Welcome to Visa Inc.'s 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 Carsky, Head of Global Investor Relations. Mr. Carsky, you may begin.
Thanks, Jose. Good morning, everyone, and thank you for joining us today. With me here today are Joe Saunders, Visa's Chairman and Chief Executive Officer, and Jim McCarthy, Visa's Global Head of Product. We're delighted to be here today to discuss Visa's unveiling of our next generation of electronic payments and services. Joe will provide an overview of our strategy and how we are thinking about the future of electronic payments in a rapidly changing landscape. Jim will then take you through the details of the various products and services, and we'll then have time to address any questions you may have. Before we begin, let me please remind you that this presentation contains forward-looking statements based on current expectations or beliefs, as well as a number of assumptions about future events.
These statements are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The audience is cautioned not to put undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to a number of uncertainties and other factors, many of which are outside the control of Visa. The forward-looking statements in this presentation address a variety of subjects. In addition, actual results are subject to other risks and uncertainties that relate more broadly to Visa's overall business, including those more fully described in Visa's filings with the SEC, including its annual report on Form 10-K for the fiscal year ended September 30, 2010. With that, I'll turn the call over to Joe.
Good morning, and thank you all for joining us, and thank you, Jack. As I committed on last week's earnings call, this morning we announced the next generation of Visa payment solutions. They will deliver value to consumers and our financial institutions and merchant partners by replicating the convenience, reliability, and security of Visa point-of-sale payments for e-commerce, mobile commerce, social networking commerce, as well as traditional retail environments. They will help drive Visa long-term growth by creating industry-leading solutions to grow the use of our core products in new channels by making Visa transactions more attractive to merchants and by creating new revenue-generating services. Our new solutions feature a secure cross-channel digital wallet and a range of customized mobile payment services that address the specific requirements of markets around the world.
A while ago, we started to see clearly that the way people connect and transact across the globe was changing dramatically, driven by two global forces: the continued secular shift from paper-based to electronic payments that still largely occurs at the physical point of sale, and secondly, the widespread adoption of mobile and internet technology. Seeing this convergence and recognizing that consumers and merchants are looking for payment solutions that harness these technologies, we began development of a strategy to extend our payment leadership to these new arenas. In determining what capabilities were required to lead in this space, we assessed what we already had and where we needed to build, buy, or partner. This led to the acceleration of some in-house development as well as some acquisitions and partnerships that you have heard about over the past year.
Namely, the CyberSource acquisition, which expands our e-commerce capability and merchant relationships, the PlaySpan acquisition, which provides Visa with a digital wallet capability and a strong key position in the fast-growing virtual commerce space, the partnership with Monitise, which provides us with mobile payment application development expertise to accelerate our offerings to financial institutions that drive the use of Visa products on mobile devices, and finally, our Device Fidelity partnership, which transforms the smartphone into a Visa NFC payment device. I believe it is the combination of these new assets with the foundation that has made us successful for the past 50 years that will help ensure we secure our industry leadership as technology developments change the environment in which we compete.
As we move forward, we will continually build and acquire additional capabilities, although I currently do not see any acquisitions of the same magnitude of a CyberSource at this point in time. Core to our approach has been the guiding principle that a globally viable Visa payment solution must deliver on our brand promise of convenience, security, and reliability. Unlike other solutions in market today, they must be open and interoperable and be able to work globally. As I said on our earnings call, none of the solutions we've seen from our competitors is comprehensive enough because they don't address all of these criteria at once. Visa has long delivered solutions at the physical point of sale that passed this test, and we are applying the same Visa quality standard in the online and mobile arenas. That's not easy to do.
The challenges of mobilizing electronic payments at scale are significant. More players are involved in the transaction: mobile network operators, handset manufacturers, software, and service providers. Payment cards and POS technology are easy to standardize, mobile handsets and operating systems are not. There is no interoperability today among closed-loop mobile money schemes. New transaction protocols and rules are needed to comply with local and international laws. Technology adoption is accelerating, and consumer behavior is changing, and payment solutions need to keep up with them, or better yet, get ahead of these shifts. Today, Visa cards have the reliability of a dial tone, and they come with robust security, privacy protections, guaranteed payments to merchants, and unsurpassed global acceptance. The Visa logo is ubiquitous, and Visa cards work everywhere, every time.
That's the standard Visa has set, and these are the expectations that merchants, consumers, and financial institutions will have of mobile payment devices. For e-commerce and mobile devices to be a viable payment channel, they must work just like Visa cards do today. The investments we are making in these new solutions are an important part of our long-term growth strategy. They will help drive future growth in three important ways. First, these new payment solutions will drive additional usage of core Visa products, credit, debit, and prepaid in e-commerce, mobile, and social network environments. Simply put, as consumers change their habits and migrate to these new channels, we will protect and grow the number of Visa transactions riding on our network.
