And from a financial perspective, what's it all about? And Charlie said it before, it's more transactions. If we open the edge of our network, if we start to drive consumers and to prefer these processing platforms, these new capabilities, we will win and we'll drive more transactions over the world's most scalable payment network. So with that, what I'd like to do is go a little bit deeper on each of these areas, and I'd like to invite up some of my colleagues from Visa to spend a little time talking about some of these areas in more detail.
We're too cold this morning. Exactly.
So first off, let me introduce the folks on the panel who have joined up here. So first is Sam Schrauger. Sam is the Global Head of Commercialization for Visa. And next to him is Bill Gaida. For Visa.
And next to him is Bill Guida, I appreciate that, who is our Global Head of Mobile Products for Visa Mike Walsh, the CEO of CyberSource and Silvio Tavares, our Global Head of Information Products. So let me first start with Sam. So Sam, you are relatively new Visa having recently joined as past Head of Product at PayPal. And I think Sam can offer us and I'll ask you your point of view, if you will, on what we're doing with V. Me, the relative strength of that product in terms of what merchants and consumers looking for?
And most importantly, how Visa's core assets hopefully can differentiate us in this space?
So I think first, I think I'll start with the assets because we've talked a lot about them today. But I think they're you really can't underestimate how critical these are to us both in the success that had, but also the success that we will have going forward. Since I've come into the company, I've been really struck by 2 things is our core assets of this business. Number 1 is the network. We talked about it today.
The numbers are staggering. This is a global network that that is at scale. And most importantly, it's architected to see us into the future of electronic payments just as it's seen us through past of electronic payments. Secondly is the brand. I think from if you look at the Visa brand and you look around the globe, there millions and millions and millions of people who are interacting with this brand every single day.
They recognize it. They know it. They trust And if you look forward to the future of electronic payments that we're talking about, e commerce, m commerce and some of these other things, that trust and that awareness and that knowledge of our brand are going to be critical to us as we move forward. So looking forward, I think specifically around V. You talked a little bit, Jim, about why we're doing V.
Me. And I think the bottom line is there are a lot of transactions that we used to consider the point of sale to be physical place. Well, now the point of sale has moved into our homes. It's moved on to our mobile devices. It's moved into our Anywhere that we have connectivity is now a point of sale.
But I think we inherently recognize that there is still friction in that process As you talked about, e commerce is a $1,000,000,000,000 market globally and it's growing 21% a year. Mobile Commerce, which honestly was virtually nonexistent about 3 or 4 years ago, is tens of 1,000,000,000 of dollars now and it's growing at an absolutely furious pace. So these are big opportunities for us, in particular because by their nature those are electronic transactions. Cash and check don't work in the mobile and e commerce environments. And so they're right in our sweet spot.
There are electronic transactions, that's what we do best. But there are also places where there's still friction. And just as we've done in the physical world, taking friction out of payments by making a Visa product easier to use than cash or We want to do exactly the same thing in the online in the mobile commerce world with V. Me and that's really what that product is about. So what is V.
Me first of And by the way, I would encourage you all to check out the demos which are down the hall and experience it for yourself because I think that will really bring it to life. But for a consumer, V. Me a digital wallet. So it's a place where they can safely securely store the information that makes checkout and payment on the web and a mobile device easier and faster than it is now. So personal information, all major card type information as well as preferences.
Consumers can store that in their V. Me wallet. And then any time that they're in a merchant who's V. Me accepting, they can access that information be able to make a transaction in just a few clicks or a few taps or a few swipes. And that's really, really important in these environments because Jim said, particularly as we move to mobile, if you think form filling is fun on an Internet browser, just try it on a mobile device sometime.
It really doesn't work. And so for consumers, we need to solve that problem. But that also solves a problem for the merchant, which really conversion to sale. And that again is what we're all about on the merchant side, making payment simpler and easier, taking friction out so that for A consumer is more likely to complete the payment process and complete the checkout process. And that's really the value proposition on the merchant side for V.
Me. I think the most important thing though for V. Me is to recognize this is fundamentally an issuer and acquirer centric solution. So for acquirers, this is a payment solution that they can offer to their merchants to help them solve the payment problems are inherent in a mobile commerce and an e commerce environment. So it's an additional service that they can offer to their portfolio.
On the issuer side, this is an issuer centric product. This product is intended to help issuers have their products work better for their consumers in an online environment. Issuers can easily add their cards to the V. Me wallet. They can maintain their branding within the wallet and most importantly, they maintain that customer relationship.
So V. Me is not a direct to consumer play on behalf of on Visa's part. V. Me is a way for issuers to allow their customers to use their products better in an e and mobile environment and it's enabled by Visa. Now if you take this problem of kind of taking friction out of the e commerce mobile commerce space, including by the way remote payments when you're standing in store or in aisle in a store.
Are there other people that are out there trying to solve problem? Of course, there are. There are a lot of smart people out there trying to solve that problem. And some of them over the years, PayPal and others have created relatively good products to go after parts of that. But from my experience in the e commerce and mobile commerce space, I know there are really 4 things that are going to make any digital wallet successful.
And I think there are things that if you look at them and you evaluate V. Me, you'll agree that we're incredibly well positioned on each one of these dimensions. The first is the quality of the user experience. Just back to Jim's point, got to be simple, got to be easy, got to be fast, got to safe. And if you use V.
Me at the demos, I think you'll agree that it is really unlike any other payment experience out there in terms of its ease of use simplicity, it's equally easy for the merchant in terms of adoption and usage in their online and mobile commerce properties.
Second thing is the network.
Again, there's the Again, there's the scale demands, the performance demands in the online and mobile environments are just the same as they are in the physical And the Visa network brings all that same capability to those environments and is what's really sitting behind V. Me. And so again, the network strength is there, I think, with the product as well. The third thing is distribution. So it's great to have a great digital wallet experience.
But if you can't get it into the hands of consumers and merchants, it's not going to be successful. And because this is an issuer and an acquirer centric solution, By definition, distribution scale is built into our model. And I think that's a really critical point about V. Me. And the last thing I'll It's about the brand.
The brand is, I think, particularly in an online environment and in mobile commerce environment, trust and knowledge of a brand are absolutely critical for any digital wallet that's going to be successful. And I think if you look at the Visa brand, you would agree that it's incomparable to anything else out there from a branding standpoint. So let me talk for a second about how we're going to go to market with V. Me. And I want to be very clear the fact that VDOTME has been built as a global platform.
So we built this on top of the placement technology asset we acquired 2011. We are distributing it in part through the CyberSource platform, which has great reach here in the U. S. And extending reach as well. But this is a global platform, and we are going to be making this product available globally.
That being said, we're starting very focused here the U.
S, it is the largest
e commerce market in the world. It is one where we have to win and we have to get it right and that's exactly focused on doing. We're going to be extending next into Australia and Canada. And then over the coming year, you're going to see us extend in waves into countries in Asia and Latin America. So that's kind of the global rollout plan.
As we do that, how are we going to measure our success? I think it's really pretty It's 2 things. Number 1 is, what does our merchant acceptance footprint look like in any market that we're in? And number 2 is, what kind of now we've been in market since November 2012. We have 240 enterprise and mid market merchants signed for V.
$25,000,000,000 in addressable e commerce volume. And we have 35 of them live and are working to bring more and more merchants into the pipeline and get them live as quickly we can every single day. So that's our real focus here. On the consumer side, we have 86 issuers in the U. S.
Who've committed the program, it's 15 of the top 25, 35 of the top 100 includes names we all know Bank of America, U. S. Bank PNC. And in total, they represent 49% of our U. S.
Card accounts. And so we have great traction on the merchant side. We have great traction on the consumer side. And I think most importantly, when you look at this, that is what we're doing. We're building a merchant and consumer network again.
And I think what's most critical to realize is it's again. So is it hard to do? Absolutely, it's hard to But this is something that we do as a business. This is what our business is. And so we have to build that network with V.
Me, but it's something that done before. We know how to do it, and that's exactly what we're going
to do again with Feed. Me. Great. Thanks. So Bill, As a grizzled veteran among the group up there, you started here 3 years ago actually at Investor Day.
