Q2 2023 Visa Inc Earnings Call
Border travel volume at 130% of 2019.
Processed transactions grew 12% year over year.
We remain confident that our strategy is focused on the right opportunities.
In the second quarter. This strategy continued to deliver driving strong growth through consumer payments, new flows and value added services.
Talk briefly about our progress in each area.
Let's start with consumer payments.
Consumer payments remains a massive opportunity for visa.
Even with all the Digitization over the last several decades, there is still a tremendous amount of cash and checks spent globally.
There is a very long runway for growth in this business.
In consumer payments the flywheel has three parts.
Crow credentials more buyers on the network.
Grow acceptance more sellers on the network and drive engagement more transactions.
We continue to grow credentials up 7% year over year through December and 11% excluding Russia.
And we now have more than 6 billion token is credentials up nearly 90% from last year, excluding Russia.
We continue to grow acceptance with over 100 million merchant locations worldwide.
And tap to pay continues to be a powerful driver of engagement glue.
Globally, 74% of all face to face transactions outside the U S are now taps.
In the U S. We're at 34%.
Up seven X from three years ago, and up more than 10 percentage points from last year.
A couple of highlights in the second quarter include U S quick service restaurants, where penetration surpassed 40%.
And in key metro areas across the United States, We continue to see great traction beyond the success in New York and San Francisco.
La <unk>, Detroit, Seattle, San Diego, and Oakland, and Miami are all now over 40%.
Mass transit continues to be one of the best ways to get people used to tapping and we've set records.
In the first half of 2023, we processed more than 745 million visa tap to ride transactions globally.
Up 35% over the first half of last year.
We've enabled 55, new transit systems, bringing our footprint to over 650.
We also had some significant client wins in the quarter.
Starting in North America, we are pleased to have renewed a multiyear agreement with TD.
Our top 10, North American Bank for continued visa credit and debit issuance in both Canada and the U S.
In Canada, we renewed our relationship with CIBC.
With a new multiyear agreement for visa credit issuance.
We renewed our partnership with Mark header, a leading fintech issuer processor.
And Moneygram, who is utilizing visa direct for cross border money movement, and just recently signed a consumer debit agreement.
In Asia Pacific you will be one of the leading banks in Asia.
Has renewed and expanded its relationship with us in Singapore, Malaysia, Thailand, Indonesia, and Vietnam for both credit and debit cards.
OCB <unk> bank, the second largest bank in Singapore by market cap renewed its flagship product and portfolio with us the OCB <unk> 365 credit card.
<unk> bank, the banking arm of Japan's largest financial group renewed its long term debit partnership.
Chunghwa post Taiwan's post office and the largest debit issuer in Taiwan has renewed its long term exclusive partnership with visa.
And in India, We're very excited about a long term consumer credit contract with Axis bank targeting new affluent customer segments.
Additionally, I want to highlight an exciting new product innovation that we launched in Japan with our longtime partner <unk>.
It is a single flexible credential that a consumer can choose to use a debit credit or prepaid card.
SMB see calls the product <unk>, and we think it could meaningfully enhanced the buying experience for SMB customers and users in many other countries around the world.
Now to Europe .
In Germany, we signed a co brand deal with Solaris and 80, AC which is Germany's largest automobile association with 21 million members.
Visa is excited to be the new network of choice for one of the country's largest co brand portfolios.
In Israel, we renewed and expanded our relationship with our largest issuer bank leumi.
In Belgium, we recently reached agreements with six issuers to migrate over $2 6 million debit cards to visa in the next few years, bringing our country total since 2021 to $6 5 million new visa debit cards.
And finally in Latin America.
From December 2019 to 2022, we have grown our credentials by one five X and our merchant locations by almost two five X.
Over that time period, the percentage of our total volume that is point of sale payments versus getting cash out of an ATM has grown from 46% to 59% demonstrating the cash digitization happening in the region.
In Colombia, we're pleased to partner on a co brand with Latam Airlines the largest airline in Latin America.
We continued to strengthen our position in Brazil, renewing our partnership with <unk>, the largest private bank in the country.
We also announced a new strategic deal with Banco de Brasilia that expands upon our existing agreement, including a popular credit program issued in partnership with one of Brazil's leading football teams with over 40 million fans.
Also in Brazil, Whatsapp had already launched peer to peer service to facilitate money transfer using visa direct and.
And recently, they announced they will be offering payments from consumers to small businesses as well.
And more and more we see clients work with visa on multiple levels across consumer payments, new flows and value added services Nate.
Nate Toura, the world's fourth largest beauty group with four I'm, sorry, 4 million beauty consultants in Latin America as a recent example.
In 2020, we announced a deal with them and we just renewed our agreement which includes digital issuance of a visa business credential and ads acceptance innovations as well as cyber source risk management solutions.
Thus far in Brazil, we've issued card to almost 50% of the mature consultants and we love working with clients that take advantage of our full range of solutions. It's visa at our best serving clients in multiple ways across our growth levers.
