Visa Inc.

Welcome to Visa's Fiscal Second Quarter 2020 Earnings Conference Call. All participants are in a listen-only mode until the question-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference 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 Second Quarter 2020 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. A slide deck containing financial and statistical highlights has been posted on the 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, 10-Q, and 8-K, 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. And one last note before we get started. Given the amount of content we have today, we want to allow time for Q&A, and so we're likely to run over by a few minutes. And with that, let me turn the call over to Al.

Hey, Mike, thank you very much, and good afternoon, everyone, and thanks for joining us today. First and foremost, I hope you and your families are well and safe. A year that looked quite promising after a solid first quarter has been substantially disrupted by COVID-19. While the business has been negatively impacted in March and April, our focus has been doing the right things for our employees, our clients, and our communities around the world whose lives have been affected in unimaginable ways. We continue to manage our business for the long term, although we are pragmatic in understanding short-term circumstances. Through that end, we are certainly being quite careful about our spending on our expense base. We are pulling back on discretionary spending, especially related to personnel, travel, professional services, and marketing. Throughout all of this, we remain committed to investing in the future, in product development, in technology, our brand, and business development. You may recall that at our investor day, we laid out a compelling case for Visa's growth as we look to be a single point of connection for money movement globally. And there are three primary levers to that growth, consumer payments, new flows, and value-added services. I want to be absolutely clear that nothing has changed about these opportunities in terms of the medium and long-term growth for the company. On our call today, I'm going to cover our results, our response to COVID-19, and some updates on the underlying business and long-term prospects for growth. To start, our second quarter results. Net revenues in the fiscal second quarter were $5.9 billion, an increase of 7% or 8% in constant dollars. Although cross-border volumes were already weakening in February, driven by Asia, for the most part, the business drivers were not meaningfully impacted by COVID-19 until the latter part of March. A quick snapshot on our quarterly results are as follows. Payments volume grew globally 5% or 7%, excluding China, with over 500 million transactions on Visa per day for each of the 91 days in the second quarter. Cross-border volume declined 2% on a constant dollar basis, and we processed 34.9 billion transactions on our network, an increase of 7% over the prior year. Our non-GAAP EPS growth was 9%, helped by prudent expense management. We recognize, given the environment, that the investment community would appreciate as much information on our performance as possible. And to that end, Vasant will dive into more detail than usual when I am finished my remarks. Since the COVID-19 outbreak, we've been in very close and regular contact with employees, clients, partners, and governments globally to help them navigate these challenging times. Our foremost priority is the health and well-being of our employees and their families. To that end, I pledge to our 20,000 employees that there would be no layoffs in calendar year 2022. related to COVID-19. We recognize the critical role Visa plays in maintaining the stability, security, and resiliency of the global payments ecosystem. And let me state that our network infrastructure and application performance has been unaffected even as we transitioned the vast majority of our employees to a work-from-home status. Our business operations have comprehensive and coordinated plans in place to address business continuity and recovery needs around the world. We're working closely with our clients in a number of initiatives, starting with Tap to Pay, which has gained even more momentum in the United States with issuers and merchants as they seek to reduce the need for cardholders to make physical contact at the terminal. Navy Federal recently started issuing Tap to Pay cards. So now nine of the top 10 U.S. issuers are participating. And we have surpassed 175 million Tap to Pay cards in the United States that have been issued That is more than any other country on the globe. On the merchant side, a large grocery chain recently rolled out tap-to-pay to more than 1,000 stores. So now nine of the top ten grocery stores are enabled for tap-to-pay. At the end of the second quarter, almost 60% of face-to-face transactions, excluding the United States, were tap-to-pay. And tap-to-pay transactions grew significantly. over 40% year over year. We've also launched a website where merchants can request free tap-to-pay signage for their terminals, and large merchants like KFC and Pizza Hut have ordered them for all their stores in the United States. Globally, we actively engage with merchants, acquirers, issuers, and governments to increase tap-to-pay limits. In fact, over 50 markets in the last few weeks have announced increases. To name a few, 26 European countries, including the