Jason Kupferberg, the payments, processors, and IT services analyst here at Bank of America, and, we're super excited to have, Chris Suh here from Visa, CFO. He's been here almost a year. It's your first time at the conference. Thank you for doing it. I hope you come back next year. We're going to jump right in and, you know, talk about a variety of issues and questions at Visa. And of course, I have to kind of start, you know, big picture, current trends in the business. You know, what are you seeing? It's been an interesting year, right? Because the year-over-year compares have been all over the place. You had bad weather in January, you had leap year in February, you had Easter timing and all that.
But when you kinda unpack it all and think about where we are now, you know, how are you feeling about kind of underlying volume and transaction trends?
No, it's a good place to start. First of all, thanks for having me, Jason.
Sure.
Thank you for joining us today. Yeah, let's talk about business trends. The place I'd start is, you know, just talking, you know, reiterating what we talked about in the second quarter earnings, which is, you know, at a... When you sort of step back and look at the trends, global payment volume growth has been relatively stable, which indicates consumer resilience has been quite resilient. And so, you know, stability, resilience, that's been the theme. It's been the theme for, I would say, several quarters now. Just to put a little bit of numbers around that, like, global payment volumes grew 8% in the second quarter. U.S. grew 6%. This is in constant currency year-over-year. International grew 11%. Clicking into that, travel grew a very healthy 16%, cross-border, that is.
In total, grew 16%, with travel and e-commerce both reflecting very strong growth. So again, some puts and takes within that. We talked about Asia volumes, for example, in the earnings. But when you look at it, you know, the growth rates are very consistent with what we saw in Q1 and really for the last several quarters. Since earnings, through, let's say, the first three weeks of May, through May 21st, I'd also remark that we're also seeing payment volume in the U.S., processed transactions, cross-border travel, all continuing to be relatively stable to what we saw in the second quarter. So all in all, feel good about the health of the business, the underlying resilience of the consumer, and stable payment volumes.
Good to hear. Good to hear. I wanted to drill in on that a little bit because when you listen to certain consumer companies talk, particularly those that service more of a lower-income cohort, there's been some choppiness out there and some companies talking about consumers pulling back in certain areas. You know, are you seeing any signs of that in your data? I mean, you guys are everywhere, so it wouldn't necessarily move the needle in a major way at the overall Visa level. But when you try and pull apart the data that way, what do you see across income cohorts-
Yeah
O r what people are spending on?
No, it's true. We have an incredibly diverse exposure to you know, daily spend, to discretionary, non-discretionary, to spend all income bands. I'll reiterate, and we do see some you know, different trends, but I will reiterate what I said in the second quarter earnings, which is when you look at the spend patterns by different income segments, as you called it you know, the trends have been relatively unchanged for several quarters as well.
Interesting. Okay. So let's talk about your guidance for this fiscal year, end September.
Mm-hmm.
Last quarter, you reiterated the revenue growth outlook. I think you're talking about low double-digit range, and, you know, it does imply a little bit of second-half acceleration, and I think you had a couple of call-outs on that last quarter. Maybe just take us through those and just, you know, because this is a question that we're getting a lot, right?
Yep.
It's just, you know, what kind of visibility does Visa have on that, right? Because you know, you adjusted the volume guide a little bit because of APAC, like you mentioned, but the revenue growth piece is still there. So just remind us of the drivers and kind of the confidence level there.
Sure. As you pointed out, September is our year-end, so this last quarter was the end of the first half of the year. And so like, you know, many companies at the end of, you know, the first half, you kind of pause, you take stock of how you performed in the first half of the year relative to expectations that you had now more than six months ago. And we did that, of course. We also then looked at the current trends of the business, and how that you know, what that implies or what that means into the second half. And so we kind of go through a deeper process, I'd say, since we're halfway through the year.