Now, let me turn to new flows.
The potential payments volume opportunity in new flows is enormous tenex that if consumer payments.
New flows revenue in our second quarter grew more than 20% in constant dollars excluding Russia.
Commercial volume was up 15% in constant dollars and visa direct transactions were up 32% excluding Russia.
We've been winning in new flows by executing our network of network strategy.
And two weeks ago, we announced a new network called visa plus.
That further extends our network of networks.
This new network allows users to send and receive payments among different PDP apps through a personalized payment address a visa plus painting.
This enables PDP payments from one app directly to another app as well as gig creator and marketplace payouts.
This can be done through an app.
<unk> bank or a wallet.
We're connecting endpoints and form factors and enabling interoperability or network of networks strategy at work.
We're launching pilots with several partners, including Venmo, Paypal, Teva pay and Western Union with more to come soon.
Let me now turn to visa direct visa direct is also a great example of our network of networks.
Visa direct utilizes 66 AC H networks 11, RTP networks 16 card based networks and five gateways with the potential to reach nearly 7 billion endpoints globally.
We continue to grow visa direct with new use cases and partners.
For example in Peru.
Banco to credit owed to Peru BBVA.
Interbank and Scotiabank chose visa direct as their preferred network.
And yellow peppers their technology enabler for the interoperability among their wallets and payment apps.
Last year, we announced our agreement with the payments infrastructure platform tunes to add center wallet capabilities to visa direct.
Similarly, this quarter on <unk>.
Ross border reach continue to grow.
Expanding coverage to 32, new wallet providers across 22 countries by connecting to Terra pay a leading cross border payments infrastructure company.
Together visa direct and Tara pay can enable PDP remittances for individuals as well as business payouts through accounts wallets and cards.
Enablers remain an important part of our strategy and we're partnering with Pfizer to expand on their U S. Domestic visa direct business by commercially launching cross border capabilities for their clients starting with outbound payouts.
I'll mentioned two other recent cross border agreements with.
We signed the deal with Brightwell, a global payments technology company to leverage visa direct to expand cross border remittances and payout capabilities for their customers and over 175 countries across a variety of industries, such as travel and financial services.
And earlier this quarter, Paypal zoom announced that customers in the United States can send money directly to an eligible visa debit card in 25 countries utilizing visa direct.
In the second quarter visa direct cross border PDP transactions, excluding Russia grew nearly 50%.
Yes.
While visa direct is growing fast.
<unk> is the largest component of new flows and.
And traditional issuance is the core of what we do today in <unk>.
Brian comprising the majority of the over 760 billion and commercial payments volume year to date.
I'll highlight three important issuance deals.
In Colombia, we renewed with Grupo Bank Columbia, the largest issuer and acquirer in the country for commercial credit and prepaid as well as consumer credit.
Financial technology platform audience has expanded its offerings with a visa commercial card initially targeted towards global merchant customers.
Visa and stripes issuing partnership offers card issuance to enterprise and startup consumers in the U S. The UK and Europe .
And for cross border BTB money movement, which you all know is about visa <unk> connect a solution that seeks to deliver predictability speed reliability efficiency data and flexibility to our clients.
We're building an entirely new network and we're making progress.
Over the last six months, we've signed nearly 30 banks and more than 20 countries and payments have been routed to 90 countries globally.
And there are several areas for additional expansion in <unk>, such as new capabilities, new geographies and new verticals.
Today, I will talk about two verticals fleet and fuel and agriculture.
In fleet and fuel, we're seeing a big shift in this vertical where the historically closed loop systems are opening up and receiving the benefits of our investment and innovation.
For example, the standard bank in South Africa will issue visa fleet cards in South Africa with plans to rollout across four additional priority markets across Africa in 2024.
Over the past two years visa has signed or launched fleet focused solutions for over a dozen providers with more to come.
In Latin America, we're bringing our innovative capabilities to an untapped vertical the agriculture industry.
AG culture represents nearly 15% of the workforce and nearly 25% of the exports in the region, which supplies nearly 15% of the world's food production.
Visa has developed a solution called visa agro.
It provides credit access to farmers in advance of their harvest so that they can buy inputs using visa credentials.
With payment periods aligned with their production cycle.
Visa agro is live in six countries through partnerships with banks Fintech processors and marketplaces.
Now I'll touch on value added services.
Value added services are equally important to visa accelerated growth.
By offering compelling value added services, we helped to grow our clients' businesses and deepen our relationships with these clients.
Increase the yields on our own network volumes.
And expand beyond our own network by adding value to non visa transactions.
Our existing suite of value added services is impressive.
In the second quarter, we had about $1 7 billion in value added services revenue up 20% in constant dollars.
And our clients continue to add value value added services.
An example is wells Fargo.
As they modernize their acquiring solutions. They are working with cybersource to offer enhanced product features and functionality for their merchant services customers.
