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

and our thoughts on the rest of the year. Thank you, Ryan. Good afternoon, everyone. In our fiscal second quarter, net revenues were up 11%, and GAAP EPS up 20%. Non-GAAP EPS was up 17%. In constant dollars, net revenues grew 13%, and non-GAAP EPS grew 20%. Adjusted for the discontinuation of operations in Russia, net revenue growth was around 18% in constant dollars. Net revenue growth exceeded our expectations due to strong value added services and new flows growth, high currency volatility, and lower than anticipated client incentives. A few key highlights. In constant dollars, global payments volume was up 10%. Excluding China and adjusted for Russia, global payments volume was up 13%. As a reminder, January and the early part of February lapped Omicron impacts last year. Indexed for 2019, excluding China and Russia, global payments volume was up 61%, which is a compound annual growth rate of approximately 12.5% over the pandemic year. US payments volume was up 10% year over year, again helped by lapping the Omicron impact last year. Relative to 2019, U.S. payments volume was up 58%, compounding at 12% over the pandemic years. The cross-border travel recovery continues at the pace we expected, indexing at 130 versus four years ago, a five-point improvement from Q1. As expected, the rebound in Asia is now the primary driver. Travel in and out of Asia reached 2019 levels in the quarter, and travel into the U.S. was very close. we believe there is more recovery to come. Travel from mainland China has mostly benefited other parts of Asia so far, but early booking suggests strong interest in Europe as the summer approaches. Our new flows and value-added services businesses continue to power ahead. Excluding Russia and in constant dollars, both businesses grew revenues at or above 20%. In the second quarter of fiscal year 23, We bought back approximately $2.2 billion in stock at an average cost of $222.09 and distributed $941 million in dividends. Now on to the details. In the U.S., credit grew 10.5% year-over-year, slightly faster than first quarter. U.S. debit grew 9.6%, up more than one point from Q1. U.S. card present spend grew 8%. US card not present volume, excluding travel, grew 9%. As you look at the monthly cadence in the US through the quarter, January and the early part of February benefited from lapping Omicron to varying degrees. In March, payments volume growth ticked down and has remained at similar growth levels through the first three weeks of April. The primary driver of the tick down in the growth rate has been US ticket size, while transactions growth remains in line with Q1 levels at around 8%. Ticket size was up over 1% year-over-year in the first quarter and is down about 2% in March through April 21st. Ticket sizes are declining as inflation moderates. Most notably, starting in March and through the summer, we will be lapping the peaks in fuel prices last year. For example, in March 2023, fuel prices were nearly 20% lower than last year. In 2022, fuel prices continued to rise through spring and peaked in June. Also contributing is discounting in particular retail goods channels. You've heard various US retailers comment publicly about price cuts they're implementing to clear out inventory or pass on reductions in costs. Across other categories of spend in the US, payments volume growth remains strong in services, in particular travel and entertainment. Non-discretionary spend growth in categories like food and drug is also holding up well. Another factor that is a potential drag on U.S. payments volume growth starting in March and through April is the impact of lapping higher tax refunds. Refunds are largely spent in the few weeks post-receipt. Based on IRS-reported data through April 14, Tax refunds are 11% lower this year. We expect this headwind to abate as we get into May. Moving on to international markets. In constant dollars, international payments volume growth rates were strong through the quarter in the major markets. Latin America was up 27% due to improved growth in Mexico and the South Cone. Our Samia region, excluding Russia, grew 29%. Europe was up 13%. Excluding the UK, Europe volumes grew 31%, reflecting share gains in multiple markets. Excluding portfolio conversions, volume trends in the UK improved. Asia Pacific, excluding China, continued to recover, up 17%. Global process transactions are up 12%. Constant dollar cross-border volumes, excluding transactions within Europe, but including Russia in prior periods, were up 32% year-over-year and up 46% versus four years ago. Excluding Russia, year-over-year growth was higher by about three points and indexed four years ago was higher by five points. Cross-border card not present volume growth, excluding travel and excluding intra-Europe, grew 6% year-over-year and was 77% about 2019. Adjusted for cryptocurrency purchases and Russia, cross-border e-commerce spending grew in the low double digits. Cross-border card not present excluding travel and intra-Europe represented over 40% of total cross-border volume in the second quarter. Cross-border travel related spend excluding intra-Europe grew 59% year over year. The cross-border travel excluding intra-Europe index to four years ago went from 129 in December to 134 in March, or up five points. Travel into Asia now exceeds 2019 levels, while travel out of Asia is around 2019 levels, improving 13 and 11 points respectively from the first quarter versus four years ago. Travel out of mainland China is a key driver to watch. With airline capacity coming back fast and streamlined visa issuance, Southeast Asia has been the biggest beneficiary of travel from mainland China. This is beginning to change as airline capacity is added in other corridors, especially Europe, and COVID-related requirements are eased. We expect the recovery of Asian, and in particular Chinese, travel to be a key driver of the final leg of the cross-border recovery. Travel outbound from the U.S. to all geographies continue to be strong in the low 150s, index to 2019. Travel inbound to the US is still hovering just under 2019 levels. A strong US dollar, travel visa backlogs, and COVID restrictions have been dragged on the recovery, but all are beginning to ease. Europe, excluding intra-Europe, inbound and outbound remain strong, with a travel index to 2019 in the low 130s for outbound and high 140s for inbound. Travel into Latin America and the Caribbean also remained very strong, indexing the low 160s to 2019 levels. Travel in and out of Samia indexed in the high 140s versus four years ago, with outbound up more than five points from the first quarter and inbound up by about 10 points. Moving now to a quick review of second quarter financial results. Service revenues grew 7% versus the 7% growth