Visa Inc.

Welcome to Visa's Fiscal Fourth Quarter and Full Year's 2020 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 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 Fourth Quarter and Full Year 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 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 the result of many factors. Additional information concerning those factors is available on our most recent reports of 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 reconciliation are available in today's earnings release. And with that, let me turn the call over to Al.

Hey, Mike, thank you, and good afternoon, everyone, and thank you for joining us today. Our fiscal 2020 started off very strong, and as COVID-19 spread across the globe, certainly our business was impacted. As a result, we were quite thoughtful during the year, adjusting our expenses, yet we continue to invest in key initiatives to support and fuel growth. Let me share a few highlights from fiscal 2020 that will illustrate our continued momentum. Over 185 billion payment transactions and almost $9 trillion of payment volume were made on Visa credentials. Acceptance points grew 16% to nearly 70 million merchant locations, and that only counts our partners like PayPal, Square, and Stripe as one each. Contactless penetration grew to 43% of all face-to-face transactions around the world, 65% excluding the United States. U.S. tap-to-pay cards reached $255 million. And globally, there were 23 countries that increased their penetration by 25 points or more over fiscal 2019. We expanded wallet partnerships, which now represent over $2 billion in potential credentials and nearly $70 million additional potential acceptance locations. Globally, the number of active credentials in e-commerce excluding travel rose 14% since January, reinforcing the continued shift by consumers to online shopping. We renewed about 25% of our payments volume in fiscal 2020 with key clients and secured several new wins. Over 50% of visa volume has now been renewed over the last two years. We expanded tokenization globally, crossing the 1.4 billion tokens milestone and enabling over 8,300 issuers across 192 markets. Visa Direct grew to nearly 3.5 billion transactions, utilizing 16 card-based networks, 65 domestic ACH schemes, 7 RTP schemes, and 5 payment gateways. More than 5,000 client users accessed over 450,000 reports on our Visa Analytics platform, a powerful application suite that delivers data-driven insights and industry benchmarks. And finally, several large acquirers leveraged Cybersource's robust OmniCommerce payments offerings to support their merchant customers with innovative capabilities. With that backdrop, today I'd like to first discuss our results. Then I'll highlight some key client wins in the quarter and client momentum from recent deals contributing to our current performance across our three growth levers, consumer payments, new flows, and value-added services. Lastly, I'll provide a very brief initial thoughts on 2021. To start, our fourth quarter results. Well, the underlying business was in various stages of recovery. We saw the acceleration of cash digitization through debit, e-commerce, and tap-to-pay, and the penetration of new flows through Visa Direct. We also advanced our value-added services led by Cybersource, security and identity products, and our consulting. Payments volume, process transactions, and cross-border volumes all showed positive momentum exiting the quarter. From Q3 to Q4... Payments volume improved 14 points. Process transactions improved 16 points. And cross-border volume improved 5 points. Net revenues in fiscal fourth quarter were $5.1 billion, a decrease of 17% in constant dollars. The decrease in net revenue was approximately 11%, however, with service revenues recognized on a current quarter payments volume basis. Non-GAAP EPS was $1.12, a decrease of 23%. Given our strong ability to generate cash flow, we returned $2.3 billion of capital to shareholders in the fourth quarter. Now, looking ahead, our strategic focus in 2021 remains the same, accelerating our growth through consumer payments, new flows, and value-added services. all while fortifying the key foundations of our business model, our brand, security, technology, and talent. In consumer payments, we've had success with traditional financial institutions, wallets, and fintechs, as well as merchants. First, let me hone in on Europe, which has definitely been a key focus for us since the acquisition just over four years ago. Our first Visa client in Europe from 1974, Korner Baca in Switzerland, renewed their credit relationship and extended it to debit for the first time ever. In Denmark, Husabank will migrate over 200,000 debit cards from a local card scheme to Visa in order to access Visa's risk, data, and other value-added services. Last quarter, I spoke about our win of the UBS debit business. And this quarter, we also renewed the credit business as well. In the wallet space, Samsung Pay will put virtual Visa debit cards in all Samsung devices in Germany. For those issuers in Europe who want to offer a wallet solution to their customers without developing it themselves, we recently signed an agreement with a digital wallet company called Yips. And wrapping up Europe with fintech progress, let me highlight Global Fintech Revolut, who chose us late last year to be their lead issuing partner. In 12 months, Revolut has issued nearly 7 million visa credentials in over 34 markets with plans to expand more in the coming year. Let me now move to