Or in Europe fiscal year to date, we've signed on nearly 80% more clients than last year across 11 countries in our popular risk products visa advanced authorization and visa risk manager, which together deliver increased transactions through higher authorization rates while also.
Lowering fraud.
Our network products, which include services, such as account and address verification stopped payments and smarter stand in processing continued to grow at a rapid pace with nearly 500 clients added year to date globally.
We also have enhanced and develop new value added services, which are helping to drive growth and innovation.
I'll briefly share three examples visa acceptance cloud managed services and risk as a service.
We spoke about visa acceptance cloud last year, which moves embedded payment processing from individual devices to the cloud.
It eliminates the need for expensive terminals as well as the cost and time to certify the processing software.
I am pleased to share that first National Bank in South Africa has launched this solution and visa expects more pilots to follow soon globally.
Next is managed services part of our advisory solutions, which is when we embed visa employees with subject matter expertise within a client's organization to execute on our specific actionable project, such as an ongoing management of risk and fraud parameters.
<unk> implementations or execution of customer engagement strategies.
For example, one issuer for whom we provided end to end campaign execution enjoyed a 15% lift in spend and a 40% increase in activation.
Managed services are bringing strong results for our clients and growing revenue twice as fast as our core advisory business through the second quarter.
Finally, our risk as a service offerings also continue to be continue to be utilized powered by network level data AI capabilities and our risk experts.
For example, our AI and machine learning enabled monitoring service identify suspicious decline activity.
For one client we were able to identify a scheme, where fraudsters were testing for valid accounts and then using the accounts to make fraudulent purchases.
Visa blocked over $7 million, an attempted fraud in just one month on behalf of this client.
This is just one example, but you can see how these risk services enable us to both help our clients and generate revenue for visa.
Since launching six months ago, we've added nearly a dozen direct clients across three regions with a very active pipeline.
In closing as you all know I've been a visa for nearly a decade.
And I can say I've never been more excited about the opportunities in front of us.
We have a compelling strategy a world class team fantastic clients and an incredible set of capabilities that I believe are second to none.
While the current environment still feels uncertain, we have contingency plans ready and are prepared to take action as needed.
We're constantly seeking the right balance between the realities of the short term with the enormous opportunities ahead.
So with that now the <unk> will lead us through the financial highlights from the quarter and our thoughts on the rest of the year. Thank you Ron Good afternoon, everyone and our fiscal second quarter net revenues were up 11% and GAAP EPS of 20%.
non-GAAP EPS was up 17%.
In constant dollars net revenue grew 13% and non-GAAP EPS grew 20%.
Adjusted for the discontinuation of operations in Russia, net revenue growth was around 18% in constant dollars.
Net revenue growth exceeded our expectations due to strong value added services and new flows growth high currency volatility and lower than anticipated client incentives.
A few key highlights.
In constant dollar global payment volume was up 10%.
Excluding China and adjusted for Russia Global payments volume was up 13% as a reminder January and the early part of February lapped Omicron impact last year.
Index for 2019, excluding China, and Russia global payments volume was up 61%.
It is a compound annual growth rate of approximately 12, 5% over the pandemic yield.
U S payment volume was up 10% year over year again helped by lapping the omicron impact last year.
Relative to 2019 U S payments volume was up 58% compounding of 12% over the pandemic yields.
The cross border travel recovery continues at the pace, we expected indexing at $1 30 versus four years ago, a five point improvement from Q1.
As expected the rebound in Asia is now the primary driver.
In and out of Asia reached 2019 levels in the quarter and travel into the U S was very close.
We believe there is more recovery to come.
Travel from mainland China has mostly benefited other parts of Asia, So far but early bookings suggest strong interest in Europe as summer approaches.
New flows and value added services businesses continued to power ahead.
Excluding Russia and in constant dollars.
Businesses grew revenues at or about 20%.
In the second quarter of fiscal year 'twenty, three we bought back approximately $2 2 billion in stock at an average cost of $222 nine.
And distributed $941 million in dividend.
Now onto the details.
In the U S credit grew 10, 5% year over year slightly faster than first quarter U.
U S debit grew nine 6% up more than one point from Q1.
Cost present spend grew 8% U S card not present volume excluding travel grew 9%.
As you look at the monthly cadence in the U S through the quarter January and the early part of February benefited benefited from lapping omicron to varying degrees in March inventory room growth ticked down and has remained at similar growth levels through the first three weeks of April .
The primary driver of the tick down in the growth rate has been U S ticket size, while transaction growth remained in line with Q1 levels at around 8%.
Ticket size was up only 1% year over year in the first quarter and is down about 2% in March through April .
Through April 21.
Ticket sizes are declining as inflation moderates.
Most notably starting in March and through the summer, we will be lapping the peaks in fuel prices last year. For example in March 2023 fuel prices were nearly 20% lower than last year.
In 2022 fuel prices continued to rise through spring and peaked in June .
Also contributing to the discounting in particular retail channels.
