Welcome to Visa Inc. Fiscal Q1 twenty thirteen Earnings Conference Call. All participants are in a listen only mode until the question and answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time.
I would now like to turn the conference over to your host, Mr. Jack Karski, Head of Global Investor Relations. Mr. Karski, you may begin.
Thanks, Brad. Good afternoon, and welcome to Visa Inc. Fiscal Q1 2013 earnings conference call. With us today are Charlie Sharp, Visa's Chief Executive Officer I'm Byron Pollitt, Visa's Chief Financial Officer. This call is currently being webcast over the Internet and can be accessed on the Investor Relations section of our website at investor.visa.com.
A replay of the webcast will also be archived on our site for 30 days. A PowerPoint deck containing highlights of today's was posted to our website prior to this call. Let me also remind you that this presentation may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. By their nature, forward looking statements are not guarantees of future performance and As a result of a variety of factors, actual results could differ materially from such statements. Additional information For historical non GAAP or pro form a related financial information disclosed in this call, the related GAAP measures and other information required by Regulation G of the That's through the IR section of our website.
And with that, I'll turn the call over to Charlie.
Thank you, Jack. Very well said. I just want to start by letting everyone know how excited I am to be part of Visa. After 10 years as Some combination of an issue or a member of the Board, it's great to be part of a team that I've known for 10 years or so. And especially Byron and his team, who I'm going to embarrass him a little bit, It's even more impressive from inside the company than he was from outside the company as well as the team.
I do feel lucky to be part of what Clearly, as a growth company and a growth industry, these times are exciting. We've got some great competition out there, both from traditional players and from new players. But as I'm going to talk a little bit later in the call, we love our position. First, we're going to go through the quarter, which as you saw was very, very strong. And then even more importantly, I think once we go beyond that, I'm going to talk a little bit more about our continued strong investment in the future of the company.
And it's our confidence in that, you can see, it's exhibited by the additional share repurchase authorization that's and today's announcement. So Byron will walk through the quarter and I'll come back and give you some more detailed thoughts and we'll leave plenty of time for Q and A at the end.
Thank you, Charlie. As is my practice, I'll begin with some observations and callouts. First, fees' 12% net revenue growth And the fiscal Q1 was once again broad based as we continue to see strong credit and debit growth in the U. S. And rest of world as well as a return to positive growth in our worldwide debit business.
2nd, client incentives for the quarter as a percentage of gross revenue were 16.3% and below our full year guidance. This was a result of both lower than expected deal activity in the quarter and timing issues associated with incentives to certain clients. We expect these payments to be realized in the coming quarters. 3rd, aggregate U. S.
Debit payment volume posted a negative 4% growth rate in the fiscal Q1 of 20 13 versus a negative 6% in the fiscal Q4 of 2012. Of note, Q1 InterLink payment volume growth was off 44% versus 48% in the September ending quarter. 4th, Visa's Effective tax rate of 28.2 percent was positively impacted by a tax benefit recognized during the quarter As a result of new guidance issued by the State of California regarding apportionment rules. As a result, we booked a credit of $76,000,000 after tax, representing about $0.11 of EPS, which resulted in a Significantly reduced tax rate for the quarter. This catch up benefit is consistent with our court approval of the merchant litigation settlement agreement in December, we made a $4,000,000,000 cash payment from Visa's litigation escrow account to the Class Plaintiff's settlement fund.
This was in addition to $350,000,000 paid out in October to the individual merchants. The net result of these payments will be to increase our free cash flow by about $1,600,000,000 this year given our ability to deduct these payments from our U. S. Tax return. Lastly, We remain committed to returning excess cash to our shareholders with a new $1,750,000,000 share repurchase program.
To put this in perspective, during the quarter, we spent $1,300,000,000 to repurchase 9,000,000 shares at an average price of about $145 At the end of fiscal Q1, we had 1,100,000,000 of remaining authorization to which we added the $1,750,000,000 bringing our total open to buy to just under $3,000,000,000 Our priorities for the use of this cash remain the same. 1st, reinvesting in the business second, appropriate acquisitions and third, distribution to our shareholders in the form of dividends and share repurchases. Now let's turn to the numbers. As is our practice, I will cover our global payment volume and process transaction trends for the fiscal Q1 followed by our results through January 28. I'll then cover the financial highlights of our fiscal Q1 and conclude with our guidance outlook for fiscal 2013.
Global payment volume growth for the December quarter In constant dollars was 9%, up from the September quarter's 6%. More recently in the U. S. Through January 28, payment volume growth was 5% compared with 3% in the December ending quarter. Both U.
S. Credit and debit experienced improved growth rates. Global cross border volume delivered a solid 11% constant dollar growth rate in the December quarter, which compares to a 10% rate in the September quarter. The U. S.
Grew 9%, rest of world 11%. We continue to see very strong results from our Asia Pacific Through January 28, cross border volume on a constant dollar basis grew 12% with the U. S. Growth rate of 10, rest of world at 12. Transactions processed over Visa's network totaled $14,200,000,000 in the fiscal Q1, a 4% increase over the prior year period.
