Welcome to Visa's Fiscal First Quarter 2021 Earnings Conference Call. 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. Mike Milotich, Senior Vice President of Investor Relations.
Mr. Milotich, you may now begin.
Thank you, Michelle. Good afternoon, everyone, and welcome comes to Visa's fiscal Q1 2021 earnings call. Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer and Vasant Prabhu, Visa's Vice Chairman and Chief Financial Officer. This call is being webcast on the Investor Relations section of our website period. Fiscal highlights will be posted on our IR website.
Let me remind you that this presentation includes forward looking statements. These statements are not guarantees of future performance and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent reports on Forms 10 ks and 10 Q, which you can find on the SEC's website and the Investor Relations section of our website. For historical non GAAP financial information disclosed in this call, related GAAP measures and reconciliation are available in today's earnings release. With that, let me turn the call over to Al.
Thank you, Mike, and good afternoon and thank you for joining us today. Even with vaccine proliferation on the horizon, COVID-nineteen infections really continue to rise, causing restrictions to be implemented in many parts of the world. Amidst The pandemic Visa delivered strong financial results in our fiscal Q1 and our strategy to enable money movement globally remains clear. Answer. On our call today, let me discuss our Q1 results and then provide detail on our momentum this quarter with clients and the valuable solutions they utilize to drive money movement globally.
As I review our Q1 results recall we are growing over a quarter where no one had ever heard of COVID-nineteen. Payments volume, process transactions and cross quarter volume all improved from Q4. Payments volume improved 0.5 point, processing transaction growth improved 1 point and cross border volume improved GAAP EPS was $1.42 a decrease of 3%. Through our dividends and buybacks, we returned $2,500,000,000 of capital to shareholders in Q1. Answer.
Bhatsan will cover spending in great detail, so I'll only make a few high level comments on holiday spending. Answer. US holiday spending was quite different this year, but had a similar overall growth to the last 3 years of holiday season, led by strong retail growth somewhat offset by travel, entertainment and fuel. This year in the U. S, we generally saw a continuation of the trends that have been occurring during COVID, Strong debit and e commerce and weaker credit and card presence.
Outside the United States, holiday retail spending with growth in Canada, the U. K, Brazil and Australia all rising by 5 or more points over last year. Answer. Now let me transition to our progress with clients. We continue to win and renew business as we transfer money movement globally through consumer payments, new flows and value services.
In consumer payments, we continue to focus on digitizing the $18,000,000,000,000 spent in cash and check globally by working with partners to grow endpoints and deepen customer engagement with innovation. We are growing credentials with traditional issuers, fintechs and Wallace. Let me start with North America. We are very pleased to have renewed our long standing partnership with Wells Fargo answer. The Bank of Montreal, Canada's 4th largest bank and the only top 5 Canadian bank not previously issuing with Visa, announced a new partnership answer.
We also issued 2 affluent lifestyle credit card products in the Canadian market. These products are digital first targeting the affluent millennial segment and offer strong rewards and value to cardholders in a differentiated and innovative way. Answer session. In our Asia Pacific region, we won the debit business of Malaysia's Ambank after winning the credit business just a quarter ago. Our relationship with LINE Pay also deepened this quarter on 2 fronts.
First, in Japan, LINE Pay is now issuing a Visa virtual prepaid card. And second, Visa secured an exclusive partnership with LineDK, Thailand's first social banking platform answer issuance of Visa debit cards. Within the 1st month, Line BK issued 180,000 Visa debit credentials. In Russia, Yo Money, one of the country's largest electronic payment services, with more than 120,000 merchants worldwide and 40,000,000 endpoints, answer. Visa credentials in their wallet and enable Visa Direct.
In Europe, we had several notable wins as we continue to increase our business on the continent. Answer. Visa secured a business agreement with Santander Group becoming the preferred partner in credit and commercial for Santander Banks across answer 7 countries in Continental Europe. We also won the prepaid issuance of Mooney, the first proximity banking and payments company in Italy, which offers its services through both digital and retail channels with over 45,000 points of sale in rural and urban areas that can reach 20,000,000 Ishbank, the largest private bank in Turkey with 20,000,000 cards has selected Visa for its consumer and commercial credit and debit portfolios. Last, we renewed 2 portfolios with a leading U.
K. Issuer, 1 for consumer credit and 1 for commercial charge card. We also continue to deepen engagement with our partners to find new ways to remove friction and enhance the client's experience through innovation. Just yesterday, we announced the global partnership with TransferWise and the first use case of Visa Cloud Connect, A new way to securely connect to VisaNet through the cloud. The new platform will enable the expansion of TransferWise and deliver a range of financial services via a mobile app to their customers, including currency exchange and P2P payments, answer all linked to a Visa card.
Tax to pay continues to expand, representing almost 2 thirds of all face to face transactions, excluding the United States. In the United States, we have approximately 300,000,000 contactless cards in place now and have high single digit penetration of face to face transactions. Answer. Even at this level, the U. S.
Is now the 4th largest country in a number of tap to pay transactions. Enablement continues to grow is all 500 of Costco's fuel locations and Chipotle and Nordstrom stores now accept tap to pay. I'm also pleased to report that the New York City MTA has completed their rollout to all subways and buses. Processing is also a way to bring Visa's innovations to market and we have made significant progress in Latin America this past quarter in Ecuador, Colombia and Peru and now have reached 100% processing penetration in Chile. Answer.