in first quarter constant dollar payments volume. Exchange rate drag was offset by growth from business mix and pricing. Data processing revenues grew 10% versus the 12% process transactions growth. The primary reason is that our data processing revenues are impacted by Russia. However, our transactions growth is not. Adjusting for Russia data processing revenues were up 14%, helped by value-added services strength. International transaction revenues were up 24% versus the 32% increase in constant dollar cross-border volume, excluding intra-euro. Revenue growth was helped by high currency volatility, although lower than the first quarter, and pricing actions, offset by exchange rate shifts and business mix. Other revenues grew 16%, led by marketing and consulting services, as well as benefiting from acquisitions. Client incentives were 26.7% of gross revenues, below expectations due to some deal timing, client performance, and other items. Revenue growth was robust across our three growth engines. Consumer payments growth was led by the strength in domestic volume, transactions, and cross-border volume, as well as high currency volatility. New flows revenue grew over 20% excluding Russia in constant dollars. Commercial volumes were up 15% in constant dollars and 60% over four years ago. Excluding Russia, these direct transactions grew 32%. Value-added services revenue grew 20% in constant dollars driven by higher volume, increased client penetration, and select pricing actions. Gap operating expenses grew 11%. Non-GAAP operating expenses grew 13%, led primarily by personnel expenses from headcount additions over the past year. Excluding losses from our equity investments of around $90 million, non-GAAP non-operating income was $32 million, benefiting from higher interest income due to rising rates and a few other items. Our GAAP tax rate was 19.3%, and non-GAAP was 19.4%. Gap EPS was $2.03. Non-gap EPS was $2.09, up 17% over last year, inclusive of a three-point drag from the stronger dollar. Through the first three weeks of April, U.S. payments volume was up 6%, with debit up 6% and credit also up 6%. Compared to four years ago, they're up 54%, 63%, and 45% respectively. In key markets around the world, we saw continued strength. Process transactions grew 10% year-over-year and up 50% about four years ago. Constant dollar cross-border volume, excluding transactions within Europe, grew 28% and was 47% about four years ago. Card not present, non-travel growth was 77% about four years ago. Travel-related cross-border volumes were 31% over four years ago. Moving now to our outlook for the third quarter. Growth in domestic payments volumes remains stable around the globe. As we said last quarter, the recovery from COVID is behind us now for domestic volumes. Post the Omicron impact from last year in January and February, U.S. domestic volume growth rates have ticked down in March, driven by the factors we discussed earlier. We believe that some of these factors will persist through the third quarter. As such, we are assuming March and April trends will continue in the U.S. for the rest of the quarter. In aggregate, we expect the international growth trajectory remains largely unchanged from the second quarter. On the cross-border front, the travel recovery trend has been steady and generally in line with our expectations so far in fiscal year 23. The cross-border travel index to 2019, excluding inter-Europe, has been improving at a rate of five to six points each quarter. we're assuming this trend is sustained through the third quarter. The big driver is recovery in Asia continuing, especially driven by mainland China. We expect Chinese travel to extend beyond Asia to Europe as we enter the summer. On the cross-border e-commerce front, we're also assuming recent trends continue, adjusted for crypto-related volatility. It is important to note that even as the cross-border business continues to recover, relative to 2019, the year-over-year growth rate will continue to slow down as it has over the past few quarters. Also, currency volatility is moderating, and we are now lapping very high currency volatilities from the third quarter of last year. Our value-added services and new flows businesses have grown much faster than our consumer payments business. Sustaining faster growth rates for these businesses remains a critical priority. Client incentives growth is expected to be higher in the second half than it was in the first. This is driven by some delays and renewals that were expected in the first half, as well as some significant renewals that were anticipated in fiscal year 24, but are now happening in the second half of fiscal year 23. In the first half, client incentives as a percent of gross revenues were below our outlook range of 26.5% to 27.5%. In the second half, this percentage is likely to run above the high end of the range. We expect to finish the year in the upper half of the 26.5% to 27.5% range. When you pull all this together, third quarter net revenue growth is expected to be in the low double digits, inclusive of an approximately one point drag from exchange rates. As we indicated previously, non-GAAP operating expense growth is expected to moderate through the year. Our expectations remain unchanged. Q3 non-GAAP operating expense growth is expected to be two to three points lower than the second quarter, inclusive of an exchange rate impact, which may add half a point to growth. And Q4 non-GAAP operating expense growth will likely be another two to three points lower than Q3. Non-GAAP results exclude certain acquisition-related items and the litigation provision from the third quarter last year. Non-operating income will continue to benefit from the attractive rates we're earning on our cash balances. As you know, short-term rates have been high lately, which is very helpful given that we always have very low durations on our cash balances. Interest income from cash will likely offset interest expense from debt by $5 to $10 million in the third quarter. Our tax rate is expected to remain in the 19% to 19.5% range in the third quarter. As we've said previously, should there be a recession or a geopolitical shock that impacts our business, slowing revenue growth below our assumptions, we will, of course, adjust our spending plan by reprioritizing investments, scaling back or delaying programs, and pulling back as appropriate in personnel expenses, marketing spend, travel, and other controllable categories. In summary, as Ryan said, Visa today has three robust growth engines, consumer payments, new flows, and value-added services. Our results in the second quarter attest that growth remains healthy across all three businesses. The opportunity is vast, and the runway for growth remains long. With that, I'll turn this back to Jennifer.

