Visa Inc.

Welcome to Visa's fiscal fourth quarter and full year 2021 earnings conference call. All participants are on 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 begin. Thanks, Michelle.

Hello. Good afternoon, everyone, and welcome to Visa's fiscal fourth quarter and full year 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 90 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 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 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.

Jennifer, thank you very much, and good afternoon, everyone, and thanks for joining us today. In the fourth quarter and throughout fiscal 2021, visas delivered strong results against a backdrop of economic uncertainty and the lingering impacts of the COVID pandemic. In doing so, we demonstrated the resiliency of our business and validated our growth strategy as we continue to drive the rapid growth of digital payments and enable innovation in money movement globally. A quick summary of Q4 results. Fourth quarter payments volume was 121% of 2019, up about 0.8 points from Q3 and up 17% year over year. Despite the backdrop of a global pandemic this quarter, we also set a record with total global payments volume of $2.8 trillion. Cross-border volume excluding inter-Europe was 86% of 2019, four points better than Q3 and up 46% year over year. And process transactions were 124% of 2019, up four points from Q3 and up 21% year over year. Our net revenues grew 29% year over year, and non-GAAP EPS was $1.62, up 44%. In talking to many of you over the last few months, I know you're wondering what's ahead for Visa and the payments ecosystem as we emerge from the pandemic. So rather than doing my usual report card on the quarter, I'm going to speak more broadly today about the four key reasons why we believe that Visa is even better positioned for growth than before the pandemic. One, there's still enormous opportunity ahead in consumer payments. Two, we continue to enhance our network of networks capability to facilitate money movement more seamlessly and securely for all players in the ecosystem and accelerate the penetration of new flows. Third, value-added services simultaneously help our clients leverage our scale and sophistication while diversifying these as business and driving more volume. Four, we enable much of the disruption and innovation in the payments ecosystem, which helps to accelerate Visa's growth. So let me start with number one, the enormous opportunity in consumer payments. We see that the pandemic has helped to further digitize cash. In the last 12 months, global debit cash volumes, which are primarily the amount of cash withdrawn from Visa debit cards, has increased 4%. While debit payments volume has grown 23%. both on a constant dollar basis. In 2021, the number of monthly active e-commerce credentials and spend per active credential continued to grow strongly. For example, in the United States, monthly active credentials and active spend per credential both grew by more than 20% on average versus 2019. We've grown credentials for both traditional and new players to 3.7 billion, up 7% year over year. After renewing client contracts that represented 55% of our payments volume in the previous two years, we renewed contracts that represented nearly 20% in 2021. Let me just highlight a few of those deals in Q4. In our Asia-Pacific region, we renewed three of these as top 20 issuers, including China Merchants Bank and Bank of China. In North America, we renewed three of the top 15 issuers. PNC renewed the prepaid consumer credit and debits. commercial credit, and small business credit and debit portfolios. Regions also renewed the prepaid consumer credit and debit, commercial credit, and small business credit and debit portfolios. And RBC and Visa have ventured into a renewal of their agreement with respect to the issuance of credit, debit, and prepaid cards in Canada. FinTechs have also fueled our growth. In the last year, nearly 30% more FinTechs issued Visa credentials, and they have more than doubled their payments volume. Furthermore, FinTechs are scaling. We've also grown acceptance to more than 80 million merchant locations up 14% year over year. And when you include small businesses behind players like Stripe and Square, the number is north of a hundred million merchant locations. We've grown tap to pay to 70% of all face-to-face transactions globally, excluding the United States. We have more than 70 countries with over 50% contactless penetration. US penetration is now over 15%, more than double from just a year ago with 400 million cards, quadruple what we had two years ago. We know from other markets that tapping brings increased spending and transactions while digitizing cash. We also continue to innovate to make it easier for partners to access and utilize our platforms and capabilities. One recent example is Visa Cloud Connect, which enables clients to connect to VisaNet via the cloud eliminating the need for investment in local data centers, telecommunications infrastructure, and any specialized payment hardware. To summarize, consumer payments is an opportunity and it sees as credentials, acceptance, and innovation that make us feel confident about our ability to accelerate growth in the future. Moving now to our