Visa Inc.

Welcome to Visa's Fiscal Third Quarter 2019 Earnings Conference Call. All participants are in a listen-only mode until the question and answer session of today's conference. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host, Mr. Mike Miletic, Senior Vice President of Investor Relations. Mr. Miletic, you may now begin.

Thank you, Jordan. Good afternoon, everyone, and welcome to Visa's Fiscal Third Quarter 2019 Earnings Call. Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer, and Vasant Prabhu, Visa's Vice Chairman and Chief Financial Officer. This call is being webcast on the investor relations section of our website at www.investor.visa.com. A replay will be archived on our site for 30 days. The slide deck containing financial and statistical highlights has been posted on our IR website. Let me 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 reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website. For historical non-GAAP financial information disclosed in this call, the related GAAP measures and the reconciliation are available in today's earnings release. Now let me turn the call over to Al.

Mike, thank you. Good afternoon, everyone, and thank you for joining us. It is clear from our strong results today that the business continues to perform well as we simultaneously invest to deliver growth in the medium to long term. Given that it was a busy quarter, I'm going to streamline my comments on the business performance and only offer a few headlines. Then I'll discuss how we are enhancing our capabilities through our recent acquisitions and investments. And finally, I'll review our progress in building partnerships around the globe with FinTech as well as our traditional clients. So let's start with our third quarter results. Revenue growth was better than expected at 11% or 13% on a constant dollar basis. Payments volume growth was 9% on a constant dollar basis or almost 10% excluding China, which continued to be impacted by some runoff of our dual branded cards that captured domestic volumes and have limited impact on our revenue. Cross-border growth rebounded up three points from last quarter, and client incentives were lower than anticipated. Processed transaction growth accelerated to 12%. Adjusted expense growth was 10%, reflecting marketing investments, the impact of the new revenue accounting standard, and a number of non-recurring items. And adjusted EPS growth was 14%, lapping a low adjusted tax rate of 18% last year. Vasant will share more details in his remarks. As we look ahead to the future, we're pursuing our strategy by A, investing in growing and enhancing our network, including capturing new payment flows, building out our acceptance footprint, and expanding our base of clients. We're building our arsenal of value-added capabilities that could be components on our network or on other networks, what we call network agnostic. And C, we're fortifying key bedrock pillars of the business, talent, technology, security, and the brand. Against this backdrop, this quarter we announced several strategic acquisitions and investments that will accelerate our progress in capturing new payment flows and extend the boundaries of our capabilities and our network. First, we assumed control of Earthport in early May, and I'm pleased to say that as of July 4th, we've obtained full legal ownership. Earthport provides cross-border payment services via a network that connects with local ACH systems with direct connections in 88 countries. Before Earthport, through our Visa Direct capabilities, our debit credentials and ATM network, Visa could reach about half of the bank accounts. With Earthport, we've become a network of networks and have extended our reach to over 99% of bank accounts in the 88 countries, including the top 50 markets. Our integration efforts are well underway, and we are actively working to launch our first fully integrated experience prior to the calendar year end. which will provide a single connection for clients to push funds to cards via VisaNet and bank accounts via Earthport. Also in the quarter, we announced the acquisitions of Verify and the tokenization business from Rambus, which will help us in our development of network agnostic services and will be integrated with our existing suite of tokenization, fraud management, and risk solutions. This tokenization acquisition will enable Visa to extend the security and convenience of tokenization to all types of transactions, including the ability to support domestic card networks, account-based, and real-time payment systems. Before this acquisition, Visa could turn a 16-digit Visa credential into a token, but now we can tokenize a bank account, a domestic card network credential, or a ticket. Verify's best-in-class dispute resolution tools enable issuers to connect with merchants' data immediately when a consumer calls to dispute a transaction so that the issue is settled within one phone call. Verify is the industry leader with 25,000 merchant connections helping to decrease the time spent on resolutions while at the same time decreasing the percentage of chargebacks. Verify adds to existing Visa tools which are aimed at reducing customer friction across the entire payment experience. Last week, we announced the acquisition of Payworks, a point-of-sale software solution which enables acquirers to support merchant terminal payments via the cloud. This enables merchants to seamlessly and quickly implement new functionality, such as adding new payment types, thereby creating better customer experiences and lower merchant operating costs. PayWorks will add in-store payment processing to CyberSource's e-commerce payment platform to create a fully integrated omni-channel payment acceptance solution. As part of CyberSource's solution to acquirers, these capabilities will be white-labeled to drive more innovation in the payments ecosystem. Across Southeast Asia, we have partnered with and invested in Go-Jets. a ride-hailing service that has become a mobile super app featuring over 18 different verticals spanning payments, delivery, laundry, cleaning, tickets, and more. To give you a sense of the magnitude of GoJets, they have 108 million app downloads and half have been used in the payment service GoPay. We're working together to make digital payments easier for both GoPay and Visa users while expanding to new use cases. In the B2B space, we recently announced an investment in PayMate, a leading B2B payments fintech in India, who we have been partnering with in India and our Samia region since last year. PayMate operates a portal connecting 35,000 buyers and suppliers to provide buyers with a consolidated view of their accounts payable across all payment types. Through the use of Visa credentials, buyers and suppliers have access to better reconciliation data. Our partnership and investments seek to drive incremental volume to our network by helping big and small businesses bring more efficiencies to their payment processes, as well as transition from cash and checks to digital payments via a Visa credential. Visa Direct continues to deliver transaction growth of over 100% and opens up opportunities for additional payment flows. In the U.S. alone, over the last 12 months, more than 60 million Visa credentials have sent or received funds via Visa Direct, 75% of which have completed more than one transaction using Visa credentials. About 70% of these users have