Q4 2020 Visa Inc Earnings Call
Its which now represent over $2 billion in potential credentials and nearly $70 million additional potential acceptance locations.
Globally, the number of active credentials in ecommerce excluding travel rose 14% since January reinforcing the continued shift by consumers to online shopping.
We renewed about 25% of our payments volume in fiscal 2020 with key clients and secured several new wins over 50% of visa volume has now been renewed over the last two years.
We expanded tokenization globally crossing the 1.4 billion tokens milestone and enabling over 8300 issuers across 192 markets.
These that direct grew to nearly 3.5 billion transactions utilize the 16 card based networks 65, domestic AC HD schemes, seven ARCP gains and five payment gateways.
More than 5000 client users accessed over 450000 reports are these the analytics platform, our powerful application suite that delivers data driven insights and industry benchmarks.
And finally, several large acquirers leverage cybersource as robust omni commerce payments offerings to support their merchant customers with innovative capabilities.
With that backdrop today I'd like to first discuss our results then I'll highlight some key client wins in the quarter and client momentum from recent deals contributing to our current performance across our three growth levers consumer payments new flows and value added services Lastly, I'll provide a very brief initial.
Thoughts on 2021.
To start our fourth quarter results, while the underlying business was in various stages of recovery. We saw the acceleration of cash digitization through debit E commerce and tap to pay and the penetration of new flows through these the direct we also advanced our value added services led by Cybersource security and identity products.
And our consulting.
Payments volume processed transactions and cross border volumes, all showed positive momentum exiting the quarter.
From Q3 to Q4 payments volume improved 14 points.
Processed transactions improved 16 points and cross border volume improved five points.
Net revenues in fiscal fourth quarter were $5.1 billion, a decrease of 17% in constant dollars. The decrease in net revenue was approximately 11%. However, with service revenues recognized on a current quarter payment volume basis.
Non-GAAP EPS was $1.12 a decrease of 23%.
Given our strong ability to generate cash flow, we returned $2.3 billion of capital to shareholders in the fourth quarter.
Now looking ahead, our strategic focus in 2021 remains the same accelerating our growth through consumer payments, new flows and value added services, all while fortifying the key foundations of our business model, our brand security technology and talent.
In consumer payments, we have had success with traditional financial institutions', wallets and fintechs as well as merchants.
First let me hone in on Europe, which has definitely been a key focus for us since the acquisition just over four years ago.
Our first fees declined in Europe from 1974 corner Bocca in Switzerland renewed their credit relationship and extended into debit for the first time ever.
In Denmark, Who's a bank will migrate over 200000 debit cards from a local card scheme to visa in order to access visas risk data and other value added services.
Last quarter I spoke about our win of the EU BS debit business and this quarter. We also renewed the credit business as well.
In the wallet phase space, Samsung pay will put virtual visa debit cards, and all Samsung devices in Germany.
For those issuers in Europe, who want to offer a wallet solution to their customers without development developing it themselves. We recently signed an agreement with a digital wallet company core EPS.
And wrapping up Europe with Fintech progress, let me highlight global Fintech Revolution, who chose US late last year to be their lead issuing partner in 12 months Resolute has issued nearly 7 million visa credentials in over 34 markets with plans to expand more in the coming year.
Let me now move to success with traditional advised in other parts of the world.
Hi, Angie one of the largest banks in Europe recently expanded their long term global partnership with visa for their consumer and commercial cards in 12 countries across Europe. The.
In EMEA and Asia Pacific in.
In Asia Pacific, we renewed with one of the top five banks in China Bank of communications, and we strengthened our strategic partnership with Malaysia, based and bag, who will now become an exclusive these are credit card issuer.
In the United States. We recently won the inaugural debit card for markets by Goldman Sachs is digital checking account with millions of consumers customers markets continues to create new products create a full service digital bank and we're excited about the opportunity to help make chatting with debit card functionality and attractive part.
Of their growing product set.
Also the United States, we announced in the first quarter that we have secured the venmo credit cards and are pleased that it. It has started to rollout unlocking new ways for venmo its community of more than 60 million users to shop share and split purchases and our custom automatic cash back everywhere. These as Ics.
Good.
Choppy, the leading E commerce platform with a large user base in southeast Asia, and Taiwan is launching a visa cobranded card across five southeast Asian markets.
And our traditional wins in the fourth quarter cap a successful year of renewals that went into effect with key partners, including Bank of America capital One Barclays content, there and now razzie.
Now, let me turn to expanding access with digital wallets, and Fintechs, which are critical to growing credentials and acceptance globally.
In the last 90 days, we signed multiple deals with digital wallets, including Yandex in Russia wing in Cambodia, Peco in Korea neuron acts in Argentina, and easy pies in Pakistan. These wallets represent tens of millions of potential credentials.
Our existing wallet relationships have continued to grow this year Raffi Latin America Super App with over 30 million users is now expanding into financial services with this new Division Rafi Bank and it has chosen fees as their exclusive network and payments provider Rafi will leverage their deep knowledge and Eric.
Listing nine markets to create new payment solutions that drive digital inclusion and cash digitization that just for their users, but also their careers restaurant partners and small businesses.
In Asia Pacific in the last year line pay added 1 million credentials and now has approximately three and a half million total visa credentials across Taiwan and Japan.
Our partnership with TTM in India spans both acquiring and issuing and this year. The relationship resulted in approximately 80000 incremental acceptance points and 1.4 million incremental credentials.
We also see cash digitization opportunities with merchants, providing payment services to their customers.
To to highlight from this quarter and they're both from Latin America.
We're extending our partnership with OXXO, the leading convenience chain with.
With nearly 20000 stores in Latin America as they establish a new Fintech arm. This business will lucidly issue visa credentials in the OXXO wallet and through their stores to further their reach of the under and Unbanked.
These are also partnered with your tour and company the fourth largest beauty group in the world to enable financial and digital inclusion threw.
