Q2 2021 Visa Inc Earnings Call
Transactions growth keep in mind that we're now lapping the start of the pandemic as growth rates are now less indicative of performance in the business trajectory. We're going to also provide some metrics compared to 2019 on a constant dollar basis.
So payments volume grew 11% improving seven points from Q1 and reached 116% of 2019, which is up three points from Q1.
Cross border volume, excluding intra Europe declined 21%, but improved 12 points from Q1, and a 75% of 2019 levels three points better than Q1.
Processed transactions growth of 8%.
Improved four points from Q1 and represented 116% of 2019, which is consistent with the first quarter.
This quarter, we continued to make progress across our three growth levers first consumer payments and Asia Pacific renewed our partnership with racket, Dan card a subsidiary of rocket 10 group the largest e-commerce marketplace in Japan, and Korea Visa won the first hotel.
Chain co brand in the country with Marriott and Shinhan card Koreas largest issuer.
In China, we renewed our credit portfolios with Cie.
Dicey banked in agricultural bank of China, two of the top 10 largest banks in the country.
Also on the co brand front in Brazil, Samsung and partnership with Banco into oil.
We will issue their inaugural co brand in Latin America, with visa targeting Samsung $50 7 million Brazilian users.
In Europe visa won incremental business with dnb pattern by <unk> in Belgium.
This expands our relationship to include 4 million debit cards. In addition to our existing credit relationship.
In Switzerland, we gained significant traction in growing visa debit since January of 2019, we have signed 13, new debit deals representing an incremental $2 6 million cars.
And new flows visa direct transactions grew almost 60% in the second quarter.
We're pleased to have clients going live now and with visa direct payouts, which offers a flexible set of API for visa partners globally to use a single point of connection for push payments to cards and accounts.
Graham Goldman Sachs transaction banking standard Charter Bank, Hong Kong and kit global are among the first to start utilizing these.
I'll highlight some specific visa direct use cases include that in the marketplace and marketplace paths Airbnb, which now has 4 million homes globally will offer host payouts using visa direct in select markets.
And cross border P to P rapidly top digital remittance Fintech has renewed its visa direct relationship building upon the past three years of partnership and model Bank in Ukraine enabled cross border ETP to their $1 7 million cardholders.
And the payroll category. The earned wage access use case continues to grow with 25 earned wage access platforms now offering visa direct for fast and convenient access to employee earnings.
<unk> continues to grow as well global Blue a leading tax free shopping solutions company, covering 52 countries and $35 million tax free transactions in 2019 is utilizing visa direct to distribute tax refund payments across Europe.
Separate from visa direct we supported the U S government's disbursements of economic impact payments to nearly 13 million visa prepaid credentials in the U S. So far this year.
And now to our third growth over value added services, we're continuing to see strong adoption. Let me highlight a couple of examples for Cybersource planet, our European acquirer and payment services provider that delivers payment processing and currency conversion solutions to over 600000 merchants will be partnering.
With cybersource to simplified payments across the hospitality food and beverage and retail sectors.
Keybanc a top U S acquirer will begin to offer cybersource towards merchant clients.
And as E. Commerce continued to grow decision manager a key risk offering of Cybersource increased transactions over 30% fiscal year to date.
Our other risk fraud, and authentication capabilities grew as well for example, we've now crossed the 2 billion token milestone up from $1 4 billion tokens just in September.
One of our key authentication capabilities Cardinal Commerce grew revenue almost 40, almost 50% year over year this quarter by rapidly expanding beyond that <unk> in the next year, we plan to more than double our clients in Europe, and Central Europe Middle East Africa.
So while the pandemic has disrupted the world. It has not changed our strategy in fact, it has reinforced our belief that our three areas of focus will deliver robust growth for years to come.
As we look ahead with COVID-19 recovery underway, a few key real important realities, namely the way consumers feel about e-commerce cash and travel will particularly impact visa.
The pandemic has accelerated e-commerce global card not present credentials, excluding travel grew over 20% in the quarter versus last year.
Our growth in card not present.
Payment volume, excluding travel has averaged at least 30% in the United States, Canada, Brazil, the United Kingdom, Italy, Germany, India, and Singapore over the last three quarters.
And in global Cross border, excluding intra Europe, it's averaged 20% growth.
We believe this shift is likely to persist as the convenience of E. Commerce is indisputable and its growth continues to be robust even as card present begins to return.
In March in the United States at some states loosen transactions.
Our present as a percentage of 2019 spend improved 11 points versus February.
While at the same time card not present, excluding travel still expanded eight points.
If you look at that in Germany, and Japan, where restrictions. We're also lifted card present improved six points and card not present, excluding travel is still improved four points in that same comparison between March and February.
The pandemic has accelerated the digitization of cash and we see the impact in debit and tap to pay when we looked at cash usage in the last 12 months just on the visa brand such as with ATM withdrawals, we see that global debit cash volumes have decreased by 7% while debit payments growth.
And as payment volume has grown 16% both on a constant dollar basis. This 20 point GAAP is more than double the historic GAAP and growth rates and relatively consistent globally, demonstrating cash digitization in both mature and emerging regions.
Overall visa tap to pay transactions have grown over 30% year over year in March.
In Europe less than a year since contactless limits increased across the region visa has seen 1 billion additional touch free transactions.
In the United States, one in 10 face to face visa transactions are now done with tap more than a two times increase since the beginning of the pandemic.
