Visa Inc.

Welcome to Visa's Fiscal Second Quarter 2021 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 from Investor Relations, Ms. Jennifer Como and Mr. Mike Miletic. Ms. Como, you may now begin.

Thanks, Jordan. Good afternoon, everyone, and welcome to Visa's Fiscal Second Quarter 2021 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 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 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.

Mr. Jennifer, thank you, and congratulations on your second anniversary with Visa. Good afternoon, everyone, and thanks for joining us today. I'm going to provide a few quick stats on the quarter and then share my thoughts on what's ahead as the world continues to recover. The recovery is going to take many different shapes, and the timing will differ around the world based on vaccination rollouts and the easing of restrictions. But we believe we're at the beginning of the end of the pandemic, and the recovery is well underway, at least in a number of markets. First Q2 results, revenue declined 2% year over year, but would be slightly positive at 20 basis points if service revenues were recognized on current quarter payments volume. Non-GAAP EPS was $1.38, a decrease of 1%. When looking at volumes and transactions growth, keep in mind that we're now lapping the start of the pandemic. As growth rates are now less indicative of performance and the business trajectory, we're going to also provide some metrics compared to 2019 on a constant dollar basis. So payments volume grew 11%, improving seven points from Q1. and reached 116% of 2019, which is up three points from Q1. Cross-border volume excluding intra-Europe declined 21%, but improved 12 points from Q1, and is 75% of 2019 levels, three points better than Q1. Process transactions growth of 8%, improved four points from Q1, and represented 116% of 2019, which is consistent with the first quarter. This quarter, we continue to make progress across our three growth levers. First, consumer payments. In Asia Pacific, we renewed our partnership with Rakuten Card, a subsidiary of Rakuten Group, the largest e-commerce marketplace in Japan. In Korea, Visa won the first hotel chain co-brand in the country with Marriott and Shinhan Card, Korea's largest issuer. In China, we renewed our credit portfolios with CITIC Bank and Agricultural Bank of China, two of the top 10 largest banks in the country. Also on the co-brand front in Brazil, Samsung, in partnership with Banco Ituro, will issue their inaugural co-brand in Latin America with Visa targeting Samsung's 57 million Brazilian users. In Europe, Visa won incremental business with PNB Paderba Fortis in Belgium. This expands our relationship to include 4 million debit cards in addition to our existing credit relationship. In Switzerland, we've gained significant traction in growing Visa debit. Since January of 2019, we have signed 13 new debit deals representing an incremental $2.6 million cause. In new flows, Visa Direct transactions grew almost 60% in the second quarter. We're pleased to have clients going live now with Visa Direct Payouts, which offers a flexible set of APIs for Visa partners globally to use a single point of connection for push payments to cards and accounts. MoneyGram, Goldman Sachs Transaction Banking, Standard Chartered Bank Hong Kong, and Kit Global are among the first to start utilizing Visa Direct Payouts for B2C, cross-border P2P, and B2 payouts. A few additional highlights on specific Visa Direct use cases include that in marketplace payouts, Airbnb, which now has 4 million hosts globally, will offer host payouts using Visa Direct in select markets. In cross-border P2P, Remitly, a top digital remittance fintech, has renewed its Visa Direct relationship, building upon the past two years of partnership. And Monobank in Ukraine enabled cross-border P2P to their 1.7 million cardholders. In the payroll category, the earned wage access use case continues to grow with 25 earned wage access platforms now offering Visa Direct for fast and convenient access to employee earnings. G2C continues to grow as well. Global Blue, a leading tax-free shopping solutions company covering 52 countries and 35 million tax-free transactions in 2019, is utilizing Visa Direct to distribute tax refund payments across Europe. Separate from Visa Direct, we supported the U.S. government's disbursements of economic impact payments to nearly 13 million Visa prepaid credentials in the U.S. so far this year. And now to our third growth of our value-added services, we're continuing to see strong adoption. Let me highlight a couple of examples. For Cybersource, Planet, a European acquirer and payment services provider that delivers payment processing and currency conversion solutions to over 600,000 merchants, will be partnering with Cybersource to simplify payments across the hospitality, food and beverage, and retail sectors. KeyBank, a top U.S. acquirer, will begin to offer CyberSource to its merchant clients. And as e-commerce continued to grow, Decision Manager, a key risk offering of CyberSource, increased transactions over 30% fiscal year-to-date. Our other risk, fraud, and authentication capabilities grew as well. For example, we've now crossed the $2 billion token milestone, up from $1.4 billion tokens just in September. One of our key authentication capabilities, Cardinal Commerce, grew revenue almost 50% year over year this quarter by rapidly expanding beyond its U.S. origins. In the next year, we plan to more than double our clients in Europe and Central Europe, Middle East, and Africa. So while the pandemic has disrupted the world, it has not changed our strategy. In fact, it has reinforced our belief that our three areas of focus will deliver robust