And at the time, I think Elizabeth was talking about our mobile aspirations and I think it was 23 pilots in 19 countries. So without doing a public appraisal, how
Yes. It's difficult to say because as I've said to some of you in this room before, you can't swing a dead cat without hitting a mobile wallet every day. And so and as Charlie said, you wonder what you've missed because mobile is changing so quickly. I think that being said, I think we've put together the right set of assets for our developed markets and emerging markets for the landscape
that we see today as well as what
we see at least in the next few years. And so let me talk about that in 1st of all, with respect to developed markets and there's been a lot of discussion already this morning around the proliferation of smartphones and the emergence of mobile wallets and mobile commerce applications. And we're already benefiting from that as a network today and driving incremental revenue. As an example, The point has been made where 4,000,000 or maybe 4,200,000 merchants in a relatively short time. These are merchants that only accepted cash checked before.
And so we're seeing volumes driven as very inexpensive mobile point of sale devices are being driven the long tail of merchants. On the other hand, think about the Starbucks app, where millions of consumers are loading their Visa card into that Starbucks app and using that app to pay for coffee set of cash. We're going to see the proliferation of those apps in a number of verticals, not just copy. And again, this really drives the value of our network and incremental in these developed markets. In addition, and there haven't been too much talk about NFC this morning, but after some false starts and when I was in the mobile industry, I was partially responsible phones with NFC in them.
Virtually every smartphone you walk out of with AT and T and Verizon and T Mobile today will have NFC capabilities as an All of the major merchant point of sale devices are embedding NFC into their terminals. Ingenico will sell 5,000,000 NFC see terminals, 100% of their portfolio. And so we're starting to see that whole chicken and the egg problem being addressed and we'll see rollouts in like Canada, Australia, New Zealand, Singapore, Hong Kong and surprisingly Brazil, South Africa and of course the U. S. With ISIS and others the way.
And so again, I think that we are seeing this transformation in developed markets with smartphones of people taking what's in their wallet and putting it into their mobile phone and driving incremental transactions on our network. We'll continue as part of the mobile team to support Sam is doing in mobile optimizing V. Me as well as e commerce on the large screen moves to the small screen. And we'll think about as well how do we take what we've done the PayWave app that you described and extend that to QR codes if that's a vertical that's going to be meaningful. You talked about the Samsung example where they're introducing an alternative secure element to the SIM card and we made that agreement.
Well, how do we continue using our assets, our mobile provisioning service, what we're doing with point of sale to electronic or mobile devices where we get 2.5 times or 2.5 times the market share and take a lot of the friction out of what can be some technology. So I'd say that the shape of what's going on in developed markets is very strong. I think we've got the assets that are relevant for Visa. But quite frankly, I think where the game is really going to be played and it's been alluded to a couple of times when Elizabeth spoke is what's happening in markets. Because in these markets, it's not about that incremental convenience of tapping my phone or swiping my card.
It's transformative for these economies and for consumers in those economies. There's been a lot of discussion around the 150 plus mobile money schemes that launched in partnership with banks and mobile operators to provide these very basic financial services to consumers. Fundemo, which we acquired 2 days ago or 2 years ago this week was the software platform that powered a majority of those early instances and in fact is still the largest provider of mobile wallet software in emerging markets. And as Jim and Elizabeth alluded to, over the past 2 years, we've taken what was a great piece of software and a keen understanding of those emerging markets and strong relationships with mobile network operators and did a couple things. The first thing we did, as Jim described, was take that software and put it in our largest data center in Virginia and another data center in India to provide a turnkey managed service for mobile operators because before they would buy the software, they buy their own hardware, they buy their own data center, they'd set up their own service centers and customer support before they got transaction number 1.
Well, now they can plug into the fundamental software in our data centers with a variable cost model and really just focus on building out their agent network, building out their customer base, getting the pricing and distribution right and have this variable cost model. So again, we're taking the friction out of launching these mobile money services, which will drive further adoption. I think most importantly, though, We developed Visa mobile prepaid based on the principles of the fundamental platform. And as Jim said, the challenges that exist with these mobile money they don't talk to each other and they don't really talk to the global payments ecosystem. So with Visa Mobile Prepaid and overlaying a Visa account on top of a phone number and letting people use that phone number to now make open loop transactions.
So again, we didn't talk about it yet this morning, But we've developed Visa mobile prepaid in a way that really respects what's happened in these emerging markets and the way that people are transacting on their mobile phones. So in order to make a transaction on a closed loop scheme, all you need to know is your phone number and all transactions are phone number to phone number. Well, the same is true with Visa mobile prepaid. We'll do the translation from that phone number to the account number, expiry date, CVV in our network using our network capabilities and allow consumers to have a very easy transaction phone number to phone number, whether it's an international peer to peer payment, an e commerce and over time payments at merchant points of sale. And so again, I think the combination of the managed service, the inherent robustness of the fundamental form what we've done with Visa mobile prepaid are also the right capabilities for those emerging markets and it will be transformative.
We've already seen some successes with companies like Vodafone, MTN and Orange, where we've really worked with the largest mobile network operators in world to drive scale. More recently, we've got our banks into the game. We've launched a person to person payment program in Kenya with Equity based on mobile to mobile person to person transfers and we're going to see those implementation of those programs continue to grow. I think the thing that's common between an emerging market and our developed markets is all the discussion we've today about mobile point of sale. We're all familiar with Square.
Hopefully, we've all used Square, very convenient. The people the merchants that use love it. And in the U. S, it's not just Square anymore, it's Intuit, it's PayPal and several other smaller companies. Around the world, there are more than 100 companies that are putting together this very basic piece of hardware with a relatively basic piece of software in any phone to transform that phone into a PCI compliant terminal.
And while we've seen innovation both in terms of the hardware and the software moving from Square, which was really kind of Magstripe to yesterday in the announcement, we actually certified 3 pin chip and pin based solutions. We've also seen innovation on the business model. So Square represents just technology innovation, but innovation in terms of a unique way of aggregating all of these micro merchants and bringing electronic to whole classes of merchants that really weren't acquired traditionally before. And that's great and we'll see that continue to proliferate through these 100 plus this year of mobile acceptance points to $38,000,000 over the next 5 years, which could literally double our acceptance points. So when I think about emerging or develop markets what's happening in mobile.
I go back to the point that Jim and Elizabeth and Bill and Charlie and everyone has made today, which is it's ultimately about driving core business. So we're going to talk a lot about startup companies and edges of the network and APIs and SDKs, but they're all geared towards what we do at Visa and have done for 50 years. Mobile is going to drive more people who have accounts, because there are mobile phones and people who have accounts today. We are probably going to near double the number of nodes where you can use those accounts either at the point of sale or virtually and that's only going to expand the size of and the number of transactions across it. So as Charlie said, I'll wake up every day worrying about what's next and what I've missed, but I think that we've got a decent set solutions.
Great.
Thanks. So Mike, I think everybody today has mentioned your piece of the business, which is the acceptance side of the house. And in We acquired CyberSource recognizing that we needed to get closer to the merchants in order to deliver value added services. Can you give the group an update on how we're progressing And where you see CyberSource going in support of everything we talked about?
Yes. Sure. So what I'll do is spend a few minutes talking about the evolution of the CyberSource business since the acquisition. And then I'll talk a little bit about the role that CyberSource is playing in bringing a lot of the capabilities and the innovation that you've heard about today to market. So, I see a lot of familiar faces in here.
I know some of the people in the room were very familiar with CyberSource, but I'm sure some aren't as familiar. So just as a reminder, Cybersource was acquired by Visa in the summer of 2010. So it's been almost 3 years since the acquisition. In its simplest form, you can think of Cyber source is sort of the Internet version of that terminal that sits on the checkout counter in the merchant location. We enable merchants and partners to accept electronic payments of all kinds.
And over the years, we went public in 1999 and we built the business around that fundamental opportunity in the e commerce space. But what we've done over time is build a lot of value around that core function of an e commerce to gateway things like fraud capabilities, managing risk as it relates to transaction fraud, but also managing as it relates to payment data security. So a whole host of services and solutions for merchants and financial and technology partners to help them mitigate the risk of payment data. And then a third sort of broad category of business intelligence or you can think about it more specifically as analytics, payment analytics. So helping our customers understand their understand their business.