In New York City, the penetration is nearly 30% demonstrating the potential of focused issuance and merchant enablement along with transit.
In the past three years alone we've enabled nearly 250 transit systems globally, and we can see based on our research that enabling tap to pay on transit can bring more than a 15% lift in transactions for merchants and the surrounding neighborhoods.
The decline in travel is temporary and we're starting to see some early signs of recovery.
Cross border travel related spending excluding intra Europe improved from Q1, driven by two factors.
First those who are abroad are spending more likely because of fewer restrictions.
This quarter essentially all of the cross border travel spend improvement was driven by higher spend per card rather than more active cards.
Second we continued to see strength from countries with open border for example, U S to Mexico volume with almost 20% above 2019 levels for the quarter. We also saw several top cargos between the U S and Latin America improved by more than 10 points through the quarter versus 2019.
Travel will certainly take more time to recover than other sectors, but we believe personal travel in particular will come back and Thats. Good for visa for two primary reasons.
One because the vast majority of the travel recapture on our credentials is consumer and two we are the global leader in travel co brands.
With the backdrop of travel cash Digitization and ecommerce, let's briefly explore the future potential of our three growth levers.
In consumer payments in the last two years, we've grown our credential to $3 6 billion and physical merchant locations to over $70 million up, 7% and 34%, respectively, and remember that our merchant locations only count our partners like Paypal and square each has one.
That said there is ample opportunity as we focus on specific regions that partners.
Looking at regions, even with our leading position in both emerging and developed markets our market driven approach to growing credentials is succeeding and Europe is an excellent example from 2018 to 2020, we grew active card credentials by 10% and looking ahead, we have line of <unk>.
Site to more than $25 million additional credentials across 50 clients in the next few years.
Let me cite a couple of recent partnerships that would show this rapid growth.
Since Fintech Revolute signed a global agreement in September 2019, selecting visa their lead issuing partner they've increased the number of cards and payments volume by more than 200%.
Through December 2020.
Crypto Dot Com has launched visa cards in 39 markets across their 10 million user base since 2018 adjusted quarter. They signed a global growth agreement with us covering 12 markets with plans to expand to even more.
There are so many more partners issuing credentials and building acceptance for example, wallet providers represent the potential for another 2 billion credentials and 70 million acceptance locations over time and the pace of growth here as fast Joe money in Russia recently signed on to issue visa credentials and us achieve.
More than 1 million credentials in just five months.
In fiscal Q2 last year, we announced that STC pay Saudi Arabias largest wireless operator, with 25 million subscribers plan to embed credentials and their STC pay wallets to date more than a million visa credentials have been issued.
Our ongoing partnership with <unk> has enabled us to add more than 250000 contactless enabled acceptance locations at new to card merchants, while the number of visa credentials issued by <unk> ATM has more than doubled since September of 2020, reaching a total of $3 million.
Around the world tap the phone has also been a significant.
Sure.
Wallets and tap the phone or just a couple of Nextgen partners and capabilities that we believe will help us bring the $1 7 billion unbanked into the financial mainstream growing the pie for digital payments.
The growth will come from a regional approach and openness to partnering with traditional and new players and by developing new ways to engage the ecosystem all rooted in our strong brand and in technology.
In new flows our success in the United States is a real asset will be a day has been impacted by the pandemic our strategies against the $120 trillion opportunity represent near medium and longer term growth for visa and the near term we're focused on supporting businesses small and large to date we've held.
12 million micro and small businesses to digitize and grow and grow against our $50 million global goal and we continue to focus on card based solutions visa has about 20% more commercial issuers today than we did four years ago.
In the medium term visa BTB connect addresses a major pain points with the current top solution and cross border.
Debate and we are continuing to add banks to reach scale.
In the longer term, we're working with key partners to solve the challenges of accounts payable and accounts receivable.
For the other 65 trillion of new flows visa direct has five clear competitive advantage advantages that we believe will continue to drive growth.
The first one is reach and visa direct the endpoints are card credentials and bank accounts and we can reach 5 billion endpoints globally. This is unrhyw, our unrivaled by anyone else.
Second operating scale visa direct is built upon the operating scale of visa net and Leverages. Its real time authorization clearing and settlement capabilities. This means we can deliver industry, leading solutions with low marginal cost.
Third his commitment to our network of network strategy visa direct is truly multi rail which provides clients flexibility and efficiency just in the last year. It is utilized 16 card based networks.
<unk> five ACM schemes seven RTP networks in five payment gateways that has more connections coverage and capability that we've seen from any other network offering.
For investments in our capabilities, we have invested in leading technology stack for both payouts and account funding capabilities. For example, our accounts funding capabilities include unique codes to help clients manage risk compliance and authorizations for money movement transactions with Apis to streamline implementation for <unk>.
Apps neo banks and Fintech.
To our knowledge no one else has this capability.
Fifth as commercialization, we've now enabled over 20 use cases with more than 450, New program launches and we will continue to expand by one growing existing use cases like marketplaces and cross border PDP, two bringing existing use cases like P to pay payroll and earned wage access to other new Mark.
<unk> and three developing new use cases, such as tipping.
Visa direct also brings a network effect in terms of benefits to visa for every dollar received on a debit card through visa direct about half of it is then used for debit card purchases.
Furthermore, our cardholders, who received payments through visa direct and spend up to 50% more than those who do not so visa direct is actually not only helping new flows, but it is healthy consumer payments.