As I close out the consumer payment section, I wanted to note some progress in India. We continue to grow credentials. The Amazon Pay ICICI Bank co branded credit card in India has set a country record by issuing over 1,000,000 cards in just 20 months. On the acceptance front, India now has 6,500,000 acceptance points, including over 1,000,000 QR points, The Reserve Bank of India recently raised the contactless limit, which will soon cover 90% plus of all transactions in India. Answer.
Visa has entered into new partnerships with leading acquirers such as SDI Payments to launch acceptance solutions such as Tap to Phone and Contactless. Answer. And Visa is partnering with the largest acquirer in India, HDFC Bank, in the launch and scale up of SmartHub, an app answer solution bundling payments, banking and value added services to help small merchants grow their businesses. We're also contributing to India's payment infrastructure development fund to encourage growth of physical and digital acceptance in underpenetrated geographies by adding 1,000,000 points of sale and 2,000,000 QR points per year over the next 3 years. All of these efforts build on our leading credit and debit market share in India.
Now on to the second level lever of growth, new flows, which represents 185 trillion an opportunity. We are pursuing this opportunity with our traditional commercial card solutions as well as newer capabilities like Visa Direct and Visa answer. While we're making progress across all new flows, I'll highlight a few advancements from this quarter. Answer. In B2C, big economy payouts and earned wage assets continue to grow meaningfully in the wake of COVID.
This quarter with DoorDash, we launched the Dasher Direct Business Prepaid Card in the U. S. Offering the over 1,000,000 dashers answer. On the DoorDash platform, access to daily deposits of earned wages and rich card benefits. In Canada, answer.
SkipTheDishes, the country's largest food delivery network, rolled out their Visa Direct enabled courier payouts called Fast Cash. P2P, which represents $20,000,000,000,000 of the flows, was Visa Direct's first use case and continues to grow answer session. A key area of future growth is cross border P2P or remittance. 4 of the top 5 global money transfer operators were onboarded in answer. TransferWise, Western Union, Remitly and MoneyGram, which noted a 500% increase year over year in real time transfers in December alone.
Our efforts to expand remittance also extends to fintechs and banks who can enable this capability. Answer. Z Pay, a fast growing African FinTech will use Visa Direct to allow Africans to send money across European and North American corridors answer and soon will expand to all major corridors globally. TransferGo, a global money transfer company that supports migrant workers to send money back to their relatives without paying unnecessary bank fees has enabled Visa Direct in 55 markets and has the potential to expand to a total of 178 countries in the future with its upcoming additions such as the UK, Italy and Nigeria. Answer.
Across the globe, in the Q1 Visa Direct transactions grew almost 60%. Answer. Now on to B2B. In cross border, Goldman Sachs Transaction Banking recently signed on to employ Visa B2B Connect for cross border B2B money movement, offering its corporate clients the ability to transact in over 80 markets globally. We are very pleased that our partnership with Goldman continues to deepen on multiple fronts.
In the virtual card based business, we've expanded our relationship with UK based Conforma Pay to launch Visa Commercial Pay, which has 3 offerings: A mobile app enabling virtual card issuance and management for business incidentals 2, a solution to manage business travel spend with enhanced data And 3, an integrated payables platform that can seamlessly send payments to suppliers. Barclays has already launched this functionality for their commercial clients. Currently, essentially all of these new flows are transacted in traditional fiat currencies. But there is a growing interest in digital currencies and I wanted to take a minute to talk about how Visa thinks about crypto in general and our approach. In this phase, we see ways that we can add differentiated value to the ecosystem, and we believe that we are uniquely positioned to help make cryptocurrencies more safe, answer is useful and applicable for payments through our global presence, our partnership approach and our trusted brand.
We think of the crypto market in 2 segments. First, there are cryptocurrencies that represent new assets such as Bitcoin. 2nd, there are digital currencies or stable coins that are directly backed We see all currencies in that first segment as digital gold. Answer. They are predominantly held as assets that are not used as a form of payment in a significant way at this point.
Our strategy here is to work with wallets and exchanges to enable users to purchase these currencies using their Visa credentials answer or to cash out onto our Visa credential to make a Fiat purchase at any of the 70,000,000 merchants where Visa is accepted globally. This is similar to our approach to connect closed loop wallets such as LINE Pay and Paytm. For the 2nd segment, Fiat backed digital currencies, including stablecoins and central bank digital currencies, answer. These are an emerging payments innovation that could have the potential to be used for global commerce, much like any other fiat currency. We think of digital currencies running on public blockchains as additional networks just like RTP or ACH networks, answer space.
Today, 35 of the leading digital currency platforms and wallets have already chosen to issue Visa, including Coinbase, crypto.com, BlockFi, Fold and Bitpanda. These wallet relationships represent answer. For more than 50,000,000 Visa credentials, the next leading network has a fraction of that. And it goes without saying to the extent a answer specific digital currency becomes a recognized means of exchange, there's no reason why we cannot add it to our network which already supports over 160 currencies today. Let me now turn to our 3rd growth lever, value added services.
Here we saw revenue grow at 19% answer in Q1. And let me name a few services with notable progress this quarter. As e commerce explodes, interest in CyberSource remains strong for merchants as well as from FinTechs and acquirers looking to leverage our capabilities to offer to their clients. This quarter, As one of the largest debit and prepaid issuer processes, we've been looking to expand Visa DPS globally. In that vein, we are pleased to share that we're bringing our Visa debit processing system to Europe.