You're going to hear more about that from Silvio in a few minutes in the broader Visa but this is something that the CyberSource business has been focused on for a number of years. And so to give again for those that aren't as familiar to give you a sense for the scale of the business. CyberSource has a little over 400,000 merchant customers around the globe. We partner with as part of our community. Jim mentioned the importance of the developer community to all of us and not just in the payment space, but in the technology business as a whole.
And that continues to be a very, very important constituent for us. As we extend the capabilities for the merchant community, they are more and more dependent on their developers whether they're internal or external because of the rapidly changing technology landscape out there. So if you think about CyberSource as a its heritage, its Origin as an e commerce enabler and then you think about a lot of the things that you've heard about today, We're in a great position to not only participate and benefit from the electronification of all of that cash that Elizabeth and Bill talked about earlier, but also drive a lot of that innovation. And it's one of the exciting things that the CyberSource team has been focused on as being part of Visa is you're able we're able to innovate at scale. We're able to innovate at a much higher level of scale than we were as a stand alone company.
So a couple I'm going to kind of just sort of double One is, as I mentioned, the area of risk management. And for us, that's really 2 things. It's transaction fraud and then it's also payment data security management. And so this has been a big area of With the CyberSource business as a discrete business, but also in partnering with all of the Visa functions and capabilities that focus on risk and fraud. One of the ways that it's manifested the evolution and the new capabilities that we've built in conjunction with Visa has manifested itself is has already been touched on by Elizabeth in particular earlier.
If you think about e commerce in some the developing markets around the world. One of the challenges for years now going back more than 10 years has been the concern around risk, the concern around fraud because you can't it's a non face to face environment. And it's been a big inhibitor for the acquiring community to enable their merchants to do more e commerce as well as the merchants themselves in expanding their sales channels and expanding the way that they can reach their customers. And what we've been able to do very successfully over the last year in particular as a combined Visa CyberSource capability is to open some of those channels up to provide tools, fraud and risk management tools to the acquiring community in these developing markets to the merchants themselves, so that they can open up broader e commerce channels. Some of them weren't taking weren't doing e at all.
Some were doing a small amount of e commerce. But again, because of the lack of risk tools, the lack of ability to manage this, They weren't able to expand that. A good real world example is just recently in Brazil and the Middle East, some of the acquirers have opened up the acceptance of debit online and Bill touched on this earlier. So previously, they had They didn't feel comfortable, but they had the tools and the capabilities to accept debit online and the attendant risks that come along with But by partnering with Visa and CyberSource, they've been able to open up those new channels. And so that's been an opportunity, an area of a lot of excitement for us.
And it's a good segue because sort of the next topic I wanted to talk about that was a big part of the acquisition thesis was the notion of global expansion. So not just growing the CyberSource business globally, but as I just said using the CyberSource business to help expand acceptance in the Visa context and to help accelerate Visa's global expansion. And so another example of where we're seeing this manifest itself would be China. And I know China has been talked about throughout the presentations today. Lots of challenges in China.
There was a conversation earlier about China Union Pay. One of the things that CyberSource brings to the Visa family is the platform that we provide is agnostic. And it's agnostic in multiple ways. It's agnostic in terms of payment types. So we support not just Visa branded payments, all of the relevant forms of payment that the merchant community needs to accept around the world.
But we also are agnostic in terms the device or form factor. So a lot of the talk about mobile, a lot of the comments that Bill just made. The platform doesn't really care about the device or the form factor. And because the Internet is by definition global, the platform doesn't really care about borders either. So we've been able to take the platform capabilities into places like China that are very challenging markets for a lot of different reasons and open up new opportunities for Visa.
One partnership in particular, I'm sure it's a name that many of you are familiar with is the Alibaba Group, one of the largest We've done a bilateral relationship with them where they use our fraud screening capabilities to manage a lot of their place activity on alibaba.com and some of their other properties. And then we enable their payment methods.
So many of you may know that they have their
own digital wallet. It's called So many of you may know that they have their own digital wallet. It's called Alipay. And in fact, if you measure it by registered consumer accounts, it's the largest digital wallet in the world. And so we enable that on our platform.
And so it's a very symbiotic relationship and it's a example of how the CyberSource business has helped to extend Visa into some of these emerging markets. Let me shift gears into some of the ways that CyberSource is enabling some of the core Visa capabilities that have been touched on. I think the most obvious would be V. Me. Sam talked about it, so I don't need to go into much detail.
But I think the way to think about the role CyberSource for V. Me is that it's a built in distribution channel. As I said, we've got that last mile that Jim talked about. We've got that last mile into over 400 merchants around the world. And so when we at Visa develop new capabilities like V.
Me, CyberSource is an easier way to distribute those capabilities into the merchant and acquiring communities. It reduces the amount of work that the users have to do whether they're a merchant or a service provider. So good example of where CyberSource helps to Visa Innovation. Another sort of fits back into that global expansion category is something we call CyberSource through VisaNet. And again, this has been a big initiative to help enable a lot of the acquirers in emerging markets open up e commerce as a channel.
So essentially what it does is it's a new model, a new connection model that allows them to take advantage of their existing connection, but leverage all the functionality that we bring to the table to open up those e commerce channels, those new mobile channels. And that's something that we've had a lot of success with. We've got over 40 acquirers in developing markets around the world that are either live in some process of going live. And lastly, it's a good segue into Silvio. We're enabling a lot of the information products, the big data capabilities that have been talked about today through the CyberSource platform.
So I would just leave you with that. As you think about CyberSource in the Visa family, think about it a platform of technology and connectivity into the merchant and acquirer community. Think about it as a platform of subject matter expertise in electronic commerce and think about it as a platform of relationships that Visa can leverage. So Very exciting times.
Great. Thanks, Mike. And so Sylvia last, obviously new here to Visa having built the data business for First Data to get that off the ground. You're in a similar here, would you mind spending some time taking the group through how you view the opportunity with respect to the amount of data you have that we get to process on behalf of our clients? More importantly, how we've used it historically and how you see a path forward to help our clients deepen their relationships with their customers.
Absolutely, Jim. And I'll Start with how we've used data here at Visa. And it's not widely understood that Visa has just a great track record using data for the benefit of its customers, issuers, merchants and acquirers. The reason we've been able to do that effectively is because we've been because we've been focused on how we can use data to benefit our customers. Visa Data helps our customers reduce fraud.
Visa Data helps our customers manage their business more effectively. And Visa Data helps our customers increase sales. Those are all three critical things that we do with that with our data. And just to make that real, I want to give you Few examples, starting first with our risk and fraud area. We have over 7,500 global 5,000,000,000 risk scores and identified an incremental $2,000,000,000 in fraud.
And so our data leverage our offers platform and API capabilities to help companies actually market themselves more effectively. A really good example of this is Sears Holding Corporation, which has a loyalty program with tens of millions of additional benefits, like discounts to their Visa card. And it's important because that's Suez Holding is a top 20 merchant and top 20 retailer in the United States. A third key area example by way of example is in the area of managing their businesses more effectively. We have a great product called Visa View Online and that enables our issuers to visualize what's happening in their in their portfolio of Visa cards in real time from their desktop.
So when you look at those three examples, it comes down to action that's an opportunity for us to produce incremental revenue for that Visa transaction, but also produce differentiation for our most valuable core asset, which is that Visa network. Now, none of that would be possible if we if we didn't really focus on a fundamental core tenant. And that fundamental core tenant you heard from Charlie Earlier on in his comments and that tenet is simply this. We use data for the benefit of our our merchants and our acquirers in a way that is consistent with their business objectives. And it's an important point, so I'll just repeat it.
We're really focusing on how we can use Visa data to benefit our issuers, our merchants and merchant acquirers in a way that is consistent with their business objectives. Now changing gears a little bit and looking towards the future, which I know all of you are focused on as well. The biggest future trend that impacts Visa's information products business and industry overall is mobile phones. You heard just billion people. It's an amazing technology.
It's the first truly ubiquitous technology. And what that means are is that There are many different ways now that Visa can both collect payment and commerce data as well as deliver payment in commerce data. And when we think about that opportunity in terms of mobility, there's really 3 key areas we focus on. The first one is personalization. The second one is the second one is authentication and the third one is visualization.