Lastly, let's turn to value added services, which are being utilized by our clients more and more in fiscal year 2020 more than 60% of our clients use at least five value added services from visa and more than 30% of our clients use 10 or more our.
Our toolbox is large with hands on consulting sophisticated and flexible technology platforms valuable data and insight and card benefits, all which will improve with the recovery. We also have free platform businesses at scale very profitably cybersource issuer processing and risk.
<unk> and often authentication.
With the recovery and the continued strength in e-commerce and debit these capabilities are well aligned with trends towards Digitization.
Let me just speak about Cybersource as an example, our strategy to partner with acquirers creates a leveraged opportunity for future growth, both transaction growth and cross selling value added services.
We mentioned last year that Japanese acquire FMC was going to start offering cybersource capabilities towards merchant customers.
Starting with one nationwide convenience store chain and rapidly expanding to over 30000 merchants FMC is now delivering next generation acquiring solutions to Japanese merchants and Cybersource is processing over half a million e-commerce and in person transactions per day.
With all this opportunity across the three levers we are investing heavily to drive future growth in several areas, including simple compelling user experiences. Examples include tap to pay tap the phone equip the bat cave.
Capabilities to scale, new flows and value added services. Examples include new visa direct use cases, and advancing fraud and identity solutions.
Specific markets that can benefit from targeted resources, such as Europe, and Africa innovations and payment in the payments ecosystem, such as crypto API for banks and digital currency settlement.
Vote closed visa is weather the COVID-19 storm. It is emerging from the pandemic even stronger there is significant opportunity ahead, and visa existent existing presence scale and capabilities position us well to capture more growth in the future with that now let me turn it over to beside for more colors on our financials and what we see ahead.
The fact over to you.
Thank you al good afternoon, everyone.
Our fiscal second quarter results were stronger than we expected with net revenue down 2% largely due to improving cross border volumes and lower than expected client incentives.
GAAP EPS was flat to last year and non-GAAP EPS declined 1% helped by a lower tax rate.
Exchange rate shifts increased net revenue by half a point, but lowered EPS by half a point due to currency related benefits in the second quarter last year.
As Alan mentioned as we lap the most significant COVID-19 impact starting in March 2020 year over year growth rates are not the best indicator of the underlying trend.
To help you better assess both the magnitude and the trajectory of the recovery Sofa Bill also provided growth rates for key performance metrics relative to fiscal year 19.
In constant dollars global payments volume year over year growth was over 11%.
Fueled by continued strength in debit as well as improving credit spending.
Compared to the corresponding quarter in 2019 global payments volume was 16% higher a three point acceleration from the first quarter.
Excluding China.
<unk> volume growth was 13% or 20% higher than 2019 as Chinese domestic volumes continued to be impacted by dual branded card conversion, which had minimal revenue impact.
U S payments William growth was 18% and up 24 up 24% from 2019 benefiting from economic impact payments in early January in mid March as long as the relaxing of COVID-19 related restrictions in many states.
Fully offset by bad weather or lowering spending in mid February.
Even after adjusting for economic impact payments U S payments volumes have bounced back to the peak of a trend line.
<unk> growth accelerated to 13 points to 34% up 44% from 2019 bolstered by the two economic impact payments in this quarter.
Credit growth was 2% up 6% from 2019.
Average improvement was helped by increases in retail travel restaurant and entertainment spending mostly starting in early March as restrictions are relaxed in many states.
So it is important to note that credit has improved without debit slowing pointing to accelerated cash displacement.
Card not present volume, excluding travel continued to grow over 30% in the quarter and was 55% above 2019 levels, primarily driven by retail spend.
The most notable signs of a domestic recovery with Scott <unk> present spend growing 12%, which is up 3% over 2019 at eight point acceleration from the first quarter led by retail and restaurant spending.
Improving cost present spending does not smoke e-commerce, indicating the E. Commerce trend is likely to continue even if stock present spend recovers.
International constant dollar payments volume growth was 6% up 9% from 2019, a few regional highlights.
<unk> remains our fastest growing region.
Growing 26% up 50% from 2019 levels.
The easing of COVID-19 related restrictions, particularly in the middle East and Russia, as well as clients Lynne drove the robust growth.
Latin America grew 23% up 40% from 2019 with consistently strong performance across the region, mostly fueled by accelerating e-commerce adoption and usage as well as client wins.
Europe grew 2%.
Up 8% from 2019, but decelerated from the last quarter as many countries. So significant COVID-19 restrictions in place, particularly the UK, France, Italy and Germany.
In Asia Pacific, Excluding China second quarter spending grew 4% up 8% from 2019.
Performance across the region very David on the level of COVID-19 restrictions with markets like New Zealand, and Singapore growing strongly while markets like Hong Kong, and Japan, which had restrictions for most of the quarter the weaker.
Globally processed transaction growth was 8% up 16% from 2019 lodging volume growth due to higher ticket sizes, particularly in the U S and significant COVID-19 restrictions in Europe.
Visa direct continues to perform well with transactions growing almost 60% globally this quarter consistent for the first quarter.
The cross border volume recovery continued despite most models remaining completely or partially closed.
Constant dollar cross border volume, excluding transactions within Europe declined 21% in the second quarter and we will go to 75% of 2000 19 million.
Looking at the trajectory versus 2019. This was a three point improvement from the first quarter.
We're seeing a difficult seasonal uptick in March and into April which is a positive sign as we look ahead to the summer.
GAAP not present, excluding travel volume continued to be very strong growing financial strength year over year up 44% from 2019, driven mostly by retail spending and some benefits from cryptocurrency purchases.