Through a financial services platform, they're nearly 4 million direct selling consultancy representatives in the region, we will be able to access a digital account of visa credential and nm Pos among other services.
This progress and consumer payments is also prevalent and new flows as the pandemic is accelerating the migration to digital payments governments merchants and consumers all seek fast safe and secure ways to move money.
Let's look at a few new flows cross border PDP is a visa direct use case with significant potential and we made meaningful progress this quarter Ozon in Turkey plans to launch a global mobile remittance service in early 2021 for the under banked and gig economy workers representing over a quarter.
Turkey 83 million population.
In Russia, VTB Bank, the second largest bank in Russia with 15 million customers is utilizing visa direct for card to card transfers across 64 countries.
Additionally, in Russia, Corona pay a leading remittance center system, I'm, sorry will leverage visa direct for cross border money movement.
And TD Bank in Canada is offered their retail customers a mobile platform for PDP with cross border capability.
Earned wage access and payroll or other use cases that are growing in importance throughout the pandemic.
This quarter Wavestream the market, leading earned way to access provider in Europe signed on to visa direct.
Also in the two months since earned wage access us provide immediate lots visa direct as a payment option. The near real time method is already accounting for 50% of our media disbursements.
And PMC in the us is providing their commercial clients before.
BDC disbursements solutions, such as traditional payroll processing.
Another new flow is b to B, which represents a 120 trillion dollar volume opportunity.
On the card based fee to be fraud in the wake of Covance, we are seeing increased interest for digital payments, including virtual cards.
We're addressing this demand by one engaging with a broad range of issuers and partners to expanding into new verticals and three investing to streamline operations and enable acceptance.
First in terms of supporting issuance visa payables automation, which enables issuers to efficiently offer virtual cards to their corporate clients and send back that said data back to the buyer to aid in reconciliation or an increase of issuers and partners on the platform by almost 50% in Fytwenty.
Second relative to expanding into new verticals, we are expanding partners and use cases for virtual cards beyond OTN day in Q4, we launched E pay launched with Epay in China to support a virtual card program in both OTA and education.
We also announced a new set of solutions partnering with stripe to enable buyers to use virtual cards for payments and the initial user is a citibank healthcare clients.
And third invested to streamline operations and enable acceptance together with partners like boost of Fintech focused on B to B payment acceptance, we are expanding commercial card adoption by streamlining the manual acceptance processing for suppliers enable automated data reconciliation and offers.
Flexible economics.
And now let me turn to our third growth lever value added services.
Value added services grew 15% in revenue in the fourth quarter and 18% for the full year, a testament to the resilience of this business as well as the demand from our clients for support.
Oct in our value added services are sold with a brand deal, but many times, they're sold after our even on a standalone basis Perm.
Permitted TSB in Europe renewed their credit and debit business earlier this year and subsequently signed an agreement with visa to launch a visa transaction controls, which will provide a powerful and convenient way for cardholders to track and manage all payments activity on enrolled accounts and tokens.
In seller solutions, both merchants and acquirers of actively sought cybersource as offerings throughout the pandemic.
Cybersource selling direct to merchants and also through robust and fast growing indirect channel with acquirers, who can leverage our platform to provide the latest digital capabilities in order to attract and maintain merchants.
With that in mind, we are very pleased that Barclay card one of the largest acquirers in Europe will utilize cybersource to support their merchants digital payment journeys E commerce and Omnichannel requirements.
Weve also established relationships with acquirers in other regions this quarter and in CEMEA, We signed Cybersource deals with Hcl, the largest E commerce acquire and Pakistan equity Bank group and sub Sahara Africa and bank of obvious CEDIA in Ethiopia.
Before I close a few words on the acquisition, we announced yesterday.
Hello, Pepper is a software company with a platform that we see as a universal adapter that allows clients to connect and scale, new innovative innovative capabilities without having to expand significant technology resources through.
Through a single AI based connection issuers processors and governments can access yellow peppers rich set of Apiay to initiate secure real time money movement transactions across a variety of payment rails, using a simple alias something like an email address or a phone number.
For these the acquisition extends our network of networks strategy by significantly reducing the time to market and cost for issuers and processors, regardless of who owns our operates the payment rails. It supports our financial institutions in their quest to modernize their infrastructure and access network agnostic solutions and fun.
Filleted and easier and it's facilitates an easier integration to visa direct and these the b to B connect which will help to grow new flows and transactions.
It enables the further adoptions of value added services, both hours that visas as well as yellow peppers.
We are excited about the deal and we expect to close that in the next few weeks.
In terms of play I want to say two things first we continue to engage with the department of Justice on their review of the acquisition second the Department of Justice law suit yesterday against visa and Dania company is related to a dispute over documents. They requested as part of the review of the deal beyond that we're not going to comment further.
Yeah.
To close this pandemic has touched all of us through it all our mired the resilience of our clients who have worked hard to be there for their customers. Despite the many obstacles.
Lets out to pay tribute to the more than 20000 extraordinary people who work at visa my colleagues have demonstrated dedication creativity and professionalism in the face of extraordinary challenges in 2021 remain we remain committed to making the changes necessary to ensure our organization better reflects the world in which we live and work.
These is proud to lead lend our support in the fight for racial and social justice within our four walls and beyond.
In terms of 2021% will provide a good deal of detailed commentary. So let me just make a few brief points.
In 2021, we'll continue to manage the business for the medium and long term, while recognizing the nearer term realities. This means one we will focus on the opportunities that are being accelerated by COVID-19, two we will continue to invest to grow our business and three we will be thoughtful about controlling discretionary expenses.
To be clear, while our business faces clear uncertainty, we have too many attractive growth initiatives to pull back on the future our long term strategy, which we covered in depth just eight months ago at our Investor day remains more relevant than ever and I believe visa has a tremendous opportunity to continue to transfer beacon transforming secure right.
Reliable and efficient money movement for everyone everywhere.
With that let me turn the microphone over to Vasant prabhu.