All of that to say, you know, as we did that, it gave us, you know, confidence to reiterate the guidance that we provided at the start of the year, again, more than six months ago, which is for low double-digit growth in net revenue growth in constant currency. You mentioned Asia. You know, the volume adjustment in Asia was. You know, didn't have a big financial impact. We talked about that at length on the call as well. And so we feel good about being able to reiterate that full year guide. You know, you mentioned the word acceleration into the second half of the year.
I think it's perhaps helpful to sort of go back again to, you know, the things we talked about at the start of the year, because that expectation that we had at the start of the year was that the first half of the year's growth rate would be impacted by some things that we saw last year. And we called out three things in particular. One was cross-border normalization. So last year, you know, we are continuing to see cross-border growth normalize. Post-pandemic, it grew 31% in the first half of last year, 20% in the second half of the year, and 16% in the first half of this year. And so you're seeing how that curve looks like as it normalizes, so a tougher comp in half one. The second one would be incentives.
We had 16% higher incentives in the second half of last year. It really has to do with the timing of deals, and we had a big renewal wave in FY 2023. We saw that impact the second half incentives. And so, in terms of year-over-year comps, that provided, you know, again, a tougher comp in half one. And then the third one was currency volatility. And so currency volatility, again, sort of normalizing, where you saw significantly higher currency volatility in the first half of last year, normalizing, or at least getting to closer to current levels. And so all those things sort of impacted half one growth, right? As we look forward into the second half of the year, we have less of those grow over things to call out.
Obviously, in the first half of the year, we saw some puts and takes across incentives and volatility.
Right.
But those kind of offset each other in the first half of the year. And, and as we again, as we sort of looked at the rest of the year, we feel pretty good about the outlook, and, and we do anticipate, you know, Q- finishing the year in Q4, on a high note.
Anything on ticket size we should be aware of as well, just first half or second half?
Yeah, the one that we've talked about and we've been tracking and watching very closely in particular is the U.S. ticket size.
U.S. ticket size, right.
We had a planning assumption, again, going into the start of the year, largely based on, you know, the trends that we've seen over the last year and over the last several years, quite honestly, where we saw, you know, across a number of spend categories, materially, materially easier comps in the second half, in the U.S., across different spend categories. And we're continuing to see it trend toward positive. We talked about that in the second quarter, and that's our expectation for the second half.
Understood. I wanted to actually shift the discussion to some of your newer businesses outside of the core, and maybe we can start there on New Flows , as you call it. We actually did a deep dive report on the overall B2B payment space earlier this week and, you know, talked about a variety of players there, obviously, Visa included. Just remind folks what you guys include in New Flows , exactly, and when we just think about the growth rate there, I think you posted 14% growth-
Right
T he past quarter, sustainability around that, and, anything rough you might be able to give us to help us kind of size it, right? Because I think investors are trying to piece together how fast is core going to grow for the next few years versus New Flows , and we'll get into Value-Added Services separately.
Yeah. We're incredibly excited about the opportunity with New Flows . It's got good momentum. As you pointed out, 14% growth in the second quarter, and, you know, probably more importantly, tons of runway in front of us. The New Flows business, just to sort of decompose that a little bit, you can think about, you know, the commercial business side of the business and Visa Direct as the two sort of large pillars within that business. Within commercial, the commercial card business, within the B2B business is the vast majority of the revenue. It comprises the majority of the $1.6 trillion in commercial payment volumes that we talk about. That's an FY 2023 number. And so, you know, that business has a correlation again, to the commercial PV that we talk about.
It, in some senses, has some similarities to the consumer business in terms of, issuance, acceptance, and, and volume and usage, and it follows, some of those flows. It reports similarly. It reports and, you see it across service revenue, across data processing, and, international revenues as well. The other big part of the business is Visa Direct. That's a business that we feel great about. The growth has been terrific. That is, charged on a cost per transaction basis, and so that gets reported in, in data processing. And so again, as we look across the New Flows business, you know, we continue to see tons of opportunity for growth. We, continue to focus on this as, as one of our true growth pillars.
We're focused on, you know, growing with new and existing clients, with new and existing products and services, and also, you know, many new use cases that come to mind as well. You know, terrific opportunity for growth. We continue to believe that this is a growth engine. It will grow faster than our Consumer Payments business overall.
