Visa Inc. (NYSE:V) KeyBanc Capital Markets Future of Technology Series September 9, 2020 12:00 PM ET
Josh Beck – Managing Director
Conference Call Participants
Mike Milotich – SVP, IR
Okay. Well, good morning to everyone in the West Coast; [ph] Mike and good afternoon or early afternoon to everyone in the East Coast. We’re incredibly happy to have Visa joined us for this fireside chat.
We are using a Q&A box, so you can log in through the website if you have any questions, please submit them. If you’d like to go the old school way, you can just email me it’s at email@example.com. So Mike was generous enough to publish a 8-k right before this chat, which we appreciate.
Q – Josh Beck
So maybe you could just give us a little bit of a sense of a update on what you’re seeing and if there’s any kind of notable applications as we think about Q4 and such.
All right. So I want to thank you for having me and yes we did the 8-k. Just for you Josh.
I appreciate that.
So yeah, I think what we’re seeing on the numbers is that the trends are mostly stable so far this quarter. So starting with the US, US credit, the August volume was down 8% year-over-year, which is consistent with what it was in July. So stable for the last two months, although if you look at the weekly trends that we showed, credit was improving sort of late in July, so flat out a month to month basis.
But some signs of improvement late in the month of August. US debit is still continuing to grow incredibly strong, it’s growing 24% in the month of August, which is down 2 points from July, but which in part is due to lower unemployment benefits, but still incredibly strong growth and that’s really being fueled by to lower unemployment benefits, but still incredibly strong growth and that’s really being fueled by primary from cash displacement to see acceleration in cash displacement as well as some shift away from credit. Those are two of the biggest factors.
When you look outside of the US, the trends are similar in terms of payments volume, in terms of what we’re seeing in the US. We’re seeing a lot of improvement in markets like Brazil, UK, UAE and Italy. So, those are all markets that were already positive but have been continuing to improve through the quarter and we highlighted a few other markets where they’re positive, but stable to where they were in July in markets like Japan, Germany and Canada. And then there are some markets that continue to be negative year-over-year but are improving through the quarter.
We highlighted India and South Africa as two examples of that. That gives you a little bit of a sense for the payments volume. In cross-border, again it’s stable, mostly consistent with where we have been in the last several months. And that continues to be limited by the number of borders that are truly open where people can really move freely.
So, if you look at the results, our volume was – in the month of August was negative 43%, so down 43% from last year excluding Inter-Europe transactions and we exclude those again because the premium of the economics is not the same as cross-border everywhere else in the world. And that is one point better and so a small improvement, but generally speaking cross-border, it was negative 45% in May, negative 44% in both June and July, now negative 43% in August.
So small signs of improvement but still early, you know a very limited recovery at this point. You know we are seeing – the good news is we are seeing positive signs when borders open. So on the earnings call we highlighted for example travel from the US to Mexico and the Caribbean, as those markets opened up we know within six weeks to eight weeks, we saw 40 point improvement in the year-over-year performance and we were seeing the same things with travel within Europe, where a lot of the borders are open.
And the most recent example of that is in Turkey, where Turkey opened their borders on August 1, through you know most of Europe and Russia and really the whole part of the world, it’s now opened its borders and we saw you know pretty significant improvement for travel into Turkey as a result. So the good news is that, when the borders open, we are seeing improvement in performance. But the reality is that, many of the borders are still closed and so there aren’t – isn’t a lot of improvement in the cross-border business at this point.
And then in process transactions, in August, it grew 3% and exited the month at 5%, so it was continuing to improve through the month and this has really been fueled by domestic transactions. So you know the entire recovery process transactions to being positive growth from where it was just a few months ago, is essentially all coming from domestic. And so it’s sort of mirroring what you’re seeing with the volume.
You know our payments volume as we’ve said is, has trended back to positive year-over-year growth in many markets. But our cross-border business continues to be heavily negative and the same thing is being reflected in our transactions. So what that means is there’s a little bit of a mix shift going on within our data processing revenue, where the transactions are much more — a higher mix of domestic than cross-border.
So, when you’re thinking about our data processing revenue, it’ll continue to benefit from the growth of our value-added services as we called out in the quarter. But you’re also going to have a situation where because domestic is growing a lot faster, domestic transactions growing a lot faster than cross-border transactions you know the — the revenue growth may not improve at the same rate as what we’re seeing in the underlying transactions because of that mix change. That’s one thing to note.
And but you know otherwise the quarter is you know mostly I guess as we would have expected and highlighted in our July earnings call.
Okay. Well, that that’s a really helpful update, obviously a lot to unpack when we think about debit and domestic and some of these international economies that are starting to open and the yield and such so that that’s really helpful. So thank you for that.