DKB, our largest issuing Bank in Germany has chosen DPS as its debit processor and recently processed Visa's inaugural European DPS transaction via their platform. Answer. DKB will also be able to take advantage of nearly 20 value added services through this connection. We have believed for years that installments represent an important opportunity in payments. To enable this capability, we offer our own network solution for issuers, merchants and FinTech answer installment providers to use directly or also work with many and we also work with many installment providers to develop new solutions.
Answer. This quarter, we had updates on both fronts. We signed a global deal with Afterpay, extending our U. S. Relationship to an additional 7 countries answer session.
Afterpay will use Visa technology to accelerate its global expansion. In addition, Visa and Afterpay will test and collaborate on the application of new technologies like tokenization and Visa Direct. We announced in July that Commerce Bank in the United States was piloting the network solution and It is now launched with over with about 300,000 customers live. Visa also signed Scotiabank as the 1st Canadian bank to launch a post purchase installment pilot with employees in December with a full market rollout slated for mid-twenty 21. Answer.
All of these growth levers, consumer payments, new flows and value added services are driven by our network of network strategy, which is enabling all forms of payment, utilize All networks are providing the value added services you would expect from Visa as we enable money movement. In closing, a few points. Domestic volumes driven by debit and e commerce are really holding up well. Holiday spending, while differing in terms of categories and timing was quite good. Q1 overall was a very solid quarter and positive momentum continued, albeit we are still impacted by COVID-nineteen.
We are continuing to work very hard to balance expense management in recognition of the short term realities and investing in an exciting set of growth opportunities as we always manage the business for the long term. We continue to be focused on our 3 growth levers, all of which are supported by our network of networks. And lastly, we are hopeful that as vaccines roll out and become more readily available, lockdowns, travel restrictions and capacity constraints will be lessened or eliminated, Enabling travel, entertainment and other commerce to grow. With that, over to Vasant for more color on our volumes and our financials. Thank you, Al.
Good afternoon, everyone.
During our fiscal Q1 last year, COVID-nineteen was not yet a word in the English language. Answer. This will be the last quarter where our performance is compared to a quarter with no COVID impact whatsoever. As such, our results this quarter provide is clear picture of the state of the recovery. Overall, the quarter was stronger than we expected with net revenue down 6%, Largely due to the cross border business.
EPS declined only 3%, helped by lower expenses and a lower tax rate. Exchange rate shifts versus last year increased reported net revenue growth by less than half a point and EPS growth by less than one point. Global Payments volume is 4 to 5 points short of where we might have been. Debit has outperformed, helped by accelerated cash displacement and credit is still a drag. In the U.
S, we are actually back to our pre pandemic growth trajectory with leverage significantly ahead is offsetting credit underperformance. As you know, where we are well behind is in our cross border business. In the Q1 of fiscal 2021, answer. Our cross border volumes were almost 40% lower excluding intra Europe volumes than they might have been had The pandemic never happened, largely due to travel. Cross border travel volume, both card present and card not session is still down almost 70% relative to where it might have been at this point.
Answer. Let's start with a review of the key business drivers in the fiscal Q1. Global payments volume and transaction growth rates were modestly better than the prior quarter. The cross border volume recovery continued even as most borders remain completely or partially closed. The trajectory of the domestic spending recovery varies across the globe.
Some regions and countries are recovering fast, others are holding steady, while some have slowed in recent weeks as a result of new restrictions. What remains consistent globally is very strong debit and e commerce spending, which is partially offset by weaker credit and in store spending. Although constant dollar cross border volume, Excluding transactions within Europe, it's still down 33%, there was an 8 point improvement from last quarter. Answer. Payment volume on a constant dollar basis grew 4.5%.
Debit was up 17%, 3 percentage points lower than last quarter, While credit declined 6%, up 3 percentage points from Q4. Growth excluding China was 7%, Up almost a point as Chinese domestic volumes continue to be impacted by dual branded card conversions, which have minimal revenue impact. Answer. U. S.
Payments volume growth was 8%, up 0.5 point from last quarter. Debit growth remains strong at 21%. Debit growth was 3 points lower than the 4th quarter, largely driven by a step down in unemployment benefits distributed via Visa prepaid cards. Credit spending declined 3% year over year, a 4 point improvement versus last quarter, driven by an acceleration in retail spending and some recovery in travel and restaurant spending. Card not present volume excluding travel continued to grow over 30% in the quarter, primarily driven by retail spending.
The decline in card press and spending was consistent with last quarter. However, performance did deteriorate through the quarter as rising COVID cases led to further government imposed restrictions in several states and cities. Card presence spending slowdowns were most significant in the restaurant segment as well as during the Thanksgiving holiday weekend across most segments. Answer session. Across spend categories, growth was relatively consistent with the prior quarter.
Categories which have been growing above their pre COVID levels have remained elevated including food and drugstores, home improvement and retail goods. For categories that are the hardest hit by this pandemic including Travel, entertainment, fuel and restaurants spending remained depressed with year over year declines consistent with last quarter. Answer. International payments volume grew 2% in Q1 or 6% excluding China, both of which are up 1 point versus last quarter. Few regional highlights.
CEMEA remains our best performing region, growing 19% in constant dollars in the quarter, A more than 4 point improvement over Q4. The easing of COVID related restrictions, particularly in the Middle East and client wins drove the robust growth. Latin America grew 16% in constant dollars, a nearly 10 point acceleration from last quarter. This growth acceleration is fueled by limited COVID related restrictions in most countries, elevated e commerce spending compared to other regions and growing our market share with answer client wins in a few of the larger countries. Europe grew 5% in constant dollars, a 4 point slowdown versus quarter.