And let's just spend a few moments on each one of those. Starting with personalization, increasingly we are focusing our products to enable our issuers and merchants to get to the consumer before a transaction ever happens with a personalized message. We have launched our offers platform and you heard about it a moment ago. We signed an agreement ICBA to enable that technology for small community banks and financial institutions. But what it really does is it enables us to deliver a message in real time personalized to the consumer.
It's based on their location. It's based on their historical spend. Incredibly capability in an age where consumers are connected and wired all the time. 2nd key area is authentication, particularly in the card not present space. In the authentication space just about 7 months we launched a new product which is called Visa Consumer Authentication Service.
You heard it mentioned a moment ago. And what that product does is it enables us every time There is an e commerce transaction on a Visa card to look at the Visa card and then also pull information from that consumer's device like a cell phone or a PC and just see whether that card number and that device ID have been before in an e commerce transaction. And when they have, it's very unlikely that that transaction is fraudulent. As a result, we can let that transaction go through. It's been a very successful product for us because as you know e commerce transactions are the fastest growing segment of our transactions, but they're also the areas you heard earlier, which has a higher relative level of fraud.
So we have now issuers, large issuers in 3 different 1,000,000 cars enrolled on that product. And importantly, as you look outside of the United States, our ability to more effectively authenticate action and reduce fraud is a key driver for domestic issuers outside the United States to actually take a transaction which before hadn't been flowing on Visa and put it onto Visa Net. So that's a really key area for us going forward is that area of on authentication. The last area I want to touch on is visualization. Increasingly, issuers, merchants want to the overall trends in their business.
1 of our fastest growing and most successful capabilities is our API capability called Close the Loop. And that enables our merchants and issuers to understand what proportion of their digital is increasing their spending more of their marketing budgets on digital marketing and they want to understand how that translates into increased sales at
the physical point of sale. But really the most
important point that I can point of sale. But really the most important point that I can leave you with is this one and you heard it from both Charlie and that the moment ago. And that point is that the Visa network is perhaps one of the best positioned data delivery works in the industry because we are ubiquitously connected to the merchants' point of sale. We're also connected to the issuers and the acquirers. We sit right at the critical linchpin of digital commerce.
And there's perhaps no other better example of a wants to make a transaction. We're connected to billions of consumers, millions of merchants and thousands of global banks. Now as
we look to the
future, we feel very confident. We've had a really successful track record of deploying information products. We continue to invest in this space and we fully expect to maintain our leadership position in this space.
Great. Thanks, Silvio. And let me thank the panel. And again, as I said earlier, you can see almost everything they talked about at the showcase. And again, I encourage you guys to see firsthand how this works because it's real and it will be a game changer for us.
So with that, let me introduce Byron Pollock to come up discuss how this all rolls up to the important things, the financials.
Okay. Homestretch. So, 4 topics as we enter the math part of the morning. Client incentives, capital allocation, a little color on main metrics, which I know you've already seen. And then some early thoughts on fiscal year 2014.
I thought we'd begin with a bit of a refresher on client So client incentives are really customized price discounts. And because They are discounts. They have to be treated as a contra revenue expense. We use the discounts to help secure multiyear contracts, which are at the heart of how we want to memorialize our relationships with our important clients. This allows us a period of time over which we can invest and really establish a deeply embedded value relationship with our clients.
And price discounts or incentives are what we use to induce the multiyear contract and then we structure them in a way to promote payment volume growth. And so far, that's been pretty successful. Couple of points to consider. When we guide each year to The incentive levels, the metric we use is the percent incentives as a percent of gross revenue. We keep 2 things in mind, one of which is a very good understanding of what contracts will come up for renewal structured that we actually put into play for the year, because there are different accounting treatments for incentives.
In some contracts, there is a heavy upfront that will be put in its entirety through the income statement. And then there will be some contracts that are completely amortized. So on a $10,000,000 contract, if $5,000,000 were upfront, you We're guiding not only to what contracts will be renewed, what new contracts will we enter into and be that year. But we're also guiding to how they will be structured, which is why we use a range, and why we give it over the course of the year. Because as you can imagine, trying to get the incentives right, which contracts will be executed in which quarter makes it even more difficult.
Also add That, as I mentioned at the last earnings call, the relationship we have with Chase, it's one of our largest contracts, historically, it's had a high level of incentive component to it. In the new contract, more of the pricing will be direct. And the way to think about that is gross equals net. It will be pricing that is per transaction. And therefore, it not much of the contract won't involve incentives.
There still will be incentives, but not to the degree that we had historically. And then really importantly, we but in its percent of gross revenue. And you should look at that as a healthy growth in portfolios. And as clients deliver increasingly larger portfolios over time, the incentive levels go up. It's the way the business has always been run.
And if we have a healthy growing payment volume, then an indicator of that is a rising level of then an indicator of that is a rising level of incentives. And I'm going to give you more color quantitatively on what that looks like in a moment. But first, let's talk about what gives rise to incentives, which are multiyear contracts. When we went public, multiyear contracts were relatively well embedded in the developed countries, but we're just getting underway in the emerging markets. But it has been in putting much of the rest of the world under multiyear contract.
What you have in the table before you is a snap shot of the payment volume for the 2nd fiscal quarter. So this is the March ending quarter. And what you can see is that basically high year relationships with our clients, and it brings a level of stability in our payment volume flow and in our revenue. And so we've included a snapshot of that. That's the final column to the right.
So if you take the contracts across the globe that are scheduled to renew in fiscal year 2014. It's roughly this year of renewal. All right. Let's take a look at incentives over time, which is another area I know that is of significant interest to the group. And I said before that Folios grow as our payment volume grows over time, we would expect incentives to rise.
So here you have a time series, fiscal year 'nine through 'twelve. All of us, I think, are painfully familiar as to the economic global actually fell back. It had been in the 2016 zip code and actually fell back to 2015 because incentives also act as a stabilizer. A portion of our contracts are structured to pay incentives on year over year growth. And so if there isn't growth or if the growth diminishes significantly, then incentives dial back.
And that's what happened in 'nine. But more importantly, as you look forward to 'ten, 'eleven and 'twelve, the growth in the average portfolio was significant. And you can see that over time, in the way our business has evolved over the years. So if we look at fiscal year 2012, it says clients as a client incentives as a percent of gross revenue is 17%. That's an average across the globe.
You might be interested of our top 20 global clients. In fiscal year 'eight, the average size of the portfolio of those top 20 percent to $112,000,000,000 Client incentives for that group was 20.3 in 8%. And the percentage change, it's 6 percentage points of increase, but it's about a 29% increase in the level of incentives. So when we look at 36% growth in the average portfolio, 29% growth in the level of incentives, that feels like a good healthy correlation between the 2. And what happens here, As you accelerate or as you increase the level of incentives, as portfolios grow in size, we increase the level of discounts.
Bill mentioned earlier several drivers of why yields come down. This is another one and an important and the yield levels moderate. But when you do the all in math, the size of the pie has been so successfully driven larger that even with a higher level of incentive, there is net net, there is plenty of revenue left to very attractive revenue growth, which has been the story of Visa over the last 50 years. So all in, We believe that the incentives that we are currently reporting are a very natural and healthy outcome and expect to deliver. So on balance, on the Q4 call, we'll give you more perspective.
We'll give you a range of where we think guidance will be on incentives for the upcoming fiscal year. But we took a snapshot Today, we feel very, very comfortable that this is a very healthy level. And over time, we still expect it to rise. All right. Enough on incentives.
Capital allocation. I want to begin with just reviewing our guiding principles as it relates to uses of cash. This should look very familiar because it has not changed since we went public. The first call on our cash is always to reinvest in attractive organic investment opportunities, which Jim and the panel talked extensively about just a few moments ago, Significant reinvestment in our offices, in our people, in country, which Charlie mentioned, in JVs, and in any acquisitions we do. This is always the first call on the money.
We have historically and intend to continue to preserve a very balance sheet with sufficient liquidity to backstop settlement risk, which I'll talk more about in just a moment, but also Visa Europe. Remember, They have a put. And when that put comes, not a clue when, but when it comes, We have to within in less than 1 year, we have to complete the transaction and fund it. And so Today, we have no debt. Given a chance, with a good use of proceeds, we'd put debt on the balance sheet and that might be a good time to do it.
