Q3 2023 Visa Inc Earnings Call
Welcome to Visa's fiscal third quarter 2023 earnings conference call. All participants are in a listen only mode until the question and answer session. Today's conference is being recorded if you have any.
You may disconnect at this time I would now like to turn the conference over to your host Ms. Jennifer Como Senior Vice President and global head of Investor Relations Ms. <unk> you may begin.
Thanks, Jordan good afternoon, everyone and welcome to Visa's fiscal third quarter 2023 earnings call.
Joining us today are Ryan Mcinerney, Visa's, Chief Executive Officer, <unk>, <unk>, Visa's, Vice Chair and Chief Financial Officer, and Chris saw these as Chief Financial Officer designate.
This call is being webcast on the Investor Relations section of our website at Investor Dot visa Dot com.
A replay will be archived on our site for 30 days.
A slide deck containing financial and statistical highlights has been posted on our IR website.
I also remind you that this presentation includes forward looking statements. These statements are not guarantees of future performance and our actual results could differ materially as a result of many factors.
Additional information concerning those factors is available in our most recent annual report on Form 10-K, and any subsequent reports on forms 10-Q, and 8-K, which you can find on the SEC's website and the Investor Relations section of our website.
For non-GAAP financial information disclosed in this call the related GAAP measures and reconciliation are available in today's earnings release.
And with that let me turn the call over to Ryan.
Good afternoon, and thank you for joining us.
Our financial performance in the third quarter of 2023 was strong with net revenues up 12% year over year.
non-GAAP earnings per share was $2 16.
Up 9%.
Overall, our global quarterly payments volume was up 9% year over year.
In the U S quarterly.
Quarterly payments volume was up 6% as expected primarily due to moderating inflation.
Outside the U S.
International payments volume was up 12%.
Excluding intra Europe total cross border volume remains strong up 22%.
With cross border travel volume at 136% in 2019.
Processed transactions grew 10% year over year.
As I mentioned on our previous earnings call. My priorities are focused on doing everything that we can to accelerate our growth by executing our strategy.
Including supporting our go to market teams.
Delivering for our clients shipped.
Shipping innovative products even faster.
Selling our solutions, even more effectively.
With those priorities in mind.
I would like to review our progress across our three growth levers consumer payments.
New flows and value added services.
We continue to make great strides growing and expanding our consumer payments business.
Winning with new and existing clients and.
And shifting volume to visa from a wide array of local <unk>.
Our regional and global competitors around the world.
Our clients tell us they are choosing to deepen and expand their partnerships with us for a number of reasons, including.
Including our people.
Our products.
Our value added services, our new flows.
And our brand.
I'll share a few examples.
First our people.
We consistently hear from our clients that they deeply value of the advice.
Local support and partnership they receive day in and day out from our outstanding team members around the world.
They also appreciate our thoughtful industry leadership on important and complicated issues across the ecosystem.
In fact in our latest global net promoter score survey or.
Our clients rated us a 73.
In the U S.
We retained our position of serving eight of the top 10 credit unions by recently renewing one of the largest players in this space.
Pentagon Federal credit Union.
While there are many reasons for our success with Penn said, our people and our local market relationship model made the difference.
Just like it has for over 350 U S community Bank and credit Union renewables this year to date.
Payments is a local business.
And our priority to invest locally with great talent has paid off.
For example.
Across eastern Europe .
Intesa Sanpaolo will issue visa debit in Croatia, Hungary, Romania, Slovakia, and Slovenia, representing over 3 million visa credentials.
Second our payment products and innovations consistently helped us win.
Our clients tell us they choose visa because our innovative products help ensure they are delivering leading edge payment solutions to their customers.
For example in Korea.
We recently renewed our partnership with Hyundai code.
As part of our new partnership.
Honda will be taken advantage of our digital payment solutions like data and analytics services to launch a series of new innovations.
Hyundai will grow their share of visa cards in credit and debit for consumer and business.
Our innovation also comes from targeted value propositions and traditional products.
And we are very pleased to have signed a new long term partnership with the Natwest group, our consumer debit and credit.
Third our value added services are helping us win in consumer payments.
Our value added services, such as consulting and analytics.
AI driven data solutions risk solutions and processing are a critical differentiator that helps our clients innovate and grow Boston without having to use their most scarce resources technology and engineering.
For example, rocket ton card a subsidiary of <unk> group, which operates the largest e-commerce marketplace in Japan.
<unk> has signed a new credit deal with visa to further their strategy to become a top global player.
As part of our partnership.
Rocket ton card will utilize visa processing capabilities.
And dedicated visa consulting data science and analytics teams to support them on strategic initiatives.
Fourth.
Our new flows capabilities.
Increasingly our new flows capabilities, such as visa direct R&M.
Are an important differentiator to our clients when they are making consumer payments decisions.
A great example, as cash App.
With 53 million monthly transacting actives cash App has renewed and expanded its agreement globally and.
Encompassing card issuance.
These are direct.
Value added services.