In the years to come, more people will be conducting commerce through these channels, more merchants will be accepting payments via these channels, and they will opt for solutions that deliver the most value and that they trust the most. Second, these solutions bring more value to merchants, making Visa transactions more valuable to them. As we simplify e-commerce with a Visa click-to-buy solution, we will take another step in removing friction from commerce. When a consumer has the ability to purchase online with one-click functionality rather than by filling in all the information required to pay online with Visa today, merchants will see more transactions, fewer abandoned shopping carts, and ultimately more business. This will also help merchants see increased sales as our new cross-channel wallet is adopted by consumers to use their mobile devices to shop whenever and wherever they want.
In addition, our new payment services will drive more opportunity for merchants to benefit from data-driven services like real-time messaging. Real-time messaging allows merchants to send real-time, location-based discounts and promotions to consumers on their mobile devices via text message, addressing merchants' desire to personalize the consumer shopping experience, made possible by the real-time processing capabilities and unparalleled data from our VisaNet processing infrastructure. The new payment solutions also create potential new revenue streams and transaction growth for Visa. We will create new users of Visa products. In countries where mobile device usage is high but there is minimal card issuance acceptance infrastructure, Visa will work with mobile network operators and financial institutions to move virtual prepaid accounts linked to mobile phone numbers to an open-loop model that will enable a range of payment functions.
In enabling access to electronic payments in an open-loop model, we will help grow acceptance and bring the more than 2.5 billion mobile subscribers into the financial fold, ultimately driving usage of Visa products for the new population. We will activate more usage of existing accounts. In countries where card issuance or mobile subscriptions are high but card usage is low or starting to grow more rapidly, Visa can use its new mobile solutions to help drive more revenue from existing accounts because of the new types of transactions we will enable. In both developing and growth markets, such as Russia, India, and Mexico, we expect to see growth in the medium to long term as we turn mobile phones into access devices, giving consumers more places to use their Visa products, and as we introduce and enable Visa services such as mobile top-up and utility and transit ticket purchase.
Finally, we will expand the use of services like person-to-person payments. Used today mostly for remittances and through closed-loop systems in the developing world, we believe our new offerings will soon make these services more mainstream in a variety of markets, including the U.S., to drive transaction growth. While we don't expect significant revenue growth this year or next as a result of these developments, we strongly believe we are making the right moves to drive long-term Visa growth. With that, I'm going to turn it over to Jim McCarthy, Visa's Global Head of Product. Jim will walk you through more details on the solutions we announced today.
Great. Thank you, Joe. Thank you, everyone, for joining us. If we can, for folks that have access to the presentation, I'll start on page three of the presentation. The top of the slide says Innovation at Visa. As Joe was mentioning, I think as a company, Visa has long demonstrated in our network position, along with our clients, a very strong history of and tradition of innovation. That said, I think what you've seen us do over the course of the last year and what I'll outline over the course of this presentation is really begin to hone our focus more clearly and really deliver on a series of investments and initiatives that are very much tied to the core business and support the continued growth and electronification of payments over the Visa system.
At its heart, our strategy is really predicated on three key steps, and this is really core to the way we think about innovation. The first is increasing the number of participants in the Visa network. At the end of the day, Visa is a network of 16,000-plus financial institutions that deliver unique services to consumers and merchants globally on a daily basis. We're very proud of that. The fact of the matter is, as a network business, we know we can continue to expand and increase the range and reach of our network through a series of open APIs and ways to make it easier for others to do business with Visa. A number of the services Joe described, we know, and I'll demonstrate as we walk through this, are best served by other parties.
For those that saw the announcement with CashEdge and Fiserv as an example, through opening up the edge of our network, we've been able to increase the participation on the network and create unique value for Visa cardholders globally through these relationships, and we will continue to do so. Secondly, growing the number of interactions between participants. In essence, giving cardholders and merchants more reasons to drive transactions onto the Visa network. This will continue to be a critical differentiator for Visa from an innovation perspective, and we'll describe a number of the new reasons we're giving folks to pull out a Visa card more often and more frequently. Third, enhancing the value of each interaction for all stakeholders. On all those transactions that we see, we continue to have the opportunity to increase the value of those transactions across the Visa network.
We've made significant investments, as an example, in our risk area. Technology such as advanced authorization, where in real time we can score a Visa transaction, provide a risk condition code and a risk score to issuers while the transaction's in flight, and provide the capabilities for issuers to make better authorization decisions as a result. That same technology is now being utilized to provide real-time messaging, an offer-based network that's tied to similar behavioral modeling, except in this instance, create a reason for consumers and merchants to interact more frequently and in a more direct way with Visa. We will continue to make each transaction more valuable to all participants in the Visa network.
As I mentioned, we have a long history here of innovation at Visa, going back to the launch of Visa as a network from the days of Bank of America card, launching credit cards, expanding into debit and prepaid, and into commercial payments. We're also a leader in e-commerce. We've moved into mobile commerce. We're a leader in contactless transactions. The question for us is, you know, as we look into the future, how will Visa continue to be at the heart of innovation in the payment space? If you move to page four, we believe there's a series of events occurring in the marketplace that really will require us to act with speed and focus in order to take advantage of the next wave of innovation. This wave is primarily driven by the convergence of social, mobile, and local activities onto the mobile phone.