Thank you Alex and good afternoon, everyone.
Q soul of the first quarter recovery from the global shutdowns of.
Let's start with some high level observations on the trajectory of the recovery sofa.
First the debit business has been the major beneficiary of the accelerated shift to E commerce and the shift away from cash even for any closing transactions in.
In the us debit isn't growing at twice the rate it was critical that.
And international debit growth has stepped up from 11% to 13% free coded to 17% in the fourth quarter.
Debit stayed resilient clueless shutdowns growing 8% in the us in Q3 and declining only 3% in international markets Devin.
Revenue growth was strong and stable through the fourth quarter.
Second credit was hit hard by the pandemic declining 20% globally. In Q3. However, so this has been recovering soft exiting September down only 5% in our major markets, but steady improvement through the quarter.
Third as economies reopened cost driven growth in major markets bounced back sharply from a 44% decline in Israel to a 4% decline in September of 40 point and the recovery even.
Even though Scott President volume rebounded does not present growth remained robust.
Not present volume excluding travel grew 20% on April 29% in May and 33% in September.
Consumers worldwide are sticking with habits formed during the shutdowns.
For the cross border recovery has been sluggish since while those remain closed while there are significant impediments to crossing borders, let quarantines and other such restrictions.
From May through August cross border volumes with the system came down in the mid 40% range.
September saw a six points recovery, which has continued into October this.
This recovery was driven by a few quarter those were travelers know relatively frictionless like travel from the us to Mexico and the Caribbean.
Travel from send to the frozen Gulf States and traveled to Turkey.
The sharp recovery in these quarter those provide some early indicators for how cross border travel may recover than Botos duilio from.
And finally, the recovery so far has been uneven.
The shift for domestic volumes, but as shift for cross border volumes across motor business remains a significant and continued drag on revenue growth.
As a result net revenue declined 17% in the fourth quarter approximately 11% when you adjust for the service fee lab.
This was 10 points better than a similarly, adjusted third quarter, driven primarily by the domestic rebound.
Moving now to a review of our key business drivers.
In Q4 us payments volume was up over 7% with consistent growth through the quarter.
Let's double volumes through the 21st are up 9%.
Devon was up 24% in Q4 and up 22% in October.
Credit declined 7% improving some of the quarter.
In October through the 21st creditor declining 3%.
Got not present volume, excluding travel continued to grow over 30% in the quarter, even as Scott said in spending improved almost rtwenty 19 levels in September.
A quick review of the recovery trend across spend categories in the U.S.
As we did last quarter, we have three groups each accounting for about a third of our volume.
The first group uncouth categories, such as food and drug stores home improvement and retail goods.
These categories have consistently grown at or above the equal the growth rates in the high teens or even higher at every week since mid April.
Through Q4 results remained strong and stable.
The second group includes categories, such as automotive retail services Department in the Battle stores, which dropped between 10% to 50% in April and then recover to growth by the end of June.
In the fourth quarter. These categories steadily improved and are generally back to peak over growth rates.
The third group includes category of that are the hardest hit by the spend Demicks travel entertainment fuel in restaurants. These.
These categories declined over 50% in April improved 20% to 45 point through through the third quarter.
Thats at least another 10 points with steady improvement every month.
Travel is still declining over 40% in September with the largest improvement so far in car rentals and travel services.
Fuel is also still negative but recovered 20 points since June driven both by gallons purchased and higher prices.
Restaurant spending is almost back to 2019 levels.
International payments volume grew 1% in the fourth quarter and 5% excluding China.
Now a few regional highlights.
CEMEA remains our best performing region growing 15% in constant dollars in the quarter of 20 point improvement over Q3.
The combination of easing coverage restrictions and client wins drove the strong growth.
Europe and flew improved 19 points over last quarter growing 9% in constant dollars growth was strongest in the UK as well as central and Eastern Europe.
Fourth quarter growth in Europe benefited from UK cardholders, utilizing the visa credentials to move money into higher interest bearing savings as funds. This was not expected to continue growing solid.
Latin America also improved 19 points growing 6% in constant dollars.
Brazil spend growth was positive in the quarter fueled by a steady recovery in face to face spending very high ecommerce spending and client wins.
Asia Pacific declined 10% in constant dollars in Q4, while declined 4%, excluding China and 11 point improvement since last quarter.
China continues to be impacted by the run off of dual branded cards that have little revenue impact.
There are more overage related restrictions in effect across Asia and other parts of the load.
Yes, the New Zealand are the exceptions that spending is already above 20 mining levels.
Processed transactions turned positive in the quarter up 2% improving each month as a result of the domestic spending recovery.
As you know transaction sizes increase at the height of the pandemic, but customer behavior is starting to normalize.
Processed transactions growth in October through the 21st is 4% globally.
Constant dollar cross border volume, excluding volume within Europe declined 41% in the fourth quarter.
As I mentioned earlier, we did start to see some improvement in September and through October led by cost and spending in a few quarters, where there is less friction at the border.
Cross border volume, excluding volume within Europe through October 21st declined 37%.
Constant dollar cross border volume, including volume within Europe declined 21, 29% in the quarter.
It's important to remember that cross border volume, excluding volume within Europe drives our international fees.
The trajectory of the recovery of our borders on now open provide some indication of how fast the cross border business could rebound once most of all those reopened for example.
So some of the U.S. to Mexico saw a 40 points recovery from the trough in April through July.
And the trend continued through the quarter.
This corridor actually grew over 20% in constant dollars in September and October.
Traveled to Turkey, which opened in early August improved almost 30 points in August itself and remained at that level in September.
However at this point what does remain largely closed those tourism organization reported in September that allowed us to 117 countries 161 countries or 70, 74% still had complete or partial closure of their borders to foreign visitors of the remaining 56 countries. The majority.
Mandating qualitest with quantum team that have very few countries. The norcal has restrictions.
As a result of travel related spending remains depressed declining in the mid to high Sixtys in Q4 cents, we will silver.