A 4% decline in U. S. Debit transactions was offset by positive 21% growth in debit and credit in the Rest of World. Note that as we begin to lap the impact of changes in U. S.
Debit regulations, we Process transaction growth was a positive 6%, driven by an improving trajectory in U. S. Processed transaction growth. Separately, CyberSource reported $1,600,000,000 transactions for the period, a 28% increase over the prior period. Now let's turn to the income statement.
Net operating revenue in the quarter was $2,800,000,000 A 12% increase year over year driven by solid growth in global payment volumes, data processing revenues, International revenues and as mentioned earlier lower than anticipated client incentives. After hedges, there was no meaningful foreign exchange impact on net revenue in the quarter. Moving to the individual revenue line items. Service revenue was $1,300,000,000 up 13% over the prior year period. Revenue growth exceeded constant dollar payment volume growth of 6% largely due to the decline in InterLink, A debit product that does not generate service revenues.
Data processing revenue was $1,100,000,000 up 17% over the prior year's quarter based on solid growth rates in Visa process transactions outside the U. S, Strong CyberSource transaction growth as well as strategic pricing actions taken last year related to the restructuring of our pricing in the U. S. Debit Market. International transaction revenue was up 8% to $805,000,000 reflecting solid strength in cross border As I highlighted earlier, client incentives for the quarter came in at 16.3% lower than we had anticipated on a percentage basis due to the timing of deals and certain incentive payments.
In future quarters, we anticipate a step up in incentive levels as a percentage of gross revenue consistent with our full year guidance expectations of 18% to 18.5%. Total operating expenses for the quarter were $1,000,000,000 up 13% from the prior year. This was primarily due to higher personnel and professional fees associated with investments in our growth strategies. Marketing expenses were up a modest 2% from the prior year As the first half of the year tends to be our quietest, spend will ramp up over the year in line with our guidance of under $1,000,000,000 for fiscal 2013. Operating margin for the quarter was 63%.
While slightly ahead of our full year guidance of about 60, this margin level is consistent with how we planned for the year. As noted earlier, our effective tax rate for Q1 was 28.2%. The lower rate for the quarter was primarily due to a Favorable clarification in the apportionment rules for the state of California. The resulting benefit was related to prior periods. That said, the Q1 tax rate is fully consistent with our full year guidance of 30% to 32%.
Finally, capital expenditures were $100,000,000 in the quarter, in line with our full year expectations. The adjusted weighted average number of fully diluted shares for the fiscal Q1 totaled 669,000,000 Other than the change in free cash flow guidance to about $6,000,000,000 there are no other changes to our fiscal guidance. And with that, I would like to turn the call back over to Charlie.
Thanks a lot, Byron. I thought maybe what I would do being new to the company is start by Just talking about my view of the company, the way I think about it and then move into priorities. And I guess I'd frame my thoughts The company by starting off with the fact that having been here for 3 months and been around the world spending time with people here, I am more bullish today about the opportunities that we have than the day I joined. And I think that's true of both the short term and the long term. Let me just go through some reasons why.
First of all, as you all know, the resiliency of the business model really is something pretty special. Everyone is aware of the global economic environment, the conditions that we've been working through. The important thing for us Is that we continue to have the ability to deliver through the economic cycle. 2nd of all, and I don't I wouldn't underestimate this issue, which is that there's a clear desire and a need for our product, both socially and economically. And when you travel around the world, it comes Loud and clear.
Our products help economies grow and they help people of all wealth levels as well as merchants and governments of all sizes. And again, especially once you leave the United States, as you talk to the governments, as you talk to merchants, that is the message That we get loud and clear. And then we also can't forget about this This huge number of 2,500,000,000 people across the world that don't have access to the formal financial system today. And our products that we offer can bring them into it. It really is something over time that will improve their lives and improve the economies in the countries that they live in and help advance those countries.
And obviously, as you've seen from things like Rwanda and some other stuff we'll talk about, there's great government interest in doing that. 3rd, there's a strong secular trend. That's clear. This continued growth in electronification of payments, which we've been living through is going to continue. Importantly, the way we think about it here, 1st and foremost, we compete with cash and checks.
After that, we compete with others in the marketplace. But there is so much cash in check across the globe, it is still And even more astonishing, the pie is getting bigger. There's more cash today than there was 5 years ago. And so this is just Obviously, a great opportunity for us in the market that we play in. 4th, we have an enviable competitive position.
You all know the share numbers, but it's not just share. It's the relationships that we have across the globe. It's the fact that we're a trusted partner in the payments industry Because of both what our brand is, but also what we've actually delivered over a long period of time here. And again, When you go outside of the United States, the power of the brand just it's something that people talk about over and over again. And those opportunities outside of the United States are exciting.