We believe that mobile telephony will have a significant impact on the payments business on a global basis, and the actions we're taking today, we believe, really set the course for Visa into the future to continue to be the leader in the electronification of payments as the world begins to change. What's at the heart of the change? Our belief is that mobile will have an impact in that the business that we've built that has been predominantly based at physical point of sale and more frequently in the electronic commerce environment, will change with the mobile device as consumers look to transact wherever they are, whenever they are, and that whether that be at a physical point of sale or using the mobile phone for remote payments, that can include things such as prepaid top-up or remittances, as Joe was referring to.
We need to make it easier for Visa transactions to occur in this environment. The days of key entering 16 digits, an expiration date, a bill to and ship to are over. We need to make Visa the preferred payment not only, again, for the physical point of sale but also in these new emerging devices such that, again, Visa is at the top of the wallet. Why is that important to Visa? On page five, as for those that have followed Visa, you know e-commerce has been an important growth driver for Visa. It continues to be our fastest growing channel in the Visa system, and as a result, we intend to protect and grow that business as convergence occurs on the mobile phone. The announcements we're making today will put us squarely at the heart of these new converged transactions.
More importantly, e-commerce and mobile will allow us the ability to begin to provide more unique, direct merchant value over Visa transactions, as opposed to our competitors. Examples such as real-time messaging where, using our data in combination with the SMS protocol, we can actually see transactions as they occur at local merchant sites, take action on those transactions, and provide unique offers tailored to a consumer's desires and preferences on a permission basis, from a merchant to that consumer based on location, time of day, and previous shopping patterns. This really differentiates Visa versus our competition both in the technology space as well as in the payment space. Further, the product that we plan to announce today and the vision today will also provide us with the ability to provide new value-added services and revenue streams.
Having a more direct relationship in terms of the relationship with that consumer and the Visa digital wallet will allow us to direct offers to those consumers, allow us to provide alerts, and, as Joe said, person-to-person functionality that currently doesn't exist. Further, Visa can lean into the space and provide trusted service manager capabilities that will allow us to provision the phones with card information safely and securely, as well as, as I said, prepaid top-up transactions. All of these will provide new revenue streams to Visa as mobile continues to drive the business going into the future. On page six, the real differentiation here is all about VisaNet. A number of competitors, both in the technology space and in the payment space, are all trying to go after a similar vision. At the end of the day, we know payments are complex.
At the end of the day, we also know consumers and merchants expect five-nine reliability, security, scalability, and flexibility. The vision we have today continues to rely on Visa at its core. Seeing those transactions in real time, being able to protect the data, deliver on the five-nines that we do today at the physical point of sale on all of these new channels is absolutely critical, and we intend to use VisaNet to deliver on all of the services we're going to provide into the future. Going to page seven, we recognize that new technology increases the complexity of the ecosystem. Certainly, as it relates to mobile, while Visa today provides global accessibility and interoperability, we solve for complexity through standardization. The advent of mobile with scores of handset manufacturers, new operating systems, and new distribution through mobile network operators is certainly making the ecosystem more complex.
The announcement today is intended to show how the assets we've been putting together over the course of the last year through a buy-build-partner strategy begin to solve for the complexity in the marketplace. The acquisition of CyberSource and Authorize.net put us squarely into the merchant domain, allowing us to provide direct services to e-commerce and, in the future, mobile commerce merchants. The PlaySpan acquisition we just completed puts us squarely at the heart of social and digital commerce, allowing Visa to provide services to the fast-growing channel that is social and online gaming, both in the case of a merchant of record, the long tail of software developers, but also, again, providing a digital wallet on which we can build off of into the future for E&M commerce.
Our relationship with Monitise and Device Fidelity helps us to simplify the complex ecosystem that's been shaped by the advent of mobile applications. Monitise, from an application development perspective, helps us to simplify the interfaces that Visa needs to provide to all of these different devices. In the case of Device Fidelity, it puts us squarely at the heart of proximity payments as it relates to NFC technology on mobile phones around the world. Where are we today? If you move to page eight, a year ago, if we were having this presentation, you would have seen that Visa, as a network, again, we believe had best-in-class network capabilities and best-in-class issuer processing capabilities with DPS and VPS. Moving to the next page, if you look at what we've done since that time in 2011, we've added significantly to our capabilities, again, through a buy-build-partner strategy.
The addition of, again, CyberSource and Authorize.net has put us squarely in the developer space with the launch of the Authorize.net Developer Center. You'll see us move forward with bigger announcements as it relates to more open APIs and software developer kits to allow us to interface more directly with third-party developers to integrate all this new technology into software as software becomes more ubiquitous across both handhelds and point-of-sale devices. We've announced real-time messaging, providing merchants with direct access to Visa consumers, allowing them to provide offers that are unique and tailored based on a consumer's purchase behavior in a way that's safe and secure and permission-based.