Various U S retailer comment publicly about price Scott they are implementing to clear out the inventory of bastogne reductions in costs.
Across other categories of spend in the U S payments volume growth remained strong in services in particular travel and entertainment.
Non discretionary spend growth in categories like food and drug is also holding up well.
Another factor that as a potential drag on U S payments volume growth starting in March and through April is the impact of lapping higher tax refund.
<unk> are largely spend in the few weeks both receipt.
Based on the IRS reported data through April 14th tax refunds are 11% lower this year.
We expect this headwind to abate as we get into May.
Moving on to international markets and.
In constant dollars international payments volume growth rate was strong through the quarter in the major market.
In Latin America was up 27% due to improved growth in Mexico, and the south corn.
Sameer region, excluding Russia grew 29%.
Europe was up 13%, excluding the UK Europe volume grew 31% reflecting share gains in multiple markets.
Excluding portfolio conversion volume trends in the UK improved.
Asia Pacific, Excluding China continued to recover up 17%.
Global process transactions were up 12%.
Constant dollar cross border volume, excluding transactions within Europe , but including Russia in prior period, but up 30, 32% year over year and up 46% versus four years ago.
Excluding Russia year over year growth was higher by about three points and the index four years ago was higher by five points.
Cross border card not present volume growth, excluding travel and excluding intra Europe grew 6% year over year and was 77% above 2019.
Adjusted for cryptocurrency purchases and Russia Cross border E Commerce spending grew in the low double digits.
But cross border card not present, excluding travel and intra Europe represented over 40% of total cross border volume in the second quarter.
Cross border travel related spend excluding intra Europe grew 59% year over year.
The cross border travel, excluding intra Europe indexed to four years ago went from $1 29 in December the $1 34 in March or up five points.
Traveling to Asia now exceeds 2019 level.
Out of Asia is around 2019 level, improving 13, and 11 points, respectively from the first quarter versus four years ago.
Travel out of mainland China as a key driver to watch.
With airline capacity coming back box and streamlined visa issuance.
Southeast Asia has been the biggest beneficiary of travel from mainland China.
This is beginning to change as airline capacity is added in other corridor, especially Europe and Covid related requirements are eased.
We expect the recovery of Asian, and in particular Chinese travel to be a key driver of the final leg of the cross border recovery.
Travel outbound from the U S. All geographies continue to be strong in the low $1 50 index for 2019.
Travel inbound to the U S is still hovering just under 2019 levels.
A strong U S. Dollar travel these are backlog and COVID-19 restrictions have been dragging on the recovery, but all are beginning to ease.
Europe , excluding intra Europe inbound and outbound remained strong with a travel index for 2019 in the low 134, outbound and high 144 inbound.
Travel into Latin America, and the Caribbean also remained very strong indexing in the low $1 16 to 2019 levels.
Travel in and out of EMEA.
In the high 140 versus four years ago with outbound up more than five points from the first quarter and inbound up by about 10 points.
Moving now to a quick review of our second quarter financial results.
Service revenue grew 7% versus the 7% growth in first quarter constant dollar payments volume <unk>.
Exchange rate drag was offset by growth from business mix and pricing.
Data processing revenues grew 10% versus the 12% processed transactions growth.
The primary reason is that our data processing revenues are impacted by Russia. However, as transaction growth is not <unk>.
Adjusting for Russia data processing revenues were up 14% helped by value added services strategy.
International transaction revenues were up 24% versus the 32% increase in constant dollar cross border volume excluding intra Europe .
Revenue growth was helped by high currency volatility, although lower than the first quarter and pricing actions offset by exchange rate shifts and business mix.
Other revenues grew 16% led by marketing and consulting services as well as benefiting from acquisitions.
Client incentives were 26, 7% of gross revenue below expectation due to some deal timing client performance and other items.
Revenue growth was robust across our three growth engine consumer.
Consumer payments growth was led by the strength in domestic volume transaction and cross border volume as well as high currency volatility.
New fluids revenue grew over 20%, excluding Russia in constant dollars commercial volumes were up 15% in constant dollars and 60% over four years ago, Excluding Russia visa direct transactions grew 32%.
Value added services revenue grew 20% in constant dollars driven by higher volume increase client penetration and select pricing actions.
GAAP operating expenses grew 11% non-GAAP operating expenses grew 13% led primarily by personnel expenses from head count additions over the past year.
Excluding losses from our equity investments of around $90 million.
non-GAAP non operating income was $32 million benefiting from higher interest income due to rising rates and a few other items.
Our GAAP tax rate was 19, 3% and non-GAAP was 19, 4%.
GAAP EPS was $2 three.
non-GAAP EPS was $2 nine up 17% over last year, including inclusive of a three point drag from the stronger dollar.
Through the first three weeks of April U S payments volume was up 6% with debit up 6% and credit also up 6% compared to four years ago, They are up 54%, 63% and 45% respectively.
Key markets around the world, we saw continued strength.