And last but certainly not least our brand.
In many cases, our clients ask their customers, which brand do you prefer.
Would you spend more if we issued this brand or that brand.
And our clients consistently tell us that consumers overwhelmingly prefer visa.
We see this particularly play out with co brands.
For example for many of the largest airline co brands in the World, We remain a partner of choice and.
And we recently renewed with Korean Air and signed a new agreement with Breeze Airways.
We also won the co brand portfolio with Allegiant travel company, the parent company of Allegiant Air.
In addition in Latin America, we expanded our relationship with lifestyles Avianca is frequent flyer program from our existing portfolio as in nine countries with 18 issuing banks to an additional four countries in the Caribbean region.
And finally, we signed a co brand agreement with Indian conglomerate Donnie.
Serving 400 million customers through retail airports and online travel services among others.
Let me now turn to new flows again with a focus on how effectively we are delivering on our priorities.
Total new flows revenue was up 20% in constant dollars.
Commercial volumes increased 9% in constant dollars.
To total $405 billion.
In terms of how we go to market.
We are focused on adding commercial products to our existing consumer relationships.
Hey Bank, a leading bank in Thailand has renewed its relationship across debit and co brand as.
As well as signing a new deal to launch a new business debit card to serve Smes and micro businesses.
Hogs to girl.
A key Brazilian fintech clients already leveraging our consumer credit and prepaid and commercial prepaid products.
We will expand in the commercial space with the launch of visa business credit for their base of 28 million clients.
As we do in the consumer space.
We are also constantly working with commercial clients as a strategic partner to develop and deploy unique and innovative solutions.
A recent example is with SAP.
The global market leader in Enterprise application software, which has signed a deal with us across multiple countries in Asia Pacific.
We will integrate visa virtual card.
And business solutions payment provider capabilities into SAP business technology platform.
SAP serves more than 46000 customers across Asia Pacific.
This deal will create an embedded finance solution for their customers to make BTB payments.
Hoping to improve their working capital positions and enhance their supply chains.
For visa direct.
Third quarter transactions grew 20% and were $1 8 billion.
In Latin America, we had a bank client transition it's on us domestic PDP transactions to an internal ledger system and while it could be impactful to our transactions over the next several quarters. The impact of revenue is expected to be minimal.
At the same time for their other transactions. This client will continue to utilize our interoperability capabilities provided by yellow pepper.
I am very excited about visa direct, particularly as we enter new markets and increase our cross border presence.
Recently, we have expanded or entered several key markets, including in France with Lydia.
Leading PDP provider with over 7 million users.
We renewed our issuance relationship and we have signed a visa direct deal to enable their users to top up their wallets using an eligible card.
In Bolivia.
With Fintech labor laws.
Called Lula visa.
Visa direct will be enabling domestic PDP transactions within the app.
And yellow purple, we'll be providing alias directory services.
In Mexico.
With Fintech <unk>.
Visa direct will enable <unk> to be cross border supplier payments for thousands of SME clients in industries, including textiles software hardware and electronics across multiple corridors.
And we've also continued to expand corridors with important cross border partners.
For example revenues.
With over 30 million users have.
<unk> expanded its remittance service with visa direct to 89 markets. After just launching in July of 2022.
Similarly transfer go across border provider in the UK, serving 6 million customers has expanded its visa direct enabled corridor from 32 in 2020 to over 160.
New flows continue to be an important part of visa's growth story, and our teams are effectively selling and activating our solutions.
Now I will touch on value added services.
Our go to market approach remains focused on three growth areas.
Deepening client penetration of existing products.
Expanding geographically.
And building and launching new solutions.
Unlike our core business.
Our growth in value added services is often driven by selling a larger number of smaller solutions.
This quarter, we succeeded in selling more than 300, new issuing services.
600, new acceptance services, and almost 500, new risk and identity services in some cases, even within the same client.
Our sales teams continue to work day in and day out with our clients to understand and resolve their pain points and realized new growth opportunities.
Altogether in the third quarter, we generated $1 $8 billion and value added services revenue up 19% in constant dollars.
A couple of examples of new value added services to highlight this quarter.
First our partnership with pay U K.
The account to account payments operator in the U K was recently announced.
We will be piloting our new fraud capability RTP prevent.
Which is uniquely built for instant payments with deep learning AI models.
Using RTP prevent we can provide a risk score in real time, so banks can decide whether to approve or reject the transaction on the RTP network.
This is a great example of building and deploying entirely new solutions and our network of network strategy.
Second our.
Our recent announcement of our definitive agreement to acquire cloud native issuer processing and core banking platform Pismo.
We believe that Pismo will allow us to strategically serve our clients through additional capabilities with core banking ledger and issuer processing through cloud native Apis.
Additional geographies.
With operations in Latin America, Asia Pacific and Europe .
And additional products with credit and debit.
Debit prepaid.
Prepaid and commercial cards as well as connections to local networks, including pics in Brazil.
From a network perspective.
Issuer processing and core banking have become important elements to support issuers.
