Visa Inc.

Welcome to Visa's Fiscal Second Quarter 2022 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. Now I would like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Head of Investor Relations. Ms. Como, you may begin.

Thanks, Jordan. Good afternoon, everyone, and welcome to Visa's Fiscal Second Quarter 2022 Earnings Call. Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer, and Vasant Prabhu, Visa's Vice Chair 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 gap measures and reconciliation are available in today's earnings release. And with that, let me turn the call over to Al.

Good afternoon, everybody, and thank you for joining. Before jumping in, I want to acknowledge that this is Jennifer Como's first earnings call in her new position. About two months ago, Jennifer was promoted to head of investor relations, which was a very well-deserved recognition of her work over the last three years with us. I want to start by briefly addressing the situation in Russia and Ukraine. I've seen firsthand the pain brought about by Russia's attack on Ukraine and its people, including our colleagues in both Ukraine and Russia. We are very focused on supporting them. The bravery, strength, and resilience of our colleagues is incredibly inspiring as is the grit of the Ukrainian military. Even with the invasion of Ukraine and lingering impacts of Omicron, volumes, transactions, and credentials drove strong second quarter performance. Overall, PV was up 135% versus three years ago. Cross-border volumes excluding inter-Europe were 112% versus three years ago. It's important to note that travel-related cross-border rose to 82% versus three years ago, up five points from Q1. Process transactions were 138% versus three years ago. In terms of the big picture, after the short four to five week impact of Omicron, in December and January in the United States and many other parts of the world, the recovery continues to be robust. At this stage, in terms of volumes, we have seen no noticeable impact due to inflation, supply chain issues, or the war in Ukraine. In the U.S., payments volume index to 2019 was 144 in the quarter. Volume growth relative to three years ago has been stable and strong now for four quarters in a row. When looking at specific spend categories for credit cards, we saw greater than a 10 percentage point improvement in the three-year index from Q1 to Q2 in travel, retail goods, food and drug, restaurant QSR, and fuel. As a reminder, debit is growing over a quarter in fiscal 21, where there were two stimulus distributions. Even as credit continues to recover, debit remains 20% above the pre-pandemic trend line. Across all products, spend categories representing 88% of PV are over 120% indexed, over 120 indexed to three years ago, and nearly two-thirds are between 140 and 160. Against this backdrop, Visa's performance was very strong. Net revenues grew 25% year over year, and non-GAAP EPS was 179, up 30%. As we look ahead, our business will have a reset due to Russia. but we still expect accelerated revenue growth versus pre-COVID over the coming years. This is because there's still ample opportunity around the world across our three growth levers of consumer payments, new flows, and value-added services, and our strategy is yielding excellent results. First, in consumer payments, we continue to displace cash at a strong rate. In Q2, we saw debit cash volumes at Visa grow 2%, while debit payments volumes grew 12%. Cash displacement continued around the world. Year over year, across debit and credit, there were 7.9 billion more payments transactions and 16 million less cash transactions. Last quarter, I highlighted the shift from cash to payments volume in Latin America, and that trend continued in this quarter. Additionally, Samia is experiencing a similar shift. In full year 2019, cash was 59% of total volume. Last year in Q2, it was 50%. And this quarter, it was 46%. Growth in consumer payments is driven by adding credentials and acceptance and deepening engagement. Our card credentials recently increased to over 3.9 billion, up 9% in one year, including 10% growth in the United States. On the acceptance side, we have 80 million merchant locations, including small businesses behind players like Stripe and Square. The number is actually over 100 million. We have seen very strong performance location growth recently in our Latin America and Asia Pacific regions, up 30% and 20% respectively. Let me just highlight a few regional examples of progress in consumer payments. In Europe, overall credentials grew 6%, which is nearly double the historic rate for each of the past eight quarters, helped by previously announced deals with PNB Paderba Fortis in Belgium, contributing more than 4 million credentials since their announcement to issue with Visa. Across Europe, we continue to strengthen our debit business. We recently announced the Windrush Robobank, representing a multi-million credential opportunity. We also renew our business with one of the largest banks in the Nordics, Nordia. On the acceptance front, we continue to pioneer new areas of acceptance, even in mature digital markets. One recent example in Europe is with electric vehicle charging. We were the first payments and financial services company to join the Charging Interface Initiative. and are working with manufacturers to open up what is estimated to represent 3 million potential acceptance points in Europe by 2030. In Latin America, we saw strong credential growth, up 21% year over year. Two renewals to highlight this quarter. Porto Secura, Brazil's third-largest