As transactions grew 10% year over year, and a 50% about four years ago.
Constant dollar cross border volume, excluding transactions within Europe grew 28% and was 47% about four years ago.
Card not present non travel growth was 77% about four years ago travel related cross border volume, but 31% over four years ago.
Moving now to our outlook for the third quarter.
Growth in domestic payments volume remained stable around the globe as we said last quarter. The recovery from Covid is behind US now for domestic volume.
Both the omicron impacts from last year in January and February U S. Domestic volume growth rates have ticked down in March.
Driven by the factors we discussed earlier.
We believe that some of these factors will persist through the third quarter as such we are resuming March and April trends will continue in the U S for the rest of the quarter.
In aggregate, we expect the international growth trajectory remains largely unchanged from the second quarter.
On the cross border front, the travel recovery trend has been steady and generally in line with our expectations. So far in fiscal year 'twenty three.
The cross border travel index for 2019, excluding intra Europe has been improving at a rate of five to six points each quarter.
Assuming this trend is sustained through the third quarter.
The big drivers recovery in Asia, continuing, especially driven by mainland China.
We expect Chinese travel to extend beyond Asia to Europe , as we enter the summer.
On the cross border E Commerce front, but also assuming recent trends continue adjusted book Crypto related volatility.
It is important to note that even as the cross border business continues to recover relative to 2019 the year over year growth rate will continue to slow down as it has over the past few quarters.
Also currency volatility moderating and we are now lapping very high currency volatility from the third quarter of last year.
Our value added services and new flows businesses have grown much faster than our consumer payments business sustaining faster growth rates for these businesses remains a critical priority.
Client incentive growth is expected to be higher in the second half than it was in the third.
This was driven by some delays in renewals that were expected in the first half as well as some significant renewals that were anticipated in fiscal year 'twenty four but are now happening in the second half of fiscal year 'twenty three.
In the first half client incentives as a percent of gross revenue was below our outlook range of 26 into half 227, 5%.
In the second half this percentage is likely to run above the high end of the range the.
We expect to finish the year in the upper half of the 26 into half 27, 5% range.
When you pull all this together third quarter net revenue growth is expected to be in the low double digits inclusive of an approximately one point drag from exchange rates.
As we indicated previously non-GAAP operating expense growth is expected to moderate through the year our expectations remain unchanged.
Q3, non <unk> non-GAAP operating expense growth is expected to be two to three points lower than the second quarter inclusive of an exchange rate impact, which may add half a point to growth.
And Q4, non-GAAP operating expense growth will likely be another two to three points lower than Q3.
non-GAAP result, excludes certain acquisition related item and the litigation provision from the third quarter last year.
Nonoperating income will continue to benefit from the attractive rates were earning on our cash balances as you know short term rates have been highly fleet, which is very helpful. Given that we always have very low duration on our cash balances.
Interest income from cash will likely offset interest expense from debt by $5 million to $10 million in the third quarter.
Our tax rate is expected to remain in the 19% to 19 in the 5% range in the third quarter.
As we've said previously if should there be a recession or a geopolitical shock that impacts our business slowing revenue growth below our assumptions, we will of course adjust our spending plan by re prioritizing investments scaling back with delaying programs and pulling back as appropriate and personnel expenses.
Operating spend travel and other controllable categories.
In summary, as Ryan said, Lisa today has three robust growth engine consumer payments, new flows and value added services.
Our results in the second quarter attest that growth remains healthy across all three businesses.
The opportunity at Wassa and the runway for growth remains long.
With that I'll turn this message.
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 you will be announced prior to asking your question to ensure all questioners their head. 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.
Our first question comes from Timothy <unk> with Credit Suisse. Your line is open.
Great. Thank you for taking the question I wanted to talk a little bit about visa plus a little bit on the mechanics, and sort of what could be and then a brief follow up so on mechanics. My understanding is as you mentioned apps neo banks and wallets can be a part of this but what about the prospect of any accounts being able to be attached to a PMA.
Jim that's associated with visa plus many traditional bank accounts and also understand that at present, the paint named concept and visa plus is domestic only but potentially has the.
I guess, the chance to expand to cross border.
Thanks for the question.
Just before before I get into two specific parts of that you asked about his backup visa plus is a great example of how a lot of innovations and visa work.
Our team started with a problem in the market, which is people have we all have these apps with money in them and it's not easy to get money from one app to another and so starting with the problem, which then created the opportunity. We then together.
With a number of different parts of the company laid out a roadmap and then announced the paint aimed feature in the visa plus network I guess it was a couple of weeks ago.
And like anything to find product market fit we are starting with kind of some very specific use cases, so yes domestic.
Yes, we have started with a few partners who happen to be but not just in the PDP wallet.
Business like Paypal is with both Venmo and Paypal, We also mentioned Western Union.
There was a launch partner with us.
In theory.
<unk> construct could be extended to really.
Any source of funds on any surface.
But we're really focused on it's early days, we just launched we think it's a great idea. We think it's got great product market fit we've gotten really good feedback from the market.