Activate card credentials and distribute value added services.
The transaction is subject to customary closing conditions, including applicable applicable regulatory reviews and approvals and is expected to close by the end of 2023.
To wrap up.
Over the last few months I have traveled across the globe meeting with clients partners and regulators and I continue to see enormous opportunity and momentum.
Our brand capabilities innovation and partnership approach continue to position us well for visa future growth.
But the most important aspect is our people.
And with that in mind I would like to welcome the newest member of our executive team Chris So.
Will become Visa's Chief Financial Officer on August one.
Chris brings to visa more than 25 years of finance leadership experience from global high growth companies.
His deep experience in finance and technology, plus his leadership in growing and scaling businesses will be extraordinarily valuable to us as we continue to drive growth and better serve our clients and customers around the world.
Plus as I am sure you will soon learn.
This is a real hands on business builder.
With a passion for technology and an intense focus on people, who will fit in well with the culture of visa.
I've asked Chris to join the Q&A portion of our call today, but please remember he isn't our CFO for a few more days.
Before the Q&A, let me hand, it over to the salt.
Provide financial highlights for the quarter and our thoughts on the rest of the year.
But first.
I know I speak on behalf of all of these and our investors that we are deeply grateful to you for your outstanding strategic and financial leadership.
I have worked shoulder to shoulder with the soft for the past eight years and I continue to be an origin.
He is a world class CFO and if there is a CFO hall of Fame I am confident he will be a first ballot inductee.
We wish you all the best.
So for likely the last time on an earnings call in your career.
Over to you for <unk>. Thank.
Thank you Ron good afternoon, everyone.
Fiscal third quarter net revenues were up 12% and GAAP EPS up 25%.
non-GAAP EPS was up 9%.
In constant dollars net revenues grew 13% and non-GAAP EPS grew 11% we.
We have now lapped the impact of Russia.
Key highlights.
In constant dollars global payments volume was up 9%.
Index for 2019 global payments volume was up 48%.
Payments volume was up 6% year over year, consistent with expectations and stable since March.
<unk> growth has remained steady at pre COVID-19 levels of 8%.
Average ticket size is down 2% largely due to declining fuel prices and a general moderation of inflation across multiple categories.
Relative to 2019 U S payments volume was up 54%.
International payments volume growth was up 12% the uptick in international payments volume since the last quarter is the result of lapping the discontinuation of Russian operations.
Relative to 2019 international payments volume was up 43%.
So cross border travel recovery continues at the pace, we expected with volume ex intra Europe indexing at $1 36 versus four years ago, a six point improvement from the second quarter.
Travel across most regions picked up the travel in and out of Asia seeing strong gains along with travel inbound to Cemig and outbound from Europe .
Travel into the U S is still hovering at 2019 levels.
Our new flows and value added services businesses continued to grow and almost 20% in constant dollars.
In the third quarter, we bought back approximately $3 billion in stock at an average cost of $229 19.
And distributed $937 million in dividends.
We also added $500 million to the litigation escrow account, which has the same effect as the stock buyback.
Now onto the details.
In the U S credit grew 5% year over year debit grew 6% generally in line with March growth rates, both of the uptick in January and February due to lapping of omicron in 2022.
U S card present spend grew 3%.
Adjusted for fuel we saw a significant.
Difficult price increase last year U S card present spend was up 5%.
U S card not present volume excluding travel grew 8%.
U S process transactions growth was stable at 8%.
The step down in U S payments volume growth since March was driven by a 2% decline in average ticket size.
When we look at spend by category ticket sizes are declining most significantly in fuel and to a lesser extent in retail goods travel and food and drug.
As you know fuel prices spiked last year due to the Ukraine War travel prices spiked as the world Reopens post omicron goods.
Goods prices spiked due to supply chain bottlenecks and commodity inflation.
Excluding these four categories average ticket size growth is positive.
Consumer spend across all spend back from affluent to low spend remained stable since March.
Our data did not indicate any behavior change across consumer segments.
Putting all this together we continue to believe that the primary driver of the step down in U S payments volume growth since March is moderating inflation and that the consumer has remained resilient so far.
Moving on to international markets.
Constant dollars international payments volume growth rates was strong through the quarter in the major markets.
Latin America was up 20%.
Sameer region grew 28%, we're now lapping the impact of Russia.
Europe was up 10%, excluding the UK Europe volumes grew 23%.
The Asia Pacific, Excluding China grew 12%.
Global process transactions were up 10%.
Constant dollar cross border volume, excluding transactions within Europe were up 22% year over year up 49% versus four years ago.
Cross border card not present volume growth, excluding travel and excluding intra Europe grew 9% year over year and 74% above 2019.
Adjusted for Crypto currency purchases cross border E Commerce spending grew year over year in the low double digits in line with pre COVID-19 growth rates.
Cross border travel related spend excluding intra Europe grew 34% year over year.
Cross border travel, excluding intra Europe index to four years ago went from $1 34 in March to 139 in June .