growth for years to come. As we look ahead with COVID recovery underway, a few key important realities, namely the way consumers feel about e-commerce, cash, and travel, will particularly impact Visa. The pandemic has accelerated e-commerce. Global Card Knock Present credentials, excluding travel, grew over 20% in the quarter versus last year. Our growth in Card Knock Present Payment volume excluding travel has averaged at least 30 percent in the United States, Canada, Brazil, the United Kingdom, Italy, Germany, India, and Singapore over the last three quarters. And in global cross-border excluding inter-Europe, it's averaged 20 percent growth. We believe this shift is likely to persist as the convenience of e-commerce is indisputable and its growth continues to be robust even as card present begins to return. In March, in the United States, as some states loosened transactions, card present as a percentage of 2019 spend improved 11 points versus February. While at the same time, card not present, excluding travel, still expanded eight points. You look at that in Japan, where restrictions were also lifted, card present improved six points, and card not present, excluding travel, still improved four points in that same comparison between March and February. The pandemic has accelerated the digitization of cash, and we see the impact in debit and tap-to-pay. When we look at cash usage in the last 12 months, just on the Visa brand, such as with ATM withdrawals, we see that global debit cash volumes have decreased by 7%, while debit payments growth has grown 16%, both on a constant dollar basis. This 20-point gap is more than double the historic gap in growth rates and relatively consistent globally, demonstrating cash digitization in both mature and emerging regions. Overall, Visa tap-to-pay transactions have grown over 30% year-over-year in March. In Europe, less than a year since contactless limits increased across the region, Visa has seen one billion additional touch-free transactions. In the United States, one in 10 face-to-face Visa transactions are now done with a tap, more than a two times increase since the beginning of the pandemic. In New York City, the penetration is nearly 30%, demonstrating the potential of focused issuance and merchant enablement along with transit. In the past three years alone, we've enabled nearly 250 transit systems globally, and we can see, based on our research, that enabling tap-to-pay on transit can bring more than a 15% lift in transactions from merchants in the surrounding neighborhoods. The decline in travel is temporary, and we're starting to see some early signs of recovery. Cross-border travel-related spending, excluding inter-Europe, improved from Q1, driven by two factors. First, those who are abroad are spending more, likely because of fewer restrictions. This quarter, essentially all of the cross-border travel spend improvement was driven by higher spend per card rather than more active cards. Second, we continue to see strength from countries with open borders. For example, U.S. to Mexico volume was almost 20% above 2019 levels for the quarter. We also saw several top corridors between the U.S. and Latin America improve by more than 10 points through the quarter versus 2019. Travel will certainly take more time to recover than other sectors, but we believe personal travel in particular will come back, and that's good for Visa for two primary reasons. One, because the vast majority of the travel we capture on our credentials is consumer, and two, we are the global leader in travel co-brands. With the backdrop of travel, cash digitization, and e-commerce, let's briefly explore the future potential of our three growth levers. In consumer payments in the last two years, we've grown our credentials to 3.6 billion and physical merchant locations to over 70 million, up 7% and 34% respectively. And remember that our merchant locations only count our partners like PayPal and Square each as one. That said, there's ample opportunity as we focus on specific regions and partners. Looking at regions, even with our leading position in both emerging and developed markets, our market-driven approach to growing credentials is succeeding. And Europe is an excellent example. From 2018 to 2020, we grew active card credentials by 10 percent. And looking ahead, we have line of sight to more than 25 million additional credentials across 50 clients in the next few years. Let me cite a couple of recent partnerships that would show this rapid growth. Since FinTech Revolut signed a global agreement in September 2019, selecting Visa as their lead issuing partner, they've increased the number of cards and payments volume by more than 200% through December 2020. Crypto.com has launched Visa cards in 39 markets across their 10 million user base, since 2018. And just this quarter, they signed a global growth agreement with us covering 12 markets with plans to expand to even more. There are so many more partners issuing credentials and building acceptance. For example, wallet providers represent the potential for another 2 billion credentials and 70 billion acceptance locations over time. And the pace of growth here is fast. GoMoney in Russia recently signed on to issue visa credentials and has achieved more than a million credentials in just five months. In fiscal Q2 last year, we announced that STC Pay, Saudi Arabia's largest wireless operator with 25 million subscribers, planned to embed credentials in their STC Pay wallets. To date, more than a million visa credentials have been issued. Our ongoing partnership with Paytm has enabled us to add more than 250,000 contactless-enabled acceptance locations at new-to-card merchants. While the number of Visa credentials issued by Paytm