Okay, welcome back, everyone. It's a great pleasure to welcome Chris Suh, Chief Financial Officer of Visa, with us today on stage.
Great. Thanks for having me.
Great, great to have you. Why don't we just jump right in, and talk about kind of the recent trends you're seeing? I thought the volumes in your most recent quarter seemed to hang in pretty well, after that sort of weather impact to January. Kind of give us an updated view of what you're seeing out there in terms of spending. And then maybe more broadly, just after you do that, some thoughts on the consumer.
Okay, great. Yeah, hi, everyone. Thanks for having me here. Yeah, it's a good place to start. I think let's recap Q2 a bit. Financially, it was a strong quarter for us. We started 10% revenue growth, you know, revenue and EPS exceeding our expectations. From an underlying driver standpoint, we continue to see relatively stable volumes. Total global payment volume grew 8% in Q2, which is the same growth as in Q1. And then as you sort of look at by region, in the U.S., payment volumes was up 6%, which is, again, stable to Q1, once you normalize for the impact of the extra day for leap year. And outside the U.S., we continue to see very, you know, strong growth in most of our markets.
LAC, EMEA, Europe ex-U.K., all growing at 19% or higher, and again, relatively stable with our first quarter. The one exception, which we talked about on the call, was, we did see a little slower growth in Asia in Q2 relative to Q1, primarily attributable to the macroeconomic conditions in Mainland China. And, I guess it's important to also point out that that volume doesn't drive a lot of revenue for us, and so it didn't have, a meaningful financial impact. And so payment volumes globally, you know, relatively stable, as I said, from Q2 to Q1. Cross-border, which is also obviously an important part of our business, grew 16% in Q2, also 16% in Q1. So again, stable, with both travel and e-com cross-border continuing to grow, very healthy.
The last thing I'd say, just on recapping the quarter, was, well, actually, outside of the quarter, we also gave an update on the first three weeks of April, on the earnings call, and so the first three weeks of this quarter, where we did see, in the U.S., we saw a slight tick down in growth in April, in the first three weeks of April, relative to the month of March. And we attributed that to the timing of the Easter holiday, which happened, you know, in March this year versus, April a year ago. And then from a cross-border standpoint, first three weeks growing 15% in line, relatively in line with what we saw in the second quarter. So all in all, I would say, you know, the word of the day was stable.
We continue to see relative stability across the underlying drivers of our business. To your second question on, you know, what does that mean from a consumer standpoint, you know, that all points to that stability and the strong financial performance all points to a resilient consumer. And that's what we've seen. We've seen, you know, the trends when you look at our segments between high and low spend categories, those trends have been relatively unchanged now for several quarters, and so, you know, consumer continues to be resilient. So we feel pretty good about the quarter and the underlying health of the business.
Great. Great. Another topic that I think might have come up on the earnings call, and certainly it's a question that I get, have gotten over the years from investors, is just the ongoing secular tailwind for, you know, electronic card-based payments and that sort of, cash to card conversion or Visa's opportunity when it comes to, you know, share gains versus total consumer spending. Give us your updated thoughts on what inning we're in. And I know that's a complicated question because it's probably a different answer for every city in the world. But, give us your updated thoughts about that, that broader secular trend and sort of where we are during the process.
Yeah, we still... You know, we view there's an enormous opportunity in front of us in the, in the consumer payments, addressable opportunity. We gave, w e did give an update this, this last quarter. We see over $20 trillion of addressable opportunity still in front of us in the consumer, in the consumer payment space. We categorize that along three lanes. One is cash and check, two is ACH and other forms of digital payment, and three is volume that runs on other domestic networks. It's an important topic. Let me maybe spend a minute on each of those. So first, cash and check. We size the cash and check opportunity at roughly half of the $20 trillion+ opportunity that we, that we articulated, that we shared.
And if you look at it, and this is, you know, sort of your point around country by country, it does have some varying, you know, dynamics. In emerging markets, there continues to be tremendous opportunity, cash opportunity, that exists. We're focused on growing credentials, growing acceptance, growing engagement, and we continue to make very good progress there. In more mature markets like the U.S., we've made tremendous progress over the last, you know, five to 10 years. Things like Tap to Pay continue to be a very important tool for us to increase engagement, to really reach into the small ticket cash transactions and continue to work to digitize those.