Cross border travel related spend declined 55% year over year and was up 39% of 2019 levels cost present spend as a percentage of 2019 expanded three points versus the first quarter.
Some color on the stage of cross border travel as we approach the important summer travel season.
Travel to and from the U S and Latin America is the best performing corridor, almost 90% of 2019 level by March <unk>.
Sales of our U S travel travel into Latin America in general has recovered to over 80% of 2019.
Travel between Russia, and neighboring countries as well as travel in and out of the Gulf States.
Has helped EMEA cross border travel and to recover two thirds of its pre COVID-19 volume.
Cross border travel and and other Asian countries remains very depressed down almost 75% versus 2019 and flatlining for the past six months.
Traveling to the U S and in Southern Colorado was also down 70% versus 2019 in March but has been recovering slowly.
With significant U S. Canada border restrictions Chevron is still down about 80% relative.
Relative to 2019 in this quarter Bill.
As Jonathan has increased COVID-19 restrictions channel and an entre Europe remain hard hit down over 60% versus 2019 in March.
Moving now to a quick review of second quarter financial results.
Net revenue declined 2%.
We recognized service revenues on current quarter payments volume net revenue growth would have been slightly positive.
Service revenues grew 8% helped by small pricing modifications.
<unk> grew 11% with strong value added services growth continuing to be partially offset by the mix shift away from higher yielding cross border transaction.
International transaction revenue, but down 19% in line with nominal cross border volumes, excluding intra Europe.
Other revenues were flat negatively impacted by low usage of travel related cost benefits and clients' marketing projects pushed to later in the year, while advisory services continued to grow strongly.
In total value added services revenue continued to perform well growing 14% with strong growth in fiber source security and identity solutions.
This quarter, we reclassified some prior period travel related cost benefits as value added services and as such our previously reported first quarter revenue growth would have been similar to the second quarter on a comparable business.
Crime incentives were 2025, 8% of gross revenues lower than expected due to better than cross border volume lifting gross revenue and lower Europe, and Asia Pacific volume benefiting client incentives.
Non-GAAP operating expenses grew 3% in line with expectations.
We recorded gains from our equity investments of $156 million, excluding investment gains non-GAAP non operating expense was $109 million for the fiscal second quarter below our expectations, primarily due to two benefits one of which is offset in personnel expenses and the other is related to the complete.
<unk> of certain tax audits. These.
These completed audits also benefited our GAAP and non-GAAP tax rate with a non-GAAP tax rate lower than expected at 16, 8%.
GAAP and non-GAAP EPS was $1 three eight.
$1 38.
We lost eight 3 million shares of class a common stock at an average price of $208 51 Bill.
The $1 7 billion this quarter.
Including our quarterly dividend of <unk> 30 per share we returned approximately $2 4 billion of capital to shareholders in the quarter.
Sure.
Turning from the past to the future.
I'll start with key business drivers trends through April 21.
As we look at these weekly trends keep in mind three key factors.
One year over year growth is lapping the 2020 loans in many cases.
Two the timing of Easter as impactful.
Three in the U S. There are peaks and debit spending when economic impact payments on deposits in People's Bank accounts.
So April 21 U S payments volume growth was 64% with U S debit growing 67% and credit up 61%.
Compared to 2019 U S payments volume debit and credit, but up 29%, 51% and 9% respectively. All consistent with the March trend.
Looking outside the U S trends versus 2019 are relatively stable.
Notable exceptions include the UK, improving as restrictions are relaxed, but India is slowing as restrictions increase.
Processed transaction growth was 58% up 16% from 2019, which is consistent with the second quarter.
Cross border volume, excluding transactions within Europe on a constant dollar basis grew 63%.
And what was it 70 ish percent of 2019, which is three points above the second quarter and one point about March.
As we look ahead there are several positive cross border travel indicators to highlight.
Channel bubbles are being created.
Australia, New Zealand is already in place with an immediate and substantial uptick in bookings Hong.
Hong Kong, Singapore is starting in late May with more likely.
So far all indications are that some popular tourist destination in southern Europe will be opened for the summer and bookings are trending well just this week. It was announced that Europe's borders will be open to vaccinated visitors from the U S. This summer.
As the U S vaccination program moves along soft it is possible that travel to and from the U S will gather momentum into the summer airlines are adding capacity in anticipation.
The trajectory of the cross border travel recovery remains a key metric to watch.
We will be monitoring all leading indicators easing of motor restriction solid bookings as well as surveys with consumer intentions under the update you as we learn more.
As in previous quarters accurate forecasting is difficult in this fast changing environment.
Assuming stable to improving trends relative to FY 19 continue Q.
Q3, net revenue growth is expected to be in the high teens.
Cross border travel recovery trajectory will be the key factor to watch.
Client incentives as a percent of gross revenue are expected to increase 1% to one five points above the second quarter levels as clients volumes grow significantly over the last year of the mill and.
And so this is a recognized with a quarter lag.
We plan to increase operating expenses in the mid teens in the third quarter as we step up investments on marketing and key initiatives to capture the significant growth opportunities I'll described.
We expect non operating expense to be around the $130 million consistent with the second quarter, excluding the nonrecurring impacts I mentioned earlier.
Our tax rate expectations of 19% to 19 into half percent again, consistent with last quarter's expectations before the tax audit completion in the second quarter I mentioned earlier.