Growth in cross border ecommerce spend excluding travel into Europe volume has been consistently in the mid to high teens since mid April led by retail spending.
Moving to fourth quarter financial results.
Fiscal fourth quarter net revenues declined 17% on a nominal and constant dollar basis.
Adjusted for the service fee lab net revenues were down approximately 11% of 10 point improvement from a similarly adjusted third quarter. This.
This improvement was driven largely by the domestic spending recovery.
Service revenues were down 13% driven by the 12% decline in nominal payments volume from the prior quarter.
Data processing grew 4% with strong value added services growth offset by the mix shifting away from higher yielding cross border transactions.
International transaction revenues were down 38%, a few points better than cross border volumes, excluding inter Europe due to some country mix and currency volatility benefits.
Other revenues grew 5% led by value added services. This continued to be negatively impacted by declines in the usage of travel related cost benefits and marketing services for clients overall value added services revenue grew 15% for the fourth quarter.
Client incentives like 25% of gross revenues.
This step up in the percentage was due to the revenue mix shift away from cross border under service fee lab as well as the impacts already significant renewal activity this year.
On incentives were a little better than expected due some deal timing and performance adjustments.
Fourth quarter non-GAAP operating expenses declined 4% as expected, primarily driven by professional fees Jan and marketing expenses.
These expense reductions were achieved while sustaining investments in our longer term growth initiatives.
Non-GAAP non operating expense was $126 million for the fiscal fourth quarter.
Interest income sales for the quarter due to low interest rates interest expense was higher from the oldest in April debt issuances.
The non-GAAP tax rate was 18.3% yes.
GAAP EPS fell 28%, excluding special items non-GAAP EPS was $1.12 cents a decrease of 23%.
On the fourth anniversary of the acquisition of Visa Europe did not we had our first mandatory relieves assessment for the preferred BMC stock and believe is approximately $7.3 billion, giving preferred b and C shareholders the opportunity to sell the shares this did not affect the fully diluted share count.
A quick summary of fiscal year 2020 results payments.
Payments volume increased 2% in constant dollars focused transactions grew 2% cross border volumes were down 22%, excluding volume within Europe, and 16%, including what Europe on a constant dollar basis.
For the full year net revenues decreased 4% in constant dollars client incentives were 23.4% of gross revenues.
Operating expenses were down 3% on a GAAP basis and up 1% on a non-GAAP basis.
GAAP EPS decreased 8%.
Our non-GAAP EPS of $5.04 was down 7% or 6% in constant dollars.
We returned 10.8 billion in capital to shareholders by repurchasing 44.2 million shares of class a common stock at an average price of $183.30 $38.1 billion and by paying dividends of $2.7 billion.
Looking ahead to fiscal year 2021.
I'll start with a few general observations.
Fiscal year 2020, with a yield of two very distinct hubs.
The first quarter of fiscal year, 20 had no call that impact.
Net revenues grew almost 10%.
Second quarter net revenues grew 6.6% with a full that impact on our reported numbers mitigated by the Quarterlies in service fees.
In Sharp contrast, net revenues dropped 17% in the second half.
As we look ahead. It is important to remember that the first half of fiscal year 21, we'll lap a relatively normal first half of fiscal year 20.
Another important factor to highlight is the nature of the recovery we have had so far.
So far the accelerated shift to E commerce, and the shift to digital payments even in face to face transactions. The domestic business has experienced a V shaped recovery.
Processed transactions have largely shock to domestic payments volume growth with some impact from the mix shift to higher tickets, which appears to be normalizing.
On the other hand, but does remain largely closed or cross border travel has significant fiction in the form of quarantines or other requirements, resulting in a very slow recovery in cross border travel.
Also the cross border business comes at higher yields.
This significant shift in mix is a drag on revenue growth, which will continue into fiscal year 2021 until the cross border business recovers.
Meanwhile, the pandemic is still with us the environment remains uncertain. It is not possible to reliably forecast volume and revenue four quarters out the.
The significant uncertainties include.
The impact of spikes in coated infections as we have seen Mel.
The timing the reopening of borders the easing of fiction crossing borders and its impact on cross border travel recovery.
The positive impact that improves therapeutics and the vaccine could have on all this.
The timing and size of additional stimulus programs.
The economic impact once various stimulus programs end.
With that as context I'll share a few perspective on fiscal year 21 to try and be as helpful. As we can be under the circumstances.
On the revenue front, given how fiscal year 20, trendy played out fiscal year 2021 will also be a year of two very different homes.
Net revenue growth is expected to decline in the first half and rebound significantly in the second with the highest growth in the fourth quarter.
The level of the decline in the first half and the size of the recovery in the second will depend on how some of the unknowns I just enumerated play out.
For example, this process transactions processed transactions and cross border travel cross border volume growth stay at the levels. We have seen so far in October through the first fiscal quarter net.
Net revenue would be down in the high single to low double digit range. This includes a one to 1.5 point negative impact from the service fee lab.
Through fiscal year 21, we expect visa direct to continue its robust growth trajectory.
We also expect to value added services to continue to grow in the mid teens.
There's little new pricing in fiscal year, 21, but some benefit from pricing, we delayed and some carryover pricing from fiscal year 20.
On client incentives, we finished the fourth quarter of fiscal year 20, a 25%.
There are several factors that will impact client incentives in fiscal year 21.
First mix inside.
Incentives are tied more to domestic volume than they are to cross border volumes. The current mix shift away from the cross from cross border Hurts gross revenues and causes this ratio to increase.
When the mix normalizes this would push the ratio down again.
Second performance in fiscal year 20, with a sharp decline in volumes. Many clients did not meet certain volume thresholds and as such does not own corresponding incentives as volumes recover them fiscal year 21, we expect clients will hit specials and owned these incentives which causes a year earlier increased unique.
To the euro the recovery.