In the case of connectivity, not only does CyberSource provide us direct connectivity and access to the merchants in terms of the gateway capability as well as fraud screening, we also have Merchant Direct Exchange and a new value-added reseller program that we intend to deliver greater direct connectivity to merchants around the globe. Lastly, PlaySpan puts us at the heart, as I said, of the long tail of social and online gaming as a merchant of record for those small developers as well as a gateway and fraud screen. From the perspective of issuer and issuer processing and consumers, we've announced PayClick in Australia. We announced RightClick last year. We have Visa alerts and notifications that expose the VisaNet authorization stream in real time to consumers, alerting them when their cards are used across channels, both physical point of sale, e-commerce, and mobile commerce.
PlaySpan provides a virtual digital wallet in the online and social gaming space to consumers, making it easy for them to complete transactions, again, in this fast-growing marketplace of online social gaming. From a mobile access perspective, real-time messaging is delivered through SMS in real time based on consumers' permissions. Offers and promotions are being delivered today in real time through the mobile phone over VisaNet. We've announced the investment in Square, trying to move closer to these changes as the mobile phone even begins to impact the acceptance devices across the globe. Square will help us understand more better how these transactions are impacting the growth of our business and how we need to embrace these new technologies and do it in a way that continues to deliver on security, reliability, and convenience.
Also, the Visa mobile application today that's available for download provides a unique set of discounts and offers to consumers on their mobile phones. As I mentioned, Device Fidelity allows us to provide connectivity to physical point of sales today using microSD devices anywhere Visa payWave is accepted. Monitise, as I mentioned, allows us access to both mobile banking in an integration with DPS, as well as moving forward, allows us to solve for the complexity of the payment ecosystem by bringing together the various handset manufacturers and a mobile operating system so we can deliver payments in a ubiquitous and secure fashion. Last but not least, in personal payments, we've launched the original credit transaction that turns the 1.8 billion Visa cards enforced globally into 1.8 billion acceptance devices.
Relationships with folks like CashEdge, Fiserv, and MoneyGram really are the front ends to that original credit transaction, really opening the edge of the Visa network with third parties that can provide the capabilities to consumers globally to initiate and to accept Visa payments over Visa cards. Today we announced on page 10, in essence, the sum of the parts is greater than the parts themselves. We are in the process of putting together a new set of services that will make it easier and a more secure and easier way for Visa customers to pay using an open cross-channel consumer payment solution, in essence, a digital wallet that will allow the consumer to take their physical wallet, all of the cards that are in it today, and move them into this new device type. This device will be accepted anywhere this new market is.
In essence, Visa will allow consumers to shop more easily, more securely, anywhere this new market is provided in a click-to-buy functionality. This cuts across not only e-commerce and mobile commerce but also the physical point of sale. We think it positions Visa uniquely for the future of commerce as consumers look to transact with multiple payment devices anywhere and any time of day they want to. What does this mean? On page 11, you'll see how we describe the digital wallet today, again, as an easier, more secure way to pay, providing world-class payment products to make it easier for consumers to purchase goods and services across channels. What is that? This allows consumers to shop anywhere using any payment method: e-commerce, face-to-face, mobile, and social, in essence, allowing the consumer to load the wallet with Visa cards, Mastercards, Discover, and Amex cards.
We recognize that open is a way of the future. We need to allow the consumer to make the choice, and Visa will compete aggressively for top-of-wallet status. It also needs to be simple and convenient in a secure checkout. Again, solving for merchant needs by making it easy for this transaction to complete seamlessly, both in the e-commerce, mobile, and social space. We need to allow the consumer to manage personal preferences. There will be a front end to the wallet that allows the consumer to choose by channel where the consumer shops, how they shop, where they shop, and choose the right payment device for them based on their preferences.
Further, the wallet itself will allow transaction alerts and notifications, telling the consumer where and when their payment products are being used, and will also be a container to store relevant offers, either provided by real-time messaging or other more static offers. Last but not least, the wallet in and of itself will be open from an API perspective. We recognize that Visa has a number of partners, financial institutions around the world that have services that they would like to plug into this wallet. The APIs will allow them to provide unique services as well, in essence, plugging and playing those services into this wallet such that consumers can be serviced as they would like by their clients. On page 12, the other side of the same coin is the better way to accept.
We recognize that merchants still have a lot of pain points as it relates to the acceptance of general-purpose cards, both online and certainly in the mobile environment. What we're announcing today is the ability for merchants to accept this new Visa mark and integrate it into their site and solve for a number of those pain points. The first is by Visa bringing this to market with our 1.8 billion cards or 16,000 financial institutions globally, we can bring a number of consumers to the market in a way that no one has before. Also, again, being open, we can solve for the complexity of the space across general-purpose card types in a way that no one has before either. We will have a rapid, straightforward program for onboarding.