I will into Asia continued to improve indexing at 118 for the quarter up more than 10 points from Q2, while.
While travel out of Asia was up almost 10 points to 107 looking.
Looking at mainland China, specifically cross border travel continued to improve but remains well below 2019 levels.
Travel outbound from the U S to all geographies.
To be strong in the mid 150 index for 2019.
Inbound travel recovery remained sluggish still just under 2019 levels.
While some of the mitigating factors is this quarter. The dollar remains quite strong relative to pre COVID-19 levels.
In Europe , excluding intra Europe .
Inbound and outbound travel remains robust with index for 2019 in the low 100, <unk> for outbound improving 10 points from the second quarter and in the low $1 <unk> for inbound.
Travel into Latin America, and the Caribbean also remained very strong indexing in the low $1 16 to 2019 levels.
Travel out of EMEA index in the 140 years versus four years ago, and inbound improved more than 10 points to the low $1 16.
Moving now to a quick review of third quarter financial results.
Service revenues grew 15% versus the 10% growth in second quarter constant dollar payments volume exchange.
Exchange rate drag was more than offset by business mix and pricing.
As a reminder, third quarter service fees reflect second quarter payments volume growth, which was helped by lapping omicron in fiscal year 'twenty two.
Data processing revenues grew 15% versus 10% processed transactions growth.
We have fully lapped the Russia impact and the key drivers of performance with value added services and pricing.
International transaction revenues were up 14% versus the 22% increase in constant dollar cross border volume excluding intra Europe .
Revenue growth lagged volume growth, primarily due to declining currency volatility and exchange ratio.
Other revenues grew 15% led by pricing consulting services and cost benefits.
Client incentives were 28, 1% of gross revenue in line with our expectations.
Revenue growth was robust across our three growth engines.
Zuma payments growth was driven by stability in domestic volume growth and transaction as well as growth in cross border volume.
New flows revenue grew 22% in constant dollars.
Volumes were up 9% in constant dollars and 58% over four years ago.
These are direct transactions grew 20% and as Ryan mentioned, but impacted by bank client that transition, it's domestic needs to be transactions to an internal ledger system.
While it could be impactful to transactions over the next several quarters the impact to revenue is expected to be minimal.
Value added services revenue grew 19% in constant dollars driven by higher volume strong advisory services and select pricing actions.
GAAP operating expenses decreased 1% non-GAAP operating expenses grew 10% driven primarily by personnel expenses from head count additions over the past year.
Excluding gains from our equity investments of $85 million non-GAAP non operating income was $37 million benefiting from higher interest income due to rising rates.
Our GAAP tax rate was 19, 2% and non-GAAP was 19, 4%.
GAAP EPS was $2.
non-GAAP EPS was $2 16.
Up 9% over last year inclusive of nearly one five point drag from the strong dollar.
We have signed a definitive agreement to acquire Bismal for $1 billion in cash subject to customary closing conditions we.
We will keep you posted on closing timing and financial impact.
In May we upsized, our revolving credit facility to $7 billion.
And renewed it for five years.
Through the first three weeks of July U S payments volume was up 6% with debit up 6% and credit up 6%.
Third to four years ago, they are up 56%, 65% and 47% respectively.
It has not measurably impacted volume so far.
In several key markets around the world growth was in line with the third quarter.
Transactions grew 10% year over year and up 54% about four years ago.
Constant dollar cross border volume, excluding transactions within Europe grew 20% and was 51% about four years ago.
Card not present non travel growth was 72% about four years ago.
Related cross border volume by 41% over four years ago.
Moving now to our outlook for the fourth quarter.
Growth in domestic payments volumes remained stable around the globe as such we're assuming recent trends will sustain in the U S and key international markets for the rest of the quarter.
On the cross border front, the travel recovery trend has been steady and generally in line with our expectations. So far for fiscal year 'twenty three.
The cross border travel indexed to 2019, excluding intra Europe has been improving at a rate of 5% to six points each quarter.
Assuming this pace of recovery continues into the fourth quarter.
The region to monitor closely is Asia, especially travel in and out of mainland China.
On the cross border E Commerce front. We're also assuming recent trends continue adjusted for crypto related volatility.
It is important to note that just as we saw in the third quarter, even as the cross border business continues to recover relative to 2019 the year over year growth rate will continue to slow down.
Also currency volatility is moderating and we are now lapping very high currency volatility from the fourth quarter 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.
In the fourth quarter, we expect incentive as a percent of gross revenues to be between 27.5% to 25%.
Initially you're at the high end of the 26 into half to 27, 5% range.
When you pull all this together, we expect fourth quarter net revenue growth of around 10% in nominal dollars with minimal impact from exchange rate shifts the.
The sequential slowdown is driven by three factors.
Quarter lag and recognizing service fees.
The expected slowdown in cross border growth.
And moderating currency volatility lapping very high levels reached last year.
As we indicated previously non-GAAP operating expense growth in Q4 will likely be another two to three points lower than Q3.
non-GAAP results exclude certain acquisition related items from the fourth quarter last year.