In closing, we're stepping up our investments to drive accelerated growth in a post COVID-19 world a few points to highlight.
Our net revenue and profits.
Fiscal year 19 levels, even as a rebound in travel, especially cross border travel still remains ahead of us after the relative vaccinated borders reopen but a significant pent up demand for travel in particular personal travel.
Large swaths of new consumers worldwide have been introduced to the ease convenience and security the digital payments can offer.
This was evidenced by the significant global growth in debit as consumers abandon cash at an accelerated pace. These are habits. We believe will not only stick, but also continue to grow sales by initiatives such a step to Pierre.
Consumers merchants and governments globally have recognized the value of e-commerce through the pandemic.
Governments are upgrading the digital infrastructure merchants are significantly enhancing the e-commerce capabilities and more consumers are turning to e-commerce across more categories and also cross model. We expect these trends will only accelerate.
Within our new flows business visa direct has continued to grow at extraordinary rates. The pandemic has expanded adoption of use cases, and Peter C. B C. LNG to see many use cases and markets are just starting to scale.
<unk> remains a huge opportunity and we're committed to our three pronged approach to drive growth GAAP base Cross border and large enterprise accounts receivable and payables, but many capability scaling of launching in the near future in the near future.
Our value added services have sustained high growth despite lower usage of travel related services.
Better than e-commerce acceleration have driven growth in our debit processing security and identity and Cybersource businesses and a recovery in travel related services lies ahead.
As a result, we see acceleration across all three vectors of growth in consumer payments, new flows and value added services.
As al indicated we're investing in the strategies and capabilities required to capture these growth opportunities.
With that I'll hand, it back to Mike for the Q&A session.
Thank you Bill Jordan, we're now ready to take questions.
Thank you I'd like to ask a question. Please press star one including record your name.
Announced prior to asking your question John.
A question and answer first.
You limit yourself to one question once again to ask a question. Please press star one to withdraw your question Chris.
Jim.
My first question Timothy Chiodo from credit.
Your line is open.
Thanks, a lot for taking my question I wanted to touch on the evolving mix of the cross border business. So within cross border you called out a couple of use cases for visa direct earlier you touched on remittances.
Such non marketplace payouts, but separately, we would add to that list. Some of the new flows within cross border BTB. So maybe you could just comment a little bit on the prospects for those new areas of cross border to come into the mix and maybe a more meaningful portion over the next call. It three to five years.
Well I think as.
We grow out our capabilities and we see recovery in the pandemic.
The visa payouts capability, we just put in place, which basically brings together what was Earth port and visa direct is a single point of connection is going to facilitate.
Many more use cases and make it very very easy for people to spend.
And money cross border and Thats kind of the high that volume lower value types of transactions I think we are continuing to make progress in connecting more banks around the world to be to be connect and as we complete the grow out of that network over the next few years.
I see us as having great capability to drive cross border <unk>.
Hi.
High value lower volume types of.
Transactions, so I think the combination of our capabilities.
What has happened in terms of.
In adoption of Digitization.
And the capabilities that we have built and the use cases that we are.
Working with today and anticipate adding to the mix over time I think this is going to become increasingly important and growing part of our business.
A couple of things to add.
<unk>.
When we before we go out into the pandemic.
Those are our cross border business was travel related one third was e-commerce related.
Today.
And the second in the second quarter, two thirds of our business was cross border E Commerce, one third with travel.
It does two things one how much our cross border E Commerce business has grown and the second how much recovery is left in our cross border travel business because.
He said most of our cross border travel is personal travel.
And there is a substantial amount of personal travel that is going to come back once borders reopen.
So the traditional.
Cross border E. Commerce is an area of significant growth, we've seen that as people move online they become somewhat less sensitive to where the product is shipped from and Theres just a lot more cross border e-commerce. The other use cases that.
Pulled a lot of potential as to the extent that crypto related.
Transactions become.
Significant and bill, enabling as you know a vast number of them.
One use case that is particularly useful in either stable coin or bitcoin type scenarios is cross border and that is another new use cases that could have a lot of potential in the long term.
Thanks, a lot the Tanya that's exactly what I was trying to get at the mix is certainly more E. Com and there are some new flows that are coming in to keep the travel portion lower than it was pre COVID-19. So thank you so much for taking the question.
Next question concerns comes from Darrin Peller from Wolfe Research Your line is open.
Hey, Thanks, guys and nice job when we look at the slide the index to 19 was really helpful showing 16% up from 19 levels. I mean, there is a <unk>.
Lot of considerations were getting asked about including stimulus and higher savings rates, but clearly also structural changes in the industry, which some of which we just touch on E comm, but just more going on to debit cards faster across the whole industry. How do you parse out what you see as structural release sustainable income. The part you mentioned, but even beyond that just more of them.
Many small ticket versus what we may be stimulus driven or near term.
Thanks, Dan but.
So Dan first of all I think.
We definitely see.
Millions of new people coming into the E Commerce, shoppers, who werent there before and I don't think theyre going to turn it backward at all so I think that that certainly.
Remain obviously as we get out of the pandemic.
Stimulus types of money will bill.
Dry up in that.
That will.
Go away I think the people being concerned about cash and much more comfortable shopping online.
The combination of.
That will continue I think.
That will also we'll also see structurally.
Much more tap to pay.
People find that to be a more helpful way to shop I think we've seen governments during this pandemic become.
<unk>.
Bigger clients and they are increasingly interested in.
And showing the way in terms of digitizing more of what they do.