But in the absence of a strong use of proceeds, we have no debt and we will continue to reserve that debt capacity for a good use such as the put. We have been, as I'll talk about in a minute, very and decisive in returning excess cash to shareholders through dividends and share repurchase. And then at the appropriate time, we would introduce debt into the capital structure. So returning excess cash to Shareholders, how do we determine what is excess? So I'd like to walk you through this snapshot, which is in It's really a form of sources and uses.
If you were to go to the end of Q2, our fiscal Q2, the end of on March 31, 2013. And just start there, we had beginning cash of about $5,300,000,000 after set asides for the small amount that still remains in our litigation escrow and any domestic capital. So beginning, dollars 5,300,000,000 Then we would subtract from that $3,900,000,000 which is cash held in foreign subsidiaries. And you should think The vast the majority of this $3,900,000,000 has none of it has been repatriated. Were we to repatriate, we would pay U.
Tax. So that's $3,900,000,000 We'll add back as a source our credit line of 3,000,000,000 If you add all of those up, you come up with net sources of $4,400,000,000 I mentioned earlier settlement risk. So when transactions occur, we ensure Visa stands that those transactions will get funded. And so we aside so that if the single largest settlement exposure out those holiday periods. So if I can tell you the single largest day that is driving or weekend that was driving this calculation was actually Day weekend in the United States this past February.
And so what we do is we set aside the single largest exposure that Monday morning. If that client with the largest exposure failed to settle, then we need to be able to step in. That's how we size it. And then we plus it 20% as an extra cushion to be above and beyond the minimum That's $3,700,000 That leaves excess cash at the end of Q2 of roughly $700,000,000 And so I'll talk more about how we've used our excess cash in a moment. Just to comment on our debt capacity.
Often the question comes up, if Europe were to put, how would you finance it? I've already We'd undoubtedly use some debt. And at an A rating, we estimate our debt capacity to be about 10,500,000,000. So let's walk through it. Let's take the 1st column, fiscal year 'eight to 'ten.
Let me go down that column And then we'll go over to the cumulative. So during fiscal years 8, 9 and 10, using of excess cash I just described. We generated about $5,800,000,000 of excess cash. We bought back directly in the open market or we placed deposits in the litigation which has the effect of a share repurchase, the combined total of which was 3 $3,000,000,000 We paid $800,000,000 in dividends. That left $1,700,000,000 of excess cash unutilized in those 3 fiscal years.
And then if we stay with the remainder row, you'll see that as we move into fiscal years 'eleven and 'twelve, we worked that balance down by $300,000,000 and then another 1,100,000,000 in just the first two quarters of this past of this current fiscal year such that cumulatively since the IPO, cash, except for $300,000,000 And we have an authorization that is an open to buy, so to speak, that would more than cover that. That means we've returned over $12,000,000,000 in the form share repurchases and we've spent $2,200,000,000 on dividends. So I'd say we've walked the talk. Speaking of dividends, at the time of the IPO, we actually started with, I think what we'd all describe as modest dividend. It represented about an 11% payout on the 'eight earnings.
And we had fiscal year's net income adjusted net income. And with the October 2012 dividend increase. We basically not basically, we hit that target of 20% and we did it in 4 years, not 5. Going forward, we will be looking more towards setting our dividend based on positioning it attractively relative to companies in the S and P 500 that are growing their EPS at 15 percent or better. We obviously had to go through some pretty significant year over year dividend increases to get up to the 20% payout.
Going forward, having reached that benchmark, we will be targeting against this type of peer group and making sure that we always position ourselves attractively. And we will be planning on dividend increases on an annual basis. So going forward, think of it that way as opposed to solving a specific payout ratio. So that's a word on dividends. Just a couple of highlights on the main metrics.
First of all, how to read these tables? The Q2 is as reported. These are These are not normalized for the leap year that would have occurred in the prior year. If you want to do it just simple and quick, give you the normalizing effect. The a word on April.
The last time you saw April, it was April 28 days. This is the full month. So the numbers actually moved up a tad. And May is a full month. So when you look at this particular metric, which is U.
S. Payment volume, your eyes are immediately drawn to debit and April. And you will remember It was the month of April last year that the routing rule was we're now lapping last year, and you can see the difference in the growth. Otherwise, U. S.
Payment growth has held in constant dollar terms. All I can say here is full month of May at 12 excuse me, April 12, full month of May it today, we look at these numbers and we like them. Finally, process transactions. Again, this What you're seeing here is the lapping of the routing rules of last growth in both April May. This is the effect of lapping the routing rules.
Otherwise, the world very, very strong growth rates year over year. This reflects what Bill and Elizabeth talked about this morning in terms of the significant progress that we've been able to make in penetrating with greater processing in country. All of these metrics are completely consistent with our guidance. And so we affirm all the guidance that we have historically given, no changes. A few thoughts, early thoughts on 2014.
So revenue growth, as Charlie mentioned this morning, we We're 5 months out, early days on this. On the Q4, we still expect to be a range, but the level of confidence And there will be a lot more specificity around the guidance come in the Q4 earnings call. But given the momentum and in the business, we feel very comfortable saying low digit low double digit revenue growth for next year. As we move down The income statement, marketing expenses. Recall that this coming year in 2014, we will not We have a Winter Olympics in February, but we will also have a Summer World Cup.
So expect like some modest increases in marketing. Going further down, tax rate is always a work in progress, but we will give you very specific tax rate guidance on the Q4 call, bringing us to earnings per share growth. So we've said mid to high teens and supported by share repurchases. And we've also said free cash flow of $5,000,000,000 And you will remember that our guidance for what is it given our growth that is causing free cash flow to drop by $1,000,000,000 Let me remind you that reserve that $4,000,000,000 in our earnings in our reported earnings, you can't actually take the tax deduction until you make the payment. And so when we transferred the $4,000,000,000 that constituted the payment.
And for tax purposes, we were then able to deduct it. And if you think about, we it was a little over $4,000,000,000 roughly on the margin, 35%, 36%, that we were able to book in fiscal year 'thirteen that won't repeat in 'fourteen. In the view that life is never quite that simple, let me give you a little more color of what to expect, and then we'll give you plenty of guidance when this thing ultimately sorts out. Charlie mentioned earlier that our current estimate of opt doubts is 25%. So what will happen when the judge When the judge marks final approval on the litigation, then based On the opt out percentage, let's just say it's 25%.
Whatever the opt out percentage translates into There will be a return of the escrow because that money won't apply to them directly. So let's say 25% on $4,000,000,000 is $1,000,000,000 $1,000,000,000 will come back to us. We'll put it back into the escrow. We will then have to take that out of our tax return. Could happen in September of this year, which would make fiscal year 'thirteen event much more likely to occur in 'fourteen.
And so not only will we have the repeat of that $1,000,000,000 tax boost to our free cash flow, but we might actually have a few 100,000,000 going back the other way as a headwind in 2014. We as as we have a clearer picture of that, we'll let you know. We'll still even if it happens in September, we're still going to deliver about $6,000,000,000 of free cash flow. But the free cash flow number for 2014, as best as we can see it today, is about 5 And on that note, I'll call it a wrap and time for Q and A. Oh, no.
That's right. That's right. Sorry.
The time Byron got back to a seat, the wrap would be over. Come on up guys, seriously. Just Where is Jim? Over here? Yes.
So listen, I guess, while they're work up, the only thing I was going to say is, I hope you get sense for the way we see the opportunity at Visa. We have a great history. Almost everything that we're doing is building off of the history and building off of what we've done, but at the same time adapt change evolve. It's a very different kind of opportunity that we have than the opportunity we had 5 ago or 10 years ago, the position of the company is very, very different. And both internally and the way we engage externally is in fact evolving.
It's something that When you hear everyone talk, hopefully, you get a sense of consistency in terms of what we're focused on in the opportunity. So we are running a little bit late, which is why I'm doing this very So I thought we'd go right to Q and A, so we get in as much of that as we possibly can.