Again, leveraging resources like CyberSource, we expect to have the ability to turn this on very quickly and easily for a merchant. Further, the developer center that we have at Authorize.net with CyberSource and then over Visa will publish these APIs to allow a merchant or a software developer to integrate this functionality very easily onto their site. We'll also provide that capability to our acquirers and acquirer processors, such as they can work with their merchants to provide this capability. We will also have the ability, through this process, to reduce the cost of acceptance, namely the cost of PCI DSS compliance through secure data hosting. Visa will be able to offload the burden on the merchant of them having to store the payment information. Taking that burden off the merchants, putting it on Visa, and allowing them to decrease their risk.
Further, Visa is looking at advanced authentication solutions of a dynamic nature to not only authenticate the consumer to the wallet but then provide a benefit back to the merchant through that authentication, further increasing the security of the transaction at the merchant site. Leveraging the PlaySpan asset that today supports over 85 payment methods, we will also not only be able to support the four general-purpose card networks I described here but also provide access to local market relevant payment products that service the needs of merchants in local markets across the globe. All of this, at the end of the day, is intended to help merchants increase sales and card conversion and lower abandonment.
In the case of mobile today, which is very nascent from a remote as well as proximity payment perspective, we believe we're on the front end of the curve, helping merchants move their business from the e-commerce environment into the mobile commerce environment by providing an easy, safe, and secure way for consumers to pay, again, further driving card conversions. Last but not least, the data we have as a result of this position in the marketplace, we can provide back to the merchant to help them better optimize their checkout experience as well as not only complete conversion rates but lower their fraud through data and analytics through a set of dashboards and services we intend to provide to merchants.
All of this data can also be used for the merchant to better tailor offers and use the wallet and the relationship Visa has with our issuers through consumers to provide those offers in real time to the consumer through the wallet. We really think that we've effectively solved for all of the pain points, both from a consumer perspective as well as from a merchant perspective from a feature functionality set. Moving to the next page, page 13, while I think most folks on the phone immediately go to e-commerce as what Visa is solving for, the cross-channel click-to-buy not only solves, as I mentioned, for e-commerce, but it will port into the mobile environment. As mobile, again, continues to reshape the payments experience, while one-click has been more or less a nice-to-have in the e-commerce environment, we believe it's a must-to-have in the mobile commerce environment.
Therefore, we are accelerating our efforts, again, through the relationships with folks like Monitise to take this click-to-buy experience to the mobile environment and help merchants optimize the checkout experience as their businesses move from e-commerce to mobile commerce. On page 14, we recognize that mobile will not only have an impact on remote payments but on proximity payments at the physical point of sale as well. The wallet will wrap Visa's industry-leading payWave application and relationships with folks like Device Fidelity. Today, we have the ability to take a Visa application and put, via a microSD device, payments onto the phone and use that phone anywhere payWave is accepted. We will continue to invest in payWave, continue to invest in delivering that service and wrapping it with new applications that make it more seamless and easy and secure to use.
The commercial availability of the payWave application on mobile phones will be available this summer. This is not an issue that's related strictly to developed markets, however. Visa also plans to take this technology to emerging markets as well. In emerging markets, mobile is actually already there as it relates to consumers having more mobile phones than they do general-purpose cards. Visa will take this wallet and work with mobile network operators that currently service the underserved and underbanked in emerging markets around the globe, creating a simple-to-use wallet that really focuses on different payment transactions, not the traditional business-to-consumer Visa transaction, but things such as top-up, bill pay, and person-to-person payments that are driving transactions and transaction growth in those markets. In those markets, we recognize that financial institutions are very interested in this space, but they don't have easy access to the consumer.
In order to get this technology in the consumer's hands, Visa needs to work more closely with mobile network operators to solve for some of the pain points that payments have in these emerging markets. Moving to page 16, today, what we see in emerging markets is a number of somewhere in the neighborhood of 100-plus closed-loop virtual prepaid or stored value applications that exist that are provided by mobile network operators around the world. Using their agent relationships, they provide cash-in and cash-out services, prepaid top-up, and remittance services. While that may work very well within the closed-loop mobile network operator network, when consumers want to move in and out of those networks, the system breaks down.
We believe Visa is in a unique position with our wallet that we're announcing to provide services for those consumers or those mobile network operators that pull that together in a way that's unique and leverages Visa's scale, reach, and interoperability on a global basis. On page 17, you see, in essence, Visa plans to provide a Visa open-loop virtual prepaid overlay, leveraging the Visa wallet that allows these independent mobile network operator-centric closed-loop prepaid programs to talk amongst themselves and create interoperability on a global basis that we believe not only solves for consumer pain points but really opens up and scales these unique closed-loop systems. In so doing, we believe we can tap into a greater use of bill pay. We can allow e-commerce transactions to occur, in essence, remote e-com where anywhere Visa is accepted.
We'll allow governments and businesses to provide payroll services over the phone to these stored value systems. Last but not least, leverage the Visa network using the OCT transaction to provide international remittances on a global basis. At its heart, as we talked about today, we believe convergence is here primarily driven by the mobile phone. We believe that what Visa does today in terms of reliable, secure, interoperable payment systems at scale are absolutely critical to drive the future of electronification of payments, the electronification of consumers, the electronification of merchants. The announcements we're making today really lead the path for Visa into the future to continue our history of innovation and drive Visa to the forefront of where consumers want to be anywhere around the world anytime they want to make a payment. We intend to be the leader going forward into the future.