This deceleration was driven partially by renewed restrictions in the second half of the quarter due to rapidly rising COVID infection rates, particularly in the UK, France, Italy and Germany. And also as you may remember, growth in Europe last quarter benefited from a non recurring event in the UK related to purchases of higher interest bearing savings funds. Asia Pacific declined 8% in constant dollars. Excluding China, Q1 spending was flat, a 4 point improvement since last quarter. There continue to be more COVID related restrictions in effect across Asia than other parts of the world.
However, several larger markets such as New Zealand, Australia, Korea and Japan have returned to growth. Answer. Process transactions growth was 4%, up 1 point from last quarter. Growth accelerated faster than payments volume As transaction sizes continue to normalize ex Europe, increased COVID related restrictions in Europe are driving Higher average ticket sizes causing transactions growth to slow. Latin America is benefiting from processing wins in several countries including Ecuador, Colombia, Peru and Chile.
Visa Direct continues to perform very well with transactions growing almost 60% globally this quarter. Growth remains strong in every region as we continue to launch new use cases, further penetrate existing use cases such as earned wage access and cross border remittance and expand existing use cases to new geographies. Answer. Constant dollar cross border volume excluding transactions within Europe declined 33% in Q1, an 8 point improvement from the last quarter. Travel related spend declined 64%, but improved 6 points versus the 4th quarter.
Card not present non travel growth was 20%, up 3 points fueled by strong retail spending in November December. Constant dollar cross border volume including transactions within Europe answer declined 21% in the quarter. Although cross border travel performance improved steadily through the quarter, The travel improvement was concentrated in only a few markets where borders are open. Travel from the U. S.
To several countries in Latin America remains strong, including Mexico and the Caribbean. The UAE has been open to travelers attracting people from Europe, Russia and other Gulf countries. Answer. Also travel across countries within the former Soviet Union has been growing. Unfortunately, the majority of borders remain closed or impose significant requirements on international travelers.
The World Tourism Organization reported in December That out of 217 countries, 118 countries or 54% still had completely or partially closed their borders to foreign visitors. Of the remaining 99 countries, the majority are mandating COVID tests with quarantines. Very few countries have no COVID restrictions. Answer. Significant obstacles in crossing borders remain the single most important factor driving the slow recovery cross border travel.
A quick review of 1st quarter financial results. Net revenue declined 6% better than our expectations, primarily due to stronger than expected cross border volumes and lower client incentives. Value added services continue to perform well, Growing 19%. It's important to note that had we recognized service revenues on current quarter payments volume, It would have had minimal impact on our Q1 net revenue growth because payment volume growth was very similar across both quarters. Service revenues grew 5%, roughly in line with nominal payments volume growth last quarter.
Data processing grew 6% with High teens value added services growth continuing to be partially offset by the mix shift away from higher yielding cross border transactions. International transaction revenues were down 28%, 4 points better than cross border volumes excluding intra Europe due to favorable country mix and currency volatility benefits. Other revenues grew 5% led by value added services, but continue to be negatively impacted by declines in the usage of travel related card benefits. Prime incentives were 24.6 percent of gross revenues, approximately 1 point lower than expected. This was driven by 3 factors.
Answer. First, a few large deals expected to be signed in the Q1 were delayed to the Q2. 2nd, cross border volume was better than we expected, Particularly in the month of December, as we've said in the past, client incentives are mostly tied to payments volumes, so outperformance in High yielding cross border volumes lowered our incentives as a percent of gross revenues. And third, payments volume growth only improved a half point On the operating expense front, we continue to benefit from actions we implemented last spring. Our headcount is lower, answer.
Our spending on external services has been scaled back, travel continues to be very restricted and some marketing spend has been curtailed. In client core marketing as well as certain product and technology investments to later in the year. Non GAAP non operating expense was $112,000,000 for the fiscal quarter. This was over $30,000,000 lower than expected due to 2 non recurring items. 1st, investment income type of deferred compensation was higher.
This is offset in personnel costs and therefore income neutral. And second, answer. And interest expense reserve was released due to the conclusion of certain tax audits. The non GAAP rate was lower than expected at 16.6%. During the quarter, the conclusion of tax audits in certain jurisdictions answer resulted in an $81,000,000 benefit.
In addition to this specific benefit, our tax rate is typically lower in the Q1 due to the impact of employee answer. GAAP and non GAAP EPS was $1.42 a decrease of 3%. We bought 8,700,000 shares of Class A common stock at an average price of $202.30 for $1,800,000,000 this quarter. Our Board has authorized a new $8,000,000,000 share repurchase program, bringing total funds available for repurchases to over $11,000,000,000 Including our quarterly dividend of $0.32 per share, we returned approximately $2,500,000,000 of capital to shareholders in the quarter. In December, we repaid $3,000,000,000 of debt upon maturity of senior notes issued 5 years ago.
Moving on to some perspective on the 2nd fiscal quarter, starting with business driver trends through January 21. Answer. Through January 21, U. S. Payments volume growth was 12% with U.
S. Debit growing 30% and credit declining 6%. Debit growth is 10 points higher than the November December run rate fueled by government stimulus payments distributed right around January 1. Weekly growth trends show a sharp step up in growth in the 1st week of January answer and a step down in week 3. January credit growth has slowed 3 points since December, which is more than line with the November trend.
Answer. While U. S. Payments volume growth has accelerated, there are many countries where constant dollar growth is slowing due to increased restrictions as COVID infections rise. In Asia Pacific, Japan, Australia, India and Singapore payments volume growth has slowed 4 to 5 points versus December.