Nonoperating income will continue to benefit from the attractive rates, but on England, our cash balances.
Interest income from cash will more than offset interest expense from debt by around $30 million in the fourth quarter.
Our tax rate is expected to remain in the 19 to 19 into 5% range in Q4.
Assuming we perform as expected in the fourth quarter, we will deliver low double digit net revenue growth and mid teens EPS growth in fiscal year 'twenty three despite concerns about a slowdown.
And in exchange rate drag.
This once again demonstrates the resilience of our business the large opportunity that remains available to digitize cash globally and the opportunity to accelerate our growth by developing lots of new use cases, while layering on additional value added services.
To finish this will be my last earnings call as CFO of visa.
I want to thank all of you for your trust and support at all times you have kept us on our tools with our nose to the grindstone hopefully we've delivered for you. This.
This is also in my last call as a public company CFO .
Started this journey in September 2000, almost exactly 23 years ago.
To use a cricketing term some of you will understand.
Did not hit the switch century of earnings calls I fell as I entered the 19th.
On October 1st I will be switching over to your side as a shareholder of visa cheering from the stands as Ryan Chris and the team lead visa to another double and triple.
Thank you Ryan we've had a great run together.
Over to you Chris.
I'm going to Miss My finance team and the wonderful people of visa.
And as far as the CFO Hall of Fame goals I'm sure North CFO would invest in that business proposition.
And now Jennifer it's time for some Q&A.
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 ensure all questioners or 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.
Our first question comes from <unk> <unk> with Bernstein. Your line is open.
Good afternoon, and thank you for taking my question.
I wanted to ask about the block lawsuit.
They have been close partner.
Ishares, a cash visa card on which there is a benefit from interchange and Brian you talked about the partnership there.
Any comments you have.
The last two to be helpful. And also just broadly how should we think about the relationship with pinpoint.
Okay.
Yes, thanks for the question.
We have a wonderful relationship with block.
Deep partnership across many different elements as I mentioned.
As it relates to the lawsuit there was some confusion in the market by the lawsuit there's really nothing new here.
The lawsuit is included in the Mds <unk> 'twenty and thus the the loss itself is covered litigation under our share class structure. So I would really put it in the category is nothing new here and all the way back to the beginning of your question, we deeply value our relationship with block and feel great about the deepen and extend it.
Extended partnership we have with them.
Next question Jordan.
Our next question comes from Dan Perlin with RBC capital market. Your line is open.
Thanks, Good evening.
I wanted to just touch base real quickly on value added services from the standpoint of penetration for a second I think it's around 20% or so the company's net revenues, it's clearly yield enhancing so it seems like a pretty large business, but every time you talk about it it sounds like there's so much room for growth and it's hard for us to kind of pinpoint where you are in terms of penetration within your existing business. So.
Any way you could frame that either anecdotally or qualitatively would be great. Thank you.
Yes. Thanks for the question I mean, the truth is we are at the beginning of the journey across all of our value added services businesses. They all have enormous Tam.
We all have they have enormous runway in terms of the opportunity to continue to penetrate our acceptance solutions business, whether it's cybersource or verify our visa acceptance cloud I mean enormous amounts of runway there.
An issue we've talked about the opportunity we have now with Pismo when we close on that deal and the same thing with Dps risk and identity Advisory I mean, it really is they're all businesses that have enormous Tam. We're in the very early innings of our penetration and we don't see in any of those businesses.
We're close to.
Running out of runway anytime.
Thank you next question Jordan.
Our next question comes from Craig Maurer with Ft Partners. Your line is open.
Craig are you there yes.
Yes, thanks for taking the question sorry wasn't quick enough on these.
On mute button.
So I wanted to ask about the loss of.
What I think I heard was the visa direct client.
Latam and why the transition to an internal system for them and that leads to my follow on which is can you discuss the trends youre seeing globally in terms of domestic.
Payments moving away from or back to domestic networks. Your comments in the beginning of the call seem to indicate that there might be an acceleration towards the global networks to take advantage of what has clearly been greater investment levels into the capabilities. Thanks.
Hey, great. Thanks for the two questions I'll take the second one first.
We are continuing to see the benefits of our investment all around the world as I mentioned in my prepared remarks.
Seeing issuers consumers shift share to visa ship their preference to visa.
It happens in different ways in different countries versus the domestic schemes, but it is coming back to what you said, which is our ability to consistently invest in security features and token digitization and new digital used cases.
We believe is what's helping us win in that space.
Go back to the first part of your question.
These types of things are going to happen. When you are building out a new platform like we are in visa direct is still the very early days of building out visa direct we're expanding in geographies and use cases.
And as different partners use visa direct and they start to try it for different use cases, they'll find some of them work great in other ones they'll find opportunities to use it differently in the case of the situation in Latin America that I mentioned.
They started the journey of what they were working on using visa direct they found it to be a more efficient.
Way to get going in their journey and then they found that they built an internal ledger system that they didn't have originally.
