Q3 2021 Visa Inc Earnings Call
John.
Yes.
Thanks Ryan.
The sales side.
Thanks, John.
[music].
Yes.
[music].
Josh.
Okay.
John.
[music].
John.
Okay.
John.
Bill.
[music].
Yes.
Welcome to visa fiscal third quarter 2021 earnings conference call. All participants are in a listen only mode until the question and answer session. Today's conference is being recorded if you have any objections you may disconnect at this time.
I would now like to turn the conference.
<unk> over to your host from Investor Relations, Ms, Jennifer coma and Mr. Mike Mel attach.
Come on you may now begin.
Thanks Michelle.
Fiscal third quarter 2021 earnings call.
Before we Dan wants to have ignored the filing.
<unk> was a little later than usual due to weather.
Issue, but hopefully you've had an opportunity to review prior to the call.
Joining us today are al Kelly, Visa's, Chairman and Chief Executive Officer, and the thought probably neither vice chairman and Chief Financial Officer.
This call is being webcast on the.
The Investor Relations section of our website at Www Dot investor Dot visa Dot com.
Replay will be archived on our site for 30 days.
A slide deck containing financial and statistical highlights has been posted on our IR website.
Let me also.
You that this presentation includes forward looking statements.
These statements are not guarantees of future performance and our actual results could differ materially as a result of many factors.
Additional information concerning those factors is available in our most recent reports on forms 10-K and 10.
10-Q, which you can find on the SEC's website, and the Investor Relations section of our website.
For non-GAAP financial information disclosed in this call the related GAAP measures and reconciliation are available in today's earnings release.
With that let me turn the call over to al.
Thanks.
Good day.
How do you guys, we had a really strong fiscal third quarter as payments volume processed transactions across border volume all approved globally.
In our time today I will first cover our results and then discuss our performance to date across our 3 growth levers consumer payments new flows and value added services.
So first Q3 results net revenue rose, 27% or 39% service revenues were recognized on the current quarter's payment volume.
This growth far exceeded our expectations due to the strength in the U S improving cross border volumes at lower than expected client incentives largely due to deal timing.
Non-GAAP EPS was $1.49 up 41%.
As we look at volumes of transactions keep in mind that year over year growth rates are less indicative of performance and the business trajectory due to the COVID-19 impacts. So once again, we provide metrics compared to 2019 on a constant dollar basis as well.
As year over year growth rates.
Payments volume was 121% of 2019, which is up 5 points from the second quarter and represents a 34% year over year growth rate.
Cross border volume, excluding intra Europe was 82% of 2019.
<unk> 7 points better than the second quarter and up 53% year over year.
<unk> transactions were 120% of 2019 up 4 points from Q2 and up 39% year over year.
<unk> will provide more color on our results.
Now, let me transition to progress relative to our business strategy efforts across our 3 growth levers helped to fuel strong results, while positioning us to capture future opportunities.
In consumer payments this quarter, we saw favorable secular trends and had a number of wins with large issuers co brands and syntax.
Cash displacement trends continued this quarter.
Globally cash volume on visa debit credentials the dollar amount of cash taken out of Atms was 98% of 2019 levels flat.
On visa debit credentials was.
140% of 2019 levels up 5 points from Q2.
While debit remains strong and has accelerated since Q2 credit spending is now also improving global credit payments volume was 104% of 2019 up 4 points.
From the second quarter.
At the same time face to face payments volume.
And trends are stable to improving while e-commerce or card not present remains elevated.
We average across our top markets, where we process versus 2019, we see card present improved 10 points while card not present.
Excluding travel improved 1 point in Q3 over Q2.
Travel is starting to recover both domestically and in cross border again, averaging across our top markets, where we process versus 2019 domestic travel spending improved more than 20 points in.
Q3 over Q2 <unk>.
Globally Cross border travel, excluding intra Europe versus 2019 improved 6 points in Q3 over Q2 and exited the quarter with June at 50% of 2019.
Simply looking at the absolute levels it.
Record quarter for visa with 2.7 trillion dollars in payments volume.
The payment transactions per day globally, which is up 16 billion per day from the last quarter and nearly $160 million transactions per day from a year ago and.
And we expect much more recovery.
Coverage to come, especially in the areas of credit and cross border travel.
Tap to pay is a key accelerator for many of these trends, including face to face spending in both credit and debit we continue to see countries, increasing tap to pay limits for example, in Brazil, but limit was doubled 5 months ago and the face to face tap to pay.
<unk> penetration has already more than doubled from 6% to 14% in that short period.
In the United States. This quarter, we surpassed 370 million tap to pay enabled cards and we now have 3 cities above 25% face to face tap to pay penetration new.
New York, San Francisco and San Jose.
Merchant progress continued as well target has doubled its tap to pay penetration in the last year to 2 out of every 5 face to face transactions and Costco U S gas stations have reached 40% penetration and tap to pay payments since enabling.
Teacher, approximately 6 months ago.
Now shifting to clients, we continue to win with large issuers globally, let me share a few examples from the quarter.
In the United States, we're pleased to have renewed our long standing partnership with Navy Federal credit Union, the largest U S credit Union with over $10.5 million members.
For a multi year credit debit and processing agreement.
Also in the U S. Google pay interest of visa virtual card that links to U S. Android users Google pay balances, enabling these users to spend their balances app stores.
In Italy, we extended our agreement with Bangkok bank or sell a.
And as for the seller group the largest private independent banking group in Italy for the consumer credit and commercial portfolios with plans to launch a new innovative digital credit small business solution.
And Singapore, we're expanding our strong partnership with DBS, the largest bank in southeast Asia.