As the government and I think we will see more of that activity.
Kicking.
As well I think that.
In general.
We had before the pandemic very little separation in growth rate between debit and credit in any given month or quarter. They would kind of grow within a percentage point of each other we saw incredible separation during the pandemic as much as 40 points of differential in terms of growth. We're now seeing in there.
This quarter.
Credit come back a bit and then.
Started thrift into positive territory, but I think that at least for the foreseeable future and maybe for longer that I think youre going to see debit continue to grow above credit.
Although as travel comes back that should certainly help bounce back credit volumes, particularly since most of the travel co brand cards and many of the actual travelers tend to use credit cards.
A couple of other things to add.
As you know and debit has become the engine for cash Digitization.
And what we see in this in this pandemic, especially as it has.
Gone on for quite a while as is often the hurdle in getting people to change habits. So if people are used to using cash getting them to use digital forms of payment.
That takes some time.
This pandemic has caused a range of changes in behavior, because there was no choice, whether it's in emerging markets, where there was a greater propensity to use cash or certain cultures.
<unk> heard us, Germany, and Japan, as having been very cash based economies for a very long time or habits in terms of people using cash for certain categories like food and drug.
That's changing.
Or people using more cash at the physical point of sale as al said with with the cash doty risks as well as tap to pay and making payments easily have the physical point of sales, we're seeing a substantial shift.
Towards cash utilization, even at the physical point of sale and then the point you said about.
Smaller and smaller transactions.
Used to be cash.
Moving digital again tap to pay is a big engine for that and.
The trajectory of tap tap to pay remains very significant.
And we are probably within a year of coming to the point, where the U S will be in takeoff is on tap to pay two which is a very big market.
Really helpful guys. Thanks.
Our next question comes from David <unk> from Evercore ISI. Your line is open.
Thank you very much just bridging to karen's question on structural changes when you look at the heightened shift to ecommerce, which you've indicated will likely accelerate even post COVID-19.
You talk about your.
Funding mix of e-commerce transactions debit fee credit specifically, how you expect that to evolve.
With economic reopening would you expect consumers to lean a little bit more heavily on their credit cards as the economy rebounds, or or should debit likely remain the primary funding of e-commerce transactions.
David I think one of the day.
Incredible stories of the pandemic was debt.
Debit has become.
The the cash of the E Commerce World and people are doing much more everyday shopping.
Post the pandemic than they did three of the pandemic.
The amount of food.
Food orders that are placed in and takeout.
Takeout orders that are placed buying normal household staples.
That might have been.
Many of them were in person the vast majority and maybe even some of them were in cash.
But we're just seeing the type of transaction that typically.
Goes along with debit is everyday spend.
What we're seeing is a real structural changes everyday spend.
As bill from in person to.
E Commerce in a big way.
Do think though that.
Net credit will make.
The bound.
<unk>.
The larger discretionary spending comes back in the affluent get back into that.
They can travel reservations that day.
Online travel agency business starts to grow I think that.
There'll be a closing of the GAAP between critical growth in credit growth, but again as I said the down I am not sure that we get back to those two.
Different card platforms growing at the same level going forward I think we certainly closed the gap, but I think at least as far out as I am looking right now that will continue to outpace the growth of credit.
Thank you very much thank you.
Sure.
Our next question comes from Tien Tsin Huang from Jpmorgan. Your line is open.
Okay. Thanks, so much.
A lot of volume growth good detail here, but I want to ask maybe differently about credential growth.
Moving on the last couple of answers here. It seems like everyone is trying to bank their users.
But given them cards and there's a lot of new use cases around virtual cards. So I'm wondering.
Hi, there.
So if you're thinking about potential growth and you compare that to 2019 or are you thinking about.
Tissue for issuance or.
The pipeline for new cars that might be coming out globally, how does that measure.
Measure today for if you want to qualify that is it much larger than what you would've expected, let's say.
Pre pandemic.
Well I think the.
First of all good to hear from you I think thats the.
Pandemics.
Interrupted a little bit.
Real bolstering of credentials that was driven by.
A combination of.
Marketplace platforms wallets Neo banks.
Cetera.
I cited a number of examples in my.
Remarks about the fact that we think that there is upwards of $2 billion Mark credentials out there from a lot of those types of players and we've seen.
I do it by building partnerships with numbers of Fintech.
Over the course of the last year or two but a tremendous amount of opportunity too.
To grow.
<unk> credentials either by having the players become issuers and acquirers.
<unk> for us, which is a <unk>.
Big and important trend, particularly in developing countries, but also just getting current visa credentials into some of the existing wallet, but we.
We believe theres enormous opportunity to grow the number of.
Of credentials and it's something that we're certainly focused on particularly as we talk to the <unk> the wireless and the neo banks around the world.
I appreciate that.
Thanks to Jim.
Our next question comes from Dan Joseph from Mizuho. Your line is open.
Hey, guys great quarter, Thanks for taking my question.
Can we can you talk a little bit and you spoke a little bit about bitcoin earlier and about the use case for.
Brookdale and bitcoin on cross border transaction can you talk a little bit about more about that.
Kind of the progress youre, making on sentiment and stable coin in.
The steps we've taken on this theory and I think theres a lot of interest out there and what you guys are doing there and how it is progressing thank you.
Well. Thanks, Dan. This is an interesting subject. So let me give a little bit of background to talk about where we see the opportunity.
First of all there's.