issuer for their credit portfolio, and digital bank Neopagamentos, one of Brazil's fastest-growing fintechs with over 15 million clients for their credit and prepaid portfolios. In Africa, Visa has signed a partnership with Vodacom South Africa. This deal, together with previously announced partnerships with M-Pesa Africa and Safaricom, covers 130 million customers in the entire Vodacom group in Sub-Saharan Africa. Through this partnership, Vodacom will exclusively issue Visa payment credentials, deploy new payment flows through Visa Direct, and utilize Cybersource. In the United States, we renewed and won several partnerships this quarter. First, Visa and USAA have recently renewed our longstanding issuing partnership. Second, we extended our existing relationship agreement with M&T Bank as their issuance partner, including migrating the business resulting from their recently completed acquisition of People's United. Over the past two years, merger activity of regional banks has increased, and this is another example of Visa successfully partnering to grow with our clients. Finally, supporting the US government, it is an important priority for us and we retained our business with the financial agent that manages the US debit card program. This Visa branded program is a key component of Treasury's goal to deliver 99% of federal payments digitally by 2030. A key vector of growth in consumer payments are co-brand cards, which are particularly attractive to the affluent customer. In Q2, affluent credit card spending was well above 2019 levels in several markets including the u.s and the uk our u.s co-brand active cards were up nearly 30 percent from 2019 to 2022 and we have seven of the top 10 co-brands in the united states and eight of the top 10 co-brands globally this past quarter we renewed our co-brand relationship with triple a visa's longest standing co-brand partner an over 40 year relationship in india We're pleased to have signed a long-term co-brand agreement with Airtel, one of the largest mobile operators in the world, with nearly 356 million subscribers. In Samia, Emirates NBD, a leading banking group, has expanded its long-standing partnership with Visa by introducing the premium co-brand program with Ittihad Gas, the loyalty program of Ittihad Airlines, with 8 million members. In Uganda, we partnered with the Uganda National Social Security Fund to issue co-brand cards to 2 million beneficiaries. And just a few weeks ago, it was announced that the US Amazon Prime Rewards Visa Signature Card has been renewed with Chase and Visa. Visa is also pleased to have reached a broad global agreement with Amazon. This agreement includes the acceptance of Visa at all Amazon stores and sites today, as well as a joint commitment to collaboration on new product and technology initiatives to ensure innovative payment experiences for our customers into the future. In Q2, we also continue to enable new ways to pay from installments to crypto. In the installment space, we previously announced the global deal with Klarna. They have now issued their co-branded card in Europe and recently opened the waitlist in the United States where they have 25 million customers. In the crypto space, we continue to work with governments globally on potential CBDCs. This quarter, we were selected as the finalist in Brazil's CBDC Lift Challenge. The concept is a B2B solution that seeks to leverage CBDC to help small businesses access global investors and drive financial inclusion. On the engagement front, tap-to-pay continues to accelerate growth. In the United States, we are over 20% tap-to-pay penetration, marking the second largest market by number of taps. And Target has become the first US retail merchant to surpass 50% tap-to-pay penetration of face-to-face payments. Transit is one of the best ways to habituate tapping, and the first half of fiscal 22 has set records. We enabled 50 cities around the world, including Thailand, Japan, Turkey, Italy, Switzerland, Norway, and Canada, bringing our tap-to-ride footprint to over 500 transit authorities. We processed over 500 million Visa tap-to-ride transactions globally versus 700 million for all of last year. To summarize, there is significant opportunity in consumer payments. Visa continues to grow credentials and acceptance while deepening engagement, and Visa enables innovation and scale for players across the ecosystem, from installments to crypto to merchants. Now moving to new flows, which in Q2 had over 20% revenue growth. In Q2, our commercial payments volume was 138% of 2019. What's more, this recovery is relatively broad-based across segments and spend types. On the B2B carded front in the US, MQA Bank announced two commercial solutions for middle market businesses. One, Visa Commercial Preferred, a commercial rewards card designed to help manage daily business spend. And two, Visa Commercial Pay, which will help improve cash flow management, reconciliation, and reporting. In Latin America, we saw carded progress with B2B Fintech Tribal, which has chosen Visa for card issuance, including virtual cards, on its modern corporate card and spend management platform tailored for startups in nine countries. Airwallex, a global platform enabling digital businesses to manage payments and money movement across borders, previously launched programs with Visa in Australia, Hong Kong, and the UK. Recently, they introduced virtual Visa cards in the United States, Netherlands, and Singapore to enable businesses to easily make digital card payments around the world. In our cross-border B2B business, Visa B2B Connect continues