network of networks, we continue to enhance our capabilities to facilitate money movement seamlessly and securely for all players in the ecosystem while accelerating the penetration of new flows. The total new flows opportunity is $185 trillion. Payments infrastructure, regulations, and settlement systems are all very local in nature, which creates a lot of complexity in a world of global trade. Our network of networks capability enables Visa as the single connection point to help clients to move value domestically and cross-border over all networks, including Visa's own networks, RTPs, ACHs, and new networks in the future, like stablecoins and public blockchains. In FY21, we continued to build out Visa Direct's global reach, surpassing 5 billion transactions across 500 programs and nearly 550 enablers, such as acquirers, processors, banks, and fintechs. In the U.S. alone, nearly 120 million cards have sent or received funds using Visa Direct. Visa Direct is unique as it has more endpoints and more use cases compared to the next competitor and offers flexible technology. Our growth plan for Visa Direct focuses on four key levers. First, entrench existing use cases. P2P is our largest use case, and in FY21, we surpassed 200 P2P programs globally. Insurance disbursements is another use case, and this quarter we added nationwide to begin distributing claims. Second, we want to capture the cross-border opportunity. For cross-border P2P, during the fourth quarter we added PaySend, and soon Western Union's U.S. customers will be able to send funds to eligible Visa cards in the Philippines, Thailand, Colombia, and Jamaica, followed by a robust expansion plan for other countries. Beyond remittances, we're also leveraging our cross-border capabilities for marketplaces, supplier payments, student tuition payments, and more. Our third lever to grow is scale the over 20 live use cases. Recent examples include tipping, fundraising, brokerage account funding, and airline vouchers. And in the fourth quarter, we added Yardi in the rental space area for property managers to distribute security deposits. Finally, scale new markets. Visa direct is scaled rapidly in several markets, but there are many more where the market conditions are right for acceleration. For example, in Peru, we have a strong P2P footprint and are now adding new use cases like the innovative payroll solution launched in partnership with a salary on demand provider that also seeks to improve financial inclusion. Globally, we have more than quadrupled the number of earned wage access providers on our platform since 2019. In short, we are just scratching the surface on Visa Direct and expect to drive rapid growth in the years ahead to capture the $65 trillion market opportunity. We also have many examples of partners utilizing Visa Direct and our B2B capabilities. This quarter, we're pleased that Veeam will offer their 400,000 plus business customers the ability to make B2B payments via Visa Direct and through Visa virtual cards. We also have wins with Credorax in Europe for travel virtual cards in Ignition and Standard Bank in Samia in Fleet and an exclusive agreement for physical and virtual cards with RAMP, a P2P finance automation fintech here in the United States. We also continue to strengthen and expand our relationship with JPMorgan Commercial Card through a new commercial card agreement and through JPMorgan's participation in Visa's commercial pay solution. These initiatives will support virtual card capabilities, spur growth and new payment flows, and drive incremental volume over time. Visa B2B Connect now operates in more than 100 markets and offers a multilateral network with distributed ledger technology that addresses the pain points of existing solutions, which include transparency and speed. We're also pleased to have launched a partnership with Citi to be a global settlement bank for Visa B2B Connect, which broadens the endpoints available for clients to include Citi's business accounts for moving money cross-border and their clearing capabilities for banks that have not yet been integrated into the B2B Connect network. Given the size and breadth of Citi and our role in facilitating money movement, we're very excited about this capability to expand the Visa B2B Connect network. Looking ahead, open banking plays an essential role in the network of networks. We believe Visa can accelerate the adoption of open banking in Europe with our pending acquisition of TINC. Together we can provide a secure, reliable platform for innovation that can be expanded globally. Whether it's leveraging account data for value-added services or facilitating account-to-account or pay-by-bank money movement, open banking creates opportunities for Visa to offer our clients and partners a one-stop shop for money movement, security, data, and valuable customer experiences. Blockchains also will continue to expand our network of networks. Our settlement capabilities and our continued innovation around crypto APIs and services have been key to winning new partnerships. We have nearly 60 crypto platform partners with the capability to issue Visa credentials, and we're already capturing over $3.5 billion of payment volume in FY21. The third reason we're even better positioned for growth post-COVID is