In the U.S., we're approaching 50% Tap to Pay penetration, and that's continued to grow, which is great progress, but it's still meaningfully behind the rest of the world, which is, you know, ex the U.S., into the high 70s now. Right here in New York City, the first city in the U.S., the first major city in the U.S., to now reach 75% penetration, which really shows the impact that we can have if you have focused strategies on acceptance here, transit has been a big driver of that. So there's plenty of runway ahead as we think about growing that penetration. E-commerce is another important lever. E-commerce has continued to grow faster than face-to-face transactions.
So, you know, we can continue to penetrate into the long tail of cash in mature markets there. Second, with ACH and other forms of digital payment, there's lots of activity and lots of things that we're focused on. I would say, you know, we continue to work to extend Visa as a bill pay method for, you know, acceptance strategies around tuition, rent. These are historically underpenetrated card flows, and so you think about, again, tuition and rent as two examples of that, where we can continue to make progress. And the third one is around, you know, volume that runs on other domestic networks, continues to be a big opportunity.
Example is in Europe, over the last—since 2018, so over the last five to six years, we've converted over 20 million cards from other domestic networks, local domestic networks, to Visa Debit, and there's millions more in progress now. And so if you look across sort of the three categories of the $20 trillion+ opportunity, we continue to be very optimistic about the opportunity ahead.
Great. And then the other part of the business, which is value-added services has evolved into an important growth driver, I think, over time. Can you help us break that down a little bit in terms of, you know, what are some of the more important kind of product level contributors in there? How fast are they growing, et cetera?
Yeah, we're, we're really, really, you know, pleased with the performance, the results, the execution with our value-added services business. In this last quarter, over $2 billion of revenue growing 23%. A very robust 23%. Value-added services is a broad array of products and services. We, we think of them along five solution areas, and I'll talk about each of those, maybe in a little bit of highlights in each, because I think they are different and interesting in its own, you know, in their own right. The first is our issuing solutions business. This is DPS, which is our card processor, issuer processor, card benefits, account controls, buy now, pay later. This all sort of fits into the issuing solutions.
We processed, for example, in FY 2023, we processed over $2.5 trillion in card authorizations in DPS alone. The second solution area is our acceptance solution. So these are tools for our merchant partners. So think Cybersource and disputes primarily. We sold over 2,600 in FY 2023, 2,600 acceptance services to customers and clients in over 100 markets in FY 2023, so great momentum there as well. The third one is risk and advisory services. This is Visa Advanced Authorization, Visa Risk Manager, VAA, VRM is, you'll hear us talk about, and other AI-powered solutions that help clients manage their risk.
You know, a study we did in 2023, VAA and VRM alone, we prevented over $29 billion in fraud from hitting our network, in just in the 12-month period from, you know, summer 2022 to summer 2023. And so really powerful and impactful, services that we're offering to our clients. The fourth one is advisory, advisory and consulting and marketing services. We, in 2023, again, we did over, you know, 2,000 consulting engagements that drove over $3 billion of incremental client revenue, in 2023. Really powerful and impactful again. And with the Olympics coming on, we're seeing, you know, demand increase in our marketing services as well. And so, we're seeing traction there. And then the fifth one is open banking. With Tink, we have an industry-leading solution.
They have over 6,000 connections to banks in 18 markets today, and we just announced our entry into the U.S. market, and so continuing to see great momentum there as well. So across the board, value-added services is continuing to perform really, really well across the breadth of services. We don't disclose, you know, individual growth rates, but the growth has been broad-based. We're continuing to expand the set of services that we offer, new markets, new geos, new services, and new products. We're excited about the opportunity, and we'll continue to, you know, share the progress along the way.
Sounds exciting, and you guys definitely have a lot going on. How should we think about penetration rates or levels with the value-added services if we think about, you know, the opportunity in your existing book of customers? And I guess there's another opportunity outside your existing book of customers, but how should, you know, folks think about what stage we're at with that?
Yeah. I mean, maybe the simplest way to think about, you know, the profile of the business, you know, you can sort of see that in the way that we report the results. And so, roughly, you know, two-thirds of the business is reported, is related to our data pro- so our Cybersource, DPS, any of the platform and network-like services are reported as part of our data processing revenues, whereas the other third are roughly split between other and service revenues, which is more of the card benefits and consulting and advisory. And so, said another way, a good portion of the business has a natural attachment and affinity toward our network volumes.
And so you could think about it, you know, having a very similar growth profile to that, and then the ability to grow as we expand it to new markets, new services, and things that are not directly attached to the network volume, like consulting and advisory services.