That's the 5th reason that I put in the bullish category because we've got huge opportunity in both developed and In both developed and less developed countries outside the United States, and I'll talk a little more of that in a second. The quality of the people at these across the globe It's terrific. This company has been built by the people that have been here and it's great to be able to work even more closely with them. And then the last thing I'll just talk about here is just our network for a second. I'm not sure we spend enough time talking about it, but it is It's obviously the core of who we are, but we have one global network.
And just the perspective of coming from outside the company, very few global companies out I can say that they have one network across the globe. It's efficient. It's controlled. It's a great platform. And to the extent we want to do things and scale them across the world, we can do them in a way that a lot of other industries would really struggle to do.
The network's been built over decades. We all know that it provides great global acceptance, clearing, authorization and settlement, But it's proven to be safe and secure. It's battle tested through the years is the way I think about it. And we continue to invest aggressively Because the world of cyber criminals is growing, not shrinking, and I'd rather Have our network than anyone else's at this point as we continue to build on that security and this becomes a competitive advantage over time. But beyond just the core capabilities of our network, the real differentiation for us is how we use it for our participants.
And I think about our That's risk management, it's marketing, it's offers, it's things like that. And we'll continue to extend access to the network and that's a big part of what our mobile activities are. And as long as we continue to do that, our network is far from a commodity. So moving to priorities for a second. I think it's totally appropriate to be clear that my first priority is to make sure that we continue the business momentum here.
No, the quarter speaks for itself. The past few quarters not few, the past quarters over an extended period of time here Say an awful lot about the momentum that this company has. I could go through a long list of wins right now in the quarter. I'm not going to do that. I'm not sure we all get benefit from that.
What I'd rather do is just focus on some examples of some interesting things that we're doing across the globe. First example is SORAL Money. It's a partnership with 5 leading clients, the Delhi state government and the Indian National Identity System. It's terrific. It's in market and something we're very excited about.
We also announced a strategic agreement with Kiwi. Kiwi is Russia's leading payment services provider. They provide digital wallet to more than 9,000,000 active Russian customers, who use them at more than 100,000 cash kiosks. What our agreement really is all about is transitioning the wallet from a single bank model to a digital wallet with stored value account based upon Visa prepaid cards that can be issued by any Visa client bank. It will be a great product to help alongside our own product.
And then the country of Myanmar, we're bringing electronic payments to the country. We enabled the 1st credit card payment through a Visa branded wireless point of sale terminal And our credit, debit and prepaid cards are able to be used in selected merchants. Another great example of the momentum that we have is v. Me, our electronic wallet. I know you've heard about it, but it's actually it's real, it's live, it's in the market.
At the end of 2012, we had 31 merchant sites live. We have an additional 132 signed up through yesterday, I believe. And we have 63 issuers who've signed up to participate. Those issuers represent 55,000,000 Visa cards It includes so far 12 of the top 25 U. S.
Banks, 51 U. S. Regional banks and PNC and Bank of America have integrated V. Me into their Online Banking websites. So I could go on about more things, but I thought I'd just turn now to some of the strategic priorities as I see them.
1st and probably foremost is the is to continue to extend the electronification of payments. It's obvious, but the pie is so big here. The more we do, it's good for all. For us to be able to do that, we are going to have to figure out how to be more flexible. This organization has got great history.
It's had great results. But if you go around and talk to issuers acquire merchants, we can be a little too rules oriented. And so we've got to figure out how we become less focused on rules while preserving what's important to keep the integrity of our By doing things like that, we can work with our customers to create more customized solutions and support issuers of all sizes. Not a small opportunity for us. It's I think a big opportunity for us to Partner more closely with our customers.
Next, I would put The 2nd biggest strategic priority, technology and innovation more generally. Again, my perspective here having Participated with the company for a period of time is just great progress. 3 years ago, when I was still on the Board, there was very, very little Going on here relative to using these new technologies to benefit us, it was still at the tail end of Taking the company public, merging the entities and whatnot. And over the past 3 years, the progress has been really terrific. I talked about B.
Me. Again, it's not an idea. It's in the market today. The work on mobile here continues both organically and with the acquisition of Fundimo. It's a critical access point to our network and continued investment in that is absolutely critical for us.
As we think about these capabilities and think about things that we do, our focus is on extending the core network And access and capabilities of that network. We love the business we're in. We're an integrated business. That's the core of who we are. It's the network.
It's processing. And the things that we're going to focus on will continue to be those things that support those core assets. We're also going to continue to be completely focused on supporting our customers. And those are it's the issuers and the acquirers and ultimately the cardholders and the merchants, But it's through those through our customers. We have no intention of disintermediating them.
It's they're too And as we think about these technology investments and whatnot, The way I like to think about it is, the more we work with our customers on these things, we tailor our investments Both with them and for them as we talk to them, we move to more of a partnership orientation as opposed to a vendor relationship. People when you go and you talk to people about our business, you can think about it 2 different ways. You can think about it as if Which we do know, there are other people that do what we do, with that core asset that we have. And one way to approach that From the outside is to look at it and say who's the cheapest price out there. But in anything, no matter what you do in life, there's always a cheaper price out there.