But as I mentioned theyre going to continue to use our services for a number of things that they do and listen I think as we all talk over the coming quarters and years as we build out this platform, there's going to be ebbs and flows theres going to be use cases that grow faster than others and things that stick and others that don't.
We are building a new global business that has the reach of our platform is going to have.
Thanks, Greg.
Next question gentlemen, our next question comes from Sanjay <unk> with <unk>. Your line is open.
Congratulations.
Despite the concerns of choppy economy, and Disinflation Hassan you mentioned when we look at the July trends and obviously the trends in general over the course of the year they have been very encouraging.
And you mentioned the different categories, but as we look across the next 12 months anything to parse out or think about in terms of the comps there.
Or how you see things playing out.
As we get maybe even preliminary views on 2024.
Thanks Sanjay.
Yes.
The general term we've used all along is stability.
And we think things are still very stable.
You look at transactions growth, it's been very stable in the U S around 8%.
If you just adjust for the omicron uptick we had last quarter and you go back to pre COVID-19 trends or.
First quarter trends.
Transactions growth has been very stable.
Clearly some of the change in trend we've pointed to ticket size.
I don't think I want to get into talking about next year, we'll leave that to Ryan and Chris in October which is when we normally do.
Talk about next year, but more in the more near term the fourth quarter.
The biggest hit to ticket size has been fuel and fuel comparator.
Comparisons are going to moderate.
So that should help us a bit in the fourth quarter and thats reflected in our expectations.
In general.
I would say the trends, we're seeing across the board.
Unchanged from where they've been for the past several months.
Next question Jordan.
Our next question comes from Jason Kupferberg with Bank of America. Your line is open.
Thanks.
Best of luck to you I wanted to actually ask about.
Surcharges I know visa recently lowered the cap on the credit card surcharges to 3% from 4% just wanted to know is this in response to a trend of more merchants employing surcharges whether that might be.
<unk> noncompliant manner.
So are there any implications for visa, we should be considering from surcharges.
No no no implications you should be considering it won't surprise you, we don't feel great that consumers get surcharge, but of course in certain jurisdictions in the U S and around the world merchants have the ability to do that and some choose to do it many chose to do it and then they choose to pull back on it because it's not a great customer experience.
The small adjustment that we made that you referenced was one.
Making sure that when consumers do get surcharge, it's something Thats fair and equitable and that was the purpose of the change.
Next.
Jordan.
Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.
Hi, guys and Vishal since your last earnings call I got to ask you about incentives you Gotta go out on incentives question that way so.
As incentives look like theyre going to be towards the higher end of the range just the puts and takes that pushed it towards the high end was there more deal activity this fiscal year or different volumes that changed the incentives towards the high end.
Yes.
Thanks.
The other thing those nice things.
In general on incentives they were in line with what we expected.
So there were no surprises there.
Incentive everybody focuses on the percentage if you look at what really counts, which is net revenue growth, we had healthy net revenue growth in the quarter.
Even with the exchange rate drag we were almost 12%.
And the exchange rate drag would have added another point.
If you look at yields net revenue yields are higher than they were a year ago.
We did have some renewals happen earlier than we expected. So we did have some renewals come into this year and in Q3.
We might've thought would happen next year, but we're happy about that.
Always happy to renew clients, even if they have to do it a little earlier.
So all in all.
No surprises there.
Next question Jordan.
Our next question comes from Lisa Ellis with Moffat Nathanson Your line is open.
Hi, good afternoon, Thanks for taking my question.
Welcome questions as time will be missed I wanted to follow up on the prepared remarks callout on the partnership with pay U K around RTP prevent can you elaborate a bit more on that these are the types of value added services I know, we've all been eagerly wait.
Waiting to see so can you talk a little more about sort of what the scope is if the pilot and <unk>.
Exactly how that that service works and how youll be monetizing it.
Not in the pilot then over the longer term. Thank you.
Hi, Lisa.
Yes. Thanks. So it is one of the things we've been talking about is how we can build value added services for new network, specifically for our GP as it starts to grow and expand around the world.
So I guess, how it works to the core of your question. So first of all what we've done is we've built a real time risk score.
We built it uniquely for instant payments, where there's often unique cases of fraud in terms of how they work we built it using deep learning AI models and what it does is it enables banks to be able to decide whether to approve or reject the transaction in real time, which.
It's a capability that most banks, most real time payments networks around the world.
<unk> been very hungry for.
It's just score from 199.
It comes with an instant real time code that explains the score and what it does is it leverages our proprietary data that we have used to enhance our own risk algorithms as well as the data that we see on a lot of our.
Payment platforms include including visa direct.
And.
One of the benefits of us, bringing that to market is it integrates with the bank's existing fraud and risk tools, because we're often providing these types of risk scores to banks and they are ingesting them from us.
It directly integrates into their fraud risk tools or the real time information their systems know how to use it.
It can be automated into their decisioning algorithms and those types of things so.
If you think about it if you want if you back away. If you think about it it's similar to our visa advanced authorization service that we offer on visa net.