And, of the many things that you just mentioned, you know, acceptance was one. And what are the growth opportunities with acceptance? It feels like the point of sale only gets more and more fragmented and maybe even ubiquitous, you know, year after year, but it also seems like there may be tremendous runway there. How do you think about growing that? What are the opportunities for Visa on the acceptance side?
Yeah. So it is, you know, one of the key pillars of our growth strategy in consumer payments as, as we've talked about, growing credentials, growing acceptance, and growing engagement. We have a tremendous acceptance footprint around the world, over 130 million locations, and even at that scale, we've continued to grow in high teens for the last five quarters consecutively. And so both scale and growth opportunities are, you know, vast. I would say, you know, one of the things why we've been so successful in growing acceptance locations, even at this scale, is that we really take a localized approach. And it really is, you know, country by country, and you think about the unique attributes of the market and the way that we can approach that to grow to grow acceptance.
A few examples I could share with you that we've talked about recently. In Bangladesh, we've partnered with a company called bKash, who's the largest mobile financial services player in the country. With bKash, you know, we have over 15 million Visa credential holders in Bangladesh. Now they can use their in-app QR codes to access payments at bKash's 550,000 merchant locations, you know, in the country. And so that's 500,000 right there in one country. In India, we're partnering with Razorpay to allow, you know, Visa debit cards to be used to purchase mutual funds. There's another unique solution.
In Japan, we've partnered with the Japanese government on their vision for a cashless future, which they're seeking to increase their PCE penetration to 40 by double it by 2025 to 40%. And we've done that by focusing on contactless, and so transit in particular, we have nearly 90 transit projects in play currently in progress in Japan, as we focus on the contactless experience. There are many more examples, and you know, and you use the word ubiquitous, I think that might apply at least, you know, commonly thought of like the U.S. as a place where that word might apply most. And even in markets like the U.S., where Visa is everywhere, we can continue to focus on underpenetrated acceptance.
You know, things like, again, like rent and tuition, and we talked about transit and parking as examples of places that we can. And so, you know, we have, like I said, a global strategy, a localized approach. I would also say, you know, as we think into the future, while the 130 million sounds like a lot, you know, it doesn't address hundreds of millions of micro and small businesses around the world that are not part of the Visa network today. And if you want to think even bigger, think about a future where, you know, the billions of individuals who all have a smartphone can effectively become acceptors as Tap-to-Phone technologies rolls out at greater scale. And so we're big today. The opportunity still is quite vast, and it continues to be a focus for us.
I always like talking with you guys because the numbers are so vast, you know, they're-
They're big numbers, lots of zero.
Sort of like astronomy sometimes. I think about these kind of very difficult to get your mind around these large numbers. On the new flows, I think Visa Direct has been just a home run. Talk about that new flows part of the business. You know, I think everyone's always trying to game out whether they can pick the next, you know, the next breakout sort of new flow. But talk about your thinking there in terms of the opportunity.
So Visa Direct has been, to use your words, a home run. It's performing really, really well. Growth has been outstanding. This quarter alone, we talked about, you know, Visa Direct transactions exceeding 31% growth, which is a fantastic quarter for us. You know, I do think, you know, and for those not familiar with Visa Direct, it's a set of capabilities that really expand beyond the traditional consumer-to-business flow, which is, you know, sort of the traditional Visa business that people think about. So expanding into P2P, G2C, B2C, and small ticket B2B. So lots of acronyms there, but I think you you get the point.
It's an expansion of the, you know, of the different types of flows that we can move money around in. I think the secret to our success has been the scale that we've achieved through this incredible ecosystem through our network of network strategies. And so we work with 70-plus domestic payment networks, with 10-plus RTP networks, 15-plus card payment networks, five payment gateways. We've reached commercialization with over 65 use cases, 2,800 global programs, and over 500 enablers, all sort of working in concert to bring this business to scale. We continue to be really excited about all the growth opportunities. P2P has been the, you know, sort of the largest use case to date, but we're ever expanding those. And so, you know, we've talked about many of these.
We've talked about gig economy payouts, merchant settlements. Some of the more recent announcements are, you know, content creator payouts with Meta, tipping capabilities with Kickfin and marketplace settlements with Airbnb and Poshmark are some of the new flows that we've enabled through Visa Direct. We continue to be focused on growing existing new use cases. Cross-border continues to be a focus for us. You know, one recent announcement with Taishin Bank in Taiwan, that's gonna enable small ticket B2B cross-border transactions through Visa Direct. Then all of this, again, accelerating through this vast network of enablers. Another, you know, partnership that we announced recently that we're excited about, the expansion of our agreement with JP Morgan, where they're going to integrate Visa Direct technologies into the acquiring operations side of the business.