Part of it.
We will continue to grow in the DBS debit portfolio.
Latin America, we renewed the HSBC debit portfolio 1 of the top 5 portfolios in Mexico.
In our semi a region, we want the consumer credit portfolio of Qatar National Bank.
The largest financial institution in the Middle East and Africa, and we renew the credit portfolio of Saudi British Bank, 1 of the largest Saudi banks.
We're also building momentum as the global leader in co brands in the U S alone we have 7 of the top 10 co brands and this quarter, we're pleased to renew.
Ryan.
In the U S and renew and grow the Williams Sonoma co brand, which will be relaunched with an expanded scope across the Williams Sonoma brands, including pottery barn and west Elm.
We secured a new co brand relationship with Paypal in Australia, and Mark had a libre the largest e-commerce retailer in Latin America.
In partnership with Banco <unk>. We also won the co brand business of <unk>, a major retailer with 1 of the largest co brand portfolios in Brazil.
Finally in the Asia Pacific region, we have secured a significant part of blind taste business with the partnership renewal in Taiwan, The largest co brand program in the.
Country.
Syntax are also quarter, our consumer payments growth and this quarter, we forged new partnerships and deepen relationships with long time clients I just mentioned line pay in Taiwan, and we also continue to see strong momentum in our partnership with line pay in Japan and with line BK in Thailand.
And over the last year, they have added more than 2 million visa credentials across those markets.
<unk> in India long time partner pay TM has issued $6 billion virtual visa debit cards. In addition, they recently started to issue physical visa debit cards, which they expect to ramp up over the coming months.
<unk> 1 of the top 3 mobile wallet providers in Korea with more than 30 million users recently sajdak issue visa credit cards in.
In the Middle East, we're partnering with STC pay the Fintech subsidiary of Saudi Arabia's largest telecom operator to embed.
Tc.
Wallets more than 1 million visa credentials have been issued since September of 'twenty.
Rafi Latin America Super App with over 70 million users has now started issuing visa credit cards in Brazil, Mexico, Colombia, and Peru with plans to expand to additional countries in coming months and is a crypto.
<unk> space, we recently signed 3 partnerships 1 with Tyler to partner on Crypto currency solutions for the global Unbanked and 2 with crypto exchanges MTX and coins zoom to begin offering visa cards. We now have more than 50, crypto wallet and platforms up from 35% in Q1 and more than the next leading network.
Work and collectively they drove over $1 billion in payments volume it John.
Represents a significant engine of growth the market opportunity and new flows is 10 times greater and we continue to make progress.
Our efforts, we had several capabilities within Cardi b to B that had been gaining traction.
Yeah.
Our freedom solution enables corporates to control and monitor corporate card spending and expand to new use cases, including payables and virtual card capabilities.
Across Australia, and New Zealand, we have renewed our long standing partnerships with Aam's net bank for freedoms expense management capabilities.
<unk> well as <unk>.
<unk> and <unk> to deliver expense management net payable solutions.
And in the United States Wells Fargo will deliver these capabilities to their corporate clients as part of our partnership we announced earlier this year.
This is commercial pay which offers a mobile app, enabling virtual card issuance and manage.
It's been a business incidentals with enhanced data will be part of OCC banks virtual purchasing card offering in Singapore.
These are direct transaction growth remains robust with nearly a half a billion dollars more transactions this quarter than in the third quarter of last year we.
<unk> need to see large banks enabled visa direct payouts, where their customers, including CIBC this quarter.
Payroll category ADP, a leading global technology company, providing human capital management solutions recently integrated its wisely offering with visa direct to provide ADP clients with a.
We continually enabled convenient and cost effective solution for employee off cycle payments.
In the PDP space, the Whatsapp payment feature powered by visa direct and visa crowd token framework launched in Brazil in May and we're seeing early success with a significant number of visa credentials in road.
<unk> sizable growth in PDP money transfers.
Hey, Pal announced instant transfers for merchant settlement at PDP via visa direct in Australia.
We also developed new use cases this quarter for visa direct first go fund me is integrating visa direct to soon launch funds disbursement.
To individuals and organizations.
Second quest trade the Canadian brokerage platform announced the launch of instant deposit, allowing investors to fund their trade accounts in seconds.
Let's now move to our third growth lever of value added services, where revenue growth grew 20.
8% in Q3, let me discuss our efforts across a few of our capabilities.
First installment in.
In addition to investing in and partnering with numerous installment providers globally. We've also developed developed our own solution, which had some notable progress in the quarter and Canada Scotiabank is extending their post purchase installment.
28, offering to their offering to eligible visa retail credit card clients CIBC is launching installment purchase and data are then north Americas largest financial cooperative, we'll be offering during purchase installments for their eligible visa customers. In addition, global payments is enabling our installment solution for their.
<unk> and customers.
Second Cybersource, our Omnichannel Gateway platform has grown as a result of 3 drivers 1 increase the ecommerce and omnichannel volumes to more business, creating online and omnichannel presence as well leveraging our risk tools at 3 more acquirers white labeling the solution.
This past.
March order top 20 U S acquire a payout at Qatar National Bank, both signed at utilized side the sources capabilities.
Third Dps I mentioned the processing agreement earlier with Navy federal they intend utilized EPS. In addition, current 1 of the fastest growing U S fintech with nearly 3.
<unk> members have selected visa Dps as its partner current will integrate with Dps's newest all digital processing solution called EPS forward, which combines issuer processing capabilities with a new suite of API that integrate with modern digital banking players to create unique card programs.
Millions of it solutions.
Finally, these are consulting and analytics our advisory teams have delivered nearly 1000 projects year to date in 88 countries to help our clients be more successful. Let me just share a couple of examples in Latin America Redeveloped, the digital acquisition platform and helped 1 of the top issuers in the region.
Improved credit approval turnaround times from days to minutes will also better qualifying leads to reach a 4 times improvement in approval rates impacted their prior solution.
Globally, we have launched a new program called visa portfolio health checks.
Where we review clients' portfolios tracking 30.
And key performance indicators year to date, we upheld health checks across 55 countries identified nearly 300 specific opportunities worth nearly $50 billion in incremental payment volume.
Before I close let me touch briefly on the 2 recently announced acquisitions first day of the open banking platform tank.
Plus visa has proven infrastructure and sustained investment in resilience cyber security and fraud protection combined with tanks API their technology and customer relationships is expected to help accelerate the adoption of open banking in Europe by ensuring a secure reliable platform for innovation, which will help consumers and business.
Inc.
Second is the acquisition of currency cloud a global platform that enables banks and fintech to provide their customer and business customers innovative foreign exchange solutions for cross border payments around the world.
As part of our network of networks strategy, the combination of currencies currency clouds capabilities on the front of it.
And if the transaction through their Apis and our settlement capabilities across these <unk> net and other visa networks, such as plus <unk> and visa <unk> connect will be very compelling value propositions for our partners.
In closing as we look to finish our fiscal year I'm very encouraged by the recovery trajectory across the board.
I'm pleased with the momentum in many of our key growth areas. Our recently launched New brand campaign describes visa as a network working for everyone and we are increasingly sitting at the center of enabling money movement I'm confident that our strategy combined with our network to network strategy combined with our 3 growth levers of consumer payments new flows and.
<unk> added services remains more relevant than ever and positions us well as we look forward to a robust recovery.
With that let me turn it over to <unk> for that.
Thank you al good afternoon, everyone.
Third quarter results exceeded our expectations with net revenues up 27%.
Driven by robust growth in both credit and debit in the U S higher cross border volume from a faster than anticipated recovery in travel as well as the spike in cryptocurrency purchases and lower client incentives largely due to deal timing.
We recognized service revenue on third quarter payments volume metrics.
<unk> growth would have been 39%. The reason for this larger difference in growth is a result of the significant quarter over quarter change in growth rates of payments volume both last year and this year.
Third quarter last year experienced the steepest drop in payments volume and third quarter of this year has been our strongest.
Net revenue quarter since the pandemic started.
When adjusted for the service fee recognition lag net revenue for Q3, FY 'twenty Aloha and net revenues for Q3 this year, Ohio.
GAAP EPS grew 10%, primarily due to a nonrecurring noncash step up in.
Deferred tax liabilities as a result of the recently announced increase in UK tax rate starting in 2023.
Non-GAAP EPS rose, 41% helped by lower than expected expense growth and a lower tax rate.
Exchange rate shifts lifted net revenue growth by 1 point and EPS growth.
This growth lines.
As you did last quarter to help you better assess both the magnitude and the trajectory of the recovery. We have also provided key performance metrics relative to fiscal 2019.
In constant dollars global payments volume was up 34% led by continued.
Strength in debit as well as improved credit spending.
Prior to the third quarter of 2019 global payments volume was 21% higher or 5 point acceleration from the second quarter, the debit and credit improving by 5 points and 4 points respectively.
Excluding China total payments.
By 2 growth was 38%, while 25% higher than 2019, and a 5 point acceleration from the second quarter.
Chinese domestic volumes continued to be impacted by dual branded card conversion, which have minimal revenue impact.
U S payments volume growth was 40% and up.
Volume percent over 2019 benefiting from economic impact payments in the first half of the quarter and then from the lifting of Covid related restrictions across the country.
Revenue growth accelerated 4 points up 48% from 2019 remaining strong throughout the quarter as the trend towards.
Up 30 celebrated cash Digitization and e-commerce, the sustained even as the economy reopens.
Credit growth improved 8 points up 14 points from 2019, the credit improvement was fueled by 2 interrelated factors a significant acceleration in travel entertainment and restaurant spending.
Because the resurgence of affluent cardholder spending.
Cost present spend accelerated by 9 points to 12% above 2019, even as card not present volume excluding travel improved 4 points to 59% over 19.
Online shopping habits acquired during the pandemic.
<unk>.
As the U S reopened travel and entertainment spending improved steadily through the quarter, both up about 25 points from the second quarter.
Travelers approaching 2019 levels in July while entertainment, so past 2019 levels in May.
Restaurant spending in the quarter.
With over 20% above 2019 levels.
Growth across all other spend categories remain strong and stable.
International constant dollar payments volume growth improved 4 points from the second quarter up 13% over 2019 levels.
A few regional highlights.
Growth in our EMEA region remained strong up 48% from 2019 levels consistent with Q2 fueled by cash Digitization and client wins.
Latin America was also up 48% from 2019 accelerating 8 points from the second quarter with robust performance across the region.
Total combined market share gains.
Brazil volume was seemingly unaffected by the high level of Covid cases, due to significant cash utilization and large increases in e-commerce adoption.
We're also benefiting from our digital partnerships and client wins in Brazil.
Europe was up 17%.
Fewer than 2019, improving 9 points from the second quarter, the largest sequential acceleration among our adhesion.
Across Europe restrictions were relaxed and in store spending recovered while e-commerce spend remains strong.
Asia Pacific remains our weakest region up 5% from 2019.
And down 3 points from the second quarter, excluding China.
Across the region varied based on the level of infections and Covid related restrictions David.
Intermittent restrictions during the quarter, and Australia, Japan and Singapore.
Southeast Asia was significantly impacted by rising.
Jim with infections, and resulting lockdowns and.
In India, a sharp slowdown in spending starting in mid April and to May was followed by a quick rebound mid July trending well above 2019 levels.
Global processed transaction growth was 20% over 2019, improving 4 points from the.
Second quarter as transactions increase with volume across every region, except the U S. Net transaction growth still large payments volume growth due to higher ticket sizes.
Visa direct transaction growth remained robust in the mid <unk>.
The cross border volume recovery continued as more countries.
I think on the borders.
Constant dollar cross border volume, excluding transactions within Europe was at 82% of 2019 volume a 7 point improvement from Q2 led by a steady and fees and travel as well as the spike in cross border crypto currency purchases from mid April through the end of May.
Cross border.
<unk> opened card not present volume excluding travel continues to be very strong up 56% from 2019, improving 12 points from the second quarter with cryptocurrency purchases, representing most of that acceleration.
<unk> seen more active guard and more spend per card and cryptocurrency currently purchases.
We saw the normal seasonal uptick in cross border travel spending during March and April However, cross border travel in May and June was stronger than the typical seasonal trend as many borders reopened or easy requirements cross border travel related spend excluding intra Europe was at 45% for 2019 levels.
Expanding 6 points from the second quarter rising from 40% in 2019 in April to 50% in June.
The state of the cross border travel recovery vary significantly across regions, depending on border openings quarantine and other requirements as well as infection levels.
Outbound.
Travel from the U S and Latin America was back to around 60% of 2019 levels in the third quarter, but as Europe, and EMEA, but about halfway back.
Inbound travel has recovered the most into Latin America, and EMEA with Latin America above 2019 levels due to Mexico, but is.
<unk> in Europe are only about a third of 2019 levels.
Asia Pacific Cross border travel both in and out has recovered the least finished around a quarter of 2019 levels.
We've seen immediate impact and popular travel destinations within their borders.
Chris Open borders.
As a youthful and inbound cost present spend rose nearly 30 points by the end of June relative to 2019 levels.
Transfer opened on June 9 and inbound card present volume rose nearly 20 points by the end of June relative to 2019 travel.
Traveled to Mexico has been strong for several quarters.
While the third quarter accelerated further helped by travel from the U S amidst vaccination progress.
Since April cash present cross border spend in Mexico from the U S rose nearly 50 points to over 170% of 2019 levels.
Moving now to a quick review of third.
<unk> financial results.
Service revenues grew 17% led by 11% growth in the second quarter constant dollar payments volume.
Further by favorable.
Exchange rates and mix as well as small pricing modification.
Data processing grew 32% due to.
Quarter strong domestic processed transaction growth, particularly outside the U S. The.
The 7 percentage point difference between revenue and process transaction growth reflected the mix shift away from higher yielding cross border transactions. In addition, while value added services recorded in data processing revenue.
<unk> had strong and accelerating growth this was slower than overall processed transaction growth, which benefited from lapping lapping effects.
International transaction revenue was up 54% 8 points lower than nominal cross border volume, excluding intra Europe due to lapping high currency volatility last.
Very and a less favorable regional mix.
Other revenue.
<unk> grew 31% led by consulting and data services.
And helped by lapping Covid impact last year.
In total value added services revenue grew 28% after.
After 40.
14 point acceleration from the second quarter about 2 thirds was due to COVID-19 related lapping effects.
Client incentives were 25, 8% growth revenues consistent with the second quarter, but lower than our expectations due to both numerator and denominator effects.
Our lower than expected.
Numerator as some deals were delayed and are now expected for the fourth quarter also higher incentives from U S outperformance largely offset by lower incentives from underperformance in Asia Pacific.
Higher than expected denominator, as we had stronger cross border volume and value added services revenue.
Both of which don't have significant incentives associated with them.
Non-GAAP operating expenses grew 12% below our expectations, mostly due to timing of some initiatives being pushed into Q4, particularly marketing spend and professional fees.
Marketing expenses did grow over.
In the quarter as we lapped risk reductions in spending at the outset of Covid last year.
G&A expenses decreased year over year due to favorable foreign currency fluctuations and lower indirect taxes.
We recorded gains from our equity investments of $439 million.
<unk> 50 per user has minority investments and over 50 strategic partners.
When there is a new financing round or an IPO per the accounting rules, we mark our investments to market, which can result in gains or losses, our investment portfolio has been performing very well they have a gains across several of our investments.
The gain recorded this quarter was largely driven by 1 partner financing round and another partners IPO.
Excluding investment gains non-GAAP non operating expense was $114 million in the fiscal third quarter.
Our GAAP tax rate was 41, 3% due to a 1 billion dollar non.
Excluding non cash tax charge pertaining to the remeasurement of deferred tax liabilities and the taxes related to investment gains.
Non-GAAP tax rate was lower than expected at 17, 9% due to the recognition of a tax benefit.
GAAP EPS was $1.18 non.
Non <unk> was $1.49 up.
A 41% over last year.
About $9.5 million shares of class a common stock at an average price of $227.83 for $2.2 billion. This quarter include.
Including our quarterly dividend of 32 per share we returned approximately $2.
Non-GAAP 1 billion of capital to shareholders in the quarter.
Moving on to our outlook for the fourth quarter.
Starting with business trends through July 21.
U S payments volume growth was 31% above 2019, consistent with the third quarter with debit.
986% and credit up 17% versus 2019.
As we've said before weekly numbers can have noise in them.
For example in the third week of July 2019, a major online retailer had annual sales event, which impacted performance index for 2000.
