Visa Inc.

Welcome to Visa's fiscal second quarter 2023 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 will now turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Thanks, Jordan. Good afternoon, everyone, and welcome to Visa's fiscal second quarter 2023 earnings call. Joining us today are Ryan McInerney, Visa's 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 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 annual report on Form 10-K and any subsequent reports on Forms 10-Q and 8-K, 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 Ryan.

Hi, everyone. Good afternoon, and thanks for joining us. Our financial performance in the second quarter of 2023 was very strong, with net revenues up 11% year over year. Non-GAAP EPS was $2.09, up 17%. Overall, our global quarterly payments volume was up 13% year-over-year, excluding Russia and China. In the U.S., quarterly payments volume was up 10%. Outside the U.S., excluding China and Russia, payments volume was up 17.5%. Excluding intra-Europe, total cross-border volume remained strong, up 32%, with cross-border travel volume at 130% of 2019. Process transactions grew 12% year over year. We remain confident that our strategy is focused on the right opportunities. In the second quarter, this strategy continued to deliver, driving strong growth through consumer payments, new flows, and value-added services. I'll talk briefly about our progress in each area. Let's start with consumer payments. Consumer payments remains a massive opportunity for Visa. Even with all the digitization over the last several decades, there is still a tremendous amount of cash and checks spent globally. There is a very long runway for growth in this business. In consumer payments, the flywheel has three parts, grow credentials, more buyers on the network, grow acceptance, more sellers on the network, and drive engagement. more transactions. We continue to grow credentials up 7% year-over-year through December and 11% excluding Russia. And we now have more than 6 billion tokenized credentials, up nearly 90% from last year excluding Russia. We continue to grow acceptance with over 100 million merchant locations worldwide and tap-to-pay continues to be a powerful driver of engagement. Globally, 74% of all face-to-face transactions outside the U.S. are now TAPs. In the U.S., we're at 34%, up 7x from three years ago, and up more than 10 percentage points from last year. A couple of highlights in the second quarter include U.S. quick service restaurants, where penetration surpassed 40%, and in key metro areas across the united states we continue to see great traction beyond the success in new york and san francisco la detroit seattle san diego and oakland and miami are all now over 40 percent mass transit continues to be one of the best ways to get people used to tapping and we've set records in the first half of 2023 We processed more than 745 million Visa tap-to-ride transactions globally, up 35% over the first half of last year. We've enabled 55 new transit systems, bringing our footprint over 650. We also had some significant client wins in the quarter. Starting in North America, we are pleased to have renewed a multi-year agreement with TD, a top 10 North American bank for continued visa, credit, and debit issuance in both Canada and the U.S. In Canada, we renewed our relationship with CIBC with a new multi-year agreement for visa credit issuance. We renewed our partnership with Marketa, a leading FinTech issuer processor, and MoneyGram, who is utilizing Visa Direct for cross-border money movement and just recently signed a consumer debit agreement. In Asia Pacific, UOB, one of the leading banks in Asia, has renewed and expanded its relationship with us in Singapore, Malaysia, Thailand, Indonesia, and Vietnam for both credit and debit cards. OCBC Bank, the second largest bank in Singapore by market cap, renewed its flagship product and portfolio with us, the OCBC 365 credit card. MUFG Bank, The banking arm of Japan's largest financial group renewed its long-term debit partnership. Chunghwa Post, Taiwan's post office and the largest debit issuer in Taiwan, has renewed its long-term exclusive partnership of Visa. And in India, we're very excited about a long-term consumer credit contract with Axis Bank targeting new affluent customer segments. Additionally, I want to highlight an exciting new product innovation that we launched in Japan with our longtime partner, SMBC. It is a single, flexible credential that a consumer can choose to use as a debit, credit, or prepaid card. SMBC calls the product Olive, and we think it could meaningfully enhance the buying experience for SMBC customers and users in many other countries around the world. Now to Europe. In Germany, we've signed a co-brand deal with Solaris and ADAC, which is Germany's largest automobile association with 21 million members. Visa is excited to be the new network of choice for one of the country's largest co-brand portfolios. In Israel, we renewed and expanded our relationship with our largest issuer, Bank Lumi. In Belgium, we recently reached agreements with six issuers to migrate over 2.6 million debit cards to Visa in the next few years, bringing our country total since 2021 to 6.5 million new Visa debit cards. And finally, in Latin America, from December 2019 to 2022, we have grown our credentials by 1.5x and our merchant locations by almost 