That'll enhance the push-to-card capabilities for their clients on that side of the business. And so, again, the ecosystem continues to grow really well. It's enabling the business to continue to grow as well.
Hmm. There's probably some overlap between this question and the last one, which is just on B2B.
That's always a kind of a really massive addressable TAM. I think it's one of those situations where it's maybe not a one-size-fits-all type model. Now, luckily, you guys have quite a bit in your toolkit to kind of go after it. But what, what, what parts of the, you know, I guess, of Visa to B2B strategy are you most excited about?
Yeah. It's so, you know, zooming, backing up even a second-
Yeah.
Talking about new flows. We've talked a lot about our new flows growth pillar. We've talked about the incredibly large addressable opportunity in new flows, in addition to the $20 trillion I referenced on consumer payments, we're talking about a $200 trillion addressable opportunity in new flows, in our new flows part of the business. Within that, B2B is the largest single portion of it, about 145, about $200 trillion, is in the B2B opportunities. So we think about our approach to B2B, I think can be categorized around short and near-term priorities, midterm, and maybe longer-term opportunities as we see out there in this very large addressable market. In the near term, in the short term, our focus is, has been, and continues to be in the carded and virtual card space.
You know, this is a space where there's some similarities to the consumer business, but there's some unique attributes as well. Two unique attributes, I'd say, in the carded business is focus on vertical solutions. They're, again, different from consumer payments or unique attributes, but as you know, industry-specific solutions resonate with clients in that space. We've talked about the efforts we've made around fleet, fuel, travel, as examples of very focused industry verticals. The second is virtual cards. There's many good compelling use cases for virtual cards in a corporate environment, in a business environment.
One of the ones that we've talked about and are excited about is with WEX, where we have a multi-year agreement that allows WEX customers and their corporate travel and health customers to use Visa virtual card capabilities for purchasing. So those are very unique attributes. We're continuing to focus on the carded B2B and virtual space. The second, what I'd call midterm opportunity, is the focus on cross-border B2B. We've launched a multilateral network called B2B Connect. B2B Connect is focused on what I call high dollar, low velocity, cross-border B2B transactions. It really focuses on trying to, you know, address much of the friction and the pain points that exist in today.
If you've tried to ever, you know, send money overseas, it's, you know, an antiquated process in many ways. But modernizing it by attaching rich data to the transaction, it gives clients the ability to manage the flow, to trace it to in an enhanced and modernized way, and I think that's a good opportunity for us. And then longer term, you know, the AP/AR space is a very significant opportunity. It's earlier days for us, but there are, you know, unique opportunities where we can help, again, modernize those flows, help clients with their, you know, the pain points that they encounter. And there's a few examples that I'll talk about, like Visa Spend Clarity is an offering that we have to help customers with their expense management.
As you think about, you know, card issuance, reporting, expense management. Visa Commercial Pay, it's an app that we have that allows clients to issue cards, to limit, set limits on, you know, on corporate- on their corporate card customers. It lets them, you know, attach virtual card capabilities to an employee's digital wallet, and so there's a bunch of capabilities there. And then even, you know, as you go into sort of the larger scale, we announced a partnership with Taulia, which is an SAP company, where we're going to take our digital technology, payment technology, integrate it with Taulia's virtual cards, and it creates an integrated solution that runs on SAP's ERP systems for enhanced capabilities for buyers and suppliers on SAP's ERP system.
So as you think about the spectrum of things that we can do to help in the AP/AR space, it's early days, but we're excited about the progress that we're making. We feel pretty good about that.
That's great. Chris, give us your updated thoughts on pricing strategy. It seems like you've described a lot of interesting products and services. I mean, a lot of them.
Yep.
There has to be mismatches between value and price, maybe sprinkled around the organization. What are your thoughts, more generally, on deploying pricing?
Yeah, I mean, we've consistently held the position that we price the value. And to your point, we've invested in new innovation that we brought to the market... a lot of it in value-added services, as we talked about in new flows. We've invested in the security and stability of the network. It's, you know, it's probably priority number one, to make sure there's a well-functioning network that enables consumer payments to function, you know, around the globe and enables commerce. And so as we continue to invest in these things, I think that continues to provide us opportunities to price to that value. And so, you know, that's been our posture, that's been our position and our belief.
And for FY 2024, we shared that we believe that the contribution to our business in this year will, for pricing, be similar to the levels that we've seen in the last year. And so we continue to believe that we can price the value.