And just to let you know, if people have specific questions of Any of the panelists, they're here and they'll be able to answer them directly as well. That's the fastest hand I've ever seen go up in my
life. Thank
David Togut with Evercore Partners. Question for Elizabeth on the global prepaid and P2P business. Elizabeth, you highlighted your use of Western Union's cash in cash out network in the Philippines for your prepaid business. So really a 2 part question. Number 1, outside of the Philippines, how do you build out a cash in cash out network?
Work? And number 2, over time, do you see Western Union more as a friend or foe since obviously, you're in some respects, You're competing directly with them in P2P certainly.
Yes. And I'll start is this terrific. I'll start with the second Half of that question. And certainly, the opportunity to partner with Western Union globally is greater than is the competitive threat from them. And much of that, I mean, it all just comes back to the absolute size of the Charlie started with that.
Bill talked about it. I talked about it. The panel talked about it. There's enough room for everyone. And there's the world, including the United States relies on a different distribution channel.
So in some markets, we use post offices. In many markets, including the United States, we use retailers. In India, we use very small local retailers in the towns. It just happens that in Western Union, their agents, which also in Union, their agents, which also in many cases happen to be retailers are particularly well positioned to distribute that. So we look for where are the places that So we look for where are the places that the people who would be the target either for the benefits program or to use prepaid as their mobile current account, where is it that they are shopping and that they have a trusted relationship and then let's sign that up a distribution point.
Hey, thanks. Moshe Katri with Cowen. Since we're talking more That maybe collaborating more with merchants opening a more direct dialogue with them. Can you talk about your views on the so far on the MCX kind of venture where this is going, should we worry, are you worried about that? And then looking at that second part question, looking at private label cards And obviously, they've been aggressively pushed to consumers by merchants.
What's your view about that? Obviously, they're also partially your competitors. Thanks.
I'll do the second one first and I'll do MCX. The second one.
We have markets throughout Latin America, Mexico, Chile, I mentioned, Palobela. The fastest growing categories of our growth on issuance have actually been conversion of private label programs. For those of you who think that we don't have a good relationship with Walmart, one of our fastest growing programs in Mexico has been the conversion of their private label program to a Visa program. So we view private label in much the same that I made reference to the Alo program in Brazil. Getting consumers to electronify their transactions, get used to transacting with an account, we view is a wonderful bridge to a higher value, higher functioning account that they can get with their financial institution with Visa brand.
So yes, it's competitive. But ultimately, if it can create that path towards a moving away from cash and check, then we think It's all good.
On MCX, I guess, what I would say is, first of all, I'm not sure we know what it really is and what its endgame is. So I think it's I don't think we have a lot of ability to talk specifically about it. What I will say is that it's I think when we think about this very similar to the way we think about the closed loop versus open loop discussion heard earlier on mobile phones, which is, again, we believe in the open solution that we have is the best platform. We haven't had the kind of dialogue with merchants and engaged issuers talking directly to merchants in a way that can add that kind of value. So if It changes what they would want to do in something like an MCX, but time will tell.
Thank you. Bob Napoli from William Blair. Two questions. 1, you've added $700,000,000 of incremental Over the last 2 years, did you see adding that level of expense over the next couple of years in what is generally a high fixed cost business in generally the same areas? And then just on the Chase deal, really, Under what situations does Visa lose control of its brand or get less exposure for its brand other than Chase deal?
How does it change Visa's role? And what has been the feedback from your other issuer customers? Does it put at risk or give an opportunity to Mastercard at some point.
You want
me to
take the second one first? Sure. So it's important So just if I can bring clarity, the transactions that are launched by this Chase Merchant Services relationship that we've helped facilitate with Chase. These are Visa branded accounts, Visa account numbers, cards used at point of sale. So in our view, it doesn't do anything to diminish the brand.
Arguably, it actually does the reverse because what Chase is trying to do, what we think frankly is a trend, even the ICBA announcement that a number of us made reference to is a reflection fact that there are increasing opportunities that we can facilitate, hopefully within the brand, within the bank's brand to drive more value to consumers and merchants at the point sale that should be additive to the brand. So it's confusing Because it's confusing, because it's new, hasn't even hit the market yet. The client reaction, I think we can all appreciate, initially was mixed, as is usually the case with things that are confusing. I would tell you that over time, when we've sort of broke down and appreciated the dynamics of what was motivating Chase, the sophistication, the form factors, the opportunity to with merchants, things like offers, paying with points, things that we think will play to our strengths and bring more strength and value to the payment system and bring the merchants more into the fold. We're getting a better and better reception on the part of their clients who are less concerned frankly about what it might mean for them competitively and more interested in seeing how we might be able to partner with them to deliver similar value with their cardholders and with their merchants, which we think is positive.
The only
color that I'd like to add on that is on the brand, I mean, what we want is we want solutions in the marketplace that grow our brand and grow our issuers' brands. It's the way V. Me has been designed. So it's not in our minds a question of our brand versus our issuer. We want them to grow jointly.
And when I put up the slide that talked about what some of our principles were to do transactions like this preservation of our brand, and the ability to continue to grow the brand because it's an important part of who we are is extremely important. And then the one thing I would just add to the Chase transaction comments that Bill followed up on was, I think the most important thing honestly about actually announcing it publicly and getting people to think about it, even though it was done a little prematurely before we could actually talk about the specifics is it's gotten many, many people in this ecosystem really focused on figuring out how to work more closely with merchants. And if it did nothing other than that and we aided and abetted getting issuers focused Hey, there are things that I can do directly with merchants that I haven't been thinking about before using VisaNet as an important part of That's a hugely important catalyst which is playing itself out today.
With regards to the earlier question on expense growth. As opposed to answering it in dollars, let me offer a perspective on growth rates. In the sense that Charlie went back a couple of years to set the base. Remember, we went public in took an enormous amount of the management attention. And we spent the 1st 2 years not as focused on investing in all the kinds of things that Jim and the panel talked about, but instead trying to create a global company, one global company out of 6.
And as a result, Once that was behind us and we had the management bandwidth to really start focusing on the kinds of investments that will make difference for years to come. You saw a surge of very thoughtfully and deliberately placed investments and a growth rate in percentage terms, which shot up, which should We would expect to moderate. And so as we go forward, you should continue to expect very significant investments in technology and what and the strategies that are going to drive growth 5 6 years out. But in terms of percentage growth, at this point, we would expect that to moderate
Questions for Elizabeth. On the emerging markets, could you talk a little bit about CyberSource and the Alibaba I know that, that was mentioned earlier. But what's the opportunity to cross sell more services there? What do you think that relationship is going to look like over time? I'm assuming that's been helpful in terms of keeping a relationship with China UnionPay in back end somehow.
And the follow on is, can you use that as an example perhaps in other countries, particularly like India, if you could add some color to that, I would appreciate it.
Sure. And I do think that's exactly the right way to think about Alibaba and that is that we can use CyberSource to enable e commerce broadly in markets where it hasn't worked well or comprehensively. There's benefit to the cyber source part of our business in that. But of course, it also particularly outside of China is hugely helpful to our Visa Branded business because we benefit disproportionately both because it's online and because we tend to have the privilege of starting with a large share position. So Mike made reference to The fact that we have had done similar things in Russia.
We've done similar things in the Middle East. We haven't yet
done that specifically in
India, but that's the Alibaba and because it's China, it's a big opportunity, but there isn't anything unique about the structure of that relationship and the
Yeah. Thanks. This is Darrin Peller from Barclays. Just want to start off. I mean, you have a great position right now in your U.
S. Credit card portfolio, obviously, Some of the top U. S. Banks in terms of the issuers that are growing the fastest and largest as well. And while in 2014, there's not a The negotiations to be almost entirely around price and really what can you do to offset that wave of renewals to come around whether it's value added services or merchant pricing to merchants, is there enough power left out there to really offset pricing compression down the road?
And then just a quick follow-up
I'll take a first shot. I think
I'll answer this question the way that I have similar questions similar forms in the past for us in the past. I think you might be surprised when we're negotiating sitting down on the client around a multi Either new business or extension of existing business, the percentage of the time that's focused on the economics and the pricing is just not as Significant as you all think. I don't mean to diminish. We're talking about large portfolios and significant sums of money. It's there.
