Visa Inc.

Welcome to Visa's fiscal fourth quarter and full year 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. I would now like to turn the call over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin. Thanks, Holly.

Good afternoon, everyone, and welcome to Visa's fiscal fourth quarter and full year 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 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, and good afternoon, everybody, and thank you for joining us. Visa's performance in 2022 was very strong, even with the uncertainty created by inflation, the war in Ukraine, COVID, the timing of cross-border travel recovery, and a potential recession. On a full year basis, credentials increased 9% year over year and are up 13%, excluding Russia. We crossed 4.8 billion tokens, surpassing the number of card credentials and almost doubling from last year. Merchant locations, including locations from Payment facilitators grew 11%. Global tap-to-pay penetration grew 10%, 10 points to 54% of face-to-face transactions, excluding Russia. And this was helped by 20 additional countries crossing over the 50% penetration mark. Excluding the U.S. and Russia, global tap-to-pay penetration was 71%. Visa's network processed 70% more tap-to-ride transactions on global transit systems at FY22, surpassing 1 billion transactions for the first time ever. In FY22, we signed over 400 commercial partnerships with fintechs globally, from early-stage companies to growing and mature players. Visa Direct had 5.9 billion transactions, excluding Russia, across 60-plus use cases and over 2,000 programs, helped by more than 500 enablers. Over half of our clients utilized five or more evaluated services in 2022, and a third used 10 or more. All of this helped to drive fiscal full-year net revenues up 22% year-over-year and non-GAAP EPS of $7.50 up 27%. Now let me transition to our fourth quarter performance and key highlights, and then make a few comments about 2023. Fourth quarter, net revenues grew 19% year over year and non-GAAP EPS was $1.93 of 19%. Total Q4 payments volume was up 10% year over year or 135% versus three years ago, down one point from Q3. Excluding Russia and China, payments volume was up 16% or 145% of 2019. U.S. Q4 payments volume was up 12% year-over-year, or 145% of 2019, down one point. International volume was up 9% year-over-year, or 126% of 2019, down one point versus Q3. Excluding Russia and China, international volume was up 20%, or 146% of 2019, flat to Q3. Q4 cross-border volumes, excluding inter-Europe, were up 49% year-over-year and 130% versus three years ago, up seven points from Q3. Excluding Russia, cross-border year-over-year growth was higher by about five points. Travel-related cross-border volumes rose 12 points from 104% of 2019 in Q3 to 116% in Q4 as travel continued to recover. Process transactions were up 12% year-over-year, or 140% versus 2019, and we processed 553 million transactions a day during the quarter. Now I'll provide an update on the drivers that propelled this growth in consumer payments, new flows, and value-added services. Our consumer payment strategy has three components to it, growing credentials, increasing acceptance, and deepening engagement. Total consumer payments revenue for the fourth quarter and the year were both up more than 20% in constant dollars. On the credential side, we signed several significant deals with financial institution clients, co-brands, and fintechs in the fourth quarter. Starting with financial institution clients in our Asia Pacific region, we signed with China Construction Bank, Bank of Communications, and Shanghai Pudong Development Bank, leading banks in China. Throughout fiscal year 2022, we have renewed with eight of our top China issuers. In our Samir region, we signed with National Bank of Kuwait, the largest bank in Kuwait, and ADIB, the largest Islamic issuer in the UAE. In Latin America, we renewed and expanded our partnership relationship with the second largest bank in Colombia, Banco de Vivienda, including Credit, Debit, Commercial, and Visa Direct. Another key renewal in Latin America this quarter was with Doc. One of the reasons, a few full-stock enablers providing bin sponsorship, issuer processing, acquiring as a service, and program management via a single connection. Already servicing more than 100 fintechs in Brazil, Doc will expand across new markets, including Mexico, Colombia, Peru, Argentina, the Dominican Republic, and Ecuador. In Europe, we renewed and expanded our relationship with UBS. the largest issuer in Switzerland. We've made excellent progress in Germany with our share growing significantly since 2018, adding more than 12 million debit credentials in the market. Visa Debit is now offered by three of the most significant banks in the market, ING, DKB, and Comdirect. And we're also pleased to announce that Santander Germany will begin issuance in 2023, making Visa the single scheme of choice for Santander in that country across debit and credit. Altogether across the European continent, our quarterly active credentials were up 18% year over year. In the co-brand space, we continue to expand our position in several countries with two recent wins and an extension. First in India with the Samsung co-brand card targeting existing and prospective Samsung users. Second in the US, Visa and Kohl's with Capital One as the issuer recently entered into an agreement to launch a Kohl's co-branded Visa credit card. And also in the U.S., we're excited to share that Visa signed a multi-year co-brand agreement extension with Disney for cards issued by JPMorgan Chase. Now moving to fintech and wallet clients. In Egypt, mobile network operator Etisalat Egypt, with more than 28 million customers, has signed a