has more than doubled since September of 2020, reaching a total of 3 million. Around the world, tap to phone has also been a significant acceptance effort. Today, more than 35 markets offer it, with 13 more being added this year. Wallets and tap to phone are just a couple of next-gen partners and capabilities that we believe will help us bring the $1.7 billion unbanked into the financial mainstream, growing the pie for digital payments. The growth will come from a regional approach, an openness to partnering with traditional and new players, and by developing new ways to engage the ecosystem, all rooted in our strong brand and in technology. In new flows, our success in the United States is a real asset. While B has been impacted by the pandemic, our strategies against $120 trillion opportunity represent near, medium, and longer-term growth for Visa. In the near term, we're focused on supporting businesses small and large. To date, we've helped 12 million micro and small businesses to digitize and grow against our 50 million global goal. And we continue to focus on card-based solutions. Visa has about 20% more commercial issuers today than we did four years ago. In the medium term, Visa B2B Connect addresses the major pain points with the current top solution and cross-border B2B, and we are continuing to add banks to reach scale. In the longer term, we're working with key partners to solve the challenges of accounts payable and accounts receivable. For the other $65 trillion of new flows, Visa Direct has five clear competitive advantages that we believe will continue to drive growth. The first one is reach. In Visa Direct, the endpoints are card credentials and bank accounts, and we can reach 5 billion endpoints globally. This is unrivaled by anyone else. Second, operating scale. Visa Direct is built upon the operating scale of VisaNet and leverages its real-time authorization, clearing, and settlement capabilities. This means we can deliver industry-leading solutions with low marginal cost. Third is commitment to a network of network strategy. Visa Direct is truly multi-rail, which provides clients flexibility and efficiency. Just in the last year, it has utilized 16 card-based networks, 65 ACM schemes, seven RTP networks, and five payment gateways. That is more connections, coverage, and capability than we've seen from any other network offering. Investments in our capabilities. We have invested in leading technology stack for both payouts and account funding capabilities. For example, our account funding capabilities include unique codes to help clients manage risk, compliance, and authorizations for money movement transactions with APIs to streamline implementation for apps, neobanks, and syntax. To our knowledge, no one else has this capability. Fifth is commercialization. We've now enabled over 20 use cases with more than 450 new program launches. And we will continue to expand by, one, growing existing use cases like marketplaces and cross-border P2P, two, bringing existing use cases like P2P, payroll, and earned wage access to other new markets, and three, developing new use cases such as tipping. Visa Direct also brings a network effect in terms of benefits to Visa. For every dollar received on a debit card through Visa Direct, about half of it is then used for debit card purchases. Furthermore, cardholders who receive payments through Visa Direct then spend up to 50% more than those who do not. So Visa Direct is actually not only helping new flows, but it is helping consumer payments. Lastly, let's turn to value-added services, which are being utilized by our clients more and more. In fiscal year 2020, more than 60% of our clients used at least five value-added services from Visa, and more than 30% of our clients used 10 or more. Our toolbox is large with hands-on consulting, sophisticated and flexible technology platforms, valuable data and insight, and card benefits. all which will improve with the recovery. We also have three platform businesses that scale very profitably, Fibersource, Issuer Processing, and Risk Identity and Authentication. With the recovery and the continued strength in e-commerce and debit, these capabilities are well aligned with trends towards digitization. Let me just speak about Cybersource as an example. Our strategy to partner with acquirers creates a leveraged opportunity for future growth, both transaction growth and cross-selling value-added services. We mentioned last year that Japanese acquirer SMCC was going to start offering Cybersource capabilities to its merchant customers, starting with one nationwide convenience store chain and rapidly expanding to over 30,000 merchants. SMCC is now delivering next-generation acquiring solutions to Japanese merchants and CyberSource is processing over half a million e-commerce and in-person transactions per day. With all this opportunity across the three levers, we are investing heavily to drive future growth in several areas, including simple, compelling user experiences. Examples include tap-to-pay, tap-to-phone, and click-to-pay. Capabilities to scale new flows and value-added services. Examples include new visa direct use cases and advancing fraud and identity solutions. Specific markets that can benefit from targeted resources, such as Europe and Africa. Innovations in the payment ecosystem, such as crypto APIs for banks and digital currency settlements. So close. Visa has weathered the COVID storm and is emerging from the pandemic even stronger. There's significant opportunity ahead, and Visa's existing presence, scale, and capabilities position us well to capture more growth in the future. With that, now let me turn it over to Basad for more colors on our financials and what we see ahead. Basad, over to you.