Finally, the impact of renewals as we have told you fiscal year 20 was another big year for client renewals the renewed 25% of our volume during the year with another 15% to 20% likely renewed in fiscal year 21.
Factoring all this in we currently estimate but fiscal year 21 incentives as a percent of gross revenue could be in the 25.5% to 26.5% range.
As always we have given you our best sense of the range at this point and we'll update you through the year as we learn more.
First quarter incentives are likely to be at the lower end of the range.
Moving to operating expenses in fiscal year 20, we demonstrated our ability to modulate expenses and investments as circumstances change.
Balancing short term imperatives mid long term priorities.
Non-GAAP operating expenses grew 8% in the first half and declined 5% in the second.
As I indicated we remain very bullish about the growth potential of our business and we'll invest accordingly.
We have a direct continues its robust growth due to be connect is ramping our value added services growth is sustaining a mid teens levels and our recent acquisitions required investments to scale.
We will step up investment in all these areas and a few others such as the Tokyo Olympics.
As a result, we plan to increase our level of investment Trulia modulating as we learn more about the trajectory of the recovery.
Our current plan is what expenses to be down in the first quarter in line with second half fiscal year 20 trends.
Expenses are expected to grow in the mid single digits in the second quarter as we begin to lap the expenses pullbacks from the last fiscal year.
At this point, we plan on double digit expense growth in the second half in part due to the Olympics. However, we will adjust our plans as needed and update you as the year progresses.
We expect non operating expense to average $145 million to $150 million each quarter in fiscal year 21 for two primary reasons first low and even negative interest rates on our cash balances.
And to our 4 billion in additional debt after we pay off our December bond maturities.
Our fiscal year 21 tax rate is expected to be in the 19 to 19 in the hospice end range. It is too early to predict what impact the us elections will have on our taxes.
As always we will provide updates if any to our tax rate expectations as the year progresses.
Capital spending in fiscal year, two anyone is likely to be around $700 million.
We expect to return most of our free cash flow back to shareholders in the form of dividends and buybacks.
Board of directors has authorized an increase of our quarterly dividend to 32 cents starting in the first quarter of fiscal year 21.
When the plot transaction closes we will let you know what its impact on slide 21 will be.
In summary, as we have done in fiscal year 2020, Needless stay flexible and agile as we work through the pandemic.
As you heard from our the opportunity ahead is lost.
The shift to ecommerce and away from cash is accelerating.
Schedules for new payment flows are proliferating and ramping.
Our value added services business continues to grow at a healthy clip.
We remain as optimistic about our future as we look at our Investor Day in February, which now seems like a lifetime of world.
Our strategy remains unchanged and fit and in fiscal year 21, we will continue to prioritize and invest in our key in our key growth initiatives.
With that I'll turn this back to Mike.
Thank you Vasant, we will run a little long in order to ensure we have enough time for questions. So with that we're ready to get started Jordan.
If you ask a question. Please press star one including record your name will be announced prior to asking your question to answer your questions I heard we ask that you. Please limit yourself to one question. Once again ask the question I'll start one to withdraw your question press.
Our first question comes from Dan Dolev from <unk> your.
Your line is open.
Hey, guys. Thank you for taking my question.
UK.
At stake.
Give us a little more color you'd be.
Ability.
In money with email or anything like that that you can highlight in terms of the advantages of the yield better. Thank you.
And again at Dow Kelly how are you.
You know this is a company that.
We're quite familiar with we invest we were an early investor with them we do.
We've been working with them and.
Would they really are and will allow.
Barry as players throughout at least in in the in the foreseeable future through Latin America.
Being able to.
Facilitate getting any kinds of various types of services up and going very quickly by connecting to yellow pepper, and then yellow pepper, taking over from from there and we think as the the payments and money movement World continues to grow and and diversify.
Having a software platform like yellow pepper that makes it.
Easier for these connections to happen and gives us an on ramp to sell.
Value added services and accommodate that it needs to be.
Areas clients to have network agnostic solutions that it's going to go.
Give us a.
Good path towards accelerating.
Both core payments as well as value added services and new flows throughout Latin America, and then overtime.
We'll look we'll look to Dan the capability beyond that region.
Great and can create results.
Thank you.
Our next question comes from Bob Napoli from William Blair. Your line is open.
Good acting as acute as to the question.
Just on the value added services I was hoping to get a little more color.
That mix of the revenue could kind of break it out.
With two ever reasonable products.
And which of those products are growing.
Growing the fastest obviously digital.
Well Bob. Thank you for the question. So first of all we think of these the direct as a new flow Nada evaluated sharp, okay, but let me.
Try to get a little more color so.
That two thirds of value added services Ari our platform type of services that are driven by transactions and and.
Obviously in this environment some of those have done quite well Cybersource, where people are looking for omnichannel solution, our risk and fraud services, particularly is lot more transactions the guidance online and that people are looking at things like threed secure to Domino and our offerings from Cardinal Commerce.
And then issuer processing.
He has done well given that.
What's happening with debit.
As the soft described in his remarks.
About a third of the other firms led by two thirds evaluate services. The other third is kind of split between service revenue.
Revenue and other revenue so in service revenue Europe card benefits, which are offered as a package and then in other revenue you have services that are generally not tied to volumes things like travel related card benefit marketing services.
Data and consulting and analytics. So you can imagine in that grouping there things that are struggling a little and other things that are accelerating so travel related card benefits are obviously.
Very sluggish as our marketing services, but things like.
Hey, Darren and consulting and analytics are continuing to grow at a pretty robust levels. So that would be hopefully give you. Some color on no decide whether you want to add anything to that.
No I think we're very pleased with how as outside the platform based services are growing those happen to be the ones that have the best margins and it's things like our fraud services authentication.
You know to Cardinal Commerce.
As well as as Al said cyber source.
Clearly the growth of omni commerce, and certainly everybody having merchant wanting to enhance the E. Commerce business is very helpful to Cybersource, which as you know as a gateway for most ecommerce merchants and then the debit doing well the debit processing business. So those platform services.