Last but not least, we believe all the announcements we're making today will drive Visa's growth by protecting and growing the core business of credit, debit, prepaid, and commercial payments as convergence occurs. We believe the things we're doing today will actually fundamentally change the way we interface with merchants, driving value in ways we've never done before, giving them access to new consumers, giving them access to consumers that they want to have at the right time, at the right price point, and last but not least, driving new value-added services through this relationship with both consumers and merchants to drive new revenue streams for Visa to continue the fast-growth trajectory that we're on. With that, I'll stop and open it up for questions.
Sure.
Jose, at this point, we're ready to take a few questions. Thanks.
Certainly. If you would like to ask a question, please press star one and clearly record your name. You'll be announced prior to asking your question. To ensure all questioners are heard, we ask that you please limit yourself to one question. If you have a follow-up question, please place yourself back in the queue. Once again, to ask a question, please press star one. To withdraw your question, press star two. One moment for our first question, please. First question does come from Dan Perlin, RBC Capital Markets. Your line is open.
Thanks, and good afternoon. Just a couple of points. One, I wonder if you could elaborate a bit on how we should be thinking about the economics around this model. Secondly, can you just be specific about the revenue streams that are actually being created for either you or your bank partners? Lastly, are all of these, or should we assume that most of these transactions are going to kind of reside on the card not present interchange structure, or are there going to be new categories created? Thanks.
Hey, Dan. This is Jim McCarthy. Just within the wallet alone, there are, in essence, three primary, what I'll call revenue drivers, and then a set of, as I mentioned, value-added services that sit on top of that. The first and foremost is protecting and growing the core business, I mean, the credit, debit, prepaid commercial business that we have today. Certainly, in the case of e-commerce, before I get into mobile, we have, as I referred to today, a situation where consumers have to, primarily from a Visa perspective, key enter 16 digits, their expiration date, their CVV2 value, their shipping, their bill to, etc. We've, in essence, virtualized the sales entry clerk for mail order, telephone, or catalogers and have turned consumers into data entry clerks. As a result, we've allowed third parties to get in there and solve for convenience issues.
In essence, we've been, if you will, at least in some ways, if not disintermediated, have set the situation where other people's brands sit in front of the Visa brand. That's not a good place to be, especially if you believe convergence is the future and consumers won't do that on mobile phones. The first revenue stream is really continuing to grow, the fast-growing stream that is e-commerce on Visa cards and the revenue associated with that. The second one is, again, relative to social and online gaming.
If we weren't there in e-commerce, in the case of social, which is highly discretionary, I mean, consumers making purchases in online games of virtual goods, I think we would define that as probably the most discretionary spend there is in the Visa system because consumers, if they actually stop to think about what they're buying, I would argue they might not make that purchase. At the heart of the PlaySpan acquisition was the fact that we want to play more directly in that space. It's fast-growing. It's important. There's a lot of revenue there. PlaySpan puts us at the heart of social gaming. The revenue streams are tied to their business model, which is around merchant of record, gateway, and fraud services. That's the second revenue driver.
The third revenue driver is taking the assets that we've acquired in the case of both CyberSource and PlaySpan, and as I said earlier, taking the sum of those parts and, if you will, reskinning them, repurposing them, and taking the assets, the digital wallet, the fraud screening, the gateway services, the merchant of record services, and taking those into e-commerce and mobile commerce. More traditional, if you will, physical goods over a remote channel being E&M commerce that not only supports the core, but there's a set of services, data processing-related services that we can bank on today that you see CyberSource and PlaySpan doing, but doing it at a scale basis on a global basis and doing it more, just doing more of it. Those are the three core revenue drivers for the wallet in and of itself.
When I say wallet, I really describe that, again, as the entire wallet experience on the merchant as well as on the consumer side. With those relationships, though, as consumers come online with this wallet, you know, again, we think of the wallet on the consumer side as a container. As I mentioned, having a set of application programming interfaces that our clients can plug their services into, and if you will, cross-sell person-to-person services, offer services, alerts, and notification services, and deepen the relationship that our financial institutions have with those consumers. From a Visa perspective, as we mentioned before, real-time messaging and offers, you know, my argument has been that Visa is the location-based network.
Our 30 million merchant locations on a global basis put us at the heart of commerce, at the physical point of sale, at the e-commerce point of sale, and in the future, the mobile commerce point of sale. What we're able to do with that data in an aggregated fashion, much like we've done for years from a fraud perspective, is really look at behavioral modeling. As opposed to the fraud perspective, where today we use that information to stop bad transactions from occurring, if you flip it on its head, Visa is in a unique position to use that behavioral modeling to tailor offers to consumers that are more likely to make a purchase based on past behaviors.