In Europe, countries such as the UK, Italy, Denmark and Germany all have at least 10 points slower growth in January. So far growth rates are relatively steady in both CEMEA and Latin America. Through January 21st, Process transactions growth remained at 4% with acceleration in the U. S. Offset by slowing growth in Europe and Asia Pacific.
Cross border volume excluding transactions within Europe on a constant dollar basis declined 33% in line with the Q1, but below the trends we saw in December. In a fast changing environment, accurate forecasting remains difficult. Answer. How long will elevated spending driven by stimulus payments last? How long will stepped up restrictions and lockdowns persist?
How will these two countervailing trends balance out country by country? Will cross border travel sustain the slow recovery even if some new restrictions go into place? These are just some of the uncertainties as we look ahead to the next 3 months. Based on the trends to this point, our best sense is that the 2nd quarter gross Revenue growth rate will recover to be flattish with last year, with most of the improvement driven by international revenues. Growth in other in the other revenue lines is expected to have a small uptick due to easier year over year comparisons in the second half of March.
1st quarter client incentives were a point below our expectations. 2nd quarter client incentives could be a point above is the high end of the 25.5% to 26.5% range we expect for the year. This would put first half incentives is right in the middle of the range. There are several reasons for the step up of client incentives as a percent of gross revenues in the Q2, even the continued improvement in cross model. First, as I mentioned earlier, a few large deals moved from the 1st to the second quarter, one of which Wells Fargo was signed in January as Al noted.
2nd, as we told you in October, many clients did not meet certain volume thresholds in calendar year 2020 and as such did not earn corresponding incentives. As volume recovers in 2021, we expect clients will hit growth thresholds and earn these incentives. We We accrue incentives accordingly starting with the Q1 of the new calendar year. This causes a larger increase unique to the year of the recovery. And third, The impact of renewals we had already expected in the Q2.
Due to the step up in client incentives as a percent of gross revenue, The net revenue decline in the 2nd quarter is expected to be comparable to the decline we reported in the Q1 even as the gross revenue growth rate continues to recover. Exchange rate shifts could benefit 2nd quarter net revenue growth by less than a point. We expect operating expenses to grow in the low to mid single digits in the second quarter as we begin to lap the expense reductions implemented last year. We still plan to grow expenses in the double digits in the second half as we step up investments on key growth initiatives in anticipation of a return to normalcy by the end of fiscal 2021. Non operating expense should be $145,000,000 approximately, which is similar to the Q1 If you exclude the 2 non recurring items I mentioned earlier.
There is no change in our tax rate expectations. It is still too early to predict what impact the U. S. Elections will have on our taxes. As always, we will provide updates as the year progresses.
In summary, as you can see, our business remains resilient. Both answer session. Well above pre COVID levels as the accelerated shift to digital payments becomes a habit. Cross border growth is poised to recover sharply once vaccines facilitate reopening of borders and we lack last year's steep declines. Our new flows and value added services businesses have continued to grow robustly through the worst of the pandemic.
As Al indicated, we have stayed focused on our long term growth initiatives And we'll be stepping up the level of investment in the second half in anticipation of a post COVID world with accelerating growth. With that, I'll turn this back to Mike.
We're now ready to take questions, Michelle.
Thank answer session. Answer
session.
Our first question comes from James Faucette with Morgan Stanley. You may go ahead, sir.
Answer. Great. Thank you very much. I just wanted to ask strategically how you're thinking about answer. Going forward post the Plaid deal that you decided to turn away from.
And I guess, answer. I'm looking for just comments of how you feel your relationships are with regulators and what makes sense in the future for future
1st of all, let me ask
the last part of the question. This was a single lawsuit brought by a single regulator about one specific M and A transaction. So I don't believe answer. This portends anything about the future and our ability to continue to answer as we said a couple of weeks ago, we ended up making the decision that This was just going to go on for too long. And we all know that the payments marketplace is moving with great speed on so many fronts.
Answer. And the idea that we would tie ourselves up on this transaction and frankly the plan would tie themselves up Through long term litigation that could go all the way through an appeal in and of itself. It's not appealing to us In terms of all the other things that we thought we could be investing in and spending management time on and spending our dollars answer. We're continuing to forge down a path of making sure that We are a real player in this space of open banking and answer. We believe that we have a lot of the assets already.
What Plaid was going to do was going to get us into the answer specifically into the data extraction type of business, which would have added to our network of networks, but it doesn't in and of itself answer prevent us from doing more going forward. We also still have the ability in that space to partner with Plaid. We have the ability to partner with other players around the world. And in many cases, that might give us the ability to partner with players that understand the nuances of specific markets in which they do work. We'll continue to look to Make sure that we to the degree that any use cases that are going to form here, the most the use case Probably would have the most chance of stepping out and being something that takes has some legs behind it with the account to account, and I think we're very well positioned there.
We're positioned well to make sure that We can provide payment capabilities for the various fintechs that we are doing business with today and we have the ability to continue to sell value added services to all of those players. So I think that ultimately as we have in the past, We will invest to grow internally, we will look to partner and we will look to buy and it will be a combination of capabilities and approaches that will allow us to continue to be a player in this space.
That's great context, Al. And just a quick operational follow-up. Obviously, you've taken expenses out of the answer is out of the cost base in the last year as a result of the pandemic. How should we think about what components of that cost base are likely to flow back in as things turn to normal versus what could be more permanent changes.