Most of it show up in our data processing line from a revenue standpoint.
Particularly.
Hi growth right now.
Thanks, Simon Thanks.
Thanks, Bob.
Our next question comes from Bryan Keane from Deutsche Bank. Your line is open.
Hi, guys I, just want to ask about the strength in debit.
Obviously, even without stimulus the growth continues to be impressive well above 20%, especially in the US and then obviously picking up internationally.
How much of that is driven by this move towards contact us any E com.
And as we get into next year does it does it cause a difficult comp just because of the growth rate is so much higher than traditional or does this this growth continue at these rates and maybe somewhat offset by a pickup in credit palette coming into the second half of next year. Thanks.
Thanks, Brian.
I'd say if there is a number of drivers of what's happening with David certainly as big an acceleration of cash displacement at the point of sale where people are just concerned about.
Cash being.
A carrier of germs.
I see that.
I think that trend continues certainly.
Certainly a significant shift online purpose or purchases and mostly in everyday spend categories, which kind of favorite debit a bit.
Yes, I think.
Thats going to stay up at fairly healthy healthy levels.
Thirdly, what we've learned in the past and its being reinforced now is that in these uncertain economic times people, probably would prefer to spend the money they had been than the borrow the money and hence.
Thats a positive driver for for debit.
And then visa direct obviously helps drive our to our debit performance as well.
Hi, I expect.
That.
A lot of this positive momentum will continue but I think there's no question that.
Yes, and lets hope it does the world gets back to normal are quicker than.
[music].
Many point might predict that a you will see credit come back there is more.
Discretionary per purchases and travel start to bounce back.
And and May be some purchases start to move that our online may be moved back into the face to face world, but I think a lot of people got very comfortable sitting out there.
Dining room table or in their home office shopping on online on E. Commerce. So I think a lot of these drivers of what we're seeing in debit over the last six months have some staying power to them.
Yes, I mean, I've got a couple of things on you can see it in some of the charts. We provided on the V key trends.
I think we're talking about debit, which as I said in my comments is the biggest beneficiary of the accelerated growth of E commerce and the shift away from cash.
The two things we are seeing is that even this credit has recovered from declining 20% in April to exiting.
As of September down only about 5% I believe if I remember right in.
In the major markets.
You see the credit line in the debit line has been very steady.
It's been growing at the same rate without really being impacted by the recovery of credits.
And even as card present.
Trends have improved.
You are seeing the debit line hold steady.
So a lot of it has to be driven by you know the new UK. These cases, we are enabling a new payment flows through either direct.
Well said.
Also.
The fact that there has been a true shift away from cash and most of it has been to debit now clearly some of which is the stimulus payments.
If you don't have them next year clearly you know.
Some of that spending may have been spending that may not sustained but that remains to be seen.
Got it helpful. Thanks.
Brown.
Our next question comes from Sanjay Sakhrani from KBW. Your line is open.
Thanks, I wanted to sort of follow up on exactly what you were talking about the sand.
Obviously, there is a recovery underway, but to the extent that stimulus isn't renewed.
That may or May not happen and then you have you're going into the winter months, whereas may be more difficult to travel or out in such do you feel like thats a risk to the growth trajectory of the volumes and then just a clarification on the incentive guidance to volume support guidance does that include the numbers you gave.
And impact from the lack of the volumes that come back.
Versus what you're paying out thanks.
I'm not sure if fully understood. Your second question, but I will I will try to answer it on on the first one.
As we said we live in uncertain times and it's it's it's difficult to hazard guesses on what.
What's going to happen then we'll then.
If there are spikes in in in infection I would say we are tracking it very closely and there's really two things stroke trial kits. It spikes in infections and then what is the response from the government to the extent that the response from the government is to is to impose restrictions and shutdown.
And then it does have effects on spending if the response of the government is to largely keep things open then we see less of an impact. So it will be very different region by region and country by country, both linked to the infection rate as well as the governmental response.
As it relates to travel you know travel habits are changing as you saw I mean, you know people comfortable every vessel corridors that are open are getting more of the travel which is why you saw the Caribbean and Mexico actually growing in September and October and nominally September October after schools open tends to be less.
Slowdown in travel in fact, we're seeing travel continue personal travel continue into September and October in the quarter those that are open.
So what you may see in terms of travel is people really being quite astute about where they can travel and universe as certain corridors open up you start to see travel you know moving into those corridors that may have gone gone elsewhere. So it all makes it very difficult to make any you know hard predictions about what's going to happen next.
As far as your incentives question I Wasnt sure. What the question was exactly what we try to factor in everything we know right now mixed shift from cross border service fee line.
Renewals, we already had and what we might expect give you. The best range. We can we will obviously give you an update as the year goes by.
Okay. Thank you bank content.
Our next question comes from Ramsey El Assal from Barclays. Your line is open.
Hi, guys. Thanks for taking my question.
Not a lot of new partnerships and agreements this quarter Alan your prepared remarks I'm just wondering in the context of the pandemic has the way we structured the agreements changed at all our incentive levels less performance based or is there are there any kind of changes that might have an impact on the way incentives kind of coming down the road in terms of our negotiating right now.
Ramsey and as a general I'd say that there really hasn't been a lot of a lot of change I think that.
They've generally been.
Fairly similar I think that.
For the for the most part I think most both as you know most of these deals are fiveseven sometimes longer years.
In duration and I think almost everybody thinks that we're looking at kind of a once in a century type of event here how the.
The conversations I wanted to start with just having we're not sure how long that that.
Really laugh, but we certainly are not looking for it to last through the duration of our.
Of what these what these contracts are.
I think that said, we're certainly thinking about the structure of of.
Deals and trying to determine where were at.
Tweak things here and there but.
I wouldn't say that we've made any kind of radical changes and how we're restructuring the deals Ramsey.
Okay that helps thanks, so much.
