Visa Inc.

Welcome to Visa's fiscal third 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 Militech. Ms. Como, you may now begin.

Thanks, Michelle. Hello. fiscal third quarter 2021 earnings call. Before we begin, we want to acknowledge the filing was a little later than usual due to an issue, but hopefully you've had opportunity to review prior to the call. Joining us today are Al Kelly, Visa's chairman and chief executive officer, and Basant 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. The 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.

Thanks, Jennifer. Good afternoon. We had a really strong fiscal third quarter as payments volume, process transactions across border volume all improved globally. In our time today, I will first cover our results and then discuss our performance to date across our three growth levers. consumer payments, new flows, and valuated services. The first Q3 results, net revenue rose 27% or 39% if service revenues were recognized on the current quarter's payment volume. This growth far exceeded our expectations due to the strength in the U.S., improving cross-border volumes, and lower than expected client incentives, largely due to deal timing. Non-GAAP EPS was $1.49, up 41%. As we look at volumes and transactions, keep in mind that year-over-year growth rates are less indicative of performance and the business trajectory due to the COVID-19 impact. So once again, we provide metrics compared to 2019 on a constant dollar basis as well as year-over-year growth rates. Payments volume was 121% of 2019, which is up five points from the second quarter and represents a 34% year-over-year growth rate. Cross-border volume, excluding inter-Europe, was 82% of 2019, seven points better than the second quarter, and up 53% year-over-year. Processed transactions were 120% of 2019, up four points from Q2, and up 39% year-over-year. The site will provide more color on our results, so now let me transition to progress relative to our business strategy. Efforts across our free growth levers helped to fuel strong results while positioning us to capture future opportunities. In consumer payments this quarter, we saw favorable secular trends and had a number of wins with large issuers, co-brands, and fintechs. Cash displacement trends continued this quarter. Globally, cash volume on Visa debit credentials, the dollar amount of cash taken out of ATMs, was 98% of 2019 levels flat on Visa debit credentials, was 140% of 2019 levels, up five points from Q2. While debit remains strong and has accelerated since Q2, credit spending is now also improving. Global credit payments volume was 104% of 2019, up four points from the second quarter. At the same time, face-to-face payments volume trends are stable to improving, while e-commerce or card-out present remains elevated. When we average across our top markets where we process versus 2019, we're We see card present improved 10 points, while card not present, excluding travel, improved one point in Q3 over Q2. Travel is starting to recover both domestically and in cross-border. Again, averaging across our top markets where we process versus 2019, domestic travel spending improved more than 20 points in Q3 over Q2. Globally, cross-border travel, excluding inter-Europe, versus 2019 improved six points in Q3 over Q2 and exited the quarter with June at 50% of 2019. Simply looking at the absolute levels, it was a record quarter for Visa with $2.7 trillion in payments volume and payment transactions per day globally, which is up 60 million per day from the last quarter and nearly 160 million transactions per day from a year ago. And we expect much more recovery to come, especially in the areas of credit and cross-border travel. Tap-to-pay is a key accelerator for many of these trends, including face-to-face spending in both credit and debit. We continue to see countries increasing tap-to-pay limits. For example, in Brazil, the limit was doubled five months ago, and the face-to-face tap-to-pay penetration has already more than doubled from 6% to 14% in that short period. In the United States this quarter, we surpassed 370 million tap-to-pay enabled cards, and we now have three cities above 25% face-to-face tap-to-pay penetration, New York, San Francisco, and San Jose. Merchant progress continued as well. Target has doubled its tap-to-pay penetration in the last year to two out of every five face-to-face transactions, and Costco's U.S. gas stations have reached 40% penetration in tap-to-pay payments since enabling this feature approximately six months ago. Now shifting to clients, we continue to win with large issuers globally. Let me share a few examples from the quarter. In the United States, we're pleased to have renewed our longstanding partnership with Navy Federal Credit Union, the largest U.S. credit union with over 10.5 million members