UK, Poland, and Ireland, 25 countries in the Middle East and Africa, including the Ukraine, Georgia, and Egypt. Also, Canada, Australia, and New Zealand have increased their limits, and we expect other countries to follow, recognizing the benefits of digital payments. Visa is also working closely with governments around the world to respond to the crisis in a number of ways. For example, in the Dominican Republic, we developed a virtual prepaid solution to rapidly expand the government's emergency disbursement program from 800,000 to 1.5 million beneficiaries. Likewise, we will be deploying a Visa Direct solution to support Guatemala's emergency relief program to reach 2 million households over the next three months. In the United States, Visa supports over two dozen state government programs, including unemployment insurance programs. And given the environment, we are seeing a 400% growth in account holders just in the last month. Data is another area where Visa has been able to assist governments during the crisis. We're providing helpful insights into economic performance to nearly 20 government agencies around the world. Visa is also helping our communities. We recently announced the commitment by the Visa Foundation of $210 million to support two programs, $10 million towards charitable organizations on the front lines responding to the COVID-19 pandemic, such as public health and food relief, in each of the five geographic regions in which Visa operates, and $200 million to support small and micro businesses around the world with a focus on fostering women's economic advancement. Let me now shift to updates on the underlying business, which will be really very good for us in the medium to long-term prospects for growth. Even with COVID-19, commerce and innovation continued, and our core business had a number of positive developments with several key relationships renewed and new partnerships formed. This is all in support of the opportunities for meaningful growth that we see in consumer payments, new flows, and value-added services. Let me just highlight a few of them. In the United States, Visa won two notable deals from issuers who recently completed mergers and previously had contracts with both Visa and the competitive network. We are very pleased to announce the extension and meaningful expansion of our consumer credit, consumer debit, small business, and commercial issuing, as well as our DPS debit processing partnerships with Truist, the sixth largest U.S. issuing bank. We look forward to working with this bank on a myriad of truest brand building, innovation, and consumer experience efforts in the years ahead. Additionally, following the merger of TCF Bank and Chemical Bank to create the 27th largest bank in the United States, Visa won the existing business and new debit business. In Europe, we continue to make progress. In the UK, we extended our longstanding partnership with Barclays, which processes nearly half of the UK's debit and credit transactions, enabling us to jointly focus on innovation and support Barclays' growth into new markets. Also in the UK, Visa signed an extended agreement with a cooperative bank, building on our 30-year relationship to support their 3.4 million retail and small business customers. In France, Visa renewed a 10-year agreement with Group BPCE, our largest client in continental Europe with more than 40 million customers. Visa and one of the largest German banks, Comdirect Bank, announced an agreement to issue consumer debit cards and grow their consumer credit business. And ING Diva extended its relationship with Visa for both debit and credit. A pan-European commercial bank selected Visa to grow their consumer credit and corporate card business across six European markets, Austria, the Czech Republic, Slovakia, Slovenia, Bulgaria, and Bosnia and Herzegovina. In the rest of the world, we renewed and expanded partnerships with some of our largest clients. We renewed deals with two large debit issuers, Al-Raji Bank, the largest retail bank in Saudi Arabia, and Chun Hong Post, the post office in Taiwan. In Australia, we signed a 10-year exclusive issuing partnership renewal with the Bank of Queensland, one of Australia's leading regional banks, to serve their close to 1 million personal and business customers. In Latin America and the Caribbean, we extended partnerships with the largest issuers we have in Panama, Peru, Jamaica, and Costa Rica. In Brazil, we were chosen as the preferred brand by Caixa, the largest bank in customers and debit card issuance, and XP, a leading investment platform that is moving to issue digital credentials and cards. We also obtained our license to operate as a clearinghouse for card payments in Mexico, which will allow Visa to provide domestic network processing services. This is a key step for Visa to bring innovative solutions as well as world-class security and reliability to a very important market. As you know, Visa is the global co-brand leader, and this quarter was no exception in terms of sizable wins. We announced the global co-brand partnership with Accor Hotels. As the fourth largest global hotel chain with 39 brands, such as Fairmont and Sofitel, this represents the most significant de novo co-brand opportunity in the travel sector in recent history. Our partnership will expand the AccorLive Limitless Loyalty Program to its 64 million loyal member base and more than 250 million customers globally. In February, United