Visa Inc. (NYSE:V) Q2 2024 Earnings Call Transcript

Visa Inc. (NYSE:V) Q2 2024 Earnings Call Transcript April 23, 2024

Operator: Welcome to Visa’s Fiscal Second Quarter 2024 Earnings Conference Call. All participant lines are in a listen-only mode until the question-and-answer session. Today’s conference is being recorded. If you object, you may disconnect at this time. I would now like to turn the call over to your host Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Jennifer Como: Thanks, Holly. Good afternoon, everyone, and welcome to Visa’s fiscal second quarter 2024 earnings call. Joining us today are Ryan McInerney, Visa’s Chief Executive Officer; and Chris Suh, Visa’s Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also 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 annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K, which you can find on the SEC’s website and the Investor Relations section of our website.

For non-GAAP financial information disclosed on this call, the related GAAP measures and reconciliation are available in today’s earnings release and related materials available on our IR website. And with that, let me turn the call over to Ryan.

Ryan McInerney: Good afternoon, everyone. Thank you for joining us. We delivered strong second quarter results with $8.8 billion in net revenue up 10%, GAAP EPS up 12% and non-GAAP EPS up 20%. For our key business drivers, we saw relative stability. Overall payments volume grew 8% year-over-year in constant dollars, US payment volume grew 6% year-over-year and international payments volume grew 11%. Cross-border volume excluding Intra-Europe rose 16% year-over-year and process transactions grew 11%. Visa’s business performance demonstrates our strategy at work in consumer payments, new flows, and value-added services. Furthermore, across all of these growth levers, tremendous opportunity remains. I’ll spend a few moments on each growth lever.

Let’s start with consumer payments. The opportunity in consumer payments is enormous. Based on the latest public data from calendar year 2022 and our analysis, we estimate that the total global purchase personal consumption expenditure or PPCE excluding Russia and China was approximately $40 trillion. Within that $40 trillion, our addressable opportunity is more than $20 trillion. This includes three components. One, cash and check, which is about half of the addressable opportunity. Tap-to-pay is a great example of how we are converting small ticket cash transactions to Visa credentials. Two, ACH and other electronic transactions. We have many examples in this space, including the work we are doing to extend Visa as a bill pay method in acceptance categories like rent, education and loan repayments.

See also 20 Best Evernote Alternatives in 2024 and 30 Countries That Receive the Most Aid From ILO.

Q&A Session

And three, cards that run primarily on domestic networks. We have been focused on converting these domestic based cards to Visa credentials in countries around the world and I’ll share a good example from Europe in a moment. There is a very long runway ahead and I remain excited about Visa’s future growth opportunity in consumer payments. We continue to capture that growth by delivering innovative and secure payment solutions for buyers and sellers, including new credentials and issuance, tap-to-pay and e-commerce. I’ll briefly talk about each. First, we’re making great progress in expanding the number of Visa credentials. We have added over 100 million credentials from September to December for a year-over-year growth rate of 6%. One area of focus is in Europe.

With the UK growing credentials at its fastest rate since 2016, driven in part by strong growth from fintech clients. In addition, from 2018 to 2023, we converted more than 20 million credentials in Europe that primarily ran on domestic networks to Visa debit credentials with millions more in the process of being migrated. This is a great example of the opportunity I mentioned a moment ago. We’re particularly excited as we prepare for the Paris Olympics, which are less than 100 days away. We have close to 300 clients across 85 countries globally working with Visa to activate our Olympic sponsorship for marketing campaigns and cardholder engagements such as credential issuance and onsite cardholder events. And in Europe alone, we expect our clients to have issued over 5 million Olympic and Paralympic branded Visa credentials before the start of the games.

Also this quarter in Europe, we renewed our relationship with Caixa Geral de Depositos in Portugal across consumer credit, debit and prepaid and commercial credit and debit as well as a suite of value-added services, including risk solutions and analytics. Another area of strength is our co-brand issuance. Visa is the primary network partner for eight of the top 10 co-brand partnerships in the US today and we are pleased that Visa has finalized a multi-year extension of our successful credit co-branded partnership with Alaska Airlines, a portfolio that benefits from a loyal customer base and high cross-border usage. We have also had significant co-brand momentum in CEMEA. First, we launched a new co-brand card in partnership with Qatar Airways, British Airways and the National Bank of Kuwait.

Second, we expanded our strong global Marriott relationship to launch Qatar’s first hospitality co-branded card with Qatar Islamic Bank. Across the United Arab Emirates, we now have exclusive agreements with all the leading airlines marked by a recent agreement with Emirates Skywards. And we also signed an inaugural Airline co-brand agreement in Morocco with Royal Air Maroc. Now newer digital issuers are equally important to our future growth in consumer payments. And in Saudi Arabia, fintech stc pay, which has over 12 million customers is transitioning from a digital wallet to a full digital bank and expanding its Visa prepay business into Visa debit and credit. Digital Bank Maya in the Philippines has chosen Visa to offer its millions of mobile wallet users and bank depositors access to consumer credit cards with new issuance of affluent products.

In the US, we signed a newly expanded credit deal with brokerage platform Robinhood, including the launch of a new Robinhood Gold Card, which offers 3% cashback for all purchases. In Europe, broker and savings platform Trade Republic has launched a new Visa card that combines spending and savings for their 4 million customers across 17 markets. Over 1 million people joined the waitlist for the card in just a few weeks. As I’ve mentioned in the past, we feel great about our products, our value-added services, our new flows capabilities, our brand, and our people, all coming together to deepen and expand our partnerships with our clients around the world. As we think about Visa’s growth, tap-to-pay and e-commerce are key drivers in the digitization of payments.