Let me ask you a little bit more about Visa Direct. It, it's been interesting to watch it scale. I think transactions were up 30%+ last quarter, and I think, if I'm not mistaken, you're now 5% or so of Visa's total debit transactions. So it's a, it's a big number. What, what do the unit economics look like versus a, let's say, a traditional Visa debit transaction? Because it's still running on the same rail, right? So...
Right. Correct. Yeah, it's a great business for us. You pointed out, you know, 30, 30%+ growth in the second quarter, but more importantly, it's been growing at, you know, at a high level for multiple quarters, 20%+, quarter-on-quarter. In terms of the unit economics, you know, here's how I would, I would encourage you to think about it. Because it runs on a, you know, cost per transaction basis, it does have some similar. You know, it does vary, I would say, by use case. Maybe that's the first thing to point out. A cross-border P2P transaction has a better yield, and as different use cases grow, the, you know, sort of the mix of that could evolve.
But when you look at the yield, in total, today, it doesn't look that dissimilar from, you know, the data processing yields that we see. It also, as to your point, it runs on VisaNet, and so in terms of the marginal cost, it's a pretty good business as well. So, it, you know, it has pretty good unit economics, both on yield and margin.
I wanted to shift over to Value-Added Services , and there I think you had revenues growing 23% year-over-year, this past quarter. Certainly, on a quarterly basis, that can be kind of lumpy, but when you just think about sort of the annualized growth rate potential of all the Value-Added Services , I mean, is 20%+ a realistic zip code for some number of years? And then if you want to maybe deconstruct that a little bit, which parts of that are you guys most excited about over the next, you know, say, 3-5 years?
Yeah. Terrific. Another, you know, growth pillar for us that we're very focused on and really excited about the momentum. You know, it's a sizable business for us. It, you know, it was over $2 billion in revenue, growing 23% this quarter. But again, more importantly, quarter on quarter, we're seeing consistent, you know, 20%+ growth if you go back, you know, the last several quarters. I think we're doing a terrific job, you know, across a number of fronts. I think, you know, when we think about sort of what Ryan did in his first, one of the first moves that he made as CEO, was to really put greater focus on this organization, and that came through in a couple of ways.
One is, you know, create an organizational structure that supports the business in a way that gives greater prioritization, greater focus, a more clear strategy, drives execution in a more focused way. Installed a global leader for that business, Antony Cahill, who brings, again, that focus both from a strategy and execution standpoint. I think we've also done a good job on the commercialization or the go-to-market efforts on this, and that's something, again, that Antony brings to, you know, the value that he brings. We've done that in a number of ways. We created, you know, specialized sales leaders that sit co-located in each of the regions. We've been pretty smart about solutions and bundling and pricing and packaging, and really helping our clients solve their problems and needs.
And we've also done a lot of localization of offers. As I said, they're co-located in the regions, and they're able to bring a lot of the value in. As we look forward, you know, the growth has been broad-based. It's been across... You know, we have multiple lines of business, and you see the growth across issuing solutions, across acceptance, across advisory. There's, you know, multiple places, and they're big businesses, and they're growing at scale. And so when you think about the forward, as you asked about, like, what does it look like-
Yeah
In the future? Like, there's so many vectors to grow. You can grow with our volumes, you can grow on non-Visa volumes, you can grow in, you know, non-payment volumes. We have advisory and marketing services that are within the Value-Added Services. We can sell through our direct sales, we can sell through partners, as we recently announced with ServiceNow and AWS. There's just lots of vectors to growth. We're excited. We continue to innovate, which I think is really sort of key to all of this, and execution's been strong, momentum's been good. We look forward to continuing to see that growth lead the way and then be one of the, you know, faster than Consumer Payments again.
Right
and continue to have strong momentum.