Thanks, Hassan. And with that, we're ready to take questions, Jordan.

If you would like to ask a question, please press star one and clearly record your name. You will be announced prior to asking your question. To ensure all questioners are heard, we ask that you please limit yourself to one question. Once again, to ask a question, please press star one. To withdraw your question, press star two. Our first question comes from Timothy Chiodo with Credit Suisse. Your line is open.

Great. Thank you for taking the question. I want to talk a little bit about Visa Plus, a little bit on the mechanics and sort of what could be, and then a brief follow-up. So on mechanics, my understanding is, and as you mentioned, apps, neobanks, and wallets can be a part of this. But what about the prospect of any account being able to be attached to a pay name that's associated with Visa Plus, meaning traditional bank accounts? And also understand that at present, the pay name concept in Visa Plus is domestic only. but potentially has the, I guess, the chance to expand to cross-border.

Thanks for the question. Just before I get into the two specific parts that you asked about, just back up. Visa Plus is a great example of how a lot of innovations at Visa work. Our team started with a problem in the market, which is you know, people have, we all have these apps with money in them and it's not easy to get money from one app to another. And so started with the problem, which then created the opportunity. We then, you know, together, um, with a number of different parts of the company laid out a roadmap and, and then, you know, announced, uh, the pay name feature and the visa plus network, I guess it was a couple of weeks ago. And, you know, like anything to find product market fit, we are starting with kind of some very specific use cases. So yes, domestic. Yes, we've started with a few partners who happen to be, but not just in the P2P wallet business like PayPal is with both Venmo and PayPal. We also mentioned Western Union, who's a launch partner with us. In theory, the PayName construct could be extended to really any source of funds on any surface. But, you know, we're really focused on – it's early days. We just launched. We think it's a great idea. We think it's got great product market fit. We've gotten really good feedback from the market. We're focused on launching in the U.S. with, you know, the partners that we mentioned, and we'll go from there. Thanks for the question, Timothy.

Next question, Jordan. Thank you. Our next question comes from Tinjing Wang with J.P. Morgan. Your line is open.

Finjin, are you there?

I have Jennifer. Can you hear me?

Yes, now we can.

Sorry about that. Thanks for taking my question and for all the good detail here. I want to make sure, just can we infer from the no change in the operating expense outlook here that Basant went through that the modest slowdown you saw in March is limited to the U.S. and largely inflation and I think tax related. It sounds like it shouldn't extend beyond third quarter from what you see and that otherwise no real surprises and the consumer globally. I just wanted to rehash that back to you.

Yeah, the short answer is yes. We think the consumer is still in good shape. As we said, spending across most categories, other than a couple I mentioned, like fuel and some retail goods price cutting, very strong across services, strong across travel and entertainment, strong in non-discretionary. So, yes, that's how we feel.

Next question, Jordan.

Our next question comes from Will Nance with Goldman Sachs. Your line is open.

Hey, guys. Appreciate you taking my question. We've heard of a couple instances of several large merchants who made the decision to start routing more e-commerce transactions over alternative networks over the past three to five months. So, I just wanted to maybe get an update on your thoughts around some of the recent regulations in the US based on conversations with acquirers, merchants and issuers. Are there any updated thoughts or expectations around the potential impact as new regulations are implemented over the next several months?

No updates, but I'll just kind of, again, summarize for you how we see things. You know, the changes that the Fed put in place were consistent with our expectations. No changes to, