Q2 2022 Visa Inc Earnings Call
As a tack on Ukraine, and its people, including our colleagues in both Ukraine and Russia. We are very focused on supporting them. The bravery strength and resilience of our colleagues is incredibly inspiring as is the grip of the Ukrainian military.
Even with the invasion of Ukraine, and lingering impacts of omicron volumes transactions and credentials drove strong second quarter performance overall.
Overall, PBT was up 135% versus three years ago Cross border volumes, excluding intra Europe were 112% versus three years ago, and it's important to note that travel related cross border rose to 82% versus three years ago up five points from Q1 process transactions were 138.
Percent versus three years ago.
In terms of the Big picture after the short four to five week impact of on the ground in December and January in the United States and many other parts of the world. The recovery continues to be robust at this stage in terms of volumes, we have seen no noticeable impact due to inflation supply chain issues or the war in Ukraine.
In the U S payments volume.
<unk> 2019 was 144 in the quarter volume growth relative to three years ago has been stable and strong now for four quarters in a row.
When looking at specific spend categories for credit cards, we saw greater than a 10 percentage point improvement in the three year in debt from Q1 to Q2 in travel retail goods food and drug restaurant <unk> and fuel.
As a reminder, debit is growing over a quarter in fiscal 'twenty, one where there were two stimulus distributions even as credit continues to recover debit remains 20% above that.
Prepaid debit trend line.
Across all products.
<unk> categories, representing 88% of PV or over 120% indexed to over 120 index to three years ago, and nearly two thirds of between $1 40 and $1 60.
Against this backdrop Visa's performance was very strong net revenues grew 25% year over year and non-GAAP EPS was $1 79 up 30% as we look ahead, our business will have a reset due to Russia, but we still expect accelerated revenue growth versus pre COVID-19 over the coming years. This is because there is still ample opportunity around.
The world across our three growth levers of consumer payments, new flows and value added services and our strategy is yielding excellent results.
First in consumer payments, we continue to displace cash at a strong rate in Q2, we saw a debit cash volumes at visa grow 2%, while debit payments volumes grew 12% cash displacement continued around the world year over year across debit and credit there were $7 9 billion more payments.
Transactions and 16 million less cash transactions.
Last quarter I highlighted the shift from cash to payments volume in Latin America and that trend continued in this quarter. Additionally, EMEA is experiencing a similar shift in full year 2019 cash was 59% of total volume last year in Q2 was 50% and this quarter. It was 46.
<unk>.
Growth in consumer payments is driven by adding credentials and acceptance of deepening engagement. Our card credentials recently increased to over $3 9 billion up 9% in one year, including 10% growth in the United States on the acceptance side, we have 80 million merchant locations, including small businesses behind players like stripe and square.
The numbers actually over a $100 million.
We have seen very strong performance location growth recently in our Latin America, and Asia Pacific regions up of 30% and 20% respectively.
Let me just highlight a few regional examples of progress in consumer payments and Europe . Overall credentials grew 6%, which is nearly double the historic rate for each of the past eight quarters helped by previously announced deals with dnb pattern by <unk> in Belgium, contributing more than 4 million credentials since their announcement to issue with visa.
<unk> Europe , we continue to strengthen our debit business, we recently announced the win with <unk>, representing a multimillion credential opportunity. We also renewed our business with one of the largest banks in the Nordics Dougherty.
On the acceptance front.
We continue to pioneer new areas acceptance, even in mature digital markets. One. Recent example in Europe is with electronic electric vehicle charging we were the first payments and financial services company to join the charging interface initiative and are working with manufacturers to open up what is estimated to represent 3 million potential acceptance.
In Europe by 2030.
In America, we saw strong credential growth up 21% year over year, two renewals highlight to highlight this quarter Porto Socorro, Brazil's third largest issuer for their credit portfolio of digital bank, Neil <unk>, one of Brazil's fastest growing fintech with over $15 billion clients for their credit and prepaid portfolios.
In Africa Visa has signed a partnership with Vodacom South Africa. This deal together with previously announced partnerships with <unk> Africa, and Safari comp covers a 130 million customers and the entire Vodacom group in sub Saharan Africa through this partnership Vodacom will exclusively issue visa payment credentials.
Apply new payment flows through visa direct and utilized cybersource.
In the United States, we renewed and won several partnerships this quarter first visa and USAA have recently renewed our long standing issuing partnership second we extended our existing relationship agreement with <unk> bank as their issuance partner, including migrating the business, resulting from the recently completed acquisition of peoples United.
Over the past two years merger activity of regional banks has increased and this is another example of visa successfully partnering to grow with our clients.
Finally, supporting the U S government is an important priority for us and we retained our business with the financial agent that manage the U S. Debit card program. This visa branded program is a key component of treasuries goal to deliver 99% of federal payments digitally by 2030.
A key vector of growth in consumer payments, our co brand cards, which are particularly attractive to the affluent customer in Q2 affluent credit card spending was well above 2019 levels in several markets, including the U S and the U K our U S. Co brand active cards were up nearly 30%.
2019 to 'twenty to 'twenty, two and we have seven of the top 10 co brands in the United States and eight of the top 10 co brands globally.
This past quarter, we renewed our co brand relationship with AAA Visa's longest standing co brand partner and over 40 year relationship.
In India. We're pleased to have signed a long term co brand agreement with Airtel, one of the largest mobile operators in the world with nearly 356 million subscribers in semi.
<unk> and BD, our leading banking group has expanded its long standing partnership with visa by introducing the premium co brand program with Etihad guest loyalty program with the Dod Airlines with 8 million members and.
And your God that we've partnered with regard to National Social Security Fund to issue co brand cards to 2 million beneficiaries in just a few weeks ago. It was announced that the U S. Amazon Prime rewards visa signature card has been renewed with chase and visa.
This is also pleased to have reached a broad global agreement with Amazon. This agreement includes the acceptance of these at all Amazon stores and sites today as.
As well as a joint commitment to collaboration on new product and technology initiatives to ensure innovative payment experiences for our customers into the future.
In Q2, we also continued to enable new ways to pay from installments to crypto and the installment space. We previously announced a global deal with Florida. They have now issued their co branded card in Europe , and recently opened a wait list in the United States, where they have 25 million customers in the crypto space, we continue to work with governments globally on potential <unk>.
<unk> this quarter, we were selected as the finalist in Brazil, CBD see lift challenge the concept as a <unk> solution that seeks to leverage <unk> to help small businesses access global investors and drive financial inclusion.
On the engagement front tap to pay continues to accelerate growth in the United States, we were over 20% tap to pay penetration, marking the second largest market by number of tasks and target has become the first U S retail merchant to surpass 50% tap to pay penetration of face to face payments.
Transit is one of the best ways to habituate tapping in the first half of fiscal 'twenty. Two has set records. We enabled 50 cities around the world, including tile, including Thailand, Japan, Turkey, Italy, Switzerland, Norway, and Canada, bringing our tap to ride footprint to over 500 travel transit.
<unk>, we processed over 500 million visa tap to ride transactions globally versus 700 million for all of last year.
To summarize there is significant opportunity in consumer payments visa continues to grow credentials and acceptance will deepening engagement and visa enables innovation at scale for players across the ecosystem from installments to crypto to merchants.
Now moving to new flows, which in Q2 at over 20% revenue growth in Q2, our commercial payments volume was 130, 838% of 2019, what's more of this recovery is relatively broad based across segments and spend types on the <unk> front in the U S <unk> Bank announced two.
<unk> solutions for middle market businesses. One these are commercial preferred a commercial rewards card designed to help manage daily business spend and two these are commercial pay which will help improve cash flow management reconciliation and reporting.
In Latin America, we saw a carded progress with <unk> Fintech tribal which has chosen visa for card issuance, including virtual cards on its modern corporate carbon spend management platform tailored for startups in nine countries.
Wallets, a global platform, enabling digital businesses to manage payments and money movement across borders previously launched programs with visa in Australia, Hong Kong and the UK.
Recently, they introduced virtual visa cards in the United States, Netherlands in Singapore to enable businesses to easily make digital card payments around the world.
And our cross border <unk> business visa BTB connect continues to expand its global footprint and in the first half of 2022, we added banks for the first time in Tanzania, Uganda, Angola, Thailand in Poland.
Now turning to visa direct transactions in the second quarter grew 20%, but Scott will speak more about this but Russia was our second largest market for visa direct and represented about 17% of our transactions in fiscal 2021. So in short visa direct will be impacted by the suspension of Russian operations.
But even with the Russia business.
The rest of business, we will see growth ahead, driven by many use cases in countries for example, domestic PDP, which accounted for the majority of our Russian business is still a large opportunity and we continue to expand to new markets. We will soon larger launch our inaugural visa direct use case in Israel for PDP.
For PDP and partnership with fit the largest PDP app in the market.
I'll focus on two other use cases today payouts and remittances first with payouts, we see we're seeing momentum in a number of industries and transactions are up 35% year over year and travel we launched visa direct with booking dot com to enable customer refunds and loyalty pads in the gig economy pay fair, a leading fintech that as partners.
Such as Uber Lyft and door Dash has added visa direct to its platform to help facilitate real time payment experiences for over half a million gig workers they serve.
And digital Commerce partner pioneer, we use visa direct to enable cross border payments for their 5 million customers, including marketplaces and gig economy players.
Second cross border PDP or global remittances, which are higher yielding visa direct transactions represent a significant opportunity. While we're just getting started this quarter transactions grew nearly 50% year over year.
After announcing our relationship in fiscal fourth quarter with pace and an international card to card payments platform, which serves over 6 million customers and 17.
<unk>. They have now launched their cross border service with visa direct from the U K and U S to over 100 corridors.
While the U S. As the top source for remittances. The UAE has the second largest source for country remittances, followed by Saudi Arabia. According to the World Bank.
All together the Gulf Cooperation Council countries account for more than $100 billion in outbound remittances. This past quarter. We added several partnerships to help digitize remittances in the region first Alamos <unk> exchange the largest exchange house in Kuwait.
The remittance and payment of arm of bank al.
Al <unk> and market leader for our ongoing <unk> and the Kingdom of Saudi Arabia, and third in the UAE with Lulu money powered by Lulu enter International Exchange and network International to enable the 5 million users of Lulu app to send money to cross border.
<unk> and stripe key visa direct enablement partners to both signed agreements to deepen relationships in existing geographies and to expand to net new markets globally across numerous use cases.
In sum we have made excellent early progress against the 185 trillion dollars new flows opportunity, but there is tremendous room for accelerated growth ahead.
Now, let me move to value added services, which had Q2 revenue growth of over 20% as well first we recently closed our acquisition of tank take as the European open banking platform that connects to more than 3400 banks that reach over $250 million bank customers across Europe through a single API. Thank enables its customers to move money.
Access aggregated financial data and you smart financial services, such as risk insights and account verification visa brings proven infrastructure and sustained investment in resilience cyber security and fraud, which will help accelerate the adoption of open banking and create a secure reliable platform for innovation.
Let me highlight some other progress and value added services first visa consulting and analytics last quarter I announced the launch of our specialized global Crypto advisory practice, we've seen interest from hundreds of clients globally and have committed engagements with 30 already covering their digital currency strategy product development and go to market.
What plans set.
<unk> risk identity, and authentication and <unk>, we have now crossed the $3 5 billion token mark across more than 8600 issuers and over 150 markets at $1 2 million merchants tokens have led to a two five point increase in approval rates and a 28% reduction in fraud rates. This path.
Quarter and cardiac payment card not present payments are key risk solutions visa advanced authorization at visa risk manager screened about 30% more transactions in the first half of 2022 versus 2021.
Third Cybersource gateway capability has seen.
<unk> progress just crossing the milestone of 1 million merchant accounts onboard it I spoke about transit before Cybersource, which could play a key role in transit acceptance added nearly 15 projects in the first half in Thailand, Italy, and Japan among others.
So to summarize our value added services represent a compelling way to diversify our revenue streams, while helping our clients, bringing bringing innovation to the payments ecosystem. Our global infrastructure is providing connectivity through our network of networks to power more traditional payment types and newer ways to pay and move money. Our brand is strong our network of net.
<unk> is expanding our business is performing well and our people are motivated and passionate we expect all our efforts will help power accelerated growth in the years to come and with that let me turn it over to the fat.
Thank you al.
Good afternoon, everyone.
Despite omicron, Russia, and Ukraine, our fiscal second quarter results were very strong with net revenues up 25% and GAAP EPS up 23% non-GAAP EPS was up 30% in constant dollars net revenue growth was approximately 27% and non-GAAP EPS growth was 30.
Percent.
A few key highlights global payments volumes growth has remained strong and stable relative to pre COVID-19 levels in constant dollars. The U S index was two points higher than the first quarter at $1 44 versus three years ago. The.
The International Index ex China was down two points at $1 40 versus 2019 due to the impact of Omicron in early January Amit.
<unk> impact on most domestic volume was short lived as we hoped it would be.
The robust cross border travel recovery that started in the fall as borders reopened and resumed in February as omicron impact created border restrictions were lifted quickly and pent up demand for travel remains very high.
Index through 2019 cross border travel excluding transactions within Europe jumped from a low of 71 in January to <unk> 94 in March.
The first two weeks of March saw a spike in cross border volumes from Russia, and Ukraine due to displacement caused by the envision after we suspended operations in Russia in mid March there were no more cross border transactions in or out of Russia.
Adjusted for Russia, and despite from Ukraine. The March Cross border travel index relative to 2019 was around 90.
So far we're not seeing any material impact on cross border travel in other corner doors as a result of Russia is an invasion of Ukraine.
Our three growth engines consumer payments, new flows and value added services all grew revenue well over 20%.
During the quarter, we bought back $2 9 billion in stock at an average price of around $2 10, $2 to 200 $210.
On March 10th we closed on the zinc acquisition.
Finally, our second quarter, P&L and balance sheet reflect our best estimates for the impact of suspending operations in Russia. This includes revenues and expenses from terminating all client and supplier contracts.
Resolution of settlement balances and the deconsolidation of our Russian business.
We have adjusted two items from our GAAP earnings expenses to support our employees in Russia, and Ukraine, and a charge related to net assets in our Russian legal entity.
Now onto the details.
In constant dollars global payments volume was up 17% year over year, and 35% versus 2019 debit spend remained resilient as credit spend continue to improve.
Excluding China total payments volume growth was 18%, while 42% higher than 2019.
U S payments volume grew 16% up 44% versus 2019, which was two points better than the first quarter.
Credit grew 27% and improved four points to 35% over 2019 helped by the affluent consumer debit.
Debit grew only 6% year over year, reflecting the impact of stimulus last year, but growth remained very strong versus 2019 at 53% as.
As al indicated debit is indexing well above the pre COVID-19 trend line benefiting from accelerated cash utilization.
U S card present spend grew 17% and was 21% above 2019 at its highest quarterly level since the pandemic.
Card not present volume, excluding travel grew 10% and was 70% about 2019.
Relative to three years ago e-commerce levels remain well above the peak over trend line, even as card present spend continues to recover.
International constant dollar payments volume, excluding China grew 22% and was 40% above 2019, a few regional highlights.
Latin America was up 44% year over year, and 19, 9% higher than 2019 with robust performance across the region fueled by cash Digitization and client wins.
Our <unk> region grew 18% year over year, and 76% higher than 2019 led by client wins and cash utilization excluding.
Excluding Russia, the EMEA region was up 100% over 2019.
Europe was up 21% year over year, and 31% higher than 2019, following an omicron dip in January we saw a rapid recovery in most European markets.
<unk> UK Europe volumes grew 36% year over year and were 54% about 2019.
Asia Pacific, Excluding China remains our weakest region up 16% year over year and 25% versus 2019.
Due to Covid restrictions recovery across most of Asia stalled, while Hong Kong declined relative to 2019.
India recovered strongly up almost 20 points from December India has been our fastest growing markets in Asia.
Almost 80% since 2019 fueled by a tripling of e-commerce volumes.
Global process transactions were up 19% year over year and 38% versus 2019.
Constant dollar cross border volume, excluding transaction within Europe were up 47% year over year and 12% over 2019.
Cross border card not present volume growth, excluding travel remained strong up 16% year over year and well above the pre COVID-19 trend line at 67% above 2019.
Cross border travel related spend excluding intra Europe grew 111% year over year and indexed at 82% of 2019 levels.
As I mentioned earlier after an omicron driven dip to 71 in January the cross border travel indexed to 2019 rose sharply to <unk> 94 in March.
Many corridors and now indexing above 90 relative to 2019.
Inbound travel to Latin America, the Caribbean and parts of the Middle East has been about 2019 levels for some time now.
There's plenty of recovery to come in one important corridor inbound to the U S, which index only at 70 in Q2.
Asia index into high thirties, both inbound and outbound in Q2.
The pace of travel recovery to and from Asia will be a key driver of the future trajectory.
Most Asian borders now open except for China and restrictions remain in place in Japan, Korea and Taiwan.
Moving now to a quick review of second quarter financial results.
Service revenues grew 24% faster than the 20% nominal growth in Q1 payments volume, we've been able to bill and collect service revenues in Russia through early March as.
Such in the second quarter, we recorded almost two quarters of service revenues related to Russia.
Service revenues were also helped by increasing utilization of <unk> benefits.
Data processing revenues grew 16% below the 19% processed transactions growth, mostly due to exchange rate changes.
International transaction revenues were up 48% versus the 42% increase in nominal cross border volumes, excluding intra Europe .
Revenue growth was helped by high currency volatility and select pricing modifications.
Actually offset by business mix.
Other revenues grew 21% led by consulting data and marketing services as well as travel benefits.
Revenue growth was robust across our three growth engines, each growing well over 20%.
<unk> payments growth was led by improving cross border volume and continued strong domestic volumes and transactions.
<unk> growth was driven by visa direct and carded <unk> recovery visit.
Visa direct transactions grew 20% impacted by lapping a strong quarter in the U S last year and a suspension of Russian operations.
As Al indicated Russia was the second largest market for visa direct accounting for 17% of transactions.
This is an unfortunate setback, but the visa direct business is ramping fast and other international markets as well as in use cases, such as cross border remittances earned wage access and other <unk> payouts.
Commercial our b to B volumes grew 29% year over year and up 38% versus 2019 growth was driven by continued strength of small business and the recovery of large businesses across the portfolio of diverse spend categories.
Value added service growth was led by consulting and marketing services cost benefits as well as risk and identity solutions revenue growth drivers include the acceleration of e-commerce client growth in international markets and select pricing actions.
Client incentives were 25, 8% of gross revenues at the lower end of expectations.
This was driven by a better revenue mix due to the faster than expected recovery of our cross border business and by deal timing, but some Q2 deals being pushed into Q3.
GAAP operating expenses grew 11% non-GAAP operating expenses grew 16%.
We recorded losses from our equity investments of $127 million, excluding investment losses, non-GAAP nonoperating expense was $133 million.
Our non-GAAP tax rate was 19, 6% GAAP EPS was $1 70, non-GAAP EPS of $1 79 up 30% from last year.
Including a quarterly dividend of <unk> 37, five per share and our stock buybacks. We returned $3 7 billion of capital to shareholders in the quarter.
A few comments on our trends through the first three weeks of April .
On a year over year basis U S payments volume was up 12% with debit up 2% and credit up 26% debit volumes are lapping the impact of stimulus payments in 2021.
U S <unk> spend growth versus three years ago was up 45% with debit up a robust 54% and credit up 37%. These.
These trends are relatively consistent with performance in major markets around the world with the exception of EMEA.
We now have no payments volume from Russia.
Processed transactions grew 17% year over year up 36% versus 2019.
Constant dollar cross border volume, excluding transactions within Europe grew 47% year over year and were 15% over 2019.
Card not present non travel growth was 62% about 2019 travel.
Travel related cross border volumes were at 92 indexed to 2019, the small decline in this index relative to March is mostly due to the loss of Russia.
Cross border volume was up 28% over 2019.
Moving now to our outlook for the rest of fiscal 2022.
Just as 2021 was the year of two distinct hub due to the recovery 2022 will be a year of two halves due to Russia.
The suspension of our business in Russia will reduce second half revenues by about 4%.
Russia will also negatively impact the payments volume and cross border volume indexed to 2019, each by four points.
The impact on process transactions index for 2019 will be under a point since we did not process domestic transactions in Russia.
Ex Russia, and Ukraine are domestic volume growth has stayed robust and stable for the past four quarters relative to 2019.
Our outlook for the second half assumes that these trends are sustained while there are uncertainties created by high inflation and supply chain disruptions rising interest rates and the invasion of Ukraine. There is no evident impact on our global payments volumes.
E Commerce spend both domestic and cross border has remained strong and stable relative to 2019 at well above the pre COVID-19 trend line, even as pandemic effects fade and we are assuming this will continue.
In line with payments volume, we expect process transactions growth relative to 2019 to remain strong and stable with the variability largely driven by the extent to which small ticket card present everyday spend comes back.
It is important to note that year over year growth rates will moderate as we lap the strong second half recovery in fiscal year 'twenty one.
Ex Russia, and Ukraine, we're assuming no spillover effects on other corridors and our cross border business.
Given where we ended the second quarter, we now expect cross border travel ex intra Europe to fully recover to 2019 levels by the end of our fiscal year. Despite the loss of Russian business <unk>.
Including intra Europe that will put cross border travel about 2019 levels.
With these assumptions third quarter net revenues are expected to grow at the upper end of the mid teens range in constant dollars.
This includes timken currency cloud, which add approximately half a point to net revenues.
The dollar has strengthened and the exchange rate drag will likely reduce nominal rates revenue growth by around two five points.
Due to some deals moving into the third quarter from the first half and the expectation that certain milestones will be achieved on some key contracts incentives will run higher in the third quarter between 26 into half 227.5% of gross revenues.
We expect non-GAAP operating expenses in constant dollars to grow in the mid teens, including expense savings from Russia, and almost three points of added expense from currency cloud and zinc exchange rates will likely reduce normal nominal operating expense growth by about one five points.
Our tax rate is expected to be in the 19 to 19, 5% range.
At this point, we expect fourth quarter trends to be.
We generally in line with the third quarter as always we will update our fourth quarter outlook in July .
Based on results to date and our outlook for the second half we expect full year net revenue growth in constant dollars in the high teens to 20% range, including approximately half a point of contribution from timken currency cloud.
Exchange rates will likely drag nominal growth rates down by around two points.
There is no change in our expectation for full year incentives incentives as a percent of gross revenues are expected to range between 25, and a half to 26, 5%.
We expect constant dollar non-GAAP operating expense growth at the upper end of mid teens.
This includes savings from the suspension of Russian operations, and almost two points of added expense from currency cloud and zinc.
<unk> operating expense growth will be around one five points lower due to the stronger dollar.
Our full year tax rate is expected to be in the 19 to 19, 5% range.
Despite the uncertainties caused by inflation interest rates the invasion of Ukraine, and our exit from Russia, We expect fiscal year 'twenty two will be a very strong year of above trend top and bottom line growth.
As we enter the post Covid era, we remained confident we can sustain a rate of growth above pre COVID-19 levels for all the reasons I'll outline, which I will summarize again.
First an acceleration away from cash and check for merchant payments with domestic and cross border as digitization becomes pervasive across consumers and businesses globally.
Acceleration of cash checks and wire transfer displacement as on new flows initiatives penetrate a broad range of new use cases with very large total addressable market third sustainable high teens growth across value added services, both from existing services and new offerings as new.
Flows and value added services become a larger part of our revenue mix growing faster than consumer payments the sustainable growth rate will continue to rise.
And we will continue to invest in the capabilities required to capture the extraordinary growth opportunity ahead of us with that I'll turn this back to Jennifer.
Thanks, and with that we're ready to take questions Jordan.
If you would like to ask a question. Please press star one and clearly record your name will be announced prior to asking your question to share all questions. I heard we ask that you. Please limit yourself to one question once again to ask a question. Please press star one to withdraw your question Press Star two.
First question comes from <unk> <unk> from Bernstein. Your line is open.
Hi, good afternoon, Thanks for taking my question.
I want to ask about Crunch project.
The pandemic not Hudson transplant as long and so it has been at least 20% to 30% different train 19 wallet looks like you just touched on concurrently.
Clearly the challenge the company has been solid.
<unk> My question is how important.
Asia.
Pacifically China comes back to you to have cloud partner channel not just going to 2019 levels eventually kind of returning to the.
Fantastic.
Thanks.
Yes, so that is that is a great question.
No.
Two things we told you on the last call have remained through one that.
Generally countries around the world want to keep borders open China being one exception.
And some restrictions in Japan, Korea, and Taiwan and I include Hong Kong also in that list.
Other than that you can travel pretty freely anywhere else in the world some of them need test some don't even need tests.
So thats the second is the pent up demand for travel remains very high.
And early indications on some bookings et cetera, as you heard from other people have been very good.
So in our sort of calculations certainly we've been surprise, so far even though vivo bullish with how fast things have recovered as you saw.
After January the recovery has been very robust at this point, we're pretty optimistic that inbound to the U S, which is still indexing only at 70 as of the end of March as of the end of the second quarter.
<unk> is on a good recovery track.
There's still some recovery left in and out of Europe . So those things will certainly help us get back to 2019 levels.
And you're absolutely right I think the how fast and how far we get to where we should have been pre pandemic will depend on Asia coming back.
<unk> indexed at under 40 at the end.
In the second quarter, China is an important part of Asia. It is still incredibly depressed, Japan Korea, and Taiwan are also important parts of Asia and cross border travel.
Asia is recovering and we're seeing some good trends in Asia.
Certainly travel into parts of Asia, like India, Thailand, Indonesia, et cetera, Australia, and New Zealand are picking up fast.
But youre right I mean, getting all the way to $1 30.
It will depend on on the remaining big travel components in Asia, which would be China, Japan and Korea.
Really coming back and we will have to wait and see on that and we will update you on the next call.
Thanks very helpful.
Great next question Jordan.
Our next question comes from Lisa Ellis from Moffett Nathan from your line is open.
Hi, Good afternoon. Thanks for taking my question I have follow up call. A question on commercial cards I think you called out that your commercial card volumes are running at 138% of 2019 levels. So pretty healthy growth. There can you talk more broadly I feel like this is maybe a piece of the business.
Doesn't get the attention it should given how.
How much cash and checks and wire and other forms of payment. There still are in commercial can you maybe talk a little bit about the initiatives <unk> got underway to accelerate.
Hi.
Digitization of that converting.
PDP payments into into cards. Thank you.
Well, thank you Lisa.
The b to B.
Segment, it's about 122 trillion dollars opportunity of which 20 trillion is in the carded space and that.
A 10.
<unk> 10 trillion.
The cross border space, so in the carded space.
We already are the largest.
Provider of commercial card volume and our focus has continued to be on growing the number of issuers that are.
Issuing commercial cards, because it's a lot less than the number of people issue consumer cards and we're also very focused on the travel and fuel use cases. In addition to obviously purchasing cards and corporate cards, which are.
Our more traditional element of this card it b to B B space.
We're also trying to continue to grow acceptance. There are there are acceptance gaps in the commercial space that hold us back from getting all the volume that we could potentially get worse.
We're making strides but theres still.
A ways to go in terms of having an acceptance footprint that mirrors the type of broad based acceptance footprint that we have on the commercial side. It's a very important part of the business at attractive yields.
Generally has the ability to grow it was growing faster than consumer prior to Covid and we believe that it can grow faster.
<unk> faster than consumer when we get back to a more normal time.
Post the pandemic could obviously, one big factor there will be the pace at which business travel returns.
In the.
Cross border space, obviously, our major thrusts there is <unk> connect at our major focus our BTB connect continues to be to grow out.
The network by having more and more banks and more and more countries involved in the network and that has been and continues to be our focus more sales and driving transactions at this point our belief is that once we get the network to a level where it is.
Quite robust transaction flow will happen fairly quickly. So those are some of the things that we're focused on to try to drive this very very important space, which I continue to believe is an enormous opportunity for us going forward.
Terrific. Thank you.
Next question Jordan.
Our next question comes from Tien Tsin Huang from Jpmorgan. Your line is open.
Okay. Thank you so much.
Very strong broad based results, which is what I want to ask about.
With you parks hitting your revenue outlook it looks like the client incentive granted at the very low end of your expectations. So just want to make sure I understand the relative performance. There between the two is that simple or is it simply that the upside in revenue brings with it very little incentive pressure or is it more complicated than that.
No it's two things.
Tien Tsin as I said in the comments number one.
You saw that our cross model recovery in the quarter was stronger than we expected we didn't expect a good recovery.
Was stronger than we expected that to improve as our mix.
But even even with the strong recovery our mix of cross border is still lower than it was pre pandemic.
So the mix affects the percentage as you know the percentages numerator and denominator.
Cross border growth disproportionately.
Denominator growth without a commensurate increase in the numerator just given the nature of how many of our incentives work and that helps that percentage and thats why the percentage came at the lower end of the range. The second reason is there are always timing factors.
Timing factors in terms of renewals timing as and when we recognize incentives linked to achieving certain milestones that contracts have and that has pushed some of those incentives into the third quarter. So we expected third quarter to run.
About the upper end of the range so to speak for the full year, we still expect to be in the range. We gave you.
So it's all driven by a combination of mix and timing.
The only thing I would add.
You've followed us for a while I mean.
There is.
Art and science to this in forecasting it in a lot of times.
Dealing with the timing point that besides is talking about we make we make assumptions about when deals will get done. We then make assumptions about how long it will take to get a deal launched or getting migration going.
And then we make assumptions about the performance of that particular deal.
The odds of us getting all of that right across.
Hundreds of deals that happened during the course of the year make this not the easiest thing to always forecast, but I think we do have largely good job, but the exploration at the site gave about why it came in at the low end. This quarter is those main two factors of timing and mix driven by.
Outperformance across border.
Yes, no I get it and we've learned a lot observing that as we go so thanks for walking through it.
Thank you.
Question Jordan.
Our next question comes from Sanjay <unk> from <unk>. Your line is open.
Thanks Hassan.
You spoke to the four percentage point impact to the second half from Russia, and obviously it seems like you are able to overcome some of that with the stronger cross border trends.
Maybe you could just parse through a little bit of the impact to EPS in the slow through for US I know theres. Some expenses that you mentioned that can offset Russia, maybe just help us through that thank you.
Sure.
So it is a four point revenue impact from Russia, So that's pretty much.
The revenue impact would be give you a sense of what our revenue expectations for the quarter.
In constant dollars upper end of mid teens.
If it hadn't been for Russia, you'd have added four points to that so it's still strong despite that.
And as you said, it's because the loss of Russia is offset to some degree.
By the cross border business being stronger we have a similar issue or similar impact on the expense side.
Mid teens expense growth.
Helped by Russian expenses going away and there are two main Russian expenses would go away.
Used to pace the processor in Russia for processing transactions, we no longer have to pay them, obviously when you're in business you do marketing and provide a bunch of other services. Some of our personnel related costs in Russia will remain we made some commitments to our employees in Russia about.
The rules.
So those don't all go away so that does reduce our expenses in the second half.
Probably in the range of about two to three points.
On the other hand, we do have <unk> and currency cloud now that are coming in which were not there last year and that's about three points. So it sort of washes and goes in the other direction and then finally.
Exchange rates will help expenses to the tune of about one five points.
So those are all the moving parts.
Our expenses would have been probably two to three points higher.
If Russia had not.
If operations in Russia had not been suspended.
Okay, Great and you probably get more flow through from the cross border outperformance correct.
Well, partially mainly because the incentives that go with it tend to be lower and into higher yielding business yes.
Okay, great. Thank you.
Next question Jordan.
Our next question comes from Darrin Peller from Wolfe Research Your line is open.
Hey, Thanks, guys.
Listen it's great to see your constant currency guidance increase for the full year, despite which obviously happening in Russia Ukraine.
So organic and to some degree with a small help from acquisitions.
To be clear were still getting a follow up from a couple of investors asking to make sure that includes the impact for the full year of Russia as well right and then I just wanted to double check I mean, you guys continuously highlight the potential to exit the pandemic in an accelerated growth rate.
And I am sure. It has a lot to do with the new flows and some of the new services opportunities Youre seeing growth. So can you just reiterate on that and just go into a little more detail on what gives you the confidence there and what kind of growth rates, you should be able to achieve.
Well I think the biggest thing Darren for me is.
We didn't take the last couple of years off in terms of going out and trying to.
Convert business side Fintech.
Increase our business with.
Traditional cost traditional partners. We also had predominantly grown our acceptance footprint and in certain parts of the world. So there's actions that we have taken that haven't you haven't seen the flow through.
Because of.
The fact that the pandemic has in many cases suppressed spending but as I think we come out of the pandemic youll see the flow through of the various actions that we took and then that I think the pandemic itself.
Has it accelerated.
People's usage of the card that precedent in ecommerce and I think thats, a sustaining model that's going to help drive growth on a going forward basis.
As well so I think we're going to see ourselves taking advantage of that and then certainly.
We have continued to add.
Use cases to things like visa direct we have continued to build out our.
Risk and identity tools, we've continued to grow our visa consulting service, so I think that.
My view is that the market hasnt seen the flow through of a lot of the investments.
The full flow through of a lot of the investments that we've made over the last.
27 months or so when we've been operating in this kind of odd world driven by the pandemic that I think that as we start to come into <unk>.