So maybe just a follow-up because I — there’s so much attention on the cross-border, I think you were — are quite helpful in explaining really pre-COVID I believe it was two thirds travel what was roughly the mix excluding some of the intra-European dynamics. So maybe just help us understand like, as we go through this recovery process and it’s very difficult to project.
But what’s the key mile markers you know that you — that you’re thinking about you know how should we think about the relative importance of say consumer versus commercial. Just help us think through the [ph] pack and what we should …
… be watching over the coming quarters and year?
Yeah. So there’s a – yeah, so there’s a few things, I would highlight. So one is just from in terms of consumer versus business are our cross-border volume is very consumer-oriented. So we said and we disclosed that our payments volume is about 12% is B2B, so we’re 88% consumer and 12% B2B, and we said our cross-border business is even more consumer-oriented than our overall payments volume, and a lot of that stems from large business probably the airline tickets in particular is something we tend to not capture our cards, so because a large business will tend to go through some sort of travel agent you know sort of an online booking tool.
And so that means our cross-border business is very consumer oriented, which you know we think is good, because we believe consumers will still value experiences, want to see friends and family and so we think that part of travel will come back sooner.
The two dynamics to watch is, one is the proximity of the travel. So you know when borders open, you know will people be willing to go as far as they did previously. And you know what we’re already seeing at least at this point, although there’s you know very small recovery in travel, there is a little bit better among you know countries that are closer to where the you know the persons home country is then maybe we had seen before, so the growth improvement is a little better among countries that are a little more closer to home, which again is relatively intuitive and that’s the trend we’re going to keep watching to see you know what that means for the business.
The good thing for us is, you know our economics are really based on you go into another country. So whether it’s the country next door or it’s half way on the other side of the world no real big implications for us. But really the critical thing is critical thing is the borders opening.
As I mentioned, there’s still the large majority of countries are still a lot of restrictions in terms of quarantine if you go there. And so it really – what we can’t decipher yet is our people not traveling because they don’t want to or they’re not willing to or because they can’t.
And at least where we see the borders open, we are seeing a significant improvement maybe not all the way back to 2019 levels of spend, but we’re seeing a pretty meaningful change in the trend once the border opens and that at least gives us some confidence and some optimism that if more borders were to open we’d see some improvement. And then of course anything related to therapeutics or vaccine is also likely to help particularly because again it’s likely to help with the border closings. And so that’s really what we’re watching closely.
Okay. Yeah. I can definitely vouch as of pent-up demand customer to do some consumer travel. So I think that is a real thing. But you know also wanted to talk a little bit about e-commerce so that’s the area that we certainly have seen a surge in which is fairly intuitive. And we have started to see though a bit of a gradual reopening as you mentioned some of the domestic strength. So I’m wondering has that really maybe come at the expense of e-com where it slowed down or maybe has the strength persisted there. Any color you can share on that front?
Yes. That’s one of the most powerful trends that we’re seeing is that, actually as markets are reopening and consumers and small businesses are getting more and more out doing commerce in a face-to-face environment. We’re not seeing a big slowdown in the card-not-present spending. And that’s a really positive sign.
So, if you take the US for example because we disclose these trends, our – since mid-April our card-not-present growth has consistently been over 30%, so incredibly strong growth and that has been consistent now for several months versus if you look at the card present spending, it was more than – it was down more than 40% in April. And since sort of July and August, it’s been down year over year only in the single digits.
So, there has been a 30 to 40-point improvement in the card present and the card-not-present growth remains steady over 30%. So – And this is something we’re seeing in a lot of other markets around the world where even as the markets are reopening again and people are going back out and shopping in a face-to-face environment, a lot of the behavior in the shift online appears to be sticking. And as those card present numbers even get into positive growth I guess, we’ll see how much of that lasts. But at least at this point, pretty dramatic improvements we’re seeing in card present and the card-not-present growth sustaining.
Okay, that’s really helpful. One of the other questions I wanted to ask is about that face to face that you’re seeing with this domestic resurgence, certainly contactless has I think probably become stronger value proposition. In some ways, I think it was always there.
But it’s one of those things I think is more top of mind and you gave some powerful stat about the number of terminals that are capable and the issuance of cards. So maybe just help us think about the adoption of contact with and maybe held that curve could be bent really because of everything that is taking place.
Yeah. There’s no doubt that that’s one of the things we’re seeing and contactless particularly is a effective at displacing cash at the lower ticket levels, but it’s really taken off in this environment as people are not wanting to handle cash.
We mentioned on our earnings call that we had about 50 countries where our contactless penetration of face to face transactions improved by at least 5 points just since the previous quarter. So from the March quarter to June quarter a 5 point increase in penetration at least in 50 countries. So it’s a pretty significant change in adoption is coming as a result of this. And most of that is fueled by is outside the US. So as we’ve talked about many times there’s a big difference between what’s happening in the US where we’re quite a bit behind in the rest of the world, right.