Airlines, Chase, and Visa announced an extension of our long-term credit card partnership into 2029. Visa is proud we've extended our partnership with United and Chase, and we're excited to bring the strength of our brand and network to continue building on the program's success to deliver even more value and cardholder engagement. As Visa seeks to grow our consumer business, wallets remain very important for both new issuance and acceptance, and we've made noteworthy progress this quarter. Previously mentioned partnership agreements with Paytm in India and TOS in South Korea are now issuing credentials. In addition, we had new wins with STC Pay in Saudi Arabia, Paga in Nigeria, Payco in Korea, and QIYASH in Japan. In China, we signed a five-year partnership with Tencent, the parent of the WeChat platform with more than 1 billion monthly active users. This collaboration with Visa marks Tencent's first co-brand card with an international card scheme. And we look forward to partnering on innovative cross-border solutions for Chinese credential holders. In Sub-Saharan Africa, we have announced a strategic partnership with Safaricom, the largest telecommunications firm in Kenya, and the provider of financial services through M-Pesa. With 24 million M-Pesa users and 173,000 M-Pesa merchants, wallet partnerships like these are paramount to expanding our issuance and acceptance globally. Collectively, with WeChat and Safaricom, we now have relationships with wallet providers that give us the potential to embed Visa credentials in 2 billion wallets. Shifting to new flows, with $185 trillion of opportunity, we're focused on moving money end-to-end for businesses, governments, and consumers. In Europe, we're working with Lydia, the number one fintech in France for the younger generation. younger people that are below 30 in age, and a P2P service with over 3 million users and growing at over 4,000 users per day. In the United States, we recently renewed our important relationship with Square for their Cash App program, including Visa Direct capabilities and the Cash Card issuing platform. Visa Direct continues to be a powerful capability, especially in the COVID-19 environment. As one specific example, these are direct transactions for workers seeking earned wage access or on-demand pay across supermarket, quick-serve restaurants, healthcare, and hospitality categories increased well over 100% year-over-year this quarter. We are also working on digitizing cross-border P2P. This quarter, Remitly launched cross-border in seven countries. MoneyGram expanded to 11 additional countries, and KP Cookman Card, one of the leading issuers in South Korea, also initiated a cross-border program, all with Visa Direct. Cross-border also plays a sizable role in the B2B space, and we entered into an agreement for B2B virtual cards with ICBC, the largest bank in China, representing our first B2B partnership with a bank in China. Visa and Australian cross-border fintech Airwallex announced a new global partnership with the launch of a borderless B2B cross-border card, and we continue to look for new ways to drive new flows with unique capabilities and solutions. Value-added services are an extension of our core business and represent a significant opportunity for us to deepen relationships, help clients, and grow our business. This quarter was no exception in terms of clients looking for assistance. In DPS, in addition to Truist, we renewed six issuer deals that represent nearly 20% of DPS's annual transaction volume. In terms of disputes, our recently acquired disputes platform, Verify, signed an agreement with a large e-commerce provider to enable the delivery of key transaction details from their CRM systems to issuers in near real time, which helps prevent disputes and reduces chargebacks. In terms of data, as you can imagine, our clients are very interested in benchmarking their performance throughout the quarter, leveraging our Visa Analytics platform. Nearly 5,000 client users were enabled at the end of the quarter, accessing 33% more reports than the first quarter for a total of 90,000 reports accessed. In consulting, Clients sought consulting and analytics at an increased rate. We delivered approximately 50% more projects than in the second quarter of last year. The Cybersource business continues to gain momentum globally in support of acquirers and merchants around the world with innovative Omnicommerce gateway and fraud management services. For example, in India, Cybersource is now the market-leading payments gateway. in part due to the introduction of our SafeClick technology for e-commerce merchants, which allows cardholders to enroll and store card information for quick and secure checkout. Merchants also saw a 15% increase in authorization rates when using SafeClick. These are just some examples of how, during challenging times, our clients look to us. So in closing, you can see that there's a lot of business momentum, yet there is no doubt that our performance will continue to be impacted by COVID-19. We continue to focus our attention on supporting the shift to e-commerce, the acceleration of tap to pay, and new digital payments, as well as providing our clients with critical value-added services. Although the road ahead will certainly have its challenges for a number of quarters, our business model is resilient and our strategy to enable the movement of money globally is more relevant than ever. With that, let me turn it over to Visat.