But we've built from the bottoms up clean sheet of paper, a customized solution leveraging deep learning AI models and integrated that directly into the bank system. So that they can they can ingest that in real time. The pilot is just getting going.
It's very early days. So we'll report back as we learn more and hopefully will have more examples like this to talk about around the world.
Next question Jordan.
Our next question comes from Ashwin <unk> with Citi. Your line is open.
Thank you.
Congratulations gentlemen.
Also Chris welcome and thank you for your help and partnership over the years.
I wanted to ask about value added services revenue yield there was quite solid.
And I wanted to ask whats leading to that would you call it sort of structural at this point.
Is it more episodic like in the past you had benefits from <unk>.
FX volatility or incentives things like that.
So that's the question.
Yes relative to FX volatility would not affect value added services, we don't count.
Treasury revenues and value added services.
So value added services are benefiting from structural and secular things first it's.
Deepening our penetration of existing clients. So it's a concerted effort to sell more services to existing clients.
Second is some of those services.
Not operating globally.
We are now making these services available around the world. So it allows us to clearly increase the scope.
Of the market.
And then third as you know we've been adding services over time. So this is a long term.
Growth engine for us our goal is to continue to grow it at a very hefty clip and think about it as you know.
To get a transaction and the mobile services you can layer on and the more value you can add to the transaction the more yield you can get on it so.
It's very much a growth engine one of three.
And we think that can go for a very long time.
Next question Jordan.
Our next question comes from Ken students Husky with Autonomous Research your line is open.
Hi, good evening, everyone. Thanks for taking the question I just wanted to ask you about cross border, obviously visa is safe.
Shaking some headwinds on the yield.
Our side in this business can you just talk about how much more of a headwind you think this is going to be in fiscal <unk> and.
In fiscal <unk> of next year compared to what we saw this past quarter. Thanks.
Yes.
Just to correct is the way to think about value added services yield and I know youre looking at the revenue and dividing it by the volume is there the yield on the transaction and then there's the yield on the exchange rate translation services, we provide.
Where the yield has gone down.
Because it was very high last year is on the exchange rate translation service.
We call our treasury revenues.
Because currency volatility last year was.
30% to 40% higher than it is right now.
Currently already right now is a little higher than the long term average.
But last year it was an extraordinary highs.
In fact in the fourth quarter, we will lap.
Some of the highest levels currency volatility reached last year.
Based on where Volatilities are today versus last year Volatilities are down almost 40%. So it's a sizable move so any yield difference you see.
In that line is because of Treasury revenues, it's not from a core cross border yields which remained very steady.
It's going to fluctuate based on currency volatility and really it's still decent it's just that it was very high last year.
The next question Jordan.
Our next question comes from Darrin Peller with Wolfe Research Your line is open.
Okay.
Guys. Thank you.
Visa right now is net cash for the first time I think since 2016 since pre the visa Europe deal and gross debt below one time.
No Youre target generally is one to one five times and the buyback frankly was a little bit light also tracking at about 76%.
Last year, you paid out about 76% of net income and buyback. So I think you would need to do a pretty big catch up in this quarter. So just curious to hear how you're thinking about capital allocation I guess, Ryan the multiples lower versus the market than it's been in a while do you see this as a good opportunity for buybacks to pick up pace or are there other reasons why you'd want to allocate capital differently. These guys.
Thanks again.
Yeah, I'll start and maybe Ron can add no. There's no change in capital allocation strategy, which is.
Pay a dividend the.
The dividend has a certain set of criteria we use.
Between 2000 percentage range of our EPS it gets to a certain yield in.
And it's almost $1 billion a quarter now.
We do buybacks generally at a pretty kind of free cash flow, we have historically not borrowed to do buybacks.
And clearly our first priority is to invest in the core business and to do acquisitions that make sense and as you can see we have been doing both.
In terms of the volume of buybacks.
Remember that we did contribute $850 million into the escrow account, which is also equivalent to a buyback. So if you count that in.
We are.
Probably around 9 billion also in buybacks, if I remember right. So far this year.
Clearly we have more capacity if you want to do buybacks, we've always said that.
<unk>.
If we felt that it was a disruption in the market.
<unk> stock was trading at levels that did not reflect in.
Intrinsic value you would be willing to step up our buybacks and borrow money if that made sense.
So obviously, we'll keep you posted if any of our plans changed Ron you may want to add some things.
Nothing to add you very well said comments.
Next question Jordan.
Our next question comes from Andrew Jeffrey with truly Securities. Your line is open.
I appreciate you taking the question and <unk> best of luck to you it's been a pleasure.
Brian I wanted to ask about.
Some of the commercial efforts that visa is making.
It's a pretty important driver of.
Sort of new flows the non consumer part of your business growth and this quarter. It was a little bit slower than overall volume can you just comment on the pipeline and what you see as the opportunities in commercial and how we should think about that business growing over the next few years.
Sure. Thanks for the question we remain we remain very excited about <unk> in general.