I wanted to ask you a follow-up on the debit processing service, DPS, as you guys call it. I feel like it doesn't necessarily get a lot of attention from the investment community. Just unpack that a little bit for us. You know, what types of issuers are you serving? You know, anything you can tell us about the size or growth of DPS, and you know, would love to just hear about kind of future strategy forward there. I know you also-
Yep
just did a recent acquisition that kind of ties in there, I think.
Visa.
Yeah.
Okay, so well, let's talk about, you know, what is issuer processor? It's the... You know, it's the technology, it's the connectivity, it's the services layer that really helps, financial services, fintechs, other digital platforms manage their, you know, their card business. It authorizes or declines transactions, it helps with card issuance, it's the cardholder data records. So there's a number of, you know, purposes that it serves. We've built a really great business in the U.S., in the U.S. debit business called BPS. It processes, you know, it's one of the largest, issuer processors for debit in the U.S. It processed, you know, nearly $2.5 trillion in authorization volume in 2023.
As one of the largest, you know, in sort of addressing issuers of all sizes. You know, we work with most of the top ten issuers-
Mm-hmm
In the US. It's been a great business for us, and to your point, probably under the radar a little bit.
Yeah.
You know, why do we think we win? What's our differentiated value proposition? Clearly, you know, the stability, the scale, the resilience of the VisaNet network, the security, the reliability. It also, it's compliant not only with Visa rules, but also with, you know, other scheme mandates and even with FedNow. And thirdly, it really taps into our ability to think about, you know, the vast amount of services, the Value-Added Services that we were just talking about, whether it's around, you know, fraud management or, you know, other forms of authorization or things like this. And so, it, you know, we have good momentum. Like I said, DPS is a U.S. primarily debit and prepaid issuer solution. Then the acquisition of Pismo, which you referred to.
So we're excited to bring Pismo to be part of Visa. That acquisition closed just, you know, a quarter ago. Pismo is a cloud-native issuer processor, core banking asset. They expand beyond the U.S., so you think about the complementary nature of it. They expand beyond debit, they have credit and commercial, and it really does, you know, it's sort of a modern stack in that way. And so you think about the combination of those two assets, you know, at the end of the day, our goal is to become the platform of choice for our clients, and we think there's a very compelling offer now between DPS and Pismo that we can solve a lot of problems and ultimately help our clients.
Okay. Yeah, I mean, it's a logical cross-sell to, you know, what you already do with these large issuers, obviously, on the, on the card side of things. So thanks for that. Let's talk about cash-to-card conversion. It's been a multi-decade topic at Visa and for other companies, and now I think you guys most recently have suggested that there's still $10 trillion globally of consumer cash and check spend, which is a big number, obviously.
Very big.
Sometimes we hear about, you know, countries that are a relatively mature economies, like Germany or Japan, and they're still cash-heavy, but, you know, is there something structural about those countries that mean, you know, they're never going to get the kinda electronic payment penetration that we've seen in places like the U.S., or does Visa feel like, no, that actually is attainable? And, you know, what other countries would you highlight or regions that kinda really help you chip away at that $10 trillion over time? Because I do think, you know, the investment community is kind of probing this topic, you know, a little bit more these days just because, you know, we look at countries like the U.S. that obviously are, you know, pretty high up the penetration scale.
Yeah. So let's unpack that. There's a lot there, and it's a really important topic.
Yeah.
Yeah, we see $20 trillion plus of opportunity for … of addressable opportunity for Consumer Payments . And Jason, as you pointed out, we sized roughly half of that to be cash and check. And you know, there's some global themes that we could talk about-
Yeah
... certainly in terms of how to penetrate that. But I do think it's a market-by-market story. You mentioned Germany and Japan, so let's talk about those two. In Germany, you know, we've, we've had tremendous success even over the last few years. In many senses, it's, it's kind of our playbook, right? We've been growing credentials, we've been growing acceptance, we've been growing usage, and we're seeing it in the results. In terms of credentials, you know, we've gone from zero to six- in 2019, we were effectively at zero in terms of debit, to 19 million, 16 million, correct, excuse me, debit cards, in 2023. Acceptance locations has grown significantly. Now we have more acceptance locations in Germany than the local domestic scheme.