success with traditional FIs in other parts of the world. ING, one of the largest banks in Europe, recently expanded their long-term global partnership with Visa for their consumer and commercial cards in 12 countries across Europe, Samia, and Asia Pacific. In Asia Pacific, we renewed with one of the top five banks in China, Bank of Communications, and we've strengthened our strategic partnership with Malaysia-based AmBank, who will now become an exclusive Visa credit card issuer. In the United States, we recently won the inaugural debit card for Marcus by Goldman Sachs' digital checking account. With millions of customers, Marcus continues to create new products, create a full-service digital bank, and we're excited about the opportunity to help make checking with debit card functionality an attractive part of their growing product set. Also, in the United States, we announced in the first quarter that we had secured the Venmo credit card and are pleased that it has started to roll out, unlocking new ways for Venmo's community of more than 60 million users to shop, share, and split purchases, and earn custom automatic cash back everywhere Visa is accepted. Shopee, the leading e-commerce platform with a large user base in Southeast Asia and Taiwan, is launching a Visa co-branded card across five Southeast Asian markets. And our traditional wins in the fourth quarter cap a successful year of renewals that went into effect with key partners, including Bank of America, Capital One, Barclays, Santander, Caixa, and Al-Raji. Now let me turn to expanding access with digital wallets and fintechs, which are critical to growing credentials and acceptance globally. In the last 90 days, we signed multiple deals with digital wallets, including Yandex in Russia, Wing in Cambodia, Payco in Korea, NaranaX in Argentina, and EasyPaisa in Pakistan. These wallets represent tens of millions of potential credentials. Our existing wallet relationships have continued to grow this year. Rappi, Latin America's super app with over 30 million users, is now expanding into financial services with its new division, Rappi Bank. And it has chosen Visa as their exclusive network and payments provider. Rappi will leverage their deep knowledge in their existing nine markets to create new payment solutions that drive digital inclusion and cash digitization, not just for their users, but also their couriers, restaurant partners, and small businesses. In Asia Pacific in the last year, LinePay added 1 million credentials and now has approximately 3.5 million total visa credentials across Taiwan and Japan. Our partnership with Paytm in India spans both acquiring and issuing, and this year the relationship resulted in approximately 80,000 incremental acceptance points and 1.4 million incremental credentials. We also see cash digitization opportunities with merchants providing payment services to their customers, two to highlight from this quarter, and they're both from Latin America. We're extending our partnership with OXO, the leading convenience chain with nearly 20,000 stores in Latin America as they establish a new fintech arm. This business will exclusively issue Visa credentials in the OXO wallet and through their stores to further their reach of the under and unbanked. Visa also partnered with Notora and Company, the fourth largest beauty group in the world, to enable financial and digital inclusion. Through a financial services platform, their nearly 4 million direct selling consultants and representatives in the region will be able to access a digital account, a Visa credential, and an AMPAS, among other services. This progress in consumer payments is also prevalent in new flows as the pandemic is accelerating the migration to digital payments. Governments, merchants, and consumers all seek fast, safe, and secure ways to move money. Let's look at a few new flows. Cross-border P2P is a Visa direct use case with significant potential, and we made meaningful progress this quarter. Ozan in Turkey plans to launch a global mobile remittance service in early 2021 to the underbanked and gig economy workers representing over a quarter of Turkey's 83 million population. In Russia, BTB Bank, the second largest bank in Russia with 15 million customers, is utilizing Visa Direct for card-to-card transfers across 64 countries. Additionally, in Russia, CoronaPay, a leading remittance system, will leverage Visa Direct for cross-border money movement. And TD Bank in Canada is offering their retail customers a mobile platform for P2P with cross-border capability. Earned wage access and payroll are other use cases that are growing in importance throughout the pandemic. This quarter, WageStream, the market-leading earned wage access provider in Europe, signed on to Visa Direct. Also, in the two months since earned wage access, U.S. provider Immediate launched Visa Direct as a payment option. The near real-time method is already accounting for 50% of Immediate's disbursements. And PNC in the U.S. is providing their commercial clients B2C disbursement solutions such as traditional payroll processing. Another new flow is B2B, which represents $120 trillion volume opportunity. On the card-based B2B front, in the wake of COVID, we are seeing increased interest for digital payments, including virtual cards. We're addressing this demand by, one, engaging with a broad range of issuers and partners, two, expanding into new verticals, and three, investing to streamline operations and enable acceptance. First, in terms of supporting issuance, Visa Payables Automation, which enables issuers to efficiently offer virtual cards to their corporate clients and send data back to the buyer to aid in reconciliation, saw an increase of issuers and partners on the platform by almost 50% in FY20. Second, relative to expanding it to new verticals, we are expanding partners and use cases for virtual cards beyond OTA. In Q4, we launched with Yipei in China to support a virtual card program in both OTA and education. We also announced a new set of solutions partnering with Stripe to enable buyers to use virtual cards for payments and the initial user is a Citibank healthcare client. And third, investing to streamline operations and enable acceptance, together with partners like Boost, a FinTech focused on B2B payment acceptance program, We are expanding commercial card adoption by streamlining the manual acceptance processes for suppliers, enabling automated data reconciliation, and offering flexible economics. And now let me turn to our third growth lever, value-added services. Value-added services grew 15% in revenue in the fourth quarter and 18% for the full year, a testament to the resilience of this business as well as the demand from our clients for support. Often our value-added services are sold with a brand deal, but many times they're sold after or even on a standalone basis. Permanent TSB in Europe renewed their credit and debit business earlier this year and subsequently signed an agreement with Visa to launch Visa Transaction Controls, which will provide a powerful and convenient way for cardholders to track and manage all payments activity on enrolled accounts and tokens. In seller solutions, both merchants and acquirers have actively sought CyberSource's offerings throughout the pandemic. CyberSource sells direct to merchant and also through robust and fast-growing indirect channel with acquirers who can leverage our platform to provide the latest digital capabilities in order to attract and maintain merchants. With that in mind, we are very pleased that Barclaycard, one of the largest acquirers in Europe, will utilize Cybersource to support their merchants' digital payment journeys, e-commerce, and omnichannel requirements. We've also established relationships with acquirers in other regions. This quarter, in Samir, we signed Cybersource deals with HBL, the largest e-commerce acquirer in Pakistan, Equity Bank Group in Sub-Saharan Africa, and Bank of Abyssinia in Ethiopia. Before I close, a few words on the acquisition we announced yesterday. Yellow Pepper is a software company with a platform that we see as a universal adapter that allows clients to connect and scale new innovative capabilities without having to expend significant technology resources. Through a single API-based connection, issuers, processors, and governments can access Yellow Pepper's rich set of APIs to initiate secure, real-time money movement transactions across a variety of payment rails using a simple alias, something like an email address or a phone number. For Visa, the acquisition extends our network of network strategy by significantly reducing the time to market and cost for issuers and processors, regardless of who owns or operates the payment rails. It supports our financial institutions in their quest to modernize their infrastructure and access network agnostic solutions, and it facilitates an easier integration to Visa Direct and Visa B2B Connect, which will help to grow new flows and transactions. It enables the further adoptions of value-added services, both ours and Visa's, as well as Yellow Pepper's. We're excited about the deal and we expect to close it in the next few weeks. In terms of play out, I want to say two things. First, we continue to engage with the Department of Justice on their review of the acquisition. Second, the Department of Justice's lawsuit yesterday against Visa and Bain & Company is related to a dispute over documents they requested as part of their review of the deal. Beyond that, we're not going to comment further. To close, this pandemic has touched all of us. Through it all, I've admired the resilience of our clients who have worked hard to be there for their customers despite the many obstacles. I also have to pay tribute to the more than 20,000 extraordinary people who work at Visa. My colleagues have demonstrated dedication, creativity, and professionalism in the face of extraordinary challenges. In 2021, we remain committed to making the changes necessary to ensure our organization better reflects the world in which we live and work. Visa is proud to lend our support in the fight for racial and social justice within our four walls and beyond. In terms of 2021, Vasant will provide a good deal of detailed commentary, so let me just make a few brief points. In 2021, we'll continue to manage the business for the medium and long term while recognizing the nearer-term realities. This means, one, we will focus on the opportunities that are being accelerated by COVID-19. Two, we will continue to invest to grow our business. And three, we will be thoughtful about controlling discretionary expenses. To be clear, while our business faces clear uncertainty, we have too many attractive growth initiatives to pull back on the future. Our long-term strategy, which we covered in depth just eight months ago at our investor day, remains more relevant than ever. And I believe Visa has a tremendous opportunity to continue to be transforming secure, reliable, and efficient money movement for everyone, everywhere. With that, let me turn the microphone over to Visak Prabhu.