deal for virtual and physical card issuance. The first digital bank in Iraq, Visa Iraq Islamic Bank, seeking to digitize payments and drive a cashless society through Visa credit debited prepaid card issuance across their 400,000 customers. And large cryptocurrency exchange FTX with over 5 million registered users have signed on to expand issuance of Visa credentials beyond the U.S. to over 40 countries, bringing our total number of issuing partnerships with crypto platforms to more than 70. Finally, GoHenry Group is a U.S., U.K., and Europe-based fintech that provides prepaid cards and a financial education app for children aged six to 18 to over 2 million members. They will be expanding their UK visa issuance to continental Europe and the US. On the acceptance front, we signed an agreement with Flyware, a global payments enabler and software company that supports the higher education industry to grow card acceptance in mainland China, Hong Kong, and Korea. In Mexico, we renewed our relationship with CLIP, an important payment facilitator, which will aid in the expansion of acceptance to micro, small, and medium merchants. In Mexico, we have more than doubled acceptance since 2019 to nearly 3 million merchant locations. Our efforts across Latin America to grow acceptance and wind processing share have paid off. Outside of Brazil, we have expanded our processing penetration by more than 20 points since 2019. with the migrations of domestic transactions in Argentina, Chile, Ecuador, Colombia, and most recently, Uruguay. Customer engagement is very important, and tap-to-pay is one of the best ways to pay in the face-to-face environment. In Q4, the U.S. reached 28% penetration and saw more than 1 billion tapped monthly transactions for the first time ever in July, surpassing the U.K. as the largest country for tap-to-pay transactions. And this is nearly double the number of transactions from last year and more than five times the number of transactions from two years ago. Now moving on to new flows, which grew fourth quarter and full year revenue over 20% in constant dollars. Our B2B business had nearly $1.5 trillion in payments volume for the full year, growing 30% in constant dollars. In the fourth quarter, B2B payments volume was almost $400 billion, growing 21% year-over-year in constant dollars. Within B2B, our strategy is focused on card-based payments, cross-border payments, and accounts receivable and accounts payable payments, and we've made progress across all three this quarter. Visa has signed a long-term agreement with European payments as a service provider, Modular, to issue Visa virtual cards to support B2B travel clients issuing out of Europe. Also in Europe, Visa won the credit card portfolio, Credit de Noir, encompassing Societe Generale, in addition to renewing consumer credit and debit portfolios in both industries. We also recently reached a new fleet product partnership agreement with Eden Red, which is making their Eden Red Essentials product available to commercial and public sector organizations with vehicles in the United States. In cross-border flows, we signed an agreement with Visa B2B Connect with TD Bank, our first bank in Canada. We also signed banks for the first time in Switzerland and Korea. And recently, our Samir region signed five banks across Kazakhstan, Qatar, and Azerbaijan. In the accounts receivable and payable space, MineralTree, a U.S. automated invoice-to-payment solution provider for the middle market and enterprise businesses, recently enhanced their relationship with Visa to support cards for their payables customers. For other new foes, Visa Direct grew transactions 36% this year, excluding Russia, reaching 5.9 billion transactions. In the fourth quarter, Visa Direct had 1.7 billion transactions and grew 42%, up seven points from Q3. In addition to growing the existing Visa Direct business, our strategy for growth includes one, scaling new use cases with a particular focus on cross border, two, expanding existing use cases to new geographies, and three, accelerating through enablers. In terms of scaling new use cases, I'm pleased that eBay, one of the largest third-party marketplaces in the world, has enabled faster payouts for its sellers via Visa Direct in the U.S. We recently signed a deal in the U.S. with GoPuff, a consumer goods and food delivery service with millions of customers across hundreds of U.S. cities to provide their delivery partners the ability to cash out their earnings balance in real time. In terms of bringing existing use cases to new geographies, in addition to some of the issuing deals I mentioned earlier, we have also signed Visa Direct deals with China Construction Bank and TESOLAC Egypt. Other new geographies also include Norway. Norwegian mobile payment application, VIPS, will offer users access to Visa Direct for all domestic payments. This will improve the card-based experience for VIPS, roughly 4.3 million users covering over 80% of Norway's population. On the enabler strategy, Square has expanded their instant transfers to Canada, offering their businesses a way to have faster merchant settlement opportunities. U.S. Money Movement Automation Platform, Astra, is using Visa Direct to let developers add real-time transfer functionality to their applications so millions of its end users can fund cards, wallets, and demand deposit accounts with their eligible debit cards. Visa Direct has extensive reach, including more than 3 billion cards and over 2 billion accounts. Recently, Visa Direct has signed with Singapore-based payments infrastructure platform, TUNES, With a network of mobile wallets across 44 countries and territories, our partnership will add a send-to-wallet capability with Visa Direct through Tunes' B2B payment