And our job is to make sure that we provide more value and whether it's through the relationship building, whether it's through helping people marketing, whether it's using their data, using their information, Building things like V. Me, building mobile, all those things that we do create more value, and so that people look at us much more of a partner than a vendor over time. 3rd priority, international growth and not something new. You've heard about this quite a bit. We've got an awful lot going on.
And I just also always think it's important to say, we love the United States. We love our position in the United States. We've got some really neat stuff going on here. So It's not to say otherwise, but it's hard not to look at what the opportunity is outside the U. S.
And say it's just large. It's all across the world, here too. It's both short term and long term. It's large developed markets where there are Big cash based economies like Japan and their emerging markets all over the world with very little acceptance as I referred to earlier. We're investing aggressively here.
We're opening new offices and adding people in country. In 2012, we opened 6 new 17 expansions and more to come this year. We're growing acceptance. We're expanding CyberSource globally. We are working closely with governments.
It's a huge part of the effort to partner with governments to push electronification of payments. And country by country, we've got very, very specific and very different strategies. Some parts of the world, NSC through PayWave is extremely important, places like Canada and Australia and the products we have are extremely helpful to us in building our business there. Other places, it's traditional debit, credit and prepaid. In other places, we know the importance of mobile.
So we're going to continue to invest here and take advantage of the large opportunity that we all know exists. The next priority number 4, I would talk about merchant relationships. This is one where we provide great value For merchants, I absolutely believe that. And you've got examples like square type technology and Pricing on those products out there, which just shows you that people, small merchants are willing to pay to electronify their world because they know how difficult and how expensive cash is. Having said that, we also have to acknowledge that it's on us along with our issuers and acquirers that we do business with to prove it to merchants day in and day out.
Some believe it. I mean, I've had conversations with plenty of merchants that think we do a great job partnering with them. But obviously, there are an awful lot which We're very vocal that don't believe that here in the United States. And again, that's on us to figure out how to change the nature of that relationship. So we need to do a whole lot more.
It starts with engaging them very differently. I'm not talking about the courts and through D. C, I'm talking about directly. We need to balance their issues with others in our value chain. It's just an extremely important concept that needs to permeate the way we think about our business.
And most importantly, it's up to us to prove to them that we can actually help them grow. We talk about this internally. It's that Visa cardholders are the largest And to the extent that we can work with merchants again through our issues and acquirers and show them how we can add value to them in building their businesses. That's what we've got to do to change the nature of that relationship. And so we will be doing a lot more of that.
Employees, I'd be remiss if I didn't talk about employees as a priority because This is a business based upon the quality of the people that we have. We've got a great group of people here across the globe who I've gotten to know. It's my job to continue to create the most attractive environment, so we get the best, the smartest and most vibrant thinking in this company. 6th, capital allocation. And if you're sitting on the edge of your seat for nothing for something new, you're not going to get it.
The company historically and I, I'd say, 1st of all, have great respect for the responsibility. We understand what it means and we understand that's been a consistent theme since the IPO. Intelligently means investing it in our core assets organically or through acquisitions like you've seen us do. But obviously, if we don't see those opportunities, then we're going to return it to you through dividends and buybacks. We're going to always prioritize what we're going to do based upon the returns for the shareholder and our goal is to reward shareholders that continue to own the stock.
So again, it's something that there's a hopefully a whole lot of consistency with my thinking and what the thinking has been here. And then the last priority I'll end with is the continuing open dialogue that Visa has had with the investor community. I certainly look forward to getting to know all of you. I know some of you. I look forward to getting to know many more of you sharing my thoughts, Our thoughts in more detail.
And to that end, just so you know, we are working on planning of an Investor Day, which we're Firm up the timing and Jack will be back to you with the specifics relatively quickly on that. So before we open it for Q and A, let me just start by saying a couple of things here. I hope you get the sense as I talk about how I feel about the opportunity here that the runway for growth is long and it's steep. As we think about what we do here, we've got to balance the short and the long term. And what that means is there is no long term, not a short term, so we know we must deliver.
But when people hear when people like to ask the generic question of how you define success 5 years from now, to me, it's really all about we feel great about the opportunity for the 5 years, but success is going to be that we're sitting here 5 years from now and we feel as good about the forward looking growth as we do today. And that's if that's if that doesn't happen, shame on us because we've got the assets and we've got the business to do that. And we are confident that we will So with that, I will stop and Byron and I are here to answer your questions.
Our first question will come from Jason Kupferberg from Jefferies. Your line is open.
Thanks and Charlie welcome aboard. Appreciate all the comments. Just wanted to pick up on one of the things you said in terms of These are potentially becoming a little bit less rules oriented going forward. Anything you can elaborate on there? And how soon we might see this?
And then Byron, if
you can just give us
a quick clarification on the tax rate issue. It sounds like what you're saying is that you guys already had anticipated this Tax benefit when you gave the 30% to 32% full year tax rate guidance and the high teens EPS guidance last quarter, Is that accurate?