Mm.
For the first time, that happened in 2023 as well. And then usage, like, which, you know, the result of all that is we've seen payment volume growth, you know, into the 20%. We're seeing transactions growth into the 30%. And so we're seeing the fruits of our labor. I think we're bringing a lot of innovation to the market that really differentiates Visa from the other competitors, I would say, in the market. Japan, another interesting one. You know, to your point, they are cash-heavy. We are working with the Japanese government on their cashless vision, and their vision is to double PCE penetration by 2025 and double it to 40%, right?
Mm.
One of the big one, you know, unlocks to that is transit in Japan. So we have 19 new ones that we've launched to bring the total to 89 already.
Mm.
We're seeing great traction. They've already... You know, the contactless, the Tap to Pay penetration in Japan has doubled over, you know, over the recent periods as well, hitting 30%. And so again, good traction. That's another area where, you know, we're bringing innovation. We have this sort of Flexible Credential thing that we've launched that-
Right
T hat's taking place over there. We have 2 million, 2 million consumers already taking advantage of that, and so that's-
Mm
Yo u know, we're seeing innovation there. And so Japan is another great market. I'd be remiss not to talk about the U.S. You mentioned the U.S.-
Yeah
Because I know it's top of mind for a lot of folks. A lot of the same global trends. Like, again, we still see tremendous opportunity ahead in the U.S. I think this is the area where Tap to Pay plays an important role. The U.S., as many of you know, Tap to Pay penetration or contactless penetration is about 50%, which is good progress, but it's about 30 points below the rest of the world. And you can see, again, it's like, you know, we have focused acceptance efforts. New York City hit 75%-
Mm
R eally on the back of transit. Transit has been, you know, a key differentiator for us. E-commerce, another unlock, e-commerce payment volumes related to e-commerce grows significantly faster than face-to-face. And, you know, it's also interesting to point out that 80% of, you know, face-to-face transactions happen with a merchant that is enabled for contactless. And so you think about, contactless and e-commerce and those trends, and, I think that, you know, is going to be a tailwind for the U.S. And then the third part of your question, just to continue to unpack it, is, you know, where are other markets? A couple I'd point to, Mexico.
Okay.
More than 50% of PCE is still in cash. We are seeing tremendous, you know, sort of continued growth there, with the acquisition—with the investment, the one that we've announced, Prosa, which will allow us to bring digital, you know, innovation to the market. We think we have a good opportunity to grow there. And then maybe the last one I'd call out is Africa. You know, just go back a couple of years, and-
Mm
—they were 80%+ cash as a percentage of their PCE. It's come down, it's come down to from 86%-72% over the last, you know, several years, but it's still 72%.
Yeah, it's a big number.
Over $1 trillion of cash in a market like, like Africa. And so there's still plenty of opportunity to grow. There's lots of moving parts, as this conversation sort of has pointed out, and I'd say we're excited to go after it, and we're really focused on it.
Let's hit on some regulatory items that have been popping up. Love to get your perspective. You know, for example, just recently, the UK payment-
Yeah
Payment Systems Regulator put out a report saying, "Hey, we're actually looking at network fees," where this is not interchange, this is network fees, right? So a little bit different from traditional regulatory types of initiatives. It doesn't seem like there's any plan, at least at this point, to cap network fees, but just wanted to get your reaction to that report.
Yeah. I mean, we're still reviewing the details of the, of-
Okay
- those remedies, I would say. You know, but we fundamentally disagree with the interim, you know, PSR interim report.
Okay
findings. We just don't think it reflects the dynamic and competitive nature of the markets that we operate in. We think it's important that the PSR recognize that, you know, our pricing and our fee structure really is based on the value that we bring, and that's the incredible reliability, the security, the stability, as well as so much consumer protections that we offer to consumers and merchants alike, that really are good for the economy and for consumers and merchants alike. So we'll have to see how it, you know, how they plan to operationalize these proposed remedies, and we look forward to continuing a positive engagement with them.