Upswing, particularly e-commerce spending using credits.
For the third quarter, but in line with June.
Notable exceptions include improvements in.
India, Canada, and Brazil, with modest slowdowns in Australia and Japan.
Process.
<unk> growth continues to improve.
Transactions within Europe on accounts.
Sing dollar basis, with 81% of 2019, which is.
Travel related spending versus 2019 improved 3 points compared to June offset.
By lower e-commerce growth, mostly due to crypto currency purchases falling back to pre April levels.
The recently.
The announcements by the UK and Canada regarding border openings in August should be helpful. In the fourth quarter, while Asia Pacific remained largely close to travelers.
Strong volume in July trends continue fourth quarter net revenue growth.
Is expected to be in line with the third quarter.
We expect to benefit from the service fee recognition lag and the cross border travel recovery to be partially offset by crypto currency.
Persons falling back to pre April levels, as well as smaller year over year lapping benefits in transactions processing and value added services revenue.
We expect volume incentives as a percentage of growth revenue to increase half a point to 1 point versus the third quarter due to delays from the third quarter and the typical increase we.
We see in Q4 due to the end of fiscal year end deal closing and a fiscal year deal closings.
The third quarter, we've had since the pandemic started based on current trends, we expect fourth quarter net revenue growth relative to fiscal year 19 to be in the same in the third quarter.
Q4 operating expenses are expected to grow in the mid teens inclusive of some expenses planned for the third quarter, which were pushed into Q4.
Non operating expense is expected to be around $125 million, our tax rate our tax rate expectations are in the 19% to 19 in the 5% range.
In summary, we had a stronger than expected third quarter as economies and borders reopened even if Scott presence spend recovered e-commerce spend stayed strong.
<unk> spending sustained high growth rates as cash Digitization remains robust.
The cross border travel recovery is gaining momentum.
New flows and value added services businesses continued to grow at high rates as they have all through the pandemic.
We're stepping up investment in key growth initiatives as we look ahead to several quarters of recovery and prepare to capture the exciting opportunities available to us in the post Covid era with that I'll hand, it over to Matt.
Mike for questions and answers.
We're now ready to take questions Michelle.
Thank you. Thank you would like to ask a question. Please press star 1 and clearly record. Your name you will be announced prior to asking your question to ensure all questioners are heard we ask that you please limit yourself.
Off to 1 question.
Once again to ask a question. Please press star 1 and to withdraw your question Press Star 2.
Our first question comes from Tien Tsin, Okay. Thank you so much great results.
Sure.
If I could.
But let me ask John debit.
<unk> versus credit dynamics, I'm really focused on the U S. Here I am just curious Oliver.
Have your views on relative growth between.
Debit and credit change based on what you've observed so far in the recovery.
Okay.
All of these fintech names investing in card growth and card engagement and with that you mentioned.
Current and some others. So just curious what your thinking is there any structural growth between Jim.
But I think what we're seeing now.
You've seen it in the numbers debit has had.
At.
Indexing close to 150 pre COVID-19 levels that reflects.
Really a huge step up in the.
The day utilization of cash.
Its evident to all over the world Youll see that in EMEA numbers, you see Latin America numbers. The debit is the engine of cash net utilization. So structurally debit is benefiting from cash neutralization picking up as well as the move to E Commerce.
You are seeing though is that credit is.
Accelerating quite fast and if you look at the numbers the biggest quarter over quarter recovery.
Been quite significant in credit.
Structurally I think what we're seeing is the affluent customer come back to spending because economies reopen and the plastic sectors that could benefit from reopening.
Like restaurants travel and entertainment and also picking up there's so many things going on here that are.
Changes like cash flow utilization.
Early to tell whether that is a significant.
Okay structural change between the use of debit and credit.
I think credit has.
Quite a few quarters to go on recovery.
And the trend remains quite robust even even as we look at July.
Thank you I appreciate everything we saw our major separation through the pandemic.
Part of it.
As long as it between.
Credit and.
Debit growth and.
This quarter the <unk>.
Separation between them and the.
And the business was more like 6 points.
Tad there we've seen quarters closer to 30 points. So that's further indication of credit starting to rebound for the reasons that facade articulated.
Thanks, Dan Thank you Bill.
Thank you. Our next question comes from Harsha Rod from Bernstein, You May go ahead.
Hi, good afternoon, and thank you for taking my question.
Can you talk about open banking and what it means for visa and lightest accelerated activity, Dan and I'll come back with additional Inc.
<unk> visa and participate in this move towards open banking and also can you talk about the potential.
Okay, Thanks capabilities beyond geography with Dawson James.
Well I'll start and beside can jump in.
The epicentre of open banking is is Europe, which is what.
Attracted us to tank.
It is.
Hey.
Open banking platform that has a footprint in 18 markets that will allow us through a single API customers, which are primarily developers to access financial data.
It would take us to the activity of about 3400 banks and <unk>.
And about 10000 developers in Europe.
Its 1 of 400 players.
<unk> other markets. There is awful lot of players may open banking space in Europe because of the fact that it is in ground is ground zero.
We do think that the combination of all.
Various capable.
Ladies and relationships combined with takes technology and relationships is going to.
Daily accelerate.
The adoption of open banking in Europe, it's early days.
But.
There is going to be an increase.
Adoption of open banking.
We see.
The bill making progress in Europe first even beyond the 18 markets that take us in and Theres. No reason why we can't take the business to other parts of the world, particularly.
In Asia and familiar.
Thank you for taking my question.
Thank you Ramzi of Lasalle from Barclays. You May go ahead.
Hi, Thanks for taking my question this afternoon.