Well, I'll start. On the tax rate, that's correct. It your tax rate is always comprised of components. This was a component that the timing of which uncertain, But this type of component was contemplated and as a result, it's fully consistent with the guidance we gave At the end of last quarter.
And Jason, I'll take the question on flexibility. I think the way I think about that one is, again, if you go around and you talk to issuers across the globe and if you talk to merchants And if you ask what is the negative quality of these, hopefully after they go through the long list of positives, they'll talk about That we're not as flexible as we could be. We've got lots and lots of rules. And so what that means is they tend to get nervous that we can just Change rules. They're not sure about how that might impact them in the future.
And our goal should be that we've got rules that Protect the integrity and the value of our payments network. That's why they were put in place to begin with and they've just grown over a period of time. So what we have to do is as the company evolves is become much more commercial, define the rules as those things that are Core to who we are and the protection of the value of our networks I described and then move other things into commercial arrangements that you'd have with customers.
Our next question will come from Craig Maurer of CLSA, your line is open.
Hi. And let me add my congratulations on your first quarter with Visa. I want you talked earlier about the importance of a global network, but Visa is a separate entity From VISA Europe, VISA Europe. And I wanted your thoughts on how long Term Visa Europe plays into the global strategy?
Yes. Listen, I mean, I'm sure you guys have talked For 5 years about the status of Visa Europe and the put and whatnot. I would say, Liz, we have Very close working relationship with Visa Europe. You are right to say that from a European perspective, It's a separate system, but it's interoperable. But when we go to market, we work extremely closely with them, so that when customers deal with Visa, it is up to us to figure out how to coordinate with them.
I've spent time with some of our big global customers and the feedback is it works well. There are other customers that like to deal with us Separate entities just as they would if we were 1 big company. Listen, would you design a company like this? No. But it's a fact of life and the put's the put and there's nothing more to say about it.
Our next question will come from Glenn Fodor of Autonomous Research. Your line is open.
Hi, good evening. Charlie, look forward to working with you. I'm just trying to get my hands around what Visa's strategy might look like as Technology changes the industry. And Charlie, how far do you think Visa may stray from its historical role as exclusively a network in the middle? By this, I mean developing more consumer facing initiatives like V.
Me? And then how would you reconcile this strategy with those of your constituent partners who oftentimes are pursuing these same strategies, so there could be some competitive or brand conflict there? Thank you.
Yeah. Listen, We're here to support the customers of our issuers and acquirers. That's the way we think about it. That's the way things are built here, and that's the way things will continue to build to be built. So something like V.
Me, We're building V. Me on behalf of our customers. If you go use V. Me, you have to register So that your information gets in there. But from that point forward, it is completely supportive of our banks.
When you pay for something using v. Me, we have the ability to show card art exactly as it is just in someone's wallet today. So Viad. Me is not meant to be direct to consumer to go around our issuers. It's actually just the opposite.
It's meant to with electronic wallet that will enable them to continue to grow commerce. And so as we think about When we talk about extending who we are, we love the business that we're in. Presumably, you all love the business that we're in, which is why we trade the way we do. And so we're very mindful And the opportunities for us to continue to figure out how to use technology whether it's our own or whether it's other people's To feed that network and to use our assets is what we're focused on.
Our next question will come from Dan Perlin of RBC. Your line is open.
Thanks. So I just want to return to this issue of capital allocation I know that you said that there's not much of a change. But I was thinking more in terms of the first priority is always back into the business. And I heard you mention in your kind of prepared remarks around priorities and others outside the U. S.
A number of times. So I'm wondering if you could just shed some light without being too specific, I suspect, on kind of how we should be thinking about capital redeployment through this
Yes. I'll start. So I would say the first call on the growth in our capital is going to be Software development that underpins our products that our new products in mobile V. Me are Right on the point of the spear with that. That is that would support products that would be deployed both in the United States And in rest of world and the development of those products, the actual incurring of the capital would also actually Occur both in the United States and outside.
As you build additional product capability and extension of the Services we offer that will also require investment in infrastructure, not just the capacity to house, to operate and a process, but also new challenges like security. So VisaNet, Very, very formidable battle tested defenses. As you start moving into products that don't have That are going to start operating as an extension outside of VisaNet. It requires additional Investment in technologies in order to properly secure. And so That is the primary source of hard dollar capital.
And then as Charlie mentioned, We still have an enormous runway of growth in our base business. So we are adding offices. We are expanding. We are putting more people On the ground, we are at our best when we have people deployed in country giving personalized tailored service to our clients, Banks, acquirers, merchants and so that reinvestment will not just be capital expenditure, It will also be operating expense with an immediate return in the core business.
And let me just add to what Byron said. If you just look at relative levels and just to get my own view coming in from the outside is there's a lot of investment that's going on here. You see it in the expense line. You see it in the initiatives. You see I mean, you don't get to market Something like V.