More normal environment, I think youre going to see it so that's the biggest factor.
The South do you want address <unk> first question on <unk>.
I guess it was Russia, yes, yes, Darrin, our full year outlook incorporates the impacts of Russia in the second half.
It reflects the fact that the second quarter was as strong as it was so when you look at the first half and what growth we had in the first half.
Despite the impact on the rush on Russia.
Russia in the second half in constant dollars, we still expect to be in the high teens to 20%.
Alright.
Thanks, a lot guys.
Great Jordan maybe please please have the next question.
Our next question comes from Ashwin <unk> from Citi. Your line is open.
Thank you.
Evening guys.
Great quarter.
I wanted to.
Shifting gears away from cross border and ask about tank and how you intend to use tank grow including both geographical growth.
Functional proliferation.
As it relates to.
Debit.
We said that broad payments functionality things like that.
Thank you.
As a reminder for everybody.
Highlighted in my remarks, but I didn't talk about the fact that it's Scott.
If developers on the other side of the 3400 banks that I did cite.
And today it operates at 18 markets across Europe . Its revenue model is largely a per API call. Although there are some subscription basis is on some of its value added services.
Our goal is to position ourselves in the middle of open banking in the place in the World, where it's most advanced which is Europe and we believe that.
Our complement our complementary capabilities will help drive adoption.
<unk> capabilities and provide incremental value to clients.
Clearly are maybe not clearly, but I'll make it clear our focus initially is going to be on Europe that we're taking is strong that's where it's got a large presence and thats, where we can we think that we could be additive in terms of.
Driving their business forward, but certainly we will.
Anticipate an anticipated when we looked at tank and made the decision to buy it that we will leverage its capabilities and extended their capabilities to other markets.
But we want to make sure.
That our that our investment is focused we never like to kind of peanut butter, our investment across too. Many places at one time. So it is better we think too perfect.
Our our partnership together and the place where we both have strengths which is Europe .
We'll go from there.
Thank you for that.
Great next question Jordan.
Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
Thank you guys. So I was just curious for the quarter itself here in Q2, I think you would expected net revenue growth to be at the high end of high teens, obviously that was before the war started.
You ended up in the mid <unk>. So I'm just curious in terms of order of magnitude like which revenue lines really surprised you. The most to the upside to what extent was inflation a meaningful contributor and then it it sounded like maybe you pulled forward. Some Russia service revenues I think you made a comment there I was hoping you could maybe quantify that piece.
Well thank you.
Sure.
So the primary factors.
Quarter to be stronger than we expected was clearly international revenues and international revenues will not only stronger in terms of cross model volumes being stronger than we expected.
The recovery.
Was from 71 to about 94 index to 19 between the end of January and March which is clearly very very strong.
So that definitely was one of the outperformers.
Because of the war in Ukraine currency volatility was also high.
And the fact that the cross border business.
Helps volumes, adding currency volatility in our Treasury revenues were also higher than we expected. So those were two major contributors and on the service line as you know we recognize service fees with a lag in the case of Russia, because operations being suspended we were able to bill and collect revenues.
For the second quarter through when we suspended operations and that added probably.
It would be less than a point to revenues.
Maybe a little over half a point so that did help but other than that it was all driven by just strength across the board value added services performed very well too.
That's great color. Thank you.
Next question Jordan.
Our next question comes from Bob Napoli with William Blair Your line.
Thank you and good afternoon.
Visa has obviously been consistently active on the M&A front and on venture investing with valuations down.
Would we should we expect to see these are being more active in both areas and if so what areas.
Products.
Geographies.
I guess verticals would be most attractive for these incrementally to add to invest.
I'll start and Thats not going to add any color he wants.
No.
We still have a stated preference for.
Wherever we can do ourselves to do it ourselves.
That said we have.
A very robust and qualified corporate development function that looks at all kinds of.
Various possibilities.
We're in constant review of various less to determine what might be of interest.
What might not be.
Interest, where we can do it faster and get.
People, who have unique skills that we might not have.
And we could build that.
Much faster than building the capability ourselves.
We certainly look to buy.
<unk>.
Without getting too specific I think that.
Continuing to grow our tool box as it relates to new flows and value added services and things that would help us do that would be.
Certainly areas that would be.
Attractive to us I, probably wouldn't want to say more than that at this at this point the only thing other thing I'd say.
Is that we're really not we don't really look to be an active venture investor.
Many of our most of our <unk>.
Vestments things.
Following on a commercial agreement.
And often when we do a commercial agreement with a smaller player.
Ask us for us to endorse them a bit by making.
A small investments that they could add up to the roster of players that are investors in our company, but we're not out there speculating and looking for just.
Venture investments, where the vast majority of them and besides can add or delete.
Almost 100% of them are because.
<unk> got a commercial deal in place first thats. The most important aspect to us Besides anything you want to add.
I think.
What you will see in the future is more of what you've seen in the past acquisitions that can add to our capabilities like <unk> like currency clouded.
Expand the suite of services, we can offer which is what we're thinking currently cloud do.
Acquisitions, where we decided it's faster or cheaper to buy them to build.
And in some cases, it could be acquisitions that.
Expand the scope of an existing service like <unk> did.
With our payouts business around the world.
And yes to the extent that the correction, we're seeing in public markets carries over to private markets over a period of time, certainly we expect to be more active.
And we have no specific objectives in terms of we're going to do X amount in acquisitions every year is going to be based on what makes sense to do and where we can create value.
Thank you.
Next question Jordan.
Our next question comes from Timothy <unk> with Credit Suisse. Your line is open.
Great. Thanks, a lot for taking my question I wanted to touch on visa direct clearly, it's a much bigger but still fast growing portion of your business you talked a little bit about the growth this quarter in the Russia impact and you also mentioned it is the second largest geographic market, maybe you could talk a little bit about that geographic mix and listen maybe the other large markets, but more importantly, maybe the <unk>.
<unk>, where there's a big opportunity and the brief follow up would be if you could just recap the mechanic around your ability to of course into visa credentials, but also how does it work when you want to send to a mastercard credential and that capability. Thanks a lot.
Yeah.
The <unk>.
For competitive reasons I'd be reluctant to get too into the weeds on this but.
Obviously, our biggest market is the United States, Russia was our second largest market and then there's a number of markets across the world that are.
Maybe a half dozen to 10 that are.
Somewhat together in terms of size that they represent.
And our focus at this stage is to a build.
Build greater penetration of the use cases that we have today secondly to develop.
New use cases, and thirdly to grow grow the geographic footprint of all of our our use cases.
And we.
We have built up.
A team completely focused on visa direct we do utilize our account executives around the world as our frontline sales agents.
Then from there we'll bring in.
Sure.
Solution experts, who know much more about.
The specifics of visa direct but we're focused on.
Basically I talked about.
<unk> and remittances, we're continuing to look at.
The ability to pay gig economy workers, which is a growing.
Hugely growing segment around the world, we're looking at global money movement use.
Use cases beyond the ones that I talked about in PDP, which we've talked about before we're looking at digitizing disbursements by replacing checks.
<unk> CH wherever we can.
Around around the world.
The reality is that I think there are applications everywhere in one of our challenges, especially as we look to replace some of the volume from Russia is going to be determine where to invest.
Versus having to find places to invest there are plenty of places to invest which is the great news. We're just going to have some work to do to figure out exactly where the hottest opportunities are too to drive transaction growth for us as we look forward at various use cases.
Excellent. Thank you and who are you able to help on that mechanical one around maybe the difference in terms of mechanics or economics, when you send to a mastercard credential.
Yes, it's part of our network of networks approach Silvio network agnostic.
Acquisitions like yellow pepper, and what we did with north port, although the kinds of capabilities that allow us to send to any credential, including a bank account.
As part of that will get your money, there and part of the way maybe on a real that's not all.
Great. Okay, well. Thank you for all the help and disclosure on visa direct we appreciate it.
Great next question Jordan.
Our next question comes from James Fawcett from Morgan Stanley . Your line is open.
Thank you very much I appreciate all the details and color wanted to gotten a few questions from investors.
To round.
The impact in.
Deflation, maybe having a can you help quantify maybe how that's benefiting visa, but also and maybe more importantly can you talk about if youre seeing any shift in spending behavior by consumers in that mix between discretionary and non discretionary spend.
If that has any impact at all on how you're formulating your outlook. Thanks.
So there are.
So thats, a puts and takes out our business.
Service fees and international fees or basis points on volume, so inflation typically with transaction size, but.
Offsetting that and incentives are also tied to volumes. So there is some offset to that that lift.
Fuel prices go up but then on the other hand, sometimes consumers tend to moderate there they are buying in times of large increases.
In gas.
To the degree that over time, if it was to happen. The dollar was the weekend that increases inbound cross border flows in the U S. Inbound Carter's one of our largest in higher yielding Carter's.
Expenses for personnel and marketing professional fees could go up.
But I'd say two things and then.
<unk> to add anything.
He wants.
So far.
We're not as I said and I think <unk> said in his remarks, we are really not seeing much impact that's causing us any concern in our numbers and then the last thing I would say net net historically inflation has been positive for us.
Yes, just to add to what Al said I mean, we clearly have seen.
We've seen ticket sizes go up.
In the U S in particular in Europe , but it's not all inflation some of it is mix.
It's mix driven by the fact that.
The crowd the card present transactions, which often tend to be smaller transactions have not yet fully come back. It makes also because e-commerce transactions, even when you do everyday purchases can be larger larger ticket sizes.
We could even see ticket sizes go down an inflationary times as card present comes back so.
As Al said, there are multiple impacts from inflation net net it's a positive for us.
We have not seen any impact on discretionary spending that we can discern.
If anything.
Discretionary spending, especially from affluent consumers and credit cardholders has been going up quite healthily.
So in general there isn't any evidence impact evident impact on inflation, but obviously, we'll keep we'll keep looking for it.
James.
Yeah, one quick data point with you we recently looked at.
Restaurant spending by various strata.
And they highest performing a strata in terms of growth is the 100 to $300.
Ticket price and the second best performing strata was over $300. So that just gives you some sense that's very recent data.
The affluent being back in the market and not afraid to spend in an important spend category.
That's great. Thanks al Thanks for Sean.
Okay and this will be our last question Jordan.
Final question comes from Jamie Friedman with Susquehanna. Your line is open.
Hi.
Thank you for sneaking me in.
The Sun I may be misremembering. This but my recollection was that you had contemplated returning to 90% travel index by September I apologize if I got that wrong. You had you were going kind of quick with the updated assumptions.
Can you.
Repeat what you were contemplating now in terms of where travel in.
In the fiscal year. Thank you yes.
Yes, So we talk about cross border travel ex intra Europe .
And we are now expecting given where it ended the second quarter to be.
<unk>.
Or are both likely 2019 levels by the end of our fiscal year and Youre absolutely right. The last time, we talked to you we said, we'd probably be around 90%.
We are running better than we expected so fossil we've definitely changed our view of that now.
And can you see move intra Europe that would put us about 2019 levels.
By the end of our fiscal year.
Yes, I think you got it right.
Got it thank you great and with that we'd like to thank you for joining US today. If you have additional questions. Please feel free to call or E Mail, our investor Relations team. Thanks, again and have a great day.
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