But the initial engagement with the clients, when you look at the with the clients. When you look at the fees that we represent as their portfolio and they look at we look at their objectives to drive activation usage and ideally pick up share within the category relative to other issuers in AmEx. The I really do think that the investments that we're making in credit, some of the things I talked about in my presentation, I wouldn't deviate at all from what Byron suggested to you that there's no question as our business grows with our largest clients, we see a slight uptick in yield in incentives, excuse me, slight downtick in yield, increases in the dollars of returns that we get on that business. And as I look out to 2015 or beyond, there's nothing that I see that would change the dynamic than what from what we've seen in the past.
And I'd just say on that, If we did nothing other than what we're doing today and the whole industry did nothing other than what we were doing today as new people develop capabilities and things like that, then you do start to feel like, gee, that doesn't sound like something that can preserve any kind of in the marketplace. So all the things that we've talked about and the slide that Jim put up that showed all those things that have been delivered over the past couple of years, all these value added services talking about, those are all things. We can argue that they're either things that are going to generate new sources of revenue or they're value added services, which are going to support price you have in the marketplace. And listen, we're not we understand because as customers grow, they're entitled to a different price in the marketplace. There is competition.
That's a good thing. But the There is competition. That's a good thing. But the way we're going to both differentiate ourselves versus our competitors and preserve the value in our
pricing is to develop all the things that we've
talked about, so that there's is to develop all the things that we've talked about, so that there's more value by doing it having your transactions go over our work than go over someone else's.
Thanks. Just one quick follow-up on the merchant litigation. Is it correct that the merchants that have can pursue further monetary damages on their own, but not injunctive relief on interchange or anything along those lines?
Yes.
Thank you. Julio?
Julio Canteros from Goldman Sachs. I had a quick one just on the thought with regards To extending the network, you guys have talked about that today. And thinking about how that translates into additional sources of revenue, A lot of the competitors that are kind of circling around this thing have sort of evolved to this notion that maybe getting revenue sources from interchange and merchant discount, etcetera, is not possible, but Advertising seems to be the area that they're kind of evolving to. As you guys think about that and the extension of your own network, do you see advertising opportunities, take rates, other ways to source revenue beyond just expecting process volume growth to continue to grow?
Yes. So somewhat Silvio was referring to, the closed services, the Sears relationship, I mean, speaks just to that. I mean, it's early days. And I think as an ecosystem, I think a number of folks are to your point circle around this. But I really think it's going to take an ecosystem play.
I think I go back to what I talked about in terms of frictionless commerce. I think right now, Unfortunately, most of the early thinking on this creates more friction than it actually resolves. I mean, you got to remember that you're tying it to the payment. And At the end of the day, the retailers in the business to close the transaction, not create confusion at the point of sale. That said, I think the work that doing with card linked offers, the Visa offers platform that Bill referred to with ICBA is just that.
We can help use the data in conjunction with the to source an offer to the right customer, we can take advantage of their location based information through the geolocation information we get off of the cell phone on a permission basis to link that offer to the phone or to the card. And when that card is used participating merchant, the offer is actually redeemed. Because we see that transaction in real time, we can actually deliver that message either back to the issuer so that they can directly to the consumer that offer has been redeemed or we can actually do the in line adjustment via point of sale redemption and deliver that discount in real time at the point of sale so that the merchant and the consumer see it there. All of that is an opportunity to not only deepen the relationship, in this case, like the ICBA's consumers from a customer relationship perspective, but there's a media and advertising component because there's absolutely an opportunity for merchants to begin to source offers on a targeted and relevant basis to draw in new customers. So there's absolutely new revenue streams there.
But again, I want to be clear early days. It's really about growing the ecosystem, but I do think that there is a knock on effect that is good for all participants in Transaction.
Just to be clear on that, when we sit around and we do our own modeling, we don't have a big advertising line. That's not the way we're thinking about it. We're thinking as we said over and over and over again here, we're thinking our we believe the biggest opportunity we have is to use the information that we see and flows over our network for the benefit of where that data comes from. And do we have the ability to go do other things with it? Yes, absolutely, we do.
But we want the issuers to trust us. We want merchants to trust us. And that's that to us is the most important thing because using it in that kind of way drives the transaction us again. Can we charge for it? Probably.
But it's all about driving transactions to the network.
Hi, Greg Smith with Stern AG. My question is, what is the long term future of acquiring model. It's just the merchant acquiring model and thinking about it from the perspective that here's Visa trying to add more value at the point of sale, while I would think acquirers want to do the same thing. Where does this all shake out for
the merchant acquirers?
Bill, you can talk I guess I would just start with we want to be clear, which is we don't we're not the work when we say working with merchants, Nothing that we're doing in those types of conversations are in any way cutting the acquirer out ourselves, so we can have the direct conversation, so we understand what they want, what their issues are, so we can figure out what changes need to get made. If figure out how we can do something with them working with an issuer. None of that has any intent to actually cut the acquirer So it's not a model that we're going towards. We like the acquiring model.
We do. And I'll add we like our company very much. We're 8,000 employees and there are over 35,000,000 merchants on around the world, ideally a lot more into the future. When you look at our business in the U. S, the reason why we have such broad based ubiquitous acceptance is because of the acquirers, the ISOs, the processors who work on that side of the business that we think about supporting every day.
And when we have difficulties in many of the Emerging Markets that Elizabeth and I referred to, it's because and arguably, we haven't done enough to support those organizations to go out and terminalize and drive the value to the merchants. So we view the acquiring business as fundamental on a partnership, not something into which we want to get. And as you may know, we when we acquired CyberSource, We reinforce that point by divesting the acquiring business to send a very clear message to our clients that we're here in Well,
even to add to that on
the innovation agenda, when I talk about point of sale redemption, Bantiv is the first partner. So we again, we think about network and the partners and how we serve the capabilities up through them. And even in the case of V. Me, scale will come through, acquire partnerships where they actually sign the merchants and process the transactions as they do today.
Thank you. Bill Carcache with Nomura. There's this notion of disruption particularly in the emerging markets given the opportunity that mobile creates. Can you talk a little bit about comparing The role of the participants in the 4 party system in developed markets versus how those roles could change in emerging markets? And potentially if you could also give a little bit of color around the economics of mobile, in particular, what you're seeing with some the partnerships with I think you had mentioned 150 closed loop mobile network operators are out there.
What kinds of things are you I don't know it's still early days, but a little bit of color around economics would be great.
So I'll start and Jim We'll add on at least Jim. So a number of people Bill, Jim, I talked about the fact that there are all of these closed loop mobile network enabled payment systems. There are 150 of them and there's that has achieved scale, which is obviously M Pesa, Sarecom in Kenya. The reason that they have not achieved scale is lack of interoperability, lack of network complexity all of the things that you have heard about repeatedly. And When they start to get to a certain size, the government around the world consistently in emerging markets, the government Where is my regulated financial institution in that transaction?
So the governments have a huge interest in having banks, the 4 party model alive and well in mobile if it is going to grow to any sort of scale. So we love the asset that we have, the position that we have with financial institutions and the mobile network operators see opportunity there as well. And you're exactly right. That is adding people mouths to be fed in the but more frequent and transaction based economics. So you have the banks holding the underlying account on both sides of the transactions.
You have the mobile network acting as the translation layer sometimes as the merchant, as the agent and then of course we play the role that we have always played in those transactions.
Yes. And I would just add from an economic perspective, unlike developed in a lot
of these cases, it's a
center pays model because the value and the functionality is so high that it doesn't impact our underlying Economics actually is accretive in a lot of cases given the role we play from a processing perspective as well in the case of Visa Mobile Managed Service and the gateway capabilities. And again, the theme here is we actually see this as a big opportunity. Again, the slide Elizabeth showed in terms of the growth mobile wallets. It's a great beachhead because these will all eventually go open. It's inevitable.
It will become a scale business like it is in the rest of there's no one better positioned that we believe than we are to help impact that change and bring these together. Thanks. Dan Perlin with RBC. In the aggregate, I just want to think about all of these new investments and products that you guys have or the strategies are ultimately porting more and more of your network economics to your clients and that's part of the strategy to become more open and flexible as a And I have one other quick question.