2.5x. Over that time period, the percentage of our total volume that is point-of-sale payments versus getting cash out of an ATM has grown from 46% to 59%, demonstrating the cash digitization happening in the region. In Colombia, we're pleased to partner on a co-brand with LATAM Airlines, the largest airline in Latin America. We continue to strengthen our position in Brazil, renewing our partnership with Itaú, the largest private bank in the country. We also announced a new strategic deal with Banco da Brasilia that expands upon our existing agreement, including a popular credit program issued in partnership with one of Brazil's leading football teams with over 40 million fans. Also in Brazil, WhatsApp had already launched peer-to-peer service to facilitate money transfer using Visa Direct. And recently, they announced they will be offering payments from consumers to small businesses as well. In more and more, we see clients work with Visa on multiple levels, across consumer payments, new flows, and value-added services. Natura, the world's fourth largest beauty group with 4 million beauty consultants in Latin America, is a recent example. In 2020, we announced a deal with them, and we just renewed our agreements. which includes digital issuance of a Visa business credential and adds acceptance innovations as well as cyber source risk management solutions. Thus far in Brazil, we've issued CARD to almost 50% of the Natura consultants. And we love working with clients that take advantage of our full range of solutions. It's Visa at our best, serving clients in multiple ways across our growth levers. Now let me turn to new flows. The potential payments volume opportunity in New Flows is enormous, 10x that of consumer payments. New Flows revenue in our second quarter grew more than 20% in constant dollars, excluding Russia. Commercial volume was up 15% in constant dollars, and Visa Direct transactions were up 32%, excluding Russia. We've been winning in New Flows by executing our network of network strategy. And two weeks ago, we announced a new network called Visa Plus that further extends our network of networks. This new network allows users to send and receive payments among different P2P apps through a personalized payment address, a Visa Plus pay name. This enables P2P payments from one app directly to another app, as well as gig, creator, and marketplace payouts. This can be done through an app, a neobank, or a wallet. We're connecting endpoints and form factors and enabling interoperability, our network of networks strategy at work. We're launching pilots with several partners, including Venmo, PayPal, Tabapay, and Western Union, with more to come soon. Let me now turn to Visa Direct. Visa Direct is also a great example of our network of networks. Visa Direct utilizes 66 ACH networks, 11 RTP networks, 16 card-based networks, and 5 gateways with the potential to reach nearly 7 billion endpoints globally. We continue to grow Visa Direct with new use cases and partners. For example, in Peru, Banco de Credito de Peru, BBVA, Interbank, and Scotiabank chose Visa Direct as their preferred network and Yellow Pepper as their technology enabler for the interoperability among their wallets and payment apps. Last year, we announced our agreement with the payments infrastructure platform TUNES to add send-to-wallet capabilities to Visa Direct. Similarly, this quarter, our cross-border reach continued to grow, expanding coverage to 32 new wallet providers across 22 countries by connecting to TerraPay, a leading cross-border payments infrastructure company. Together, Visa Direct and TerraPay can enable P2P remittances for individuals as well as business payouts through accounts, wallets, and cards. Enablers remain an important part of our strategy, and we're partnering with Fiserv to expand on their U.S. domestic Visa Direct business by commercially launching cross-border capabilities for their clients, starting with outbound payouts. I'll mention two other recent cross-border agreements. We signed a deal with Brightwell, a global payments technology company, to leverage Visa Direct to expand cross-border remittances and payout capabilities for their customers in over 175 countries across a variety of industries such as travel and financial services. And earlier this quarter, PayPal's Zoom announced that customers in the United States can send money directly to an eligible Visa debit card in 25 countries utilizing Visa Direct. In the second quarter, Visa Direct cross-border P2P transactions excluding Russia grew nearly 50%. While Visa Direct is growing fast, B2B is the largest component of new flows. And traditional issuance is the core of what we do today in B2B, comprising the majority of the over $760 billion in commercial payments volume year-to-date. I'll highlight three important issuance deals. In Colombia, we renewed with GrupoBank Colombia the largest issuer and acquirer in the country for commercial credit and prepaid as well as consumer credit. Financial technology platform Audien has expanded its offerings with a Visa commercial card initially targeted to its global merchant customers. Visa and Stripe's issuing partnership offers card issuance to enterprise and startup consumers in the US, the UK, and Europe. And for cross-border B2B money movement, which you all know is about Visa B2B Connect, a solution that seeks to deliver