We're focused on launching in the U S with.
The partners that we mentioned and we will go from there.
Thanks for the question Tim.
Next question Jordan.
Our next question comes from Tien Tsin Huang with Jpmorgan. Your line is open.
Tien Tsin are you there.
I have Jennifer can you hear me, yes, now we can.
Alright got that thanks for taking my question and for all the good detail here just I want to make sure I just can we infer from the no change in the operating expense outlook here episodic went through that.
The modest slowdown you saw in March is limited to the U S and largely inflation I think tax related it.
It sounds like we shouldn't extend beyond third quarter from what you see but otherwise no real surprises.
And the consumer globally I, just wanted to rehash that back to you.
Yes, the short answer is yes.
We think the consumer is still.
In good shape.
As we said spending across.
Most categories other than a couple of I mentioned like fuel and some retail goods price cutting very strong across services strong across the travel and entertainment strong and non discretionary.
So yes.
That's how we feel.
Next question Jordan.
Our next question comes from will Nance with Goldman Sachs. Your line is open.
Hey, guys. Appreciate you taking my question you just had a couple of instances of several large merchants made the decision to start routing more ecommerce traction more e-commerce transactions over alternative networks over the past three to five months. So I just wanted to maybe get an update on your thoughts around some of the recent regulations in the U S based on.
Conversations with acquirers merchants and issuers are there any updated thoughts or expectations around the potential impact as new regulations are implemented over the next several months.
No updates, but I'll just kind of against summarized for you how we see things.
The changes that the fed put in place were consistent with our expectations no changes to the card present side of things obviously in the e-commerce side of things.
It requires issuers to enable to an affiliated networks for AECOM.
Most visa issuers were already in compliance are those that are will be.
We have said and continue to believe that there'll be minimum impact in fiscal year, 'twenty three and beyond that it's yet to be determined and we'll kind of see how the marketplace plays out.
Continue to believe that merchants are going to want to choose to route transactions to visa for a number of reasons.
One is.
The E comm space, the merchants bear the liability for fraud in ecommerce.
So the ability to save a couple of basis points and cost has to be weighed against the risk that comes from a liability of fraud in the ecommerce space.
We believe that our tools capabilities and platforms to help reduce fraud are second to none.
We've got advanced fraud, and risk processing capabilities that help both issuers acquirers and sellers reduce fraud.
And we've also got a product that has dual messaging functionality that.
In a number of different use cases, whether it's airlines or hotels or rental cars or you know in.
The retail space, where there is ordering multiple products that are shipped at different times.
The enhanced dual messaging functionality.
As you know is really required so.
As always.
We're going to we're going to continue to compete vigorously we're going to continue to invest in our products our capabilities our services the.
The market is very competitive today, it's going to get more competitive, but we like our chances to continue to win.
Next question Jordan.
Next question comes from Trevor Williams with Jefferies. Your line is open.
Great. Thanks, I just wanted to follow up on value added services and how much cyclicality, we should expect on that line and they have been consistently growing faster than net revenue massage I know you said maintaining that elevated growth in new flows and value added services as a priority but if.
If we are in an environment with slowing volume growth just how do you expect value added services in aggregate and I know, there's a wide range of what gets folded in.
Under that label, but just in aggregate, how you expect value added services to hold up relative to the consumer payments business. Thanks.
Yeah, I'll start and I'm sure Ryan who lab.
Yes, we our goal of course is to grow the value added services business faster than the consumer payments business and you have to remember that the secular growth in that business.
Coming from adding new services, which we are doing regularly from expanding services outside the U S, which we're doing as well as deepening penetration with existing clients because all of them by all of the services.
So theres already a secular growth component in terms of being affected by market trends. There are services clearly that are linked to transactions.
That's true of many of our services like our DPF business, which is issuer processing on our cybersource business and even to some degree the fraud businesses. So yes, if transactions are impacted in some way or there will be some impact on it but there is underlying secular growth in that business I don't know if you'd add anything nothing that's well said.
Next question Jordan.
Our next question comes from Bob Napoli with William Blair. Your line is open.
Alright, Thank you and good afternoon I wanted to follow the growth in <unk>.
<unk>.
Yes.
Networks I just wanted to follow up on the evolution of new technologies.
AI.
Blockchain and how that's affecting your business how pizza is utilizing those technologies.
And do they add any opportunities or risks to your business.
Paypal I think I I think I heard the gist of the question cutting in and out a little bit let me, let me hit AI and blockchain I think that's what you're asking.
More broadly.
We're obviously monitoring anything and everything that's impacting commerce and money movement around the world.
Our approach is what it has been which is to lean into those technologies and use them to add value to our products and services and clients and capabilities around the world.
Just I guess hit AI and blockchain on AI clear.
Clearly a lot of activity in generative AI right now.