It wasn't meant to be a
the model that we have shared the marginal economics of a larger pie with our partners, mindful that there has always been attractive economics remaining to drive double digit revenue growth for the network. And so that path is one that we see traveling the future on.
Fair enough. And then the next one is just a brief question in terms Amazon, we hear, I think increasingly, both financial institutions and general retailers,
and to
a certain extent, some of
the things you've built, wanting to look more what Amazon has created over the years? And I would just be interested to know
your thoughts around that. Thanks.
Yes. Well, I think generally speaking, I think the recognition is, is that you've Got to go omnichannel. I think the whole point around capabilities, you're seeing a lot of retailers beginning to think about their brick and mortar shop as basically center. A lot of the things we're investing in that you've heard about today really are trying to enable the retailer to compete more effectively in this, again, increasingly omnichannel connected environment. With respect to Amazon, I mean, a lot of retailers wake up every day very afraid of what Amazon is doing to their business.
But in the long run, as at least our view is, I mean, electronification is inevitable. The retailing environment is changing. And again, what we're trying to do collectively is bring the tools available to them so they can compete in this space, both in an online and a mobile My view is it's good because good for everybody because merchants can sell 20 fourseven. They're connected. Can be more personalized, whether it's a micro merchant or the retailer down the street.
I think the connectivity again to the acquirer, the ability to use data to inform my business as well as in this offer space, the ability to source offers to local customers as well as those that are across the and around the globe, I think really creates a very competitive and healthy environment. And again, we're trying to do our part to make it easy from certainly the integration of payment into that space.
And they have a simple effective payment solution that works. So it should be enviable to people, but they also have the scale where they can build. Not everyone's got that. Very few people Just go ahead.
Hi, it's Brian Keane, Deutsche Bank. I just want to follow-up on the pricing question. I mean, it feels like some of your competitors are still raising price, adding fees, adding different ways to add fees to acquirers or to the aggregator model. It feels like Visa is the opposite almost wants to take fees down to be more appeasing and to add volume that way. I just want to is that the correct strategy the way to
No, I wouldn't say that. I would say, again, I think what we've what we keep consistently saying is that we don't feel like we'd have raise price to get the revenue growth that we think we should be getting. At the same time, don't at all think that we want to compete on price. We want to compete on capabilities. And so depending on what the marketplace says that pricing is we will always look at that.
We'll always make a decision. We're not saying we're not going to change price either up or down, but we want to build the business so pricing doesn't have to be the lever to grow. But we also don't want to be the ones leading it down either.
And then just a Follow-up for Byron. On client incentives, I know the Chase deal was more direct pricing and so that changed actually went lower. I would assume if there are more deals like Chase in the future, I was under the impression that incentives could come down again if there were similar economics. But you're suggesting that incentives are likely to keep growing. I just want to make sure I understand that.
Yes. So Too early to comment on whether other deals whether there will be a trend to direct pricing, but we have at least 2 phenomenas to work through and the guidance range we'll give on the Q4 call will make this we'll make the assumptions clearer. But we have Incentives that are now established in particularly in U. S. Merchants, we had a partial year in early on the as it relates to our U.
S. Debit strategy. And so, you have that lever that is pushing incentives north, where I know 88% sounds like a large number under multi year contract, but we have further to go. The more payment volume we put under contract that also pushes incentives north for very good reason. And then working the other way, you have the situation you just So the direct pricing.
So that was a big deal where we had more direct pricing, but it's too early to say that that's
Thanks. This is James Foster from Pacific Crest. I wanted to go back to kind of the omni channel related questions for retailers, etcetera. One of the concerns that retailers have expressed in terms of trying to pursue omni channel is the distinction between card present and card not rates. And Jim, in your presentation today, it seemed like a lot of what you talked about was technology that could start to enable at least harmonization of those 2 or eliminating the distinction between card present and card not present.
Can you talk a little bit about what has to happen from a technology perspective, so that Visa can really start or other networks can start to be indifferent? And then for Byron or whomever, what does that imply for pricing? I mean, Should we be anticipating ultimately when the technology is ready a change in pricing models around card present and card not present transactions?
Probably get
the second part. But as
it relates to omni channel, again, from our point of view, it's a great business for us and quite frankly, for the issuers and acquirers. I It's more electronic transactions. When a customer again walks into the Apple Store here in Union Square and pulls out their iPhone and is the EasyPay application and they don't need to get on the line and they can pull an iPhone off the shelf, scan the SKU and walk out the door. In theory, that's good for everybody. It's good for us because, again, we have a relatively good position in the wallet.
It's good for Apple because they, obviously, are selling more goods. It's good for their acquirer. It's good for the issuer because, again, we're converting transactions. The challenge is, as you described, Our historical point of view has always been that, that credential that was handed over to the sales clerk was a form factor that used the data that was on the card as the way to more or less authenticate the form factor, meaning the mag stripe or the EMV chip, whether it was tapped or dipped, sent in information Back to our network, back to the issuer where they and only they were able to with integrity say, Yes, that was my card. And as a result, we built an economic construct around that.
Certainly, card not present divorced those 2 was key entered. And so, again, there was that gap. We find ourselves in an interesting place where with omni The customer is there, but the card isn't being presented. But the difference is getting back to EasyPay application, there's a lot of other data that can be used. And so the challenge for us and Charlie has referred to this in other discussions and Sam talked about tokenization as a token in the broadest sense was That plastic piece of the piece of plastic, the magnetic stripe that an issuer issued, the underlying financial account was really the most important piece that relationship, meaning whether it was a debit prepaid or credit account, the bank issued me something that initiated that transaction and it came across VisaNet.
Well, we're at an inflection point in business with these mobile devices where we need to think about what this new form factor looks like and how we pass new pieces of data, device fingerprinting information, geolocation information, payment related information, potentially cardholder authentication back to the service that Silvio talked about and in aggregate pass that information back through our network with integrity, with transparency, such that the issuer can make an authorization decision much like they do today when that plastic form factor is So we're early stages. Yes.
Let me just keep it like from my own layman's terms here, which is that there There's this new category in reality that exists, which as Jim said is person present card not present transactions, which didn't exist several years And if we can figure out, which we think we can and we're actively working on, how to authenticate that in a way, which is safe and secure, then that's a reason to have a different category of transaction that exists today. And that's something that we're actively working through. And that will be good for everyone. Hi. Tom McCrone with Janney Capital Markets.
How should we be thinking about the current level of debit card interchange fees and the glide path. I mean the $0.21 should we be considering that fix for the foreseeable future given you talked about some of the schemes outside the United States. I believe Interacting sorry, just to clarify. We're trying to get a read on the glide path for debit card interchange fees. So the $0.21 is that something we should consider will be fixed and held steady for the foreseeable future or given some of the schemes outside the United States have rates, I think, below that, are those going to be drifting higher?
Or are you going to be drifting lower to meet those rates to kind of penetrate those markets? Thanks.
I'm not going to speculate as we sit here today on the trajectory of interchange fees in the U. S. Or internationally. I will tell you that and the Fed, I think over the past month produced a study showing sort of what's transpired post the Durbin Amendment. Look, the interchange fee continues to be a function, even if the regulated cap within that regulated cap in the U.
S. And the more competitive markets, fortunately, in most markets around the world continues to be a function of competing for issuance and competing for routing on the acquirer Merchant side of the business. So we're going to continue to respond as we always have to sort of market pressures and market conditions and opportunity to grow the business and support both sides of the value chain with how we manage the interchange fee. And it ends up being driven by competition. So I think we've managed pretty well thus far.
I think that the more important dynamic, which you touched on, which is to try to reinforce in any where the prospect of regulation comes up, we just need to engage differently and more effectively than we did in the U. S. To make sure that it's the market forces that are driving those rates as I described in that legislation or regulation.
And our final question back here.
This is Matt O'Neill from CLSA. Understanding Visa Europe is obviously a separate entity. I was wondering if you guys could just discuss from where you sit how you see market share having shifted over the past Say 5 years in the European region?
I don't think we feel qualified to answer the question. I
And on that note, I'd like to extend A heartfelt thank you to all of you for making the trip out here, those of you on the Internet. On behalf of the management team here at Visa and the, analysts, Feel free to join us for luncheon down the hall, reacquaint yourselves with the innovation
apparatus.