Well, I
think when you look at our cost base, the big parts of our cost base are people, marketing and technology. And we do have well, we think we have the Tokyo Olympics coming up In the summer months, I mean, there's some people think that might be in some peril at the moment. It's going We held marketing to really relatively modest levels in this past quarter, But I would certainly expect us to be driving marketing up. Basically when we go to market, in our business, it's a combination of putting people resources, our technology resources and our marketing muscle behind whatever we're doing. And so those are the areas that I would expect to see us grow going forward.
And then of course, I mean we really have dramatically curtailed TD and professional services and I think that to the degree that later in the year we begin to get some people back to offices and we begin to see some people get back On airplanes, we'll see some modest increases in those expense areas. But we've been really careful about Both our people level spending and our technology level spending and our marketing level spending. And I think as conditions warrant, we'll be dialing those up answer. So, Vasanth gave you some insight into where we think expenses are going to be in the second half, and we think there's some really good opportunities. And I want to make sure that In fact, as we believe that we'll be in some form of normalcy by the end of this fiscal year, we want to make sure that we have good momentum going into fiscal 'twenty two.
Great color, Al. Thanks.
Thank you. Our next question comes from Tien Tsin Huang with JPMorgan. You may go ahead.
Answer. Hey, thanks so much. Appreciate all the color on the volume trends. I wanted to ask about value added services that was up in the high teens. Curious how sustainable that is and if that growth could actually step up with the eventual recovery in volumes.
Just trying to understand how Procyclical or not, that business is.
Well, Tien Tsin, thank you. I guess a little bit of color for everybody. About 2 thirds of our value added services are in data processing and they basically are transaction based revenue streams. Answer. And that's CyberSource, that's our risk and identity products, that's DPS and all of those answer will tend to continue to produce very good volumes and they'll move with transactions answer about a third of our value added services are split between our services revenue, We tend to be card benefits that are offered as a package.
And then in other revenue, we have volumes that are not I'm sorry, we have services not tied to buy Things like consultants consulting our practice and travel related card benefits that obviously have been down. So I think as travel would be to come back at some point, that obviously would help answer that volume. So that with that color, we saw our obviously, in a world where e commerce and omni answer. Commerce is becoming a big deal. Cyber volume was very, very good and drove revenue.
We continue to have more and more Customers engage with us on risk and identity services. And as I said earlier, now answer. We're excited about the fact that we're going to take our data processing system beyond the United States and we've now got it starting to use it in Europe. Answer. I think that that gives us a good platform for growth going forward as well.
Very good. Thank you. Thanks, Vincent.
Thank you. Our next question comes from Don Fandetti
answer comes from Wells Fargo.
Good evening. Al, it's Dafont. In terms of the cross border improvement, I thought that was actually pretty decent answer. Q over Q improvement on the growth rate. Did the U.
S. To LatAm, you said it remained strong, but did it improve? Was that a factor answer. In the overall group year over year?
Don, it was really In Latin America, it was really U. S. To Mexico and U. S. To the Caribbean that drove Dubai in North America.
Beyond that, answer. Dubai opened a bit. Now Dubai is having a little bit of resurgence and just went back into some restrictions earlier this week. Answer. But Dubai has been open and there's been a decent amount of travel intra Middle East.
There's been a fair a little bit of an opening amongst the countries in the former Soviet Union and then there's been some answer improvement or some movement in intra travel within South America. So those are kind of The spot where we've seen the improvements in cross border, Most of the rest of the corridors around the world continue to be, as Vasant mentioned in his remarks, either closed or subject to like answer really tough restrictions that make it very difficult to for somebody to take on traveling.
And As you look at these numbers, are you still feeling like the data points suggest there's a fair amount of pent up demand when things do open up?
Well, I think, John, as it relates to consumer travel, which is the vast majority of answer Our payment volume in the travel sector over the years, answer. I do think we're going to see some opening for sure. I think there's a lot of pent up demand. I mean, there's a lot of people who haven't seen family, Parents who haven't seen grandchildren, children who haven't seen parents, and are going to want to stop buying planes. I also think a lot of people are stir crazy answer.
And want to get out and then you've got people who are true global citizens who are knocking things off their To do list, and in terms of places they want to go and things in places they want to see. So I think Consumer travel at the right time, but we need to see these restrictions be mitigated or lessened in a pretty big way. I think it's going to come back quite strongly. I think it's going to take more time to see business travel come back. And answer.
And frankly, it might take years for business travel to return to the way it is. I mean, we've all gotten accustomed to answer. Talking on video conferences, etcetera. And I think we all probably realized that there are trips that we took or authorized in the past that when we Look back on it today in the light of talking on video, we say, why did we send somebody to that meeting for a 1.5 hour presentation that They could have just as well done on video. So that's the way I think about it going forward, Tom.
Thank you.
Thank you. Our next question comes from Lisa Ellis with MoffettNathanson. You may go ahead.
Good afternoon. Thank you. A follow-up question answer. On Visa Direct, which you highlighted again grew almost 60% in the quarter. At your Investor Day last February, you had sized the B2C, answer.
G2C and P2P markets about $60,000,000,000,000 in total payment volume. And I believe Visa Direct did about $350,000,000,000 last year, so about 0.5 answer session. Can you talk about over time as you're seeing Visa Direct develop, how much of those markets do you think is potentially addressable by Visa Direct and any hint of the monetization level that we should be thinking about something similar to domestic debit or different from that. Thank you.