So outside the US two-thirds of all of our face to face transactions is now – are now contactless that we process. So we already are well over the majority versus in the US we’re still in the mid-single digits. So where we are in the US, we have issued over 200 million cards out there now and we expect to have 300 million contactless cards by the end of the calendar year.
And we’re – so we’re making good progress there, but the penetration remains in the mid-single digits. The good news is that as we have talked about before, we have many markets, so there’s over 50 countries where at least a third is face to face pending is contactless and so we have a lot adoption curves we can look at.
And where the US is at this point is where we would expect it to be what we’ve seen in other countries. So you know we said it takes two years to three years for the adoption of contactless to really take off. It takes a couple of years for there to be enough cards in the market and enough merchants who are accept it, where consumers can feel like they can top almost everywhere they go. And then once that happens is when it really takes off. And so the US really started in the early part of the last calendar year.
So, we’re still say you know 12 months to 18 months away from when we would really expect to see a significant ramp in the adoption. But all the pieces are in place as you mentioned we’re getting more and more merchants to accept it, more and more cards are being issued. And it’s just going to take a little time like everything in payments for the chicken in the egg. And we do expect you know that ramp in that increase to come it’s just it’s still just going through the process of establishing enough ubiquity on both sides of the ecosystem.
Really helpful. So I mean just to wrap these two points together I mean certainly your market share in e-commerce is higher I mean cash is effectively not, not an option. You know when you think about contactless adoption rising certainly that’s just showing really the affinity for digital at the expense of cash. So it seems like as you wrap these things together and you look out multiple years that you could you know make the argument that the penetration of digital payments could be higher than maybe what you would expect it entering this year.
We’ve seen some very powerful stats within e-commerce penetration. And many companies that are focused on that space and demand may have been put forward Focus on that space and demand may have been put forward four years to five years, so just trying to understand like is there a case where we look out multiple years and we look back and we just realize that the adoption curve of digital payments has gone up notably.
And we believe so. I think the question remains to the magnitude right but there’s is – it’s hard to – there’s so much data now that suggests that there is an acceleration, it would be hard to say that there isn’t. And the question is to what’s degree is all this going to stick as we talked about before once everyone is operating in the face to face world as normal which is a few countries are back to that point at this juncture. But we’re definitely seeing it whether it’s the e-commerce adoption, so we’re seeing not only an incredible acceleration in the number of new users.
So in many mature e-commerce markets we’re seeing a 10%, 20% increase in the number of active users of e-commerce on our cards just since pre-COVID-19 and we’re also seeing within those users an increase in how much they spend. And then in less developed e-commerce markets we’re seeing 50% to 100% in increases in the number of users of our credentials online. And so and we think that a number of those people are going to have liked the experience are not necessarily going to go back to how they were transacting before.
So certainly the e-commerce is a significant acceleration and then the same thing in tap to pay. I mentioned 50 countries having a 5% increase and that’s with people the heavy use cases in contact was tend to be things like transit and when you step out at lunch at work and grab you know a sandwich or you grab a coffee you know those are the things those smaller purchases is where our contactless tends to be adopted early, and a lot of those transactions have gone away and we’re still seeing you know a big increase is just a lot of people are not wanting to handle cash. And so, yes, we do think that there’s a — there’s an acceleration here that will benefit the business in the long run.
And in addition to those two forces that are happening online and in the face-to-face it’s also those things that have tripled down effects in terms of you know the demand for authentication and fraud capabilities online you know where we can sell additional services. It’s putting you know more emphasis on tokenization and — and better securing the ecosystem.
We’re unlocking G2C use cases in terms of the government just — distribution of funds to consumers, we’ve always highlighted that as a Visa direct use case or where we didn’t have real life examples until COVID and now we have several and that is opening government’s eyes as to you know different ways that they can approach the disbursements of funds to citizens. So you know these are all things that you know we’re seeing that are a little bit unlocked by COVID and the great thing from our perspective is that all of these things were key pillars of our strategy before COVID, right.
So these are all of the things that we were already focused on. They’re just you know as you said sort of being pulled forward or accelerated as — as a result of this you know unfortunate pandemic.
Really helpful. I’m kind of curious on maybe some of your longer-term initiatives; if there’s been a notable impact to certainly you’ve made some good inroads with click to pay in your SRC button. So, maybe just help us think through if there’s been any notable change in that initiative. And just – and really how you are thinking about that opportunity over the next several years?
Yeah. So, there is a huge opportunity as we just talk about how much e-commerce adoption is increasing. And there is still just too much complexity in the online experience. In terms of card abandonment, high fraud and particularly in guest checkout. So around the world, about half of e-commerce is still done via guest checkout. And that is where there is particularly heavy friction, right.