Before I get to that I'll, just mention that we have a long history of developing and using predictive AI and deep learning. We were one of the pioneers of applied predictive AI, we have an enormous dataset that we've architected to be utilized at scale by hundreds of AI and ml different services that piece.
Use all across visa, we use it we get it to run our company more effectively we use it to serve our clients more effectively and this will continue to be a big part of what we do.
As you transition to generative AI.
This is where we see this as an opportunity to take our current AI services to the next level.
We are kind of as a platform experimenting with a lot of the new capabilities that are available. We've got people all over the company that are.
Tinkering, and dreaming, and thinking and doing testing and figuring out ways that we could use generative AI to transform how we do what we do which is deliver simple safe and easy to use payment solutions and we're also spending a favorite time thinking how generative AI will change the way that sellers sell in we all buy in.
All of the shop. So if that is it is a big area of opportunity that we're looking at in many different ways across the company.
In terms of.
I guess blockchain and crypto.
As far as we see it is still early days still emerging technologies.
But as we've said in other venues, we see the potential for blockchain and we see the potential for stable coins.
If you look at what we're doing in the market today.
It's relatively basic but I'd call. It important work, we're enabling on and off ramps on crypto, where we're working with exchanges around the world to issue their users visa credentials and we're developing the capability for our issuer and acquirer partners to have a choice to settle in stable coins and we're engaged.
Aging with central banks, all around the world on CBD C priorities.
Now the stuff, we've got going in the lab. If you will the R&D work that were doing is were testing in ideating on all sorts of different ideas on how we could leverage blockchain and web three and layer one layer two solutions smart contracts I mean, we've got teams of people that are exploring all of those different types of innovations and we'll see how they play out.
In the market and if theres things that scale, we want to be part of that.
Next question.
Our next question comes from Sanjay <unk> from <unk>. Your line is open.
Yes.
Thank you I'm just trying to think about all the areas that are impacting you differently than what you may have planned for for this fiscal year like this transitory impacts that you mentioned in March and April .
Persisting and then the moderating FX volatility as we pull up and think about the fiscal year do you feel like we're in about the same place where you started in terms of your forecast given the strength in other places just trying to think through all of that thanks.
I think that's right.
You know clearly the moderation and volatility is not a big surprise.
Volatility last year with very high by historical standards.
Only thing they have held up better than we expected so far this year and even though there I'd say a little bit higher than long run mediums, but not in last year was with real highs that we hadn't seen in a while so that's not a surprise the cross border business is recovering.
Most.
On track with our expectations, which again, we had no real crystal ball, but we are very close to what we were expecting and it's recovering nicely and it's exactly as we expected Asia driving at China, playing an important role the cross border E Commerce business in general the ecommerce business is holding up well.
<unk> is very strong.
Especially Europe Europe is strong defined what we may have expected going into the year. If there is a positive surprise, it's clearly Europe .
And then other parts of the World like Latin America. Many most parts of Latin America, and the Middle East are also doing doing well in Asia is recovering.
So yes, I mean as you would expect some things are better than you expect some things a little bit lower but in aggregate the business is doing as well or better than we expected as you saw from our results.
Next question.
Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
Good afternoon, guys just going back to your initial expectations for fiscal 'twenty three at the outset of the fiscal year. I believe you were forecasting that Q4 net revenue growth would accelerate versus Q3, just wondering if that's still the case given some of the quarterly moving parts here, including on the incentive line. Thank you.
I don't think we gave you.
<unk> revenue growth outlooks.
So I don't know exactly where that came from I mean, we said we gave you some sense of our planning assumptions for the full year and said that he would give you one quarter out our best sense of the quarter out, which we've done for Q3, and we'll give you our best sense of Q4, when you get to July .
Next question.
Our next question comes from Lisa Ellis with Moffat Nathanson Your line is open.
Hey, good afternoon, Thanks for taking my question.
Just a question on the upcoming official launch of set now in July Brian You mentioned in your prepared remarks of course that direct works, where dozens of other networks around the world.
Are you anticipating connecting into fed now and can you just update us on how you see the rollout of fed now affecting particularly.
Okay.
Thanks Lisa.
We want to connect to any real time payment network in the planet on the planet and that's been our track record. So far that's the short answer to the first part of your question is.
This backup.
And I'll just take a minute on this.
Before I dive into the fed now let me put it in context as it relates to visa.
Today, I will start with visa debit visa debit is a feature rich widely adopted safe simple secure payment option.
We've got global broad based acceptance, we've got dual message capabilities as I mentioned earlier, well established disputes disputes and charge back processes.
Well understood rules and accepted rules not just in the U S, but around the world. We've got zero liability fraud protection <unk> capabilities risk management tools security services, and it's a really really good customer experience. It's a great buying experience, it's a great selling experience. So that's visa debit on on visa direct.
<unk> visa direct builds on all of those features to scale the ubiquity.
Great experiences to deliver push payment solutions, both domestically and around the world as I mentioned earlier to 7 billion endpoints.
And there are two it's a really really good customer experience both for the user and for the.