Our next question comes from Lisa Ellis from Moffettnathanson. Your line is open.
Good afternoon, guys. Thanks for taking my question.
Questions about Europe.
9.1% growth in Europe, this quarter and that is a very strong numbers stronger than it had been pre pandemic can you talk a little bit about what's going on in Europe are you starting to see the.
The pay off of the long term effort there to integrate that business after the VCR trend.
Transaction I.
And then are you seeing that really elevated cash displacements, what what are some of the underlying dynamics in Europe. Thank you.
Police I'd say, a few things first of all this.
With this movement.
Of funds into the.
Hi yield higher yielding savings accounts definitely was a real factor and.
Thats not going to.
Repeat repeat itself, but but beyond that.
I think that you are seeing became the beginnings of traction of a number of fintech deals.
Mentioned resolute in my remarks, but Lydia in France comes to mind.
In an hour.
Fintech in Turkey comes to mind that are really starting to scale up in terms of.
Their relationship with visa I also think that we.
We've had a pretty good track record of deepening some of our existing businesses.
That we renewed as well I commented on a few of those but if we go back over the past numbers of earnings calls commented on others and I have made the point that I think that.
I believe over the last.
Five or six quarters that Europe has made a lot of progress in terms of.
Relationship deals, they're just going to take time to show up in the numbers.
Because you either doing.
Start start up or you're doing a.
[music].
A shift in our with the client and both of those just simply take time and they take time to ramp to get financials out and then they take time for those credentials to ramp in terms of volume.
The other thing I would say is that open banking continues to be a.
That's strange for us.
In in Europe and.
Where we're having good success selling our value added services.
Particularly as I commented in answering somebody else's question earlier, some of our product from.
Cardinal Commerce as well as our Threed secure product. So I I think you weight the beginnings of.
Some of the success that were.
We think we've been having over the last five or six quarters, plus this kind of one time.
Deal where people move money via their debit cards into these high yield.
Savings accounts and I will see what happens later today.
Today, you, probably saw both France, and Germany and announced.
Going into some form of partial lock down again, so thats obviously not.
Very positive news.
The to be driving volume across the continent.
Thank you.
Thanks Lisa.
Our next question comes from Dan Perlin from RBC capital markets. Your line is open.
Thanks, and good evening.
I just wanted to follow back up again around the notion that cross border.
Volumes connects.
You know intra Europe is probably going to drag on for a bit and so I'm trying to understand or reconcile a little bit year is.
The specific opportunities that you might be pursuing maybe more behind the scenes in order to offset lost revenue lost profits so rather than the very large dropdown list.
Products and opportunities I'm thinking of things like.
Increased authorization rates now do you have a lot more E Commerce cross border that's happening as opening up the funnel for merchants are you able to able to offset some of those lost profit dollars. As a result of those types of things and then how prominently cybersource playing in that in that regard. Thanks.
Yes, I mean, we're clearly focused on all that.
So.
Seasonalization rates in particular quarter, those big priority, increasing activation of cards that can be used for cross border critic.
Critical priority the growth of non travel cross border business Big priority.
Cross border business for new use cases that al highlighted through either direct like remittances cross border business through between connect all those are revenue streams that are new and very exciting.
And growing well.
It's a big deal and 21 to lay the groundwork for us both to scale.
Signed up a lot of clients the volume is ramping this.
The spending quite a bit of time and effort to ensure that the the acos platform can scale.
And a lot of that will be cross border flows.
Not necessarily for consumer payments for a but a whole range of other use cases, so there's a variety of non specifically travel related cross border use cases that are happening right now that we are very excited about.
And then we're doing as you said the sort of the bread and butter batiste, both improving authorization rates, reducing fraud and all the things that would make people more more willing.
Two through more cross border transactions.
Excellent. Thank you.
Our next question comes from Tinge Anwar from JP Morgan Your line is open.
Hey, Thanks, so much I was thinking about your answer to Reese's question. Then I'm curious if you can you can you can shift into another gear and win more business in Europe with open banking and.
And the digital shift there I guess I could expand that to other regions as well, but I'm thinking about Europe, given the open mbeki dynamics.
I certainly hope so pidgeon, we're very very focused on it.
I think we talked about in the past I mean, we we really feel like we're we've we've been in the last year or.
15 month really on our front foot in in Europe, We've got a really good win rate on Finpac.
We're having lots of really good discussions with banks about open banking. In addition to the things I mentioned, we've got our our visa trusted with listing which allows customers to identify merchants that they.
Trust, which will help users meet regulatory requirements and have a much better user experience for the customer we've got the visa delegated authentication, which issuers.
Alligator authentication to merchants are digital wallets, which also reduces friction.
At the point.
Check out.
So.
A lot of these discussions that have gone very well and I think that people.
Who our clients and potential clients are viewing us as.
[music].
Being very.
Support out of what they have to do to deal with open banking.
Downstream, so I I believe that.
Our momentum is good and you are going to continue to see it in our numbers.
Just a quick follow up if you don't mind that some of the wins you guys have had like venmo on you talked about resolute pretty innovative including in the reward side with things like venmo.
I'm curious if also you could see a little bit more of this.
This has become available thinking about travel cars and some of the more traditional travel rewards might outsource utility here. During the pandemic are you seeing that does that.
An area of focus perhaps.
Well I think.
Issuers around the world are youre dialing.
Dialing back on.
They are spending in their acquisition and on travel related cards at this point in looking at.
Alternatives and even here in the United States, Obviously, I think you've seen a lot more activity on takes on cash back and you are on.
Our travel co brand so I think in the in the near term that can be the case I think though as.
Travel returns which are.
Added to be optimistic.
That.
That is well.
The site basically described how I see it which is that travel is for all intensive purposes shot for consumers as not that you are even having a choice of to travel or not to travel in most cases. It is so much of a hassle that right now that usage you just don't it is not a good experience.
And I think as travel.
Travel can reopen I think that people wanting to see the world see family and friends and knock.