This quarter, tap-to-pay grew five percentage points from last year to 79% of face-to-face transactions globally, excluding the US. Of note, Japan nearly doubled its penetration since last year to almost 30%. In the US, in the second quarter, we’re nearing 50% penetration with New York City at over 75%. The first US city to reach this milestone up from 50% two years ago, demonstrating the impact that transit and our focused issuance and acceptance have on accelerating growth. On the e-commerce front, we continued to see Visa’s US e-commerce payments volume grow several points faster year-over-year than face-to-face spend. And the same is true in many key countries around the world, including Canada, Brazil, Australia and India. And this matters to Visa’s growth because in the e-commerce space, cash is not usually an option.

And although e-commerce payments are a highly competitive environment, we believe our capabilities and our focus on safety, security, reliability, and user experience position us very well. Adding to the potential for growth is tokenization, which brings several benefits to the ecosystem, especially in e-commerce, including reducing fraud, improving authorization rates and therefore making it easier for a customer to purchase a good or service. As of the second quarter, we have over 9.5 billion tokens globally and have surpassed a milestone of 1 billion tokens in Asia-Pacific joining the ranks of the US and Europe. We continue to be focused across all of these efforts in addition to seeking new areas of acceptance and spending. Now moving to new flows.

We mentioned last quarter that we see $200 trillion of opportunity excluding Russia and China and we are delivering Visa’s commercial and money movement solutions to help digitize these flows. This quarter, new flows revenue growth improved to 14% year-over-year on a constant dollar basis with Visa Direct overall transactions growing 31% for the quarter to $2.3 billion and commercial volumes up 8% year-over-year in constant dollars. Throughout the quarter, we remain focused on our Visa Direct strategy across several areas of growth, including through new use cases, expansion to new geographies and enablers. One recent example is our expanded agreement with Thunes, which increased the number of countries in which Visa Direct can enable push-to-wallet from 78 to 108.

In addition, Thunes is implementing Visa Direct’s push-to-card capability to enable payouts made to eligible Visa cards and accounts. We have also expanded earned wage access in Canada through an agreement with Payfare and have brought our first Visa Direct cross-border capability into Taiwan with Taishin Bank. On the enabler front, we are pleased that our long-time partner JPMorgan Payments will be seamlessly integrating Visa Direct into their acquiring operations to offer their business clients faster push payments capabilities. In addition, we continued to deepen our relationship with Chase in the small business market with investment and enhancements in products and services. And in accounts receivable and payable, we renewed and expanded our multi-year agreement with Bill on their accounts payable, spend and expense management platforms.

We have also reached a global partnership with Taulia, an SAP company and a leading provider of working capital management solutions. The collaboration will incorporate Visa’s digital payments technology into Taulia’s virtual cards, a solution that integrates with SAP ERP solutions and business applications to make embedded finance accessible for businesses through a seamless and streamlined payments experience for buyers and suppliers. One vertical in new flows that has immense potential is government payments, representing over $15 trillion in annual payments volume opportunity, where we are in a strong position to combine many of our new flows offerings. A recent example is in Kenya, where we signed an agreement with Pesaflow, a technology partner for the government of Kenya to expand card payments on eCitizen, the government’s electronic platform with over 12 million users.

We achieved this by bringing together Visa Virtual credentials and Visa Direct into the platform. Now let me move on to value-added services, where revenue was up 23% in the second quarter in constant dollars. The growth and opportunity in value-added services continue to be significant and broad-based. In Acceptance Solutions, we signed an agreement with Millicom International Cellular in Latin America for cybersource gateway, decision manager and token management solutions. As it relates to open banking, just about two years ago, we acquired Tink as we saw the opportunity in open banking to enable the movement of data and money and to provide consumers with control over their financial data. Over those two years, we have been expanding our presence in Europe, winning deals with such as Adyen and Revolut.

We’re now expanding open banking solutions through Tink into the United States having signed several data access agreements, including with Capital One, Fiserv, and Jack Henry, so that their customers may share data with Tink. We’ve also signed partnerships on the fintech and merchant side including Dwolla and Max Rewards. And across our risk offerings, we continue to bolster them through our technology, innovation and AI expertise and are expanding their utility beyond the Visa network. Recently, we announced three such capabilities in our Visa Protect offering. The first is the expansion of our signature solutions Visa Advanced Authorization and Visa Risk Manager for non-VISA card payments making them network agnostic. This allows issuers to simplify their fraud operations into a single fraud detection solution.

The second is the release of Visa Protect for account-to-account payments, our first fraud prevention solution built specifically for real-time payments, including P2P digital wallets, account-to-account transactions and Central Bank’s instant payment systems. Powered by AI-based fraud detection models, this new service provides a real-time risk score that can be used to identify fraud on account-to-account payments. We’ve been piloting both of these in a number of countries and our strong results thus far have informed our decision to roll these out globally. The third solution is Visa Deep Authorization. It is a new transaction risk scoring solution tailored specifically to the US market to better manage e-commerce payments powered by a world-class deep learning recurrent neural network model and petabytes of contextual data.