Well, Lisa, thank you for the question. Visa Direct has the ability To grow on a number of vectors, the 2 that I think are the most obvious is in terms of or 3, I'd say, answer. Continued penetration of current use cases, new use cases that get developed and then thirdly, geographic expansion. Answer. And this is a business that we're still building out.
There's still lots to do in all three of those answer categories. And to an earlier question I think Don asked, we're going to continue to answer invest in that area and there's markets where we haven't even really laid any track for Visa Direct, there's use cases where we haven't laid any track and our Our plan is to continue to do that. If we look at the very first Visa Direct use case, which continues to grow substantially P2P payments, answer. There's still lots to do both in domestic P2P payments, but we think our key future growth areas in cross border P2P and remittance and answer. We're beginning to take steps there to enable that.
And I mentioned in my remarks the fact that we've got Relationships are 4 of the 5 top global money transfer operators and that's helping us quite a bit. I think earned waste access really continues to be a real opportunity. I touched
a little bit on a
few of those basis, but there's still lots of geographies and lots of organizations that we have the ability to penetrate to grow that. And then you've got all these B2C use cases, things like food and grocery delivery and online answer. Gaming and insurance claim payouts. So all of those are, I would say, In the early innings of a baseball game in terms of our ability to continue to make progress and drive those. So I continue to believe that this platform, of which we can generate Dozens and dozens of use cases will for quite some time be really important to us from a growth perspective.
Next question comes from Chris Brendler with Seaport Global. You may go ahead.
Answer. Hi, thanks. Good afternoon. Thanks for my question. Al, good to talk to you.
I'd love to hear your thoughts on answer. The buy now pay later phenomenon that seems to be gathering steam and now you have a solution there and how How big do you think that solution could become? And is there any competitive threat from consumers choosing a different payment option at checkout when they are checking online?
Answer. Well, Chris, this is a pretty interesting space and I think we're in the early days in most markets. There's a number of different models. I think I said before, I think Asant said before, we're not in the business of picking winners and losers. We see our job as enablement no matter what the model is.
Answer. In some cases, the player is the actual lender. In some cases, they're sourcing answer. Lender, in some cases, installments are very short term, weeks at a time. In some cases, they're long term.
Some providers answer. Only do installments. Some allow multiple payment options, pay now, pay on delivery, pay off on various numbers of installments. And then obviously, it's exciting for us multiple ways to pay off installments, virtual cards, debit cards, answer. ACH and it's also a payment model today that's heavily funded by the merchant.
Our strategy, Chris, is to be broad, to play with multiple third party providers and offer a Visa platform to enable issuers to offer pay now buy now, pay now, pay later capability. And answer. And we seek to work with all these options. And obviously what we want to do is get virtual cards from Visa in place As one option for repayment, we also want to put Visa cards on file is another option. And I would remind you that these installments do break answer.
At its core, these installments break a transaction or a purchase into 3 or 4 or 5 payment transactions, which is good for us Because it gives us more transactions on which to earn fees.
Answer. That's great. One quick follow-up, if I'm right, is in places like Sweden where it's become the dominant tender share, Do you actually see an impact on volume or enough people choosing your cards that this will actually impact the volume given how much growth answer. And by now, failure is taking place in that area.
So there's only there's a few countries, you mentioned Sweden, another one is Australia. Answer. There's not many. There's a few countries where this has really taken off. And I think answer.
It certainly has had some impact on banks in those markets. But in many cases, because of the Kind of pay off capabilities I talked about, card on file, virtual cards, etcetera, a lot of that buys coming back to us
Thank you. The next question comes from Darrin Peller with Wolfe. You may go ahead, sir.
Thanks, Just one quick one
for Vasant and then Al, just a more structural. So I'll just if I can just do them both at once. But Vasant, when we looked at The incentive side, I know you guys said that it was timing related why it came in below the range this quarter, but it will come in high, I think you said higher than the range or potentially could be for the next quarter. When we think about when you first guided to the 25 to 0.5, 26.5 range, it was a betting cross border activity similar to the September quarter, Which was ended up being better. So I guess I just want to know, you're assuming now some deterioration or more conservatism in cross border before maybe it gets better later answer.
And then I guess, Al, maybe I could just squeeze in structurally, again, things like debit are seeming to be somewhat sustainable. It's not all just people using more non discretionary. I'm curious what you would identify now after having seen about a year of the pandemic almost, Where are the top 2 or 3 items you think structurally are impacting your business longer term and here to stay potentially?
Answer. Just taking the incentives question, we try to give you our best sense of a range. And at this point, the visibility is greatest answer session. In the first half, since we're halfway through it and we think we'll be right in the middle of the range. There are many variables here that go into it in a time like this when things are moving around quite a bit.
Answer. Certainly, cross border doing better helps. Renewals will have an impact. Sometimes they happen when we expect, Sometimes they don't. There's also the year over year improvement that our clients have.
As you know, last year, answer. Many clients because of the pandemic didn't hit certain thresholds. This year things are recovering faster. Answer. There could be we think they'll all make their thresholds and more.
That has a year over year impact and it varies by client. So there's a bunch of these things moving around at the same time. And the good news is we think we're right in the middle of the range and we'll give you more as we go through the year.
Answer. Darren, on your second question, first of all, answer. There's many reasons why debit has been a star here. You've got stimulus payments that are on prepaid cards, which count in we count prepaid in our debit business. As As e commerce has moved into more everyday categories, people are using debit, people are more comfortable in tough situations, tough times to use money they have versus Borrow money that they don't have.