It's an enormous Tam and we're just kind of scratching the surface.
And we're very excited about commercial specifically, we have the largest commercial business on the planet as we've talked about in the past I think it's in the neighborhood of one five trillion dollars of payment volume and we've been we've been releasing numbers of innovations into the market in that space, We have released.
Visa spend clarity, which helps our clients with expense management visa commercial pay which helps with control. There's a lot of things we've done around enabling acceptance.
Around the world.
So we feel good about it as it relates to the volume.
Some of the dynamics that we're seeing in the commercial space are similar to what we're seeing in the consumer space and the impact from fuel and those types of things, but as.
As we think over the next 12345 years, we've never been more excited about the opportunities that we've got and we've never felt better about the product that we're putting into market and we're getting great feedback from our clients as well.
Next question Jordan.
Our next question comes from Ramsey El <unk> with Barclays. Your line is open.
Alright, Thanks for taking my question and congratulations to you this time.
I wanted to ask for a follow up on <unk>, you mentioned not seeing any impact yet I'm just wondering from your vantage point, whether youre now seeing that that routing choice more broadly available to kind of all merchants or are we still in the midst of an implementation and rollout and then just quickly and separately your tax rate guidance would imply no impact from the recent Brazil tactful changes.
That did impact Mastercard, but I'm just double checking that that's the case.
Why don't I I'll take the first part and metrics Ron take the second part it's early days with Greg II.
There's been a lot of work that happened ahead of the July one date, but there is also work still happening.
As it relates to our views on our ability to compete in this space, where we continue to be very excited and confident about our ability to compete.
I think that many merchants are going to still choose to route to visa.
You all know merchants bear liability for fraud in the ecommerce space, so when they're making decisions. It's not just a cost based decision and we bring a lot to merchants in terms of the way we help them with managed risk we have advanced fraud tools.
Advanced risk, scoring capabilities and as you know we also have the product functionality enabled by dual messaging to enable a lot of use cases that are key in the ecommerce space. So.
We are.
Feel very good about our ability to compete and there's been a lot a lot thats going to happen over the course of the next many months and quarters and we'll keep you posted on how it evolves.
Yes.
On the Brazil topic.
Your stock Mastercard, what was unique to them.
Really no change from our standpoint as it relates to Brazil.
Next question Jordan.
Our next question comes from Timothy <unk> with Credit Suisse. Your line is open.
Yes.
Great. Thank you for taking the question of Hassan. Thank you for all of Us being a gentlemen for all the help over the years I wanted to dig a little bit to actually. This question is for you you have a thought on the gap between nominal cross border volumes Accenture Europe and international revenue on a nominal basis, you talked about the FX volatility part plenty I was just hoping you could dig into a little bit about the other.
Factors that drive that gap, meaning corridor mix and any pricing and how we should think about those over the coming quarters.
Thank you.
It is largely volatility driven because of the very high <unk>, we had last year and more normal volatility we're getting to know.
Beyond that there is some FX impact obviously.
Line is always affected by FX more than any other line in the P&L.
And other than that there are always mix factors.
It depends on the corridor and all that.
As always some impact from that but I would say the bulk of it is the two we talked about the volatility in exchange rates.
Last question. Thank you.
Our final question comes from Tien Tsin Huang with Jpmorgan. Your line is open.
Hey, thanks, so much.
The last question. So I won't ask you for <unk> Thats my gift and way to thank you. So I'll spare you a macro question I'll ask Ryan instead on Pismo, but that's okay. Brian you mentioned I think you mentioned shipping products faster in your upfront remarks that made me think about this from a little bit is is buying pismo.
And the indication in any way that visa is more.
Im interested in owning tech and infrastructure that touches products, the consumer and that gives you a chance to develop products faster just I'm curious to get your thoughts on that it feels like youre widening the swim lane a little bit here is that fair to say, we'd love your thoughts. Thanks.
<unk>.
What we're trying to do is serve our clients I mean, that's where it all starts with and what our clients are looking for is they're looking for.
Innovative processing solutions. They are increasingly looking for cloud native API based services.
Processing is certainly one of those we've heard from clients around the world. Many of them are embarking on digital transformations that are processing platforms and so when we hear that from our clients. We immediately get to work on how we can help them how we can serve them.
We went through a global process looking at.
All of the different players around the world.
And we identified Pismo as the best we literally studied hundreds of companies, we met with dozens of them.
And after a deep thorough scan we identified pismo in Pismo is the kind of tech platform Tien Tsin that you were alluding to that is the type of tech that our clients are increasingly looking for and in this example, it was an opportunity for us to buy.
The leading player that can help clients serve their customers expand globally and deliver a lot of new leading edge use cases to their customers. So we're very excited about it. Thanks for the question.
And with that we'd like to thank you for joining US today. If you have additional questions. Please feel free to call or email our investor relations team. Thanks, again and have a great day Im. Please join me in wishing the soccer ball.
Thank you for your participation in today's conference you may disconnect at this time.