Two market segments as we see it one is are the bitcoin kind of which are primarily assets held by people, they're not used likely to form of payments.
Think of them as the digital gold.
And then there are digital currencies, including.
Central Bank digital Curran.
Currencies and stable clients that are directly backed by existing Fiat currencies and there definitely are emerging as a payment option.
And they're running a public blockchain.
In essence, an additional network much like an RTP or ACTH, Mike might be.
So R R.
Focus is on five different opportunities that we see in this space and I would say that this is space that we are leaning into a very very big way and I think are extremely well positioned.
The first opportunity is really at the core of what we do which is enabling consumers to make a purchase of these currencies or bid Cline.
And we're working hard with wireless and exchanges to make sure we're facilitating acceptance at people's ability to use their visa cards to buy.
And besides referenced that in his remarks.
There were some increase some of the volume came for people, making these purchases on visa card secondly.
Second opportunities, enabling digital currency cash outs to Fiat so converting a digital currency to a fiat on a visa credential, which then makes that.
That.
Those funds available for shopping at any one of the $70 million.
Visa merchants that Gibbs.
Mediate utility too.
The digital currency.
We are the clear leader here, we've got over 35.
Digital currency platforms, and wallet that have chosen to work with us.
Coined day.
<unk> crypto dot Com block fivefold.
And there are just some examples.
And so.
So thats certainly a second big opportunity thirdly is enabling financial institutions and Fintech partners to be able to have a crypto option for their customers. So what we've done in this space is we've created API that enable financial institution customers to purchase.
Custody or even trade digital currencies held by AG.
Anchorage, which is the first federally chartered digital asset bank in the U S.
And we've done our first rollout with first Boulevard, which is a digital neo bank focused on building generational wealth for the black community.
Net.
Third opportunity, helping <unk> and Fintech.
This crypto option for their customers 401 is settlement, which you started to reference we've upgraded our infrastructure to allow a financial institution to settle with these in a digital currency with stable coin starting with U S. D C.
I think you know today, we transact in 160 currencies every day and we settle every evening in 25 countries.
So we're going to now be able to support digital currencies as an additional settlement currency on our network.
And R&R and we're going to.
Settling in U S. D. C is pretty similar to settling in U S dollars, but the mechanics of receiving the funds a bit different and requires some integration work with several crypto custodian light like players like like Anchorage.
And then the fifth area of opportunities just working with central banks.
Central Bank digital currency is being explored in many nations and I think it could end up being.
Proved to be quite valuable in countries, where the infrastructure to distribute cash as either unavailable or limited and it's one of the factors that hinders. These one 7 billion people I referred to environment remarks that outside the financial mainstream for being in the financial mainstream so we're talking to central banks about the criticality, though.
Public private.
Private partnership and in particular, the criticality of acceptance.
For these central Bank digital currencies.
We have value.
They're going to have to both be secure in the minds of consumers and Thats something we have a long track record with and can help and then secondly, obviously they have to have some form of <unk>.
Utility.
So Dan that's a bit about how.
We're thinking about crypto with a real focus on on digital currencies and those five opportunities.
Thank you, yes, it definitely sounds like you guys are at the forefront of this.
Great job on that thank you.
Okay.
Our next question comes from Lisa Ellis from Moffett Nathanson Your line is open.
Hi, good afternoon clients.
Youre your comments, there that debit becoming to cash of online transactions.
As an opening to ask about the online that the competitive environment.
Can you just.
Highlight or describe what in your view from visa perspective are the advantages of the signature debit products.
Over alternatives like account to account transfers our pin less debit offer online transactions. Thank you.
And I think you're on mute.
Sorry, John.
Andrew.
To add a little bit lightly there.
<unk>.
Light of.
The Doj case, but we feel very good about our visa debit business. We think we've got very very very good capabilities.
And we believe that.
The.
Innovations that we have the ability to stand behind customers in disputes and other cases that makes our products.
Something that both consumers merchants and issuers look to true and we will continue to.
That's been debit for.
A product that we hope people use both online and.
In person purchases around the world.
Perfect. Thank you.
Yeah.
Our next question comes from Dan Perlin from RBC capital markets. Your line is open.
Thanks, and good evening everyone.
In keeping with the kind of structural change.
We also went beyond Tonight.
Now all of these new products I'm just wondering.
How.
<unk>.
The long term.
Growth rates of the company are going to be sustainable if not accelerating from these kind of levels.
Using these index back to 19, but I'm thinking back even a couple of years, it's a much larger organization.
You seem to outline.
Many.
Potential avenues of growth so I'm wondering.
Are you at a point now where there's just pivot in the actual business itself, where construction really grow faster than maybe.
Over the next five years to 10 years, and maybe you did over the prior five to 10 years, just given all of the new constituents that Youre ultimate servicing these days.
Dan we don't typically get into forecasting out that far but obviously.
Hopefully you got a good sense in my remarks that we feel like we have three very strong growth levers and we.
We think each of them has tremendous gas left in the tank.
And.
Our consumer payments, which has been.
Our staple for years.
Still has huge upside that contingent requested about credential growth.
We think theres, a tremendous amount of growth and credentials, we think there's tremendous amount of growth in.
Acceptance footprint, we think there's a tremendous amount of growth when we look at various geographies and we look at the $1 7 billion people that are outside the financial.
Mainstream.
When we look at new flows Theres, a 185 trillion dollars of opportunity there. So we.
We think we've got two day.
Big efforts going in both <unk> and visa direct to take advantage of those and and value added services relatively do as well, but we've got.