If you have your card on file or maybe you are using something like PayPal, then a lot of [indiscernible] is removed, but there’s still a big portion that is the guest checkout and that’s really the primary focus and target for secured e-commerce So, there is no doubt that as more and more people go online, we would like to improve that experience as much as possible.
And it really comes down to providing a simple and consistent experience both for consumers and merchants and then reducing fraud primarily by using [Audio Gap] which also in two-factor authentication capabilities. Ando once you do that like just the use of tokens. For example, we see a higher approval rate from insurers because they’re more confident that the transaction is good. And so, this is something that is creating I guess even more momentum in this initiative.
We have migrated over 10,000 merchants in the US through June and we have just started to expand into other markets, so we’re currently live in 10 markets and now have about 2,000 merchants in those markets. Places like the UAE, UK, Poland, Australia so we are rolling it out, but just as we talked about with contactors in the US, you always have a chicken or the egg issue in payment. And so we’re really focused on the merchant side right now, trying to get it enabled as much as we can.
So that when we make a push on the consumer side both through our early efforts and through our issuer partners that you know consumers can use it in many places. So right now, we’re happy, we’re making good progress. But you know we’re still a little ways away from it being a scale solution on both sides of the ecosystem.
That’s very helpful. Maybe shifting gears a little bit to more developing economies, where the penetration of cash is well above 50%, so areas like LatAm and Asia, you know have there been any notable changes maybe in your trajectory in these areas. Obviously you have to think about some of these super apps and certainly it’s a partnership model as well. So maybe just help us think through, some of these emerging economies and how you’re thinking about the opportunity in those regions to displace cash?
Yeah. So, I mean there is an incredible amount of cash in those two markets. In Latin America for example, you know we’ve said that, we size the cash and check opportunity in Latin America about $2 trillion. And what’s interesting is, we have over $500 billion of cash accessed on Visa cards that go to the ATM already in Latin America.
And in fact our volume in Latin America of cash is actually higher than payments. So you know there are more people going to the ATM to withdraw cash than using their card to actually make purchases. So that’s just an incredible opportunity where consumers are already using our capabilities maybe just not in the way ideally we would like but that’s really the focus is to get them to shift from going to the ATM to just making purchases directly at the point of sale and there’s really three ways we’re doing that.
So one is you’ve got to grow acceptance so we’ve – we’re focused on penetrating particularly everyday spent categories in a number of emerging markets we still have a lot of work to do. And the great news is in the last two years we have made huge progress here.
So you may have noticed in our disclosures each of the last few years we’ve grown our acceptance points by double digits and you might say that’s a little bit surprising given how much are the businesses, but there’s so much new innovation in the area of acceptance whether it’s with QR codes or tap to phone is now coming – there’s just and we’re working with new types of payment facilitators and acquirers where we can really grow acceptance quite quickly.
So for example in Mexico it’s a great market because it’s a large and down to tourism market. And almost half of that spend were or inbound tourism into Mexico is made on a Visa card but – or a Visa card is used in some way, but there’s a lot of cash. So we partnered with a company really innovative partner called Clip where we have enabled more than 300,000 really together with Clip have enabled over 300,000 new merchants in less than two years and there’s lots of specific partners in each market where we try to identify to expand that acceptance.
We also are focused on the user experience so things like we’ve already discussed in terms of what we’re doing online and with contactless and then, finally an important thing in a lot of these emerging markets is just, it’s just the consumer education.
So we will target our marketing ad campaigns really focused on consumer and merchant behavior and how to use electronic payments and the benefits of them and in Peru, for example we ran a major campaign and the – after the campaign, we saw through consumer surveys that the intent to use among consumers and merchants to accept was up over 10% and the Visa transactions grew by more than 4%. And so, there is a big component of that in terms of — to unlock these markets is just helping both consumers and merchants see the value and that’s what we’re focused on.
In terms of what you mentioned about the Super Apps, the great news for us and in our view one of the biggest developments in payments and the reason two to three years is that these closed-loop systems are opening up and are becoming our partners and it’s happening in all parts of the world and we think that’s a huge opportunity to both expansions and acceptance.
Okay. Great. Well, I’d like to end on a very futuristic topic. So that was very helpful to think of through emerging markets and Super Apps that’s been a great conversation talking a bit about the state of the business and what you’re seeing. So it’s been incredibly helpful. We really appreciate your time. I know you’re incredibly busy working from home obviously managing a very large workforce. So we’re really appreciative of your time, Mike and thanks again for joining us and I hope you have a great, rest of the day and rest of the week.
A – Mike Milotich
Thanks so much for having all.
End of Q&A
Okay. And thanks everyone for joining. Cheers.