Maybe you could comment on a topic that folks ask about, even though it doesn't seem to be having a massive impact on the business. But Reg II, and that, you know, what's the updated thinking there? I know you just commented on the quarter. B ut how should we think through the, you know, that dynamic?
Sure. Let's recap a little bit. So Reg II has been in market and implemented, I guess, now since last summer, and so we've had kind of three quarters of experience with it. The first quarter, you know, we, we labeled or we described the impact as not meaningful. In the last two quarters, I described it as modest. And that's, you know, just the level set. That's the, when you look at what we've said for the second half of the year, that's the expectation. The modest level of impact is what we have embedded, assumed in that guidance. Two things I'd say about our experience so far.
So one is, since the implementation of Reg II, you know, we've had an opportunity to engage many of our clients again and have this conversation, and really articulate what we think is the value proposition, the differentiation of the Visa network relative to alternative, PIN-based debit networks that maybe, you know, that clients may be considering. And I think, you know, what's become evident is that, you know, clients think about cost, of course, but they also think about capabilities, and they think about liability. And so from a capability standpoint, you know, we've invested a ton in our network and our network capabilities. One example is, you know, single message versus dual message, and PIN-based debit networks are typically single message, and Visa's debit network supports dual message.
What that means is, you know, in a transaction where the initial cost and the final cost may vary, so think in face-to-face world, the tipping scenario, where you have the cost of the food and then the incremental tip, or in an e-commerce world, where a vendor might ship in multiple shipments, where you have to then wait for a final... You can only bill once, whereas, you know, vendors may want to bill in multiple, parts. That capability is, unique to, you know, a network like Visa's. And then in the liability side, of course, in an e-commerce world, merchants bear the liability of that transaction, and, you know, Visa's invested more than any other company in terms of authorization, tokenization, fraud detection, and prevention.
And so, you know, we do continue to believe that we have incredibly differentiated value. And then the last thing I'd say is, again, you know, as we look forward, we've operated, you know, in a regulated debit environment for a very long time. Reg II isn't new from that standpoint, as a way that management can think about how we operate within that. And so, you know, I'm confident that we've continued to be able to navigate.
Okay. As long as we're on legal and regulatory items, the big MDL settlement. You know, it seemed relatively similar to the one that was passed some years ago and then was kicked out on appeal. It feels pretty late in the game to try to steer, and I'm not talking about the financial penalties but more the injunctive stuff. It feels a little late in the game to try to steer consumer, you know, you know, tender preference at the point of sale. Do you think there are any openings right now with, you know, sort of a more digital point of sale, digital wallets, or, you know, what is your view, I guess, more broadly, on a potential impact here, if there is any?
Yeah, I mean, first and foremost, we're very pleased, we're incredibly pleased to have reached settlement on this landmark case that has, you know, been in play for a long, long period of time. We do believe that the settlement addresses many of the concerns raised by small businesses. We do believe that it's it also gives consumers the flexibility at the same time to use their payment, you know, card of choice. There are three-- there are three things that I'd highlight. One is interchange, the lowering of interchange. Not revenue to Visa, it's the exchange of value between the merchant and the issuer.
But, you know, but the reality is, interchange has never been a, you know, a static number, it's something that moves around from year to year. And so, the ecosystem knows how to address and manage, you know, as interchange moves around. Two is surcharging. That was part of the agreement. So surcharging, again, has existed for a long, long period of time. I think there's a slight nuance to this, you know, the latest settlement agreement, where, in certain instances, merchants can surcharge just for Visa and Mastercard. And in order to do so, they'd, they would attach a 1%, or the lower of 1% or the cost of acceptance would be that surcharge. And then the third one that you talked about is steering.
And again, that's existed for, for, you know, a long period of time. The ability to exclude certain digital wallets is an option that merchants have. It gives them that flexibility. But of course, the good news is that, you know, if you're a consumer and they don't accept your phone, you can't tap with your phone, you can always pull out your card and tap with... you know, the old school way of tapping with your card, as well, is available. And so, you know, when we look across the settlement, we think it addresses many of the concerns. It gives more certainty around Visa rules into the future, which I think is a benefit to everyone in the ecosystem.
It addresses the concerns raised by small businesses, and it retains the flexibility for consumers. And so we think it hits the mark there.
Fantastic. We're out of time. Great conversation. Thank you so much for those insights. We really appreciate you being here.
Great. Thanks so much for having me. Thanks so much.
Thank you very much.