Could you update us on <unk> connect and talk a little bit how you go to market strategy. There is evolving how does.
Is it ramping.
And.
And then just give us a general update on what's happening with <unk> connect.
Well I think.
As we've talked in the past, but the most important thing with VW to net.
Is too.
Continue to grow out the infrastructure and that that requires both signing.
The partners that we had announced last quarter I guess the designing of.
Goldman Sachs transaction banking as a user of day.
<unk> connect and we're using bank integrators, like ACI adviser and Bottomline to help us.
As well in terms.
Driving.
More players in the <unk> connector.
At this point, that's our emphasis our emphasis is building out the robustness of this network. So it has more endpoints.
More clients again, we see this as a $10 billion opportunity and we think that.
<unk>.
Okay.
The capability to be a much better then.
Swift kind of alternative for driving.
Payments without having to build pet cross border payments without having to build out a corresponding banking network. So we've continued to sign players that Nathan.
They need to do their infrastructure connections to us and we have started to drive transactions, but at this point.
Do you have enough data BTB connect that much more interested in how we're doing it.
Driving the robustness of the network versus.
Being at a point, where we're counting progress on the number of transactions that.
They particularly seeing flow over the network.
Yes, 1 other thing I might add to that as you may have seen the announcement of payouts visa sales service essentially integrating both visa direct and <unk> connect to offer a single point.
Our customers to come to us for all kinds of cross border payments.
Either.
Business customers <unk> customers.
Whether they are low ticket high volume, which can which we can handled through the visa direct capability and.
<unk> sport.
All of their high value low volume transactions, which we can angles handled through visa the connect so essentially from a from a client standard.
Standpoint.
They just interface with us and whatever their needs we can meet any.
In any form.
Whether it's to account to God.
Any parts of the world.
So it's important to note that it also integrates well with our other capabilities to provide a single point of contact.
Terrific. Thank you.
Thank you. Our next question comes from Lisa Ellis with Moffat Nathanson you May go ahead.
Hi, good afternoon, Thanks for taking my question.
Wanted to dig in a little on value added services and new flows given the callout that value added services grew 28.
Okay. Thank you said in the quarter.
<unk> back in Investor Day February 2020, which is of course, a lifetime ago now, but at the time you would kind of put this framework out that new flow as the value added services were around 23% of revenue is growing in the high teens and that was sort of a momentum expected going forward.
Can you just kind of broadly talk about now 18 months later through the pandemic how your outlook for new flows and value added services has evolved do you now expect it to be faster and bigger given both the secular shifts during the pandemic as well as some of the acquisitions you've made maybe what's just changed.
<unk> and Matt outlook. Thank you.
Bill rates that we remain as it.
Extremely robust.
Yeah.
And are excited about the opportunities in value added services and new flows obviously.
Some of our value added services, we actually saw declines during the pandemic.
David certainly people are buying less travel benefits from us there were less transactions in certain cases against which we could sell value added services, but as I said, we started to see transactions really roar back this quarter for.
For the first time ever we averaged over $600 million.
Transact.
As of quarter end.
Quarter end for every day in the quarter I should say and that was up 160.
More than a 160 million transactions a day a year ago. During the pandemic. So I think that as we start to get into what I believe is going to be a robust recovery and a continued growth.
Transactions.
We're going to continue to see our platform type services Cybersource, our issuer processing, our risk and identity services.
Represent about 2 thirds of our value added services.
Grow very nicely.
I think we've continued to.
To start to see.
Recoveries on the other side and things like.
Our consulting and I think as travel comes back our Cogs benefits and travel related card benefits will increase so I think that while we went during the day.
Height of the pandemic, we got off our trajectory of where we want it to be in 5 years.
I feel like we're going to get right back on that trajectory and maybe even.
Do better than we might have thought we would do in terms of new flows.
I'd say a couple of things 1 is obviously visa direct.
<unk> to do very well I cited that it was almost a half a billion more transactions.
In the quarter than the prior year.
I think it besides remarks, he talked about.
50% growth levels, continuing and we've seen this for a numbers of quarters now and in the end.
And the.
<unk> space.
We're starting to see.
So.
Some recovery.
B to B space looks like.
Consumer credit space. So it's the commercial volume kind of <unk> are following that mirroring that although small business is obviously recovering.
Quicker than large market, but as I think as.
I'd like to come back to work as business travel starts to return.
Feel good that the commercial volume will continue to come back as well. So again I would say that in the new flows area.
While we again went off trajectory from what we would have said at Investor day.
The reality.
People.
We will get right back on now is where we're seeing a really very good beginning to what I think will be a robust recovery.
Yeah.
Terrific. Thank you.
Thank you. Our next question comes from Sanjay Suck Ronnie from K B W. You.
Is that fair.
Thank you.
I guess my question is if you parse through the granular spending trends I'm curious how much of the spend outperformance youre seeing is it related to pent up demand versus stimulus benefits I'm, just trying to think through how to run rate the outperformance and then specific to.
Our fourth quarter expectations, maybe you could just speak to the your expectations relative to third quarter, particularly on cross border.
Sure.
So as it relates to your the second part of your question.
If you look at the trends in the first 2 weeks of July and I want to emphasize as we said before that.
The TV non makeup of trend and.
You Shouldnt read too much into it.
So that equals a line in the U S was impacted by.
What happened in the third week in July 2019, because that's sort of we often look at it as a clean year, but when you look at it week by week numbers, there's always going to be unusual things about what happened.
In the same week in 2019, or what day of the week was when or what holidays impact slowed and so on.
So setting that aside.
So on the first 3 weeks of July was quite a bit of stability on the growth model side.