received funds, which can drive additional spend in our C to B business. In cross-border remittance, we've announced a new strategic relationship with Western Union. Western Union adds to our growing list of partners in this area, including MoneyGram, Remitly, and EMQ, allowing their customers to make cost-effective cross-border payments to a Visa credential with speed, convenience, and transparency. In addition to cross-border remittance, Visa Direct has also grown in the insurance disbursement space. Today, five of the top ten insurance companies in the United States either are using or in the process of enabling Visa Direct to facilitate quick and secure claims payouts to their customers. In Europe, we recently added our first insurance use case with insurance as a service provider, CETO, in partnership with Safe Charge, a global payment service provider. Another disbursement use case that is gaining traction is small business merchant settlement, which allows acquirers, to transfer funds in real time at the request of the merchant, helping with cash flow needs of small businesses. Visa direct is enabling the recent launch of instant transfer by PayPal in Canada, in addition to the United States, for same-day settlements to small businesses and individual consumers. As we continue to drive new and existing payment flows, we remain focused on providing exemplary user experiences to ensure that Visa remains the preferred way to pay. Tap to pay significantly improves the point of sale experience and consumers are adopting it quickly. This quarter, outside the United States, tap to pay surpassed 50% of face-to-face transactions that run over our network, up from less than 30% just two years ago. There are now almost 50 countries where contactless is at least a third of all face-to-face transactions up from 35 countries at the end of last fiscal year in September. We know that when contactless is introduced to our market, it increases the number of transactions. For instance, this past quarter, while UK payments volume grew in the low to mid single digits, process transactions grew much faster in the double digits. Transaction growth was 2.5 times the rate of payments volume growth as consumers made more small-dollar tap-to-pay transactions with their Visa card instead of cash. Canada has also seen a similar dynamic. In the United States, we are well underway to reaching 100 million tap-to-pay Visa cards in force by the end of 2019, and early adoption is similar to what we've seen in other successful tap-to-pay markets. We expect to surpass 3 million Visa cards by the end of 2020. As we've discussed previously, transit continues to be one of the best ways to habituate the use of tap-to-pay. The New York MTA launched an open-loop payments pilot on May 31st in a limited number of stations as part of an 18-month rollout, and the results to date have been very encouraging. Other areas where we are making progress to improve the user experience include tokenization, secure remote commerce, and the installation page payment solution we are piloting. All of these enhancements reflect a fundamental truth, that a simple, consistent, secure, and frictionless user experience leads to incremental volume and transactions. We know that it takes strong partnerships across the ecosystem to deliver these great user experiences. Therefore, we are actively listening to client and customer needs and working to support their success. Partnerships are not simply additive to our business model. They are fundamental to our business model, whether it be our traditional financial institutions or fintechs. And on fintechs, they continue to be key enablers around the world in helping to expand access to electronic payments and opening up new acceptance. And these are the natural partner because we bring global scale, a recognizable brand, security, reliability, and sophisticated capabilities. This quarter was no exception in our ability to develop partnerships with FinTech, so I'd like to highlight a few. In India, we launched a co-brand credit card with the largest cab aggregator, Ola Cabs, and SBI Card, the second largest credit card issuer in the country, with a simplified application process and a seamless card management through their app. This product will offer a rich rewards proposition across Ola's 150 million users. Across Asia Pacific, we've partnered with Razor, a global lifestyle brand for gamers with 60 million users, to offer a prepaid credential in the Razor PayPay eWallet. In Latin America, Rappi, a leading non-demand delivery platform, is now using Visa debit cards as the preferred way for its customers to pay in Colombia, Mexico, and soon also in Brazil. They've also implemented our cyber source solutions across their seven operating markets to drive more secure and seamless transactions. Rappi currently has more than 20 million registered users and 90,000 delivery drivers who fulfill close to 5 million orders a month. In Turkey, we partnered with one of the largest fintechs, In-N-Out, in an effort to reach the 40% of the Turkish population that is unbanked. with the launch of a nationwide program for general purpose reloadable Visa prepaid card. We're also excited about the opportunities these new partnerships can bring for sure, but we also continue to build and deepen relationships with our more traditional merchants and issuers. And I'll call out four this quarter. In Europe, we renewed the credit and commercial portfolios with Bank Luni, the largest bank in Israel. and Crédit Mutual, one of the largest issuers in France. Across Europe, our deal volume and win rate is significantly higher on a year-to-year basis, year-over-year basis. In Brazil, we've teamed up with Itual and Marketo Libre to launch a contactless co-branded card targeting Marketo Libre consumers with installment capability and a unique app for managing loyalty points. Mercado Libre has 38 million buyers in Latin America and Brazil, representing 60% of their marketplace's volume. In the United States, we're pleased to announce that we have extended our longstanding partnership with JPMorgan Chase through the end of 2029. This long-term extension will enable us to work together to accelerate the growth of electronic payments, deliver enhanced payment experiences such as our recent collaborations to enable tax to pay in the New York City subway system. Additionally, we work together to support and innovate our world-class co-brand partners and to further expand into the commercial space with B2B solutions. Our pipeline of partnerships is robust and we expect to sign several other significant renewals and new deals in the remainder of this fiscal year. So in summary, it was an exciting quarter for Visa with strong results, strategic acquisitions, and growth in partnerships. As we look ahead, our focus continues to be expanding our network with a wide variety of new payment flows and acceptance options. Growing our value-added services portfolio to enhance all networks, not just Visa's. Investing in foundational elements that make Visa a world-class partner, superior talent, innovative and reliable technology. unmatched security, and a powerful brand. We remain open-minded, innovative, and flexible to meet the needs of the growing ecosystem and a rapidly evolving payments landscape, as we're committed to our goal to be the best way to pay and be paid to everyone, everywhere. Now, let me turn it over to Vasant.