predictability, speed, reliability, efficiency, data, and flexibility to our clients. We're building an entirely new network and we're making progress. Over the last six months, we've signed nearly 30 banks in more than 20 countries, and payments have been routed to 90 countries globally. And there are several areas for additional expansion in B2B, such as new capabilities, new geographies, and new verticals. Today I'll talk about two verticals, fleet and fuel, and agriculture. In fleet and fuel, we're seeing a big shift in this vertical, where the historically closed-loop systems are opening up and receiving the benefits of our investment and innovation. For example, the Standard Bank in South Africa will issue Visa fleet cards in South Africa with plans to roll out across four additional priority markets across Africa in 2024. Over the past two years, Visa has signed or launched fleet-focused solutions for over a dozen providers with more to come. In Latin America, we're bringing our innovative capabilities to an untapped vertical, the agriculture industry. Agriculture represents nearly 15% of the workforce and nearly 25% of the exports in the region, which supplies nearly 15% of the world's food production. Visa has developed a solution called Visa Agro. It provides credit access to farmers in advance of their harvest so that they can buy inputs using Visa credentials with payment periods aligned with their production cycle. Visa Agro is live in six countries through partnerships with banks, fintechs, processors, and marketplaces. Now we'll touch on value-added services. Value-added services are equally important to Visa's accelerated growth. By offering compelling value-added services, we help to grow our clients' businesses and deepen our relationships with these clients, increase the yields on our own network volumes, and expand beyond our own network by adding value to non-visa transactions. Our existing suite of value-added services is impressive. In the second quarter, we had about $1.7 billion in value-added services revenue, up 20% in constant dollars. And our clients continue to add value-added services. An example is Wells Fargo. As they modernize their acquiring solutions, they're working with Cybersource to offer enhanced product features and functionality for their merchant services customers. Or in Europe, fiscal year to date, we've signed on nearly 80% more clients than last year across 11 countries in our popular risk products, Visa Advanced Authorization and Visa Risk Manager, which together deliver increased transactions through higher authorization rates while also lowering fraud. Our network products, which include services such as account and address verification, stop payments, and smarter stand-in processing, continue to grow at a rapid pace with nearly 500 clients added year-to-date globally. We also have enhanced and developed new value-added services, which are helping to drive growth and innovation. I'll briefly share three examples, Visa Acceptance Cloud, Managed Services, and Risk as a Service. We spoke about Visa Acceptance Cloud last year, which moves embedded payment processing from individual devices to the cloud. It eliminates the need for expensive terminals, as well as the cost and time to certify the processing software. I'm pleased to share that First National Bank in South Africa has launched this solution, and Visa expects more pilots to follow soon globally. Next is managed services, part of our advisory solutions, which is when we embed Visa employees with subject matter expertise within a client's organization to execute on a specific, actionable project, such as an ongoing management of risk and fraud parameters, product implementations, or execution of customer engagement strategies. For example, one issuer for whom we provided end-to-end campaign execution enjoyed a 15% lift in spend and a 40% increase in activation. Managed services are bringing strong results for our clients and growing revenue twice as fast as our core advisory business through the second quarter. Finally, our risk as a service offerings also continue to be utilized, powered by network-level data, AI capabilities, and our risk experts. For example, our AI and machine learning enabled monitoring service identifies suspicious decline activity. For one client, we were able to identify a scheme where fraudsters were testing for valid accounts and then using the accounts to make fraudulent purchases. Visa blocked over $7 million in attempted fraud in just one month on behalf of this client. This is just one example, but you can see how these risk services enable us to both help our clients and generate revenue for Visa. Since launching six months ago, we've added nearly a dozen direct clients across three regions with a very active pipeline. In closing, as you all know, I've been at Visa for nearly a decade, and I can say I've never been more excited about the opportunities in front of us. We have a compelling strategy, a world-class team, fantastic clients, and an incredible set of capabilities that I believe are second to none. While the current environment still feels uncertain, we have contingency plans ready and are prepared to take action as needed. We're constantly seeking the right balance between the realities of the short term with the enormous opportunities ahead. So with that, now Vasant will lead us through the financial highlights from the quarter