for a multi-year credit, debit, and processing agreement. Also in the U.S., Google Pay introduced a Visa virtual card that links to U.S. Android users' Google Pay balances, enabling these users to spend their balances at stores. In Italy, we extended our agreement with Banca Sella, part of the Sella Group, the largest private and independent banking group in Italy for the consumer credit and commercial portfolios with plans to launch a new innovative digital credit small business solution. In Singapore, we're expanding our strong partnership with DBS, the largest bank in Southeast Asia. We will continue to grow in the DBS debit portfolio. In Latin America, we renewed the HSBC debit portfolio, one of the top five portfolios in Mexico. In our Samia region, we won the consumer credit portfolio of Qatar National Bank, the largest financial institution in the Middle East and Africa, and we renewed the credit portfolio of Saudi British Bank, one of the largest Saudi banks. We're also building momentum as a global leader in co-brands. In the U.S. alone, we have seven of the top ten co-brands. In this quarter, we're pleased to renew Hyatt in the U.S. and renew and grow the Williams-Sonoma co-brand, which will be relaunched with an expanded scope across the Williams-Sonoma brands, including Pottery Barn and West Elm. We secured a new co-brand relationship with PayPal in Australia and Marcana Libra, the largest e-commerce retailer in Latin America. In partnership with Banco Itaú, we also won the co-brand business of Magalu, a major retailer with one of the largest co-brand portfolios in Brazil. Finally, in the Asia-Pacific region, we have secured a significant part of LinePay's business with the partnership renewal in Taiwan, the largest co-grant program in the country. FinTechs are also core to our consumer payments growth. In this quarter, we forged new partnerships and deepened relationships with long-time clients. I just mentioned LinePay in Taiwan, and we also continue to see strong momentum in our partnership with LinePay in Japan and and with LineBK in Thailand. Over the last year, they have added more than 2 million Visa credentials across those markets. Likewise, in India, long-time partner Paytm has issued 6 million virtual Visa debit cards. In addition, they've recently started to issue physical Visa debit cards, which they expect to ramp up over the coming months. Kakaopay, one of the top three mobile wallet providers in Korea with more than 30 million users, recently signed on to issue Visa credit cards. In the Middle East, we're partnering with STC Pay, the fintech subsidiary of Saudi Arabia's largest telecom operator, to embed STC Pay wallets. More than a million Visa credentials have been issued since September of 20. Rappi, Latin America's super app with over 70 million users, has now started issuing Visa credit cards in Brazil, Mexico, Colombia, and Peru, with plans to expand to additional countries in coming months. And in the crypto space, we recently signed three partnerships, one with Tala, the partner on cryptocurrency solutions for the global unbanked, and two with crypto exchanges, FTX and CoinZoom, to begin offering Visa cards. We now have more than 50 crypto wallet and platforms, up from 35 in Q1, and more than the next leading network. and collectively they drove over a billion dollars in payments volume. It represents a significant engine of growth. The market opportunity in new flows is ten times greater, and we continue to make progress in our efforts. We have several capabilities within card and B2B that have been gaining traction. Our Freedom Solution enables corporates to control and monitor corporate card spending and expand to new use cases, including payables, and virtual card capabilities. Across Australia and New Zealand, we have renewed our long-standing partnerships with ANZ Bank for Freedom's expense management capabilities, as well as NAB and DNZ to deliver expense management and payable solutions. And in the United States, Wells Fargo will deliver these capabilities to their corporate clients as part of our partnership we announced earlier this year. Visa's commercial pay, which offers a mobile app enabling virtual card issuance and management of business incidentals with enhanced data, will be part of OCBC Bank's virtual purchasing card offering in Singapore. Visa direct transaction growth remains robust, with nearly a half a billion more transactions this quarter than in the third quarter of last year. We continue to see large banks enable Visa Direct payouts for their customers, including CIBC this quarter. In the payroll category, ADP, a leading global technology company providing human capital management solutions, recently integrated its wisely offering with Visa Direct to provide ADP clients with a digitally enabled, convenient, and cost-effective solution for