value-added services, where our scale and sophistication simultaneously help our clients be more successful while diversifying Visa's business and driving more value. Our value-added solutions differentiate Visa's network, enable our clients to adapt to the changing payments ecosystem, and deliver valuable services across other rails, enhancing our network and network capabilities. In 2021, 40% of our clients used five or more value-added services, and nearly 30% used 10 or more, which is up from 20% in 2020. Let me highlight a few services that have grown significantly in 2021. Cybersource added 28 new acquirer partners and 45,000 merchants as a result. And as a result, we're growing payments volume twice as fast as our broader client base. And our risk solution on Cybersquats called Decision Manager grew over 30%. We have doubled the number of tokens over the past year to 2.6 billion and enhanced the capabilities to manage them through Visa Cloud Token. Across more than 8,600 issuers and 800,000 merchants, tokens have led to a 2.5% increase in approval rates and a 28% reduction in fraud rates. Visa Advanced Authorization and Visa Risk Manager utilize artificial intelligence and machine learning capabilities, which helped reduce fraud by $26 billion, screening 30% more transactions in 2021 than in 2020. All of our efforts in authentication, risk, identity, and authorization optimization have led to cross-border card and our present approval rates increasing by nearly 2% in the past year. Therefore, Valuated Services Revenue grew 25% in Q4, and also drove additional volume. Since the pandemic began, our VAS revenue has averaged a quarterly growth rate in the high teens and was approximately $5 billion in FY21. Finally, the fourth reason that we believe we have great room to grow is that we can enable much of the disruption and innovation in the payments ecosystem, which helps accelerate Visa's growth. These past, present, and future are about fostering innovation and enabling new partners, capabilities, and use cases. We enable the disruptors. We help them scale. Disruptors are good for payments and good for Visa. Given our role in the ecosystem, we don't pick winners and losers, and we're well positioned for growth across many potential outcomes. Let's take Wallets as an example. Wallets have done a tremendous job of building a user base, in some cases building acceptance, but at some point, They reach a point where they are seeking additional growth, and many of them are embedding Visa credentials in their wallets so the consumer can use it anywhere Visa is accepted, as well as receive and send cross-border P2P payments. LinePay is an excellent example, with four portfolios totaling 5.6 million Visa credentials across three countries, including a new co-brand in Thailand that was launched in the fourth quarter. Buy now, pay later of BNPL is a newer example, but we think we'll have a similar outcome. While installments are fast growing, they're just a fraction of the total industry's payment volume, estimated to be about $100 to $150 billion. But we are bringing scale to disruptors. We have a two-pronged strategy where we provide a network solution as well as solutions for our BNPL fintech partners. The network solution offers issuers the ability to extend installments to their existing credit clients and merchants. to offer a seamless installment option to their customer with flexible terms. We continue to expand our partnerships in Q4 with HSBC in Malaysia, Moneris, Canada's largest payment processor by volume, and ANZ in Australia with 2,022 large payments. We also partner with FinTech in a number of ways. We generate revenue as customers pay their installments with a Visa card through virtual cards for B2B or consumer payments and through value-added services. The majority of the installment payoffs are on cards today. For example, in Canada over the last year, the number of Visa cards used to repay installments has grown more than 300%. We believe we're currently experiencing BNPL 1.0. Individual fintechs and companies are cutting individual deals merchant by merchant. Eventually, we believe the business model will evolve to BNPL 2.0 with fintech partners issue Visa credentials to leverage our acceptance and platforms to overcome the difficulty of scaling acceptance globally, merchant by merchant. We're already seeing this evolution begin to take shape. Just this quarter, Klarna signed a global brand deal to accelerate expansion and scale into several markets. So to close, Visa is better positioned than before the pandemic to capture the opportunity ahead, supported by the strong growth in consumer payments, the scale of our platforms, network and capabilities, and new flows and value-added services becoming a greater portion of our revenue. And as cross-border volumes return over the next two years, it will only help to further drive our growth. Furthermore, over the history of our company, we have demonstrated that our innovation, willingness to partner, and compelling and competitive offerings have made our business resilient and successful. With that, I'll now turn it over to Basant to review Q4 and also provide a view of what we believe all these opportunities mean for Visa's financial performance in the coming year. Vasant, over to you.