Kind of a enabler of the experience.
Fed now in context of all of that.
So just to talk specifically about fed now the.
The first thing I'd say is that modernizing the payments infrastructure in the United States is a smart thing to do it's a necessary thing to do and it's good for Americans.
No.
It's something that is a good thing happening in the U S and.
And I'd also say that any forced that digitizing money movement is a catalyzing force for all of us and I expect that the fed now like PCH, it's going to take some time it will eventually get traction, but it will take some time to build adoption.
And one of the most.
I'd say it this way one of the most powerful capabilities and payments is ubiquity.
RTP doesn't have that yet in the U S. It will happen, but it's going to take time.
And the other thing I'd say is that in RTP transaction is a relatively simple transaction type it's instant it's permanent and it's irrevocably.
I think over time, it'll get enhanced but.
That's kind of where we are so.
If you take all that and saying what does it mean.
I think the most instructive.
Thing to do as we think about real time payments in the U S as look around the world and.
If you go to the U K, we've had faster payments in the UK for 15 years now.
We haven't seen much if any impact on visa debit in the UK is also it's a robust and growing market for visa direct.
All right.
I think we will see what happens we'll see how things.
<unk> in the U S, but kind of like I was saying earlier, we like our products, we love our clients, we love the capabilities and teams that we have and we feel good about our ability to continue to add value and grow the businesses in the U S. Next.
Next question.
Our next question comes from Reena Kumar with UBS. Your line is open.
Afternoon. Thanks for taking my question Middleby connect seems like it could be a bigger opportunity to capture BBB Cross border I know Ryan you mentioned that over the last six months.
Alright, thanks for BBB cannot.
Talk about the competitive environment on the sales process. It does and if you can give us a sense of how much volume of implants.
Thank you, yes, thanks for the question.
We're building out a new network.
We know how to do that and we also know it takes time.
If I if I give you an example, and then come back to your question.
Excited to talk with all of you about the success, we're having with visa direct the billions of transactions.
<unk> the use cases everything that we're seeing now that journey started many many years ago country by country client by client working with our issuing clients, especially to get into their tech queues build out the functionality and then fast forward many years and we're.
Having the success that we're having with that platform today <unk> connectors in the earlier stages of that so to your question around the sales cycles.
We know how to do it we've done it with other networks as we built out but it takes time.
Country by country around the World, we're working with our banks, we're helping them understand the value of the product and the solution, which are almost unanimously is the easiest part of the sales process like when you compare <unk> versus the alternatives that are out there I mean I mentioned in my prepared remarks.
Side by side almost any other alternative thats out there <unk> connect is a far superior product what it takes to work. So we're working on it country by country I mentioned some of the numbers and in my prepared remarks, I don't have any numbers to share today beyond those.
And we expect over time, we'll share more with you about the success, we're hopefully have at <unk>.
Question.
Our next question comes from Dave Koning with Baird. Your line is open.
Hey, guys. Thank you and my question just personnel expense was up 24% year over year was one of the biggest increases we've seen which is kind of in the face of a lot of tech companies that are cutting why was it up so much I guess, it's just a question.
Yes. The additions we have made over the last 12 months and head count. There is also some unusual items that flow through the leather offset the deferred comp. It hits you on the personnel line, but it's offset on the nonoperating income line.
That distorts it a little bit, but you will see that that growth rate start to decline quite a bit because we've been moderating head count increases as we've gone through the year.
And it's all incorporated in the outlook. We gave you for expenses, which we told you with the growth of expenses will flow through the year.
Just two or three points lower than last quarter. This quarter it'll be two to three points lower next quarter and another two to three points lower than the fourth quarter and are on track for that.
Last question Jordan.
Our final question comes from Darrin Peller with Wolfe Research Your line is open.
Hey, Thanks, guys.
We heard your comments on third quarter growth expectations, but would just love to hear a little bit more on full year, you've obviously outperformed so far, especially on a really on both reported and constant currency basis. The first fiscal quarters, and then guidance seems to be shaping up better than your full year outlook. So just maybe a little more comment on how you see the full year versus guidance.
And then I guess Ryan on the yields it looks so strong is that do you see a long runway for value added services to keep growing as a percentage of the U of every transaction revenue mix going forward, so that back and keep the sustainable.
Yeah look I think we'll stick with what we said earlier I think you have a good sense of the trends and if the trends continue you have it's very easy for you to assess for the fourth quarter would look like.
And as it relates to <unk>.
You added services I don't know Ryan if you want to add anything, but clearly I mean, the the approach to value added services as a yield enhancer. If you have the transaction the more value added services you can provide the higher the yield you can get on the transaction and that is clearly the objective yes.
We've got great sales team great product teams all around the world Theyre doing a great job sitting with our clients, helping them understand these products and services and getting those products and services embedded into our clients.
We've got a very robust product pipeline across all of our various types of value added services.
So we're optimistic about the ability to continue to grow that business.
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.