Me without putting the resources into it or being able to be in the market with mobile without having used the capital on something like Fundemo and whatnot. So there is a significant level of investment going on what you see and it still allows us to do what we've done with the dividend and with the repurchase program here. So we feel like there's just plenty of room for all of those
Thanks. Our next question will come from Rod Bourgeois of Bernstein.
Hey, Rod. Great. Charlie, so with your experience on the bank side, are there tangible steps for you to make to help Visa improve Its relationship with the banks, particularly the large banks. For instance, as you push new products like V. Me, You need the large banks on board.
And so far, it's unclear to what extent the largest banks are fully supportive At this point, it's helpful to hear that 12 of the top 25 banks are signed up for V. Me, but that could imply that 13 of 25 are not signed up at least at this point. And so that's one example. But on that example in Visa's general relationship With large banks, are there tangible steps to take to better engage with the banks? Thanks.
Yes. I guess, let me answer it a couple of ways. And To just listen, we can always improve relationships. So let's just I mean, I'll but I will come back to that. I said 12 of the top 25.
We have 4 of the top 10 who were already signed up for it. And again, when you say Large banks, the Bank of America is a great partner of ours. PNC is a great partner of ours. U. S.
Bank is a great partner of ours. TD Bank is a great partner. I mean, I can go on through the names. We have a great list of partners that are currently signed up for it. I've spent a bunch of time myself talking to the biggest banks in this country.
But just so you know, I don't spend all my time Thinking about the biggest banks in this country, the big banks here are important, but so are the regional banks, so are the credit unions, so are the community banks, Just as the banks overseas. So I just want to be clear about that. But listen, we have you go through the relationships that we have With the big U. S. Banks and it's hard to say you trade our position with anyone in the marketplace.
And is that something we have to earn every day? Absolutely. Are things like V. Me things that actually solidify those relationships? Absolutely.
There's a lot more that we're doing working In partnership with banks of all sizes to create that partnership orientation away from a vendor Orientation. We view it as something that it's not a God given right. We've got to earn it every day. But again, just to And where I started is, we've got great relationships with these banks. We don't take them for granted.
But like anything else, we work we come in Every day to figure out how do we make them better.
Our next question is from Tien tsin Huang of JPMorgan. Your line is open.
Hey, great. Thanks. Charlie, welcome to the call. Just thinking about your initiatives being more flexible, partnering And customizing, I'm curious to accomplish this, do you foresee more investments required to get there or All the pools in place. And I also wanted to ask just about your comment about working closer with the merchants.
I know Visa has been moving closer to the merchant for some time and given your From the issuer side, how much closer it can be to get to the merchant before you, I guess, complicate the issuer relationship, if you follow my question?
Let me do that one first. I'm not at all worried I'm not worried. I always worry To the extent of we always should be careful and clear. So put just assume that's the case. But in my conversations with issuers, We all agree, because they're in the exact same spot, and I speak as much from where I came from as where I am, That we all need to do a better job of working with merchants.
Listen, our customers are merchants and acquirers. We've got that. We understand that. But ultimately, There's someone who uses the payment product and there's someone that accepts the payment product. And if the person that accepts the payment product is not particularly happy, that's not a good thing for us.
It's not a good thing for the issuers either. So we're in total alignment on changing the nature of those relationships where they're warranted. And it's something that we do that we're working on in partnership with them as well as partnership with the acquirers. We've had very opened conversations with the acquirers about that. I was just with them with all the big acquirers this past weekend and they're totally supportive of it.
So I'm not assuming that we do this openly the right kind of way, I think we're all in this together. And your first the first part of the question?
Yes. So I'll take the first one. So the first question I think Tien Tsin was more about in our efforts to We have more tailored and flexible client relationships. Do we expect this is that going to cost more in terms Capital. And I would say at the current point in time, the big capital is in creating the products And in the capabilities that allow you to operate and leverage a large network.
And that today, Is there expense involved in tailoring? Yes. But we don't have line of sight to large expense. And a good example of that Would be our strategy of recognizing, as Charlie said earlier, that the single largest open to buy on the planet is the Visa cardholders access through our network. Hence, we part of our strategy is to build Products that can be accessed through our network with common spec APIs that make it very easy for users or our clients to hook into the network.
So in the spirit of how we're Expanding our capital, I would say over the next several years its past is much more representative of Prolog.
Our next question comes from Chris Brendler of Stifel and Nicolaus. Your line is open.
Hi, thanks. Good afternoon. I wondered if you could just skip Color on the progress you're making with Intralink. Any sense of how much success you're having with PABD and actually getting Transactions routed over that Signature Visa network on the debit side as well as any update there may be on the fan fee? And then maybe Charlie, along with the fan fee, is there anything in that comment you made about being closer to merchant and working more with the merchant that would make
Let me take that one to start. So on InterLink, If you go back to the 3rd fiscal quarter of 2012, that was the quarter. April 1 when the dual network Durbin requirement became effective. That was high tide in terms of interlinked payment volume Loss, so our growth rate in that 3rd quarter was minus 54%. If you then move to the 4th quarter, so that's The 4th fiscal September ending quarter, the growth rate for InterLink was minus 48.