Working directly with merchants helped them close the transaction gap by targeting unique offers to unique consumers, leveraging location, which is where the card is being used and swiped across the Visa network, and delivering that offer via SMS in real time to consumers. In so doing, Visa can tap into, in essence, the advertising and media revenue streams that we've never played in before, such as CPA and CPM models, driving proven incremental transactions to merchants in a way that we think competes against the best-in-class search providers. Those are the four primary revenue streams today. As Joe mentioned, there's a number of downstream services that are on the plan, such as person-to-person and other things. Whether an issuer provides directly through an API or Visa provides, there's a number of revenue streams there.
Thank you, Jim.
The next question comes from Tianyi Wang with JPMorgan. Your line is open.
Great. Thanks. Thanks so much for hosting the call. I wanted to ask about the distribution strategy. How do you plan to get consumers to enroll? I'm trying to understand how you're going to overcome the classic sort of chicken and egg dilemma. Also, just as a clarification question for Jim, will Visa be the merchant of record in some cases beyond PlaySpan, or is it really going to be limited to the PlaySpan sandbox?
Yeah. Great questions, Tianyi. I'll take both unless Joe wants to jump in.
I'll jump in. That's fine.
Okay. On distribution, I think that the main differentiator is, and that's why I started with, you know, who we are. At our core is, again, we're still a network of 16,000-plus financial institutions globally. You saw, given even the relative newness, if you will, of the PlaySpan acquisition, the fact that we have some significant financial institutions here in the U.S. that have signed on board to say they want to participate. What that means is the discussions we've had with a number of our clients is, you know, do they want to pre-provision their card information into our wallet to make it easy for the consumer to, in essence, opt in and permission Visa to turn it on? We're in discussions with banks and credit unions around the country to make it easy for them to get the cards in the wallet. That's one way.
Second is, as we introduce this new mark into the marketplace, we have a number of approaches on the whiteboard that range from, you know, just digital kind of brand advertising, making people aware of this service. Even in the merchant checkout process, we'll have a way for consumers to click on the new mark, learn more, and enroll. We also plan to look at things like post-enrollment if a merchant decides we can capture the Visa information that a consumer has provided, much like a card-on-file model, and allow them to opt into this new service. Primarily, out of the gate, the distribution on the consumer side will be driven by working directly with our financial institution partners on a global basis, getting them to pre-provision the cards into the wallet. From a merchant perspective, obviously, the CyberSource acquisition is critical here.
CyberSource has relationships with over 360,000 merchants in the e-commerce space. It's a great place to start. PlaySpan in the social and online gaming space. Back to our network, you know, who Visa is, it's our acquirers, our power processors, and even the VAR program that we're announcing today at ETA, I think all give us a great starting point from a distribution on the merchant side. As it relates to merchant of record, that is going to be a critical business decision for us. The current plan would be to take what PlaySpan does today in the online and social gaming space and take that into mobile and e-commerce transactions. However, we know that merchant of record will not work at every merchant site. We will have probably a menu of choices there, including gatewaying those transactions where necessary.
Merchant of record will be one of the models we bring into the marketplace in a more broad fashion.
The next question comes from Adam Frisch with Morgan Stanley. Your line is open.
Thanks. Good morning, guys. Can you hear me okay?
Yes.
Okay. Great. Obviously, a lot here to go through. I just wanted to kind of also expand on Tianjin's question there for a second. Did we need to see this platform announced and the degree of comprehensiveness here in order to see you guys start making more headlines with key partners around the channels, whether it's large banks or other technology players? That was the first question. Jim, if you could just go through, let's see you make the distinction between mature and emerging markets. Can you talk a little bit more about the generalities of the kinds of discussions that you're having with mobile network operators in some of the less mature markets around the world? Thank you.
I'm not sure. Say your first question again because I'm not sure what to add on top of what Jim said.
I think we shouldn't talk about the distribution of consumers. I think there's a lot of questions out there about technology companies as well, whether it's the Apples or Googles out there. Did you guys need to come out with this platform first and introduce it? Now maybe we can expect you to enhance distribution channels beyond just the banks that we talked about before?
The answer to that, of course, is yes. Exactly what we're doing or how we're going to go about it is not something that I'm particularly interested in talking about right this moment.
Okay, if you could focus on emerging markets.
Yeah. As I mentioned, Adam, if you look at emerging markets, and even there, that oversimplifies, we know it's, as I said, a complex ecosystem globally. Really, the strategy breaks down threefold in developed markets. The service we're talking about today is primarily remote payments over the phone, albeit we believe we've got a leadership position at the point of sale with payWave. As we all know, that strategy is yet to fully play out. We are talking to telcos here in developed markets as well about how we can work more closely, licensing things like payWave to them. In emerging markets, and really even that breaks down, we've had hybrid markets where we've got a lot of cards enforced, where we have an issuer-centric market. Equally, those cards aren't used all that frequently because of lack of point of sale.
In essence, we have a strategy in those hybrid markets to, in essence, virtualize or digitize those cards and get them on the wallet and really take, again, not only a remote commerce point of view but also a proximity point of view, primarily, again, driven through bill pay, prepaid top-up, and disbursement and remittance type of applications. We really take the cards, work with issuers to get those cards virtualized, and then give them the applications that are relevant in those markets. Last, in emerging markets, as I said, where you really have very little, both the way of point of sale and even cards enforced. In those markets is where we're seeing these mobile money networks appear.