to expand its global footprint. And in the first half of 2022, we added banks for the first time in Tanzania, Uganda, Angola, Thailand, and Poland. Now turning to Visa Direct. Transactions in the second quarter grew 20%. Prasad will speak more about this, but Russia was our second largest market for Visa Direct and represented about 17% of our transactions in fiscal 2021. So in short, Visa Direct will be impacted by the suspension of Russian operations. But even without the Russia business, we will see growth ahead driven by many use cases in countries. For example, domestic P2P, which accounted for the majority of our Russian business, is still a large opportunity, and we continue to expand to new markets. We will soon launch our inaugural Visa Direct use case in Israel for P2P partners. in partnership with BIT, the largest P2P app in the market. I'll focus on two other use cases today, payouts and remittances. First, with payouts, we're seeing momentum in a number of industries, and transactions are up 35% year over year. In travel, we launched Visa Direct with Booking.com to enable customer refunds and loyalty payouts. In the gig economy, Payfair, a leading fintech that has partners such as Uber, Lyft, and DoorDash, has added Visa Direct to its platform to help facilitate real-time payment experiences for over half a million gig workers they serve. And digital commerce partner Payoneer will use Visa Direct to enable cross-border payments for their 5 million customers, including marketplaces and gig economy players. Second, cross-border P2P or global remittances, which are higher yielding Visa Direct transactions, represent a significant opportunity. When we were just getting started this quarter, transactions grew nearly 50% year over year. After announcing our relationship in fiscal fourth quarter with PaySend, an international card-to-card payments platform which serves over 6 million customers and 17,000 SMEs, they have now launched their cross-border service with Visa Direct from the UK and US to over 100 corridors. Well, the U.S. is the top source for remittances. The UAE is the second largest source for country remittances, followed by Saudi Arabia, according to the World Bank. Altogether, the Gulf Cooperation Council countries account for more than $100 billion in outbound remittances. This past quarter, we added several partnerships to help digitize remittances in the region. First, Al-Muzeini exchanged the largest exchange house in Kuwait. Second, Anzac, the remittance and payment arm of Thank Al B. Lude and market leader for ongoing remittances in the kingdom of Saudi Arabia. And third, in the UAE with Lulu money powered by Lulu International Exchange and Network International to enable the 5 million users of Lulu app to send money to cross-border. Adion and Stripe, key Visa direct enablement partners, have both signed agreements to deepen relationships in existing geographies and to expand to net new markets globally across numerous use cases. In sum, we have made excellent early progress against the $185 trillion new flows opportunity, but there is tremendous room for accelerated growth ahead. Now let me move to value-added services, which had Q2 revenue growth of over 20% as well. First, we recently closed our acquisition of Tink. Tink is a European open banking platform that connects to more than 3,400 banks that reach over $250 million worldwide. bank customers across Europe. Through a single API, Tink enables its customers to move money, access aggregated financial data, and use smart financial services such as risk insights and account verification. Visa brings proven infrastructure and sustained investment in resilience, cybersecurity, and fraud, which will help accelerate the adoption of open banking and create a secure, reliable platform for innovation. Let me highlight some other progress in value-added services. First, Visa Consulting and Analytics. Last quarter, I announced the launch of our specialized global crypto advisory practice. We have seen interest from hundreds of clients globally and have committed engagements with 30 already covering their digital currency strategy, product development, and their go-to-market plans. Second, risk identity and authentication. In tokenization, we have now crossed the 3.5 billion token mark across more than 8,600 issuers in over 150 markets At 1.2 million merchants, tokens have led to a two and a half point increase in approval rates and a 28% reduction in fraud rates this past quarter in CardNot present payments. Our key risk solutions, Visa Advanced Authorization and Visa Risk Manager, screened about 30% more transactions in the first half of 2022 versus 2021. Third, Cybersource, our gateway capability, seen considerable progress, just crossing the milestone of the one millionth merchant account onboarded. I spoke about transit before in CyberSorts, which could play a key role in transit acceptance, added nearly 15 projects in the first half in Thailand, Italy, and Japan, among others. So to summarize, our evaluated services represent a compelling way to diversify our revenue streams while helping our clients in bringing innovation to the payments ecosystem. Our global infrastructure is providing connectivity through our network of networks to power more traditional payment types and newer ways to pay and move money. Our brand is strong. Our network of networks is expanding. Our business is performing well, and our people are motivated and passionate. We expect all our efforts will help power accelerated growth in the years to come. And with that, let me turn it over to Basant.