And we think thats sort of the trend for the fourth quarter, we see some.
Some of the crypto currency cross border purchases.
Have fallen back to pay flow levels, we had a spike in April and May as we mentioned.
So that has.
Has pulled back in July as you can see that was replaced by travel continuing to recover and so that gives you a certain amount of stability.
The big.
The market is what kind of a summer travel improvement will be get in cross border travel.
Given that while borders have opened and substantially more borders are open than they were before it's still not normal and Matt all the others are not open and especially voters in Asia not open. So I think our best view of the fourth quarter.
My question relates to cross border travel.
And cross border in general is that cross border and generally stays relatively stable with the third quarter net travel recovering and cryptocurrency purchases falling back a bit and so on balance it neutral in terms of the the domestic.
As for businesses around the world.
Provided you some color in the in the in the comments everything we're seeing so far.
You adjust for unique thing that's happened in 2019 is a trend that either stable or slightly better in the U S and around the world either stable or slightly better.
With no evidence.
Right now anywhere of Delta impact in the spending and an important correlation there is mobility mobility is highly correlated with spending refined and mobility mobility indexes in general are either stable or are climbing still even as infections are climbing in many parts of the world.
Mexico, even though infections have gone up a lot mobility it doesn't seem to be impacted yet no evidence of it nor are we seeing any impact on spending.
Hi, Joe the only thing I would add is that.
Yes, where theres been stimulus that has certainly impacted some spending but it tends.
And.
Drive spending for a couple of weeks and then Wayne over third to fifth week.
Jim.
I might use a different phase and pent up demand I think it's a little bit of a return to normal.
And also bring back.
Jim <unk> people are going to sporting.
Event, and then I'd come back to something the SaaS side in response to 1 of the earlier questions Richard <unk>.
Affluent customers jumped back into the marketplace.
These are the people that drive up white tablecloth restaurant spending is that people make discretionary purchases visa.
The people who are.
<unk>.
Heading to Mexico.
And.
Other places as borders open up and so.
Again, I echo what the sunset.
Mobility.
<unk> continue to improve I think we just get closer and closer to.
Returning to a more normal and therefore feel like that there is.
B.
Good run here.
A good recovery for the business.
Thank you.
Thank you. Our next question comes from Mr.
Darrin Peller with Wolfe Research you May go ahead Sir.
Thanks, guys.
We look at cross border at 85% of 2019 travels bill 50% to 60% of 19 levels. Clearly there is considerable room to the upside when that travelers and especially looking at E. Coms held up can we just revisit the incremental.
Mr. Net revenue opportunity for Matt I know Theres, a lower correlation of rebates and incentives from cross border and it's a higher margin business. So if you could just reconfirm that and then would you let much of that pass through for shareholders. Just given that you've missed out on a year and a half of cross border into the same magnitude we should add.
Well thank you.
Rental.
If you do simple math and sales of the cross border business would have continued to grow at roughly 10% as it was growing pre pandemic.
And we are indexing right now as you said around 82% of 19 I mean, you can you can do the math yourself right, we would've been indexing closer to 121.20.
If you Michael both if you assume 10%.
That delta between 82, and 121 gives you a sense if you apply that to a lot of international revenue line and gives you a sense of it now we do have some additional cross border revenues in the data processing line because of that is.
No.
Data processing revenue associated with cross border too.
Well if you do the math I mean, you can see that its a sizable amount of revenue. Yes. You are right incentives are not generally tighter cross border. There are in some parts of the world, particularly Asia.
4.
Travel related portfolios, we may have some incentives tied to.
Cross border in those portfolios so a fair.
Which would flow through to the net revenue line.
As long as reasons in fact, why our incentives at the center gross revenue has climbed in particular there is mix shift.
And how that how much of that flow streams of the bottom line.
Our approach has been we need to invest as much as we need to invest to grow the business there are significant opportunities available.
We've already told you about our expenses will grow in the mid teens in the fourth quarter, If cross border recovery Foster that won't necessarily change our investment plans.
And we've never manage for margins margins are an outcome. Our goal is to drive as much volume and revenue growth as we can and to invest what we need to drive.
Chunk of growth.
Got it thanks guys.
Thank you. Our next question comes from Bob Napoli from William Blair You May go ahead Sir.
Okay. Thank you and good afternoon.
And just following up on the currency cloud acquisition.
The growth.
Those cross border.
<unk> view on the growth of cross border, maybe ex physical travel with all the different marketplaces are out in the world. It seems like there's been an acceleration potentially so just any thoughts on the growth of cross border long term ex travel and.
How.
Visa in particular is looking.
Looking to get more deeply I guess.
Engaged.
Well I'll start Matt is the fact that pick up but look the.
The reality is the world is shrinking.
From the perspective of how easy it is for people to.
Buy from.
Sellers in different countries and different regions around the world.
We've seen.
Dramatic increase millions of millions of people.
Shopping online during the pandemic, who never shopped on line before so.
Our expectation.
Is that.
Youre going to continue to see.
Very very good.
Growth in.
Cross border E Commerce.
Going forward I think that the whole e-commerce trend both domestically and.
In terms of cross border.
Is something youre not going to.
Be able to do or want to go back to the way. It was before I think that this is a fundamental change.
In in how people shop, and its going to continue to drive.
Cash digitization that we've been talking about.
Currency cloud.
Loud.
The acquisition, we announced.
I don't know a week or 2 ago.
It builds on and extends our existing capabilities to provide.
Better FX services and either easier connectivity.
Fintech financial institutions and other partners.
They are really cool.