But I think when I look ahead structurally to answer your question, Look, I think e commerce adoption has probably accelerated 3 to 5 years in the last year. And I don't think that's going backward. I think that people who have gotten used to shopping on their answer phone or their tablet or their computer are going to continue to do that. I think the other thing that I look at Structurally, that's really exciting is there's great opportunity to continue to grow both sides of this two sided market answer. Wallet proliferation is continuing and we're working really hard to get credentials in wallets, which just answer.
These wallets in essence are becoming issuers and that helps generate more buyers. And the cost of acceptance is going down around the world as more and more players are getting into it and that's going to grow the number of sellers answer on our network. And as that network grows, I think that's going to be a really positive thing for us. Obviously, e commerce comes with the issue of no cash, but I think that people are getting increasingly concerned about cash And the combination of have to pay in the physical world where the card doesn't need to leave your hands to go to anybody else in order to transact and the fact that e commerce doesn't the cash is not an option. Those are all of those things I think structurally are very positive for us.
The thing on the flip side, Eric, also I mentioned that while business travel is a small piece of our overall travel, That will be one of those things that will be a little bit slower to come back and maybe never back at answer. The level it was pre COVID-nineteen.
All right. That's really helpful, guys. Thank you.
Next question please.
Thank you. Bryan Keane from Deutsche Bank. You may go ahead.
Hi, guys. Vasant, I want to ask about cross border as that comes back, especially likely in this second half of this calendar year. How do we think about the higher yields and profitability? How that will flow to the bottom line versus additional investments you talk about? What would necessarily be those investments, but it offset completely the benefit we'll see from that cross border.
Well, I mean, yes, there's no question cross Coming back has a meaningful impact on our revenue line. You saw that already in the Q1. Our cross border was better than we expected. And as a result, You know our revenues were also quite a bit better than we expected. You know we're saying that we will step up our investment in the second half and expect our expenses to grow double digits.
But answer. The cross border business comes back in a meaningful way. I mean, that's clearly going to be much better growth on the top line answer. And that double digit increase in expenses that we're planning. Also, you should remember that we start lapping the declines in our expenses from Last year, our expenses last year declined by 5% or so in the second half.
So when we grow them double digits answer. This fiscal year in the second half, over a 2 year period, we're only growing them about 5%. So net net, I mean, cross border Coming back is going to have a very positive impact on our business, especially if it comes back faster than we might be expecting. In any case, the comparisons get better. So you will begin to see growth in the cross border business just because of what happened last year.
Got it. Helpful. Thanks so much.
Our next question comes from Harsha Waleht from Bernstein.
I have a question on your volume metrics. If I compare your metrics relative to your closest peer, Over the last two quarters, we have seen this reversal where your Europe and U. S. Volume growth rate has been faster than your peers. How should we think about that?
Is it some deal flow coming in, your partnerships with FinTech? Would there be the direct in the numbers? Any color there, if you have answer. Thanks.
Well, it's always a variety of reasons depending on what the component of the business you're looking at. I mean, clearly, the mix of the business between debit and credit has an impact. You all know that debit has clearly outperformed as the primary driver of cash conversion globally. And then in those parts of the world like the U. S.
Where debit has been answer. A mechanism for distribution of stimulus payments, it's also benefited from that. So mix of business makes a big difference. We're not seeing any reason why debit will not continue to outperform And credit is recovering and that's a positive trend. If you look at places around the world, I mean in Europe, answer.
The bulk of the slowdown from Q1 to Q2 was the going of the fact that we had that benefit in the Q1. We've had some small impact from restrictions, but unless restrictions are becoming more significant, this trend seems to be improving almost everywhere. You saw that in America and CEMEA where we saw meaningful acceleration and we're not seeing much impact on those trends from additional cases. So overall, the U. S, as I said in my comments, it's almost as if the pandemic didn't happen, right.
We grew around 8 answer. 1st quarter last year, we grew 8% again, Q1 this year, where if you believe our growth rate is 8% or 9%, we're almost back on the growth rate. Internationally, we're getting there. And we think that trend is meaningfully improving as you saw. Where we're lagging certainly where the trend is still soft is Asia, where restrictions remain still significant.
And in Europe, there's some Increasing restrictions now and we'll see how they play out.
Thank you. Thank you, Michelle. We'll take one last question.
Thank you. Ashwin Shirvaikar from Citi, you may go ahead, sir.
Thank you. Answer session. Hi, Hassan. So questions on pricing. Wondering if and I know you price for value, but I'm kind of wondering if you As the economy hopefully gets better, how do you think of pricing?
Is that perhaps a catch up in pricing? Do you revert to normalized long term cat Or do you just see a tougher environment for pricing within the interchange model? And then so the addendum to that Is there a natural benefit from Brexit news flow a couple of days back about that, and how do you account for that? Well, I'll make a couple of comments and Sasan can certainly add. Ashwin, on your last point, I'm not going to make any comment on The Brexit situation, we've not announced anything, and therefore, I don't think it's prudent to comment.
Answer. I think that we made some decisions to delay answer. Pricing out of this past year because of the realities of COVID, but answer. We plan to move ahead with previously delayed pricing increases in April of this year. Answer.
We also have a small number of minor pricing changes. The impact won't be very big. Answer. And I think going forward, I think if we continue to deliver the value that we want to deliver, I think that there answer. There's opportunity across all three of our growth strategies, core payments, new flows and value added services answer look at pricing.
With that, you add or add anything?
No, nothing more to add.
Answer session.
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