Places off their bucket with better it it will start to come back in at that time, I think people will go by.
Back to.
Promoting the travel and.
Elements of their card or the benefits of the card as well as you'll see more attention paid back on the on the travel related co brand cards.
Yes.
Couple of sort of let's say.
Right spots from some of the early indication deal is.
As you know the bulk of the the cross border business, we have Thats card present, and the bulk of our cross border travel is based on personal travel and that's an important one to note.
And there clearly seems evidence of pent up demand because anytime a corridor opens up we shared the example of Turkey.
There's a there's a massive pick up that are more Americans travelling to Turkey now than they did last year by a significant amount.
Because they realize that's one place they can go.
We've seen that from other parts of the world that are open like travel in and out of Dubai.
So we're seeing a lot of travel from Europe into into the UAE for example.
So what we are seeing as there is pent up demand.
The corridors, which are very few right now that are open of getting a lot of it.
And as quoted those start to open.
We'll see different travel thought pattern when you Safi coated.
But there does seem to be a lot of desire to travel.
Yes, the Greek makes sense. Thank you.
Our next question comes from Jason Kupferberg from Bank of America. Your line is open.
Hey, good afternoon, guys I know back at the Analyst day, which I agree with you we thought.
A very long time ago, it's got a lot of time on B to B and I wanted to see now that were you know six plus months into the pandemic Emily encoded catalyzing accelerated growth in b to B for visa and if so are there some supporting data points, you might be able to share on that front.
Well I'll start dates and Enbrel and socket at.
I would say that.
Commercial b to B volume in the card its phase II.
Is running pretty close to where you see consumer credit.
So it it definitely has been hit and as.
The line on its growth has been as I said fairly close to that the the credit line.
That said.
We've continued to invest heavily on I'm trying to promote virtual cards is more digital spending is going to take place in the b to B arena, and we're continuing to build out and invest in building out the DB connect network.
We are up and have the capability up and going in 80 countries, we're looking to expand.
For the next 30 countries over the next year.
Year plus.
And.
Yes, so we haven't really taken our investment dollars on on building for the future.
Down much at all in this area, but there's no question. The the volume has been in.
Impacted by.
Lots of people curtailing their spending and lots of employees around the world working from home.
Yes, I mean, just a little more color on the B to B side in the <unk> as I was saying the cloud based part of the business. We are seeing the small business side recover nicely you know the large and medium sized side is is the one that is still somewhat sluggish.
We don't have a big travel related component in our Columbia's DTV business on me to be connect we continue to build and nodes.
A lot of interest and we have some big new clients that will be ramping and hopefully we can tell you more about that in the next few quarters and then the very large audio business.
You know there continues to be interest we have April focused on trying to figure out the use cases that have traction on how we create value.
But I wouldn't say that there's any dramatic shift.
Remains the category of people are trying to figure out a way.
You know to create value there. So we'll again tell you more as as things develop.
Okay. Thank you one last question.
Our final question comes from Darrin Peller from Wolfe Research Your line is open.
Hey, guys. Thanks, we've seen obviously this uplift in the CMP transactions, both online and offline hi.
Hi, similar with contract work and I think we've been saying anything guidance that are also there's your technology can handle more of that market share than other more color pin networks. Given your investments I guess first of all can you just.
Make sure just verify thats true.
Your opinion, and then second of all what kind of economic uplift through there on things like the Cybersource and fraud solutions you provide there.
And then just a quick follow up on incentives comment you made about 21, you mentioned incentives and I think 26% or so in fiscal 21.
Does that assume that cross border does not doesn't improve at all in fiscal 20 owner to Steve basically October levels predicts that number thanks guys.
I mean, what happens I'll take the second part first.
What happens across border is anybody's guess right. So we gave you a range 25, and a half to 26 and a half we have seen let's say a six point improvement from Q3 to Q4.
From Q4, 41 down to where it's running in October is a four point improvement. So we've assumed some modest improvements through the year. So it's not saying that there is no improvement in flight and there is some modest improvement.
I think thats, probably the best way to think about it but it is a range.
It's hard to estimate we're giving you the best range I will tell you more as the year goes by.
And then your first question not no fewer than take note.
I was so on that basis.
It's a car that present.
No.
It's very very good volume for US is as we I think guidance that today, we said that 15 cents of every dollar in the world.
Today is in face to face is spent on.
These the card is a card not present world. It's 43 cents on the dollar simply because cash comes out of the picture.
And obviously.
As broad has migrated more to online as.
As chip on car has.
Depressed fraud and face to face world that gives us an opportunity to work with issuers.
Driving down toward by using various services and products that weekend.
We could provide.
And.
Somebody alluded to it earlier I mean, they are still in the card not present world still real opportunity to drive up authorization rates I think it was it was a question out relative to cross border.
And clearly cross border authorization rates and card not present are lower than our authorization.
Authorization rates domestically on card not present, but in both cases versus face to face is real opportunity to.
To increase.
Authorization levels to drive more volume down.
Guarantee set of their contact list two obviously, that's in the face to face wear out.
And we'll see where we are we continue to make and we'll continue to make real real progress there I think cobot will help accelerate.
The pace in the United States, which is the one market that spend.
How much further behind I think I said in my remarks that.
Contact us.
Transactions represent 43% of face to face.
Across the globe, 65%, excluding the United States gives you the magnitude of how far behind the US is I do think though that I, maybe you meant clip to pay I do take quick to pay will help.
As well accelerate.
Our current dot.
That does as well.
Particularly for people who are.
Our dot card on file but they are there they are.
[music].
Just logging on to buy for the first time in there they're doing they're being a gap. So I think that there's real opportunity for quick to pay to help.
Build a better user experience there. So we we certainly remain really bullish on what can happen in the card not present world.
All right. Thank you guys.
Thanks, Dan I would like to thank you for joining US today. If you have additional questions. Please feel free to call or email our investor relations team. Thanks, again and have a great evening.
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