Set of API, and we think the combination of currency <unk> capabilities on the front end of a transaction via those API and our settlement capabilities across visa net in our other networks <unk> pluses et cetera.
Is.
Going to create a very powerful combination.
So.
Ultimately our intention is to provide global reach here with simplicity and flexibility at competitive pricing and we want to leverage our settlement scale and make sure that we're also leveraging our sophistication and managing risks so we like.
<unk>.
The we like the asset and currency cloud, we liked it to be.
The combination of.
Visa capabilities and currency accounts capabilities.
We like the fact that from a dynamics perspective, we see.
Cross border travel continuing to come.
Over time, and we see the E Commerce cross border continuing to be rethought robust because we look forward.
I'm going back to your question about moving past some of our traditional business of enabling payments to merchants cross border.
You've heard us talk about the.
Extraordinary progress, we're making in remittances for example, we signed up all the major remittance providers and we can provide a very flexible very attractive proposition for their consumers.
At a very attractive.
Cost Andrew.
And reminiscences is almost as big in volume.
Foreign direct investment and it's not an area that we served before.
John that you heard earlier about visa payment service payout service, which is very valuable to the gig economy players around the world.
As well as.
He has a big role to play in marketplace payouts.
And so on.
The third 1 I would highlight is the partnerships you signed with a whole range of cryptocurrency wallets that enable the use of visa credentials or the issue at 70 million merchants around the world and a big chunk of that business is expected to be cross border too so in our business and cross border.
<unk> has gone well beyond the traditional let's call. It C to B space 2 P to P cross border to be to be cross border of course.
And a significant chunk of B to C Cross border.
Thank you I appreciate it.
Sure.
Thank you our next question.
Comes from Ashwin <unk> from Citibank.
Sir.
Thank you.
Awesome.
I was hoping that you might be able to answer a framework question as investors, primarily about fiscal 'twenty 2 rather than <unk>.
And you're going through.
Your budget planning process.
Are you thinking about pricing how are you thinking about expenses.
What would it take for you to sales returned to providing a full year outlook.
It could.
To provide a framework of how youre thinking.
Yes.
Kelly to give you a perspective on 2022, I think we'll save that for October.
And where do we provided our full year outlook or do what we've done this quarter to give you the best sense we have of.
You know what.
What we see around US right now and how it might play out for a quarter or 2 or whether we.
It stood at in that I think we will assess as we go along.
As we've said we've already given you some indications of our posture as it relates to investment we are preparing for multiple quarters of recovery.
You heard earlier in the conversation about the cross border recovery that still remains ahead of us so clearly.
There's plenty of recovery still to come.
And we are investing in preparation for the post Covid World, where we see extraordinary opportunities in new flows and value added services. So we are stepping up investments and our expenses are growing in the mid teens and so on but in terms of projecting where revenue is going to be or.
The volume trends are going to be.
We'll save a lot of that discussion and pricing in our talks about for October.
Alright, thank you.
Thank you. Our next question comes from David <unk> with Evercore ISI, Mike go ahead.
Good afternoon Ah recently your U S centric competitor sharply increased consumer rewards on a 1 of its mass affluent credit cards and some of those reward increases were matched by visa issuers.
I'm curious for your view on how this step up in the.
Rewards battle.
That will impact credit card spending going forward, especially since many of these rewards are tied to <unk>.
Travel and entertainment spend.
Well I think what issuers are doing is getting.
Ready for our return to travel being a.
That'll Inc.
Towards spend category.
As you well know many of these reward propositions in North America, both in the U S and in Canada.
They are very tied to travel.
You know all the Big Airlines, all about big hotels of co brand.
Programs that even for.
Other programs that are more reward programs that more generic a lot of their bird options.
<unk> are tied to.
Travel so.
<unk> debt.
Your travels Ghana has started to come back it will continue to come back as mobility.
Increases as as restrictions get lifted et cetera, and I think issuers are trying to make sure that as that happens and as the affluent consumer.
Consumer and middle market consumer starts there.
Get in their car and get on airplanes more that they are their products.
<unk> will be.
Top of Av.
Of wallet and I think that's really what's driving the activity.
We have time for 1 more question Michelle.
Thank you Dan.
Sue how long you May go ahead Sir.
Hey, guys.
Product suite.
So I wouldn't be surprised to see the impact of crypto.
April trends, but can you maybe help us quantify a little more.
What drove the bump, but how should we think about it in the future. If we get more sort of crypto volatility just to get some more color because I don't think this was.
Thanks Victor.
In the prior quarters. Thank you so much.
We've seen a few since a few months here and there of these kinds of spikes in purchases. So essentially most of the time crypto currency impacts our businesses when purchases go up a lot of the people, who buy crypto or buying them from entities that are non.
The big first data.
While some bids in Europe. So these end up being cross border transactions when they buy crypto currencies like bitcoin and so when there is a spike in buying activity.
You will see that in some of the cross border E Commerce numbers in terms of quantifying.
Non use it is if you look at the cross border E Commerce business ex travel.
It has been quite stable.
Several several weeks and months you will see a bump up in April and an income and you can attribute a fair amount of that strictly the cryptocurrency purchases. We've had this before there was another spike.
How much when there was a big run up and kept oil prices and then a collapse I don't know it must have been available.
So it hasn't happened before it has now fallen back to pre IPO levels. Although it is still running at a level that is higher than it was 6 months ago.
But you can quantify it if you look at the numbers.
Mike. Thank you so much.
Yes.
And that's all the time, we have so thank you for joining US today. If you have additional questions you can always feel free to call or email.
Jennifer myself. So thank you so much and have a good evening.
And thank you. This concludes today's conference call. You May go ahead and disconnect at this time.