employee off-cycle payments. In the P2P space, The WhatsApp payment feature powered by Visa Direct and Visa Cloud Token Framework launched in Brazil in May, and we're seeing early success with a significant number of Visa credentials enrolled and sizable growth in P2P money transfers. PayPal announced instant transfers for merchant settlement and P2P via Visa Direct in Australia. We also developed new use cases this quarter for Visa Direct. First, GoFundMe is integrating Visa Direct with to soon launch funds disbursement to individuals and organizations. Second, Questrade, the Canadian brokerage platform, announced the launch of Instant Deposit, allowing investors to fund their trade accounts in seconds. Let's now move to our third growth lever, Value Added Services, where revenue growth grew 28% in Q3. Let me discuss our efforts across a few of our capabilities. First, installments. In addition to investing in and partnering with numerous installment providers globally, we've also developed our own solution, which has some notable progress in the quarter. In Canada, Scotiabank is extending their post-purchase installments. They're offering to eligible Visa retail credit clients. CIBC is launching installments during purchase, and Desjardins, North America's largest financial cooperative, will be offering during-purchase installments for their eligible Visa customers. In addition, global payments is enabling our installment solution for their merchant customers. Back in Cybersource, our omnichannel gateway platform has grown as a result of three drivers. One, increased e-commerce and omnichannel volumes. Two, more business creating online and omnichannel presences while leveraging our risk tools. And three, more acquirers white-labeling the solution. This past quarter, top 20 U.S. acquirer PAYA and Cutter National Bank both signed on to utilize Cybersources capabilities. Third, DPS. I mentioned the processing agreement earlier with Navy Federal. They intend to utilize DPS. In addition, Current, one of the fastest-growing U.S. fintechs with nearly 3 million members, has selected Visa DPS as its partner. Current will integrate with DPS's newest all-digital processing solution called DPS Forward, which combines issuer processing capabilities with a new suite of APIs that integrate with modern digital banking players to create unique card programs and payment solutions. Finally, these are consulting and analytics. Our advisory teams have delivered nearly 1,000 projects year-to-date in 88 countries to help our clients be more successful. Let me just share a couple of examples. In Latin America, we developed a digital acquisition platform and helped one of the top issuers in the region improve credit approval turnaround times from days to minutes while also better qualifying leads to reach a four-times improvement in approval rate compared to their prior solution. Globally, we have launched a new program called Visa Portfolio Health Check, where we review clients' portfolios, tracking 30-plus key performance indicators. Yittergate, we have held health checks across 55 countries, identifying nearly 300 specific opportunities worth nearly $50 billion in incremental payment volume. Before I close, let me touch briefly on the two recently announced acquisitions. First, that of the open banking platform, Tink. Visa's proven infrastructure and sustained investment in resilient cybersecurity and fraud prevention, combined with Pink's API, their technology and customer relationships, is expected to help accelerate the adoption of open banking in Europe by ensuring a secure, reliable platform for innovation, which will help consumers and businesses. Second is the acquisition of Currency Cloud, a global platform that enables banks and fintechs to provide their customer and business customers innovative foreign exchange solutions for cross-border payments around the world. As part of our network of network strategy, the combination of Currency Cloud's capabilities on the front end of the transaction through their APIs and our settlement capabilities across VisaNet and other Visa networks, such as Plus, Earthport, and Visa B2B Connect, will be very compelling value propositions for our partners. In closing, as we look to finish our fiscal year, I'm very encouraged by the recovery trajectory across the board and pleased with the momentum in many of our key growth areas. Our recently launched new brand campaign describes Visa as a network working for everyone, and we are increasingly sitting at the center of enabling money movement. I'm confident that our network-to-network strategy, combined with our three growth levers, of consumer payments, new flows, and value-added services remains more relevant than ever and positions us well as we look forward to a robust recovery. With that, let me turn it over to Vasant. Vasant?