If you then move to Q1, so the December ending quarter, we're at minus 44%. And so these and Clearly, we're going to have one other major quarter of transaction loss through InterLink Because it will take it takes 4 quarters to lap the Durbin effect, which you can see 54%, 48%, 44%, there is progress. Having said that, there is going to be as we said all along, there is going to be a significant permanent transaction loss As a result of the Durbin regulations. And so while we would expect to continue to make some progress, There is no way we're going to get back to where we were before. And then as I mentioned in my remarks, once we get into That 3rd fiscal quarter then the growth rate picture should start looking very different with regards to our debit business because we're now lapping Durbin.
With regards to Paved, Paved is up and operating. It's important to note that a transaction that That is Pave transaction actually shows up in our Visa debit payment volume not InterLink. And so Paved is up and operating. You should think of that at best contributing Very modestly to our payment volume growth in U. S.
Debit. And with regards to FAMP that And remember FAMP is one part of a much more comprehensive fee restructuring, which was combined with a lowering of our Per transaction cost, in addition to the introduction of merchant incentives to encourage routing, Which is still on the upward ramp. VAMP has now been in place since the April quarter And so far seems to be going well. Charlie, do you want to add anything?
I guess the only thing I'd add is, Listen, I think it's unfair and it's hard to try and stick yourself into the position of someone else When you're going through what this company was going through. And so I have not personally sat and gone Through exactly what happened, what was the thought, what were the options, I mean, all the things that you would do to answer your question directly, I haven't done because I'm looking at the future here. But as I said, I think as we and I think we're all on the same page internally on this one is just as we look forward, which is the important thing here, I mean, it's about balancing everyone's issues and it's balancing issuers. It's balancing those with Merchants with acquirers with our own needs. And we're going to be very, very conscious of that.
We're going to do the right thing whether it creates noise or not, But make sure that everyone's represented in that discussion before we make a decision.
Our next question will come from Don Fandetti of Citigroup. Your line is open.
Good evening. Charlie, wondering if you could talk a little bit about how you view sort of the longer term threat from China UnionPay and then maybe talk a bit about how you see the sort of opportunity in China playing out and what your approach will be to that market?
Sure. I was in China, I 2 or 3 weeks ago and had the opportunity to meet with a couple of senior members in government with some of our big clients With China Union Pay and do some and participate in some other activities that we're involved in socially there. China is an interesting place for sure. We're there. We make money there and we've got some great partners there.
The WT ruling speaks for itself. Over time, that market will evolve and will change. And we feel like it's important for us To be a good partner to people within the country, to bring the benefits of Visa to China. In my conversations with people there, they want us there. They think we can add value, not just because of the brand, but because of what our network is versus Maybe what China UnionPay is today.
And we would hope over a period of time that we can Work with China UnionPay in the context of the way the regulations exist today. And as that market changes and evolves, We'll figure out how we can do more inside that country just as they look beyond that country As they develop. But again, I come back to what we have. Our network has been around for a long time. We've got 2,000,000,000 cards.
Is that the number? 2,000,000,000 cards outstanding, the largest open to buy, the quality of the fraud tools. I mean, I can go on and on about what our network Has. And if there's another competitor out there, so be it. Good competition is a good thing, not a bad thing.
Our next question will come from Andrew Jeffrey of SunTrust. Your line is open.
Thanks. Appreciate you taking the question. Charlie, when you think about investment in the business aside from products and so forth, How do you think about market share, I think particularly in the U. S, which is the most mature market which you operate from an electronic payment standpoint. And should we consider an effort to bolster share Both on credit and debit as a central component of the investments going forward as well?
Yes. So listen, I said this before, which is our number one opportunity is cash. So we're constantly the first thing we look at when we think about share is we think about the share of Cash versus electronic payments. And it's our goal, it's our mission, it's what we do for a living is to Move that number towards electronification for all the reasons I talked about. It's just it's the right thing and it's a good thing for all the participants in the marketplace.
And so I know everyone likes to always ask questions. I mean, even my old job, they used to ask how you compete against the other competitors out there. We've got great competitors. They're doing some neat things. They're smart people.
So I think 1st and foremost, given the market we're There's plenty of room for a bunch of us to be successful here. And so that is the enemy first and foremost is cash. When you look at how we're doing versus competitors, we look pretty good, pretty happy with it.
Our next question will come from Tim Willi of Wells Fargo.
Tim, if you're there, you're on mute. Can't hear you.
Sorry about that. Thanks for pointing that out. Can you hear me
now? Yes.
Yes. So on the regulatory front, as you've traveled the world, it sounds like over the last several months, could you give us Your thoughts on what kind of regulatory and political environment that You have to navigate how you think that would impact the economics of your emerging market growth versus how your economics look in the more established markets and if you've been Pleasantly surprised or found it to be more challenging as you assess what you've heard over the last couple of months globally?