On the U.S. front, big settlement recently of long-running merchant litigation that goes back longer than any of us-
Right
C are to remember. But, I know it's a relief internally, obviously, for you guys to kind of put that behind you. Court approval, I think, is the next step, right, to kinda bless the settlement. You know, at the same time, it's interesting because we've seen some industry groups, some large merchant groups kind of come out publicly and say, "Well, we disagree with the settlement." So, you know, what's the prospect of this, you know, getting appealed? And, you know, how are you guys thinking about just... You know, seems like there's this real dichotomy between kind of one group of merchants who said, "Yes, great, we agree," and then you've got another group of merchants who don't seem to feel like it's satisfactory. So how do we reconcile all that?
Yeah, I mean, we feel great, to your point-
Yeah
To have reached a settlement on this landmark case. We think it does a number of things. We think it does address a number of the concerns or the pain points that have been raised by merchants. We think it gives certainty around Visa rules. And we think, most importantly, that it provides consumers choice in terms of, you know, their payment vehicle of choice. It's to your question around, you know, next steps and appeals, I mean, technically, yeah, correct, you're right. It's possible, but it's, you know, one step at a time. We think that the settlement addresses, you know, all the things that I just talked about.
We think it's good for the merchant class in total and for consumers, and we think the court should approve it.
So, I wanted to hit on client incentives.
Mm-hmm.
Always a big topic at Visa. It seems like they're actually coming in a little bit better than you guys had anticipated at the start of the year. You know, just thinking about fiscal 2024. You know, how much of that is related to just where issuers have been coming in relative to their volume tiers versus deal timing or other factors?
Yeah, sure. I mean, at the end of the day, incentives, you know, they're a useful, valuable tool for us to align our incentives and that with our, you know, with our partners.
Sure.
And in the first half of the year, they do vary. To your point, they vary from quarter to quarter based on deal timing, based on client performance. Those are probably the two ones that I'd call out, and those are the same ones that I that I called out in terms of, you know, what we've seen so far in terms of performance, in the first half of the year. But that said, when we sort of zoom out and step back and look at the full year, it doesn't change our expectation for the second half of the year. You know, I talk about deal timing, because this question has come up. I'll just address it proactively.
You know, a deal that moves from Q2 or half Q2- Q3 doesn't really change the expectation in terms of the second half because that deal was already in the plan-
Right
For the second half, it just sort of starts later. And so it, you know, we see the benefit in terms of in the second quarter, but it doesn't change the second half of the year. And so when we look at the totality of the year, we still expect the second half growth rate to be lower than the first half. We expect the Q4 to be the lowest point of the year, and we expect the full-year growth based on the flow of deals, because we did have that big renewal year in FY 2023. We expect 2024 growth rates to be below that, year-over-year growth rates to be below that of 2023.
We feel good about, you know, about our ability to come together again, align interests, and ultimately, you know, the thing that we focus on, which is to grow net revenue yields, to grow net revenue and to sustain yields, and we feel good about our ability to do that.
All right, very quickly, in our 29 seconds.
Okay, 29 seconds.
How is Visa going to benefit from AI?
Uh-
Can you answer that in 29 seconds?
That's a tall task. We should ask the AI to answer that.
Yeah, right.
Let me just say this, I guess in the 20 seconds now, we're all in on AI. We have, you know, multiple ways. We've been all in for decades, right?
Yeah.
Thirty years that we've had some form of AI in our product sets. We think about the abilities that it's going to change both the way that we work internally and more importantly, how we, you know, the products and services that we bring to our clients. We have, you know, over 140 models benefiting, you know, over 40 products and services today that range from fraud and fraud management, all the way to, you know, sort of a customized shopping experience.
Mm-hmm.
We think that that's going to be great, and we're all in on it.
You have more data than pretty much everybody, so-
Yeah
M akes sense.
We do have our share.
Yeah.
All right.
All right. Thank you, Chris.
Thanks a lot.
Appreciate it.
Thanks, everyone.