No.
In terms of how we talk about it we've had many value added services or <unk>.
Capabilities of solutions for years.
And they've always.
Contributed well to our our revenue, but we're increasingly been focused on over the last two years and we're driving a lot more revenue and higher revenue growth that we had in Inc.
Consumer payments through value added services and so we think there's still a tremendous amount of upside there I commented about the fact that.
We are getting high usage from a lot of our of our clients, but there is still a huge amount of room to grow with existing clients that are already using value added services as well as clients that are not booming as many of their value added services. So I look ahead and sales.
Future is <unk>.
Very very bright.
And adding on top of that a lot of what we've talked about in terms of.
Digitization and.
The fact that.
We will come out of this pandemic and will start to see.
Travel recover all of those are extremely good trends for us.
Yeah.
Excellent. Thank you so much I appreciate it.
Our next question comes from Hershey.
From Bernstein Your line is open.
Hi, good afternoon, and thank you for taking my question.
My question is on <unk>.
<unk> now seen later.
In the very long term.
And how do you see BNP outgoing Congress correct Bob.
Globally small non comparable currency programming platform.
Given your partnership with BNP Incrementals, John Cajun <unk>, what's going on.
Opportunity for Workers' comp.
I don't know where installments is going to end up but.
We are attacking that like we attack crypto and other things and assuming that it's going to be successful and that we want to lean in heavily and be in the middle of it and be a driver of what's going to potentially happen.
As you alluded to we have both.
Our strategy.
Working with third party.
The providers as well as offering our own visa proprietary platform that would allow issuers to offer their own buy now pay later capability and we see it is tensely having.
Very very good effect for us I mean, we could see we could work with all bunch of options virtual card from visa could be used for repayment of visa card on file could be used for repayment we could explore.
Visa direct as a way for installments to be.
Paid off.
And in many of those cases, if thats. The case what ends up happening is a single purchase turns into a number of installments. So that's one transaction can end up being three to four five payment transactions, which is certainly.
Very very good for US. We also think that this is a space, where we can sell value added services data analytics.
Banner providers underwrite for example, our risk products.
<unk>.
To help some of the third third party providers so.
We're doing a lot in this space.
We're committed to it.
There are countries, where it has taken off theres other countries, where it's Nathan.
Again can't predict exactly where it's going to land, but we are going to.
To the degree that it takes off we're going to we're going to be there it would be part of it.
Great. Thanks, Dan.
Our next question comes from Jamie Friedman from Susquehanna. Your line is open.
Earlier in your prepared remarks you.
Talked about.
Trajectory and the spend per card.
I was hoping you could elaborate on that.
How you see that evolving I would think with the recovery of travel.
There would be more gas in the tank there as well, but anything you have on spend per card would.
Would appreciate it thank you.
In my remarks.
Believe I referenced was that in.
Travel, we were seeing higher spend per card versus seeing more people active and.
While we haven't been able to study that what we think is happening is that with in places that people can travel there tends to be also just the less restrictions and that's opening up more options for people to actually.
Actually spend in for instance, instead of doing take out go to a restaurant.
At either more expensive meal or a nice bottle of wine et cetera. So.
Right now what we're seeing is simply.
Higher spend per card in terms of travel, but we havent, we havent commented on.
Spend per card beyond that.
Got it thank you.
One last question Jordan.
Our last question comes from Jason Kupferberg from Bank of America. Your line is open.
Hey, guys. Thank you I was just curious if you could share with us some of your underlying assumptions for the different gross revenue lines. If we look at the high teens revenue growth outlook for the for the June quarter, I know, there's a lot of moving parts in the macro environment. It just seems like hygiene could could maybe be conservative based on what you've seen in April so far even though.
I know the comps won't be as easy in May and June So would just love to hear more about how you are thinking about the different pieces of gross revenue because he outlined the rebate piece that pretty clearly.
Bill.
So.
On revenues the high.
High teens is our best estimate.
Service revenue moving over.
Recognizing with a quarter lag so the service revenues, you'll see in the third quarter remember bill not reflects the.
The day revenues.
Related to the volumes in the third quarter. So the third quarter, we will have a big ramp in volumes that youre seeing because we're lapping the revenues and service fees will reflect the revenues from the volumes in the second quarter, it's important to.
Remind people of that.
In terms of the cross border business I think youll see what the trends are.
In terms of transactions.
Transactions I think the trends are fairly stable at this point quarter over quarter.
A point to make on incentives it's important for you to note that last year.
Third quarter revenue.
Our incentives really hit because volumes decline, even though we recognize so receivable allowed our incentives are recognized in the quarter David on quarter volumes. So this quarter, we will see a big ramp in volumes relative to last year, which is critical as incentives to go up a lot and be compared to a quarter last year of 11.
The second thing is we.
Half.
These incentives tied to certain thresholds being achieved last year because of all the drops.
<unk> achieved this year, but assuming there will be.
We get an additional amount of incentives because clients are going to hit certain thresholds.
So you have to factor in the fact that the earlier incentives growth is going to be quite high in the third quarter and factor in the fact that we won't have the benefit of the volumes and not service fees Nikola lag. So you should make sure youll have all of that as you think about our <unk>.
Third quarter revenue growth.
Right, Okay, well, thank you for all the color.
And with that I'd like to thank everyone for joining us today. If you have additional questions you can always reach out to myself or Jennifer and we're happy to help you. So thanks, so much and have a great day.
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