Yes. I would say I mean, I think first of all, It's very different in different parts of the world. And so you obviously know about the U. S, you've read about Canada, you know about Australia presumably. And it really is different depending on where you are.
What I and I alluded to this in lots of my remarks when we started, but I was really positively taken aback By the desire for government officials to want us to be in the market committed to helping electronify their payments. It doesn't mean that they're not concerned about interchange or they're not concerned about figuring out What they want in country versus not, I mean different countries have different points of view on that, But they want us to be a participant. They see the value in that. And again, this is not this wasn't me going around the world Trying to sell our services, this was me going to meet people. And as part of that, the clear message to me was, we want you here.
And when you're in that kind of situation, that's a pretty good place to be in. Arren, anything you want to add?
There's a wonderful dynamic. There are always 2 doors in the government. The first door is Always open with an open invitation. You can't tax what you can't see. Hence, there's a very strong motivation for governments to be Very interested engaged partners.
And then I would say the other piece is, our position and others, when we get Deeply involved in the electronification of payments, we become an important part of the money Monetary system or can be in a country. And that's why in virtually every major market, we have government relations representatives. We engage early. We educate. We lay good groundwork so that these dialogues are constructive And increase the probability of a good reinforcing regulatory environment as we lay the foundation for Growing in the domestic markets of these emerging markets.
Our next question is from Bob Napoli of William Blair.
Thank you and welcome Charlie. Your bar is a lot higher than Joe's was. Your stock is trading at 21 times earnings. It was nowhere near that when he started. So given that bar and given that this looks like such a great story and is why the valuation has done what it has.
What do you view? What are you most worried about? What are the biggest risks that can derail this train? I mean, is it something like a PayPal offline and MCX Other countries like India, RuPay going the way of China, UnionPay, what are you most worried about? What can derail This what has been a great story so far?
So let me just go through a couple of thoughts. 1st Of all, I would say focus. Knowing being clear who our clients are and not is We get a lot of pressure from a lot of people to use our assets to go do things and whatnot. And so my Comments around knowing that our clients are the issuers and the acquirers is extremely important. We changed the nature of those relationships.
We put a lot Money in jeopardy at this place and potential future growth. Regulation and legislation Clearly has been a big issue for the industry. We're very, very conscious of it. You can't be here And not the hopefully some of the things I talked about when I talked about the priorities over time are things That get to those issues. Because ultimately, if you've got the people who are participating in the payment system Wanting to do business with you as opposed to the opposite, then you don't get some of the pressures that you see.
Again, competition is competition. I mean, there's some great competition out there. I wouldn't trade our position with other people. It doesn't mean that we don't think about them. It doesn't mean that people don't do some really smart things that we sit there and we say, Why them and not us?
That's always the case in every business. But hopefully, they're sitting there and thinking more so of us. So we spend a lot of time talking about both the traditional and the non traditional people. So for sure we worry about it. But ultimately That one as of sitting here today, we feel like we're in a good place.
Brad,
at this point, we have time for one more question.
Our final question will come from Bryan Keane of Deutsche Bank. Your line is open.
Hi, guys. I just wanted to follow-up on a couple of questions. I guess Charlie on the strategy, how do you feel about the risks of being disintermediated either through ACH or Through another player, especially as we move into more of a mobile world. And then secondly for Byron, just The rest of world payment volumes kind of spiked in the quarter. Just curious to know if that was supplemented by some new wins that pushed that number higher?
Thanks so much.
Sure. So on disintermediation, when I talk about competitors, traditional, non traditional, that encompasses a wide range of people. So Again, we think about it. We worry about it. What we hope people would look at over a period of And what we think people look at over a period of time is our assets that we have here is really hard to build.
It just is. The global connectivity, the acceptance that we have, the actual network the way I described it, And other people have other assets out there that they bring to the party. And what we should be doing and are doing and will do more of is engaging with that community to figure out how they can get access to our network in a way which is Friendly to our customers because, ultimately, it doesn't make sense for them to go build something that we already have. Doesn't mean people won't try. Doesn't mean they haven't tried in the past.
But again, I keep kind of saying this, it's up to us To prove to people why our asset is as good as we think. And that's what we'll continue to do.
And Brian on the International PV uptick in this quarter, for reasons That are not that aren't clear other than the tension that we had around China and Japan, mostly in Asia Pacific around that impacted the Chinese, the Japanese, Korean cross border travel as tensions over island ownership spiked Everything from the Senkakus to the Douyu's to the Spratlys, there Seemed to be a more broad based malaise in that quarter. And the recovery, If I can call it that or the rebound was very broad based. It's still down in that Pocket of Asia where the where that tension existed last quarter. But there's been more of a broad based uptick. So it's not wind specific.
It's more of a broad based uptick. And remember for us That's the world excluding Europe.
And with that, we'd like to thank everybody for joining us today. If you have any follow-up calls, Feel free to give Investor Relations a call. Thanks everyone.
Thank you for your participation on today's Call at this time, all parties may disconnect.