platform and provide access to 78 already integrated digital wallet providers representing over 1.5 billion digital wallets globally. So with this partnership, we'll expand our total reach to nearly 7 billion endpoints covering cards, accounts, and wallets. As part of new flows aligned with our global network of network strategy, we're focused on building the infrastructure that enables our clients to deliver cross-border products and services for their customers. One of our newest capabilities in this space, Currency Cloud, signed 35 new partnerships this quarter, including PaySend, a global end-to-end payment platform with over 7 million customers and 17,000 SMEs. PaySend intends to expand capabilities of its PaySend business platform for clients to collect and hold up to 34 currencies and seamlessly convert funds back to the required currency at competitive FX rates. Now moving to value-added services, which had 6 billion in revenue for 2022, up 20% in constant dollars. So the fourth quarter revenues were up 1.7 billion and grew 20% in constant dollars as well. Our strategy here is also threefold. One, to deepen client penetration of existing products. Two, to build new products and launch new solutions. And three, to extend geographically. On the first, deepen client penetration of existing products, let's explore two of our largest value-added services businesses, DPS, Debit Processing Services, and CyberSource. DPS, our issuer processing business, hit a major milestone, exceeding $2 trillion in annual authorization volume in FY22. DPS is also renewed with nearly 30 clients representing over $600 billion in annual DPS processed authorization volume. Cybersource remains a compelling gateway solution for merchants and most recently signed McDonald's, Little Caesars, and JetBlue. We also continue to expand Cybersource relationships with acquirers, first with the Bank of New Zealand, New Zealand's largest acquirer. Together with Japanese-acquired SMCC, Cybersource continues to provide payment processing solutions for more than 100,000 terminals in both card-present and card-not-present environments. SMCC is also leveraging Cybersource's capabilities for value-added services, such as fraud management. Most recently, Cybersource is powering SMCC's expansion of the EMV transit acceptance and supporting commercial and pilot launches with 24 different transit operators across Japan. Deutsche Bank will offer CyberSource's decision manager to its merchants so that they can receive a risk value for each e-commerce transaction using rules and AI to help prevent online retail fraud. On the second strategy, build new products and launch great new solutions, our recently acquired capability, Tink, is a real example. Tink recently signed Audion to offer a white label pay by bank open banking solution on a single platform. Audion will utilize Tink's payment initiation technology so businesses can enable account to account payments. Audion's open banking integration will launch first in the UK with plans to expand to multiple markets during 2023. Last quarter, I mentioned our newly developed risk as a service capabilities. powered by our network-level data, AI capabilities, and our risk experts. Recently, Navy Federal in the U.S. and several banks in Samia signed engagements for the service, which aims to deliver enhanced fraud prevention and management. Our third strategy is to extend geographically, in many cases through tailored solutions. Since our acquisition of Visa Europe, we have made significant effort to bring value-added services to our clients. Across Europe, clients enrolling onto Visa Advanced Authentication and Visa Risk Management products tripled between October 2019 and September 2022. And these clients span across 14 different European countries. In Samia, Visa Risk Manager launched a network agnostic pilot with Emirates NBD, a leading issuer in the UAE. As part of Visa's network strategy, network agnostic VRM will allow clients to manage card payment risk across their entire portfolios. We recently brought our Buy Now, Pay Later solution to Canada and have continued to make progress, adding some of Canada's largest merchants, including Simons and Canada Computers. And RBC and Visa have entered into an agreement to launch the Visa installment solution on eligible RBC consumer credit cards. In conclusion, our 2022 performance was very strong and demonstrated that our strategies for each of our growth levers are delivering. We see new flows as a way to drive additional volumes and transactions and value-added services as a way to drive additional yield on existing volumes and transactions. Prasad's going to go into a lot more detail, but let me make four points about 2023. One, in the year ahead, I see significant opportunity for the business across all three of our growth growth areas, consumer payments, new flows, and value-added services. Two, we faced some headwinds, in particular lapping Visa and a challenging FX environment. Three, we did not factor a steep economic downturn or recession into our numbers. To the extent one occurs, it will have some impact. Four, we will continue to manage our business for the medium and long term and will invest in initiatives that are compelling and will provide future growth. That said, We recognize that some economies around the world could face increased pressure, so we will be monitoring things very closely. We will, as we have in past periods, be flexible and prudent in the management of our expenses. As a leadership team, we've demonstrated Visa's ability to manage through many different environments, and I remain confident that our strategy will continue to position Visa at the center of money movement for years to come. With that, over to Vasad.