To be honest, we don't want to be in a situation where those markets continue to evolve and we're sitting on the outside while we're trying to, if you will, break rocks in the hot sun by issuing cards and drive point of sale. We think there's a faster and easier way to get there, and that's through partnering with the mobile network operators and bringing the value of what we know about payments into those markets. That said, we are in discussions with telcos around the globe as key enablers of all the things I just described, whether it be value-added services or proximity payments in developed markets, whether it's working with them to virtualize Visa accounts and get them on the phones and provide these new transaction types, or in emerging markets, working with these mobile money networks who are beginning to hit the wall on scale.
As I said in the presentation, we know payments are complex. A lot of folks jump in and they find out the water is a lot deeper than they thought. We think Visa can bring value, not only in terms of helping them run the core payments infrastructure on a closed-loop basis, but as I said, bring open loop to those closed loops and really help them with meeting their consumers' needs.
I might add that this isn't just being driven by Visa. This is being driven by telcos and other parts of the world. There are a significant number of closed-loop networks that are really looking for this type of expansion, and they understand that they can't do it without us or somebody like us. We are not always the ones initiating the conversation. I think that's important because there is a demand for what we have to offer. I didn't mean to be dismissive about the first part of your question, by the way. We obviously are having a number of conversations, but most of them are under NDAs, and I really can't talk about it right now.
Yeah, I wasn't looking for specific company names, Joe. I was just looking for, does this enable you to get into some additional distribution channels that you might not have had access to before? That was the genesis of the question.
Of course, the answer is yes.
Okay, thank you.
Adam, it can go as simple. I mean, I can answer that. The whole concept of the APIs and the developer center go right to the heart of that, which is, while we work directly with some of these folks, we know there's a slew of smart folks out there that are innovating in and around payments. What we want to do is expose the edge of VisaNet so they can actually take advantage of some of these APIs and SDKs and embed, in essence, Visa capability into their applications.
Right. Okay. Got it. Thank you.
Thanks, Adam. Jose, we have time for one more question.
Certainly. The last question does come from Rod Bourgeois with Bernstein. Your line is open.
Okay. Great. Hey, guys. I just want to understand if you need NFC for retail point-of-sale use of this new functionality that you're rolling out. In other words, does NFC need it to really make this work, or are there a lot of applications at the retail point of sale that aren't premised on NFC technology rollout?
Right now, what makes things work is NFC at the point of sale. What doesn't make it work is that there isn't a particularly robust distribution of terminals that can read NFC chips. I think the question in that regard is, how quickly would they come into the actual point-of-sale environment?
I would add, Joe's right. From an NFC and a payWave perspective, we're there. We've got the applications. We're ready to roll, really, as the terminals move into the marketplace. We've licensed NFC or Visa payWave's capability to third parties that want to take advantage of it. We're open with regard to licensing Visa payWave such that Visa cards can be provisioned on anyone's phone. That said, Rod, I think at the same time, if you look at the real-time messaging announcement we made, we recognize that while there's at least right now a long tail to terminalization, we can do a lot today with the current MagStripe infrastructure that leverages the ubiquity of mobile phones and the ubiquity of MagStripe and MagStripe readers. That's such that when a Visa card is swiped using the, if you will, the old technology, MagStripe, MagStripe terminals, we take that data in aggregate.
We can package it and create offers based on where the consumer is, the time of day, the merchant location. We can work with a merchant to push an offer to a consumer based on that location using that, if you will, old technology that lies across VisaNet in real time and use SMS, which is ubiquitous as well, to provide that offer and drive incremental sales without having to touch the terminal. If you think about it from a P&L perspective, it's a pretty attractive position in that we don't have to change the cards out. We don't have to change the terminals out. VisaNet's in place with real-time capabilities, and we're using SMS to push the message. It's a win across the board for merchants, issuers, and card holders.
Okay. Just a quick clarification. A few people have asked about where the revenues come from with these new capabilities. Is it simply the case that this new capability will drive increased use and distribution of Visa cards rather than some new sources of fee income? Is that the way to think about this?
No. It's going to manifest itself in other sources of fee income. That gets into the question of whether we are the merchant of record. It also gets into the question of what services can be delivered to merchants and to consumers at the point of sale. We have a fairly extensive laundry list of those things, and we are aware of what we need to do to make them real. In most cases, we have the capacity and the technology to make them real now. Once again, it's a little bit competitive, and I'm reluctant to talk about exactly what we're going to do and what order right this minute. That certainly is something that we'll talk a lot about in the coming weeks and months.
Thank you very much.
Great.
Thanks, Rod. Thanks, everybody, for joining us today. If anybody has any follow-up questions, feel free to give Victoria and myself a call.
Thank you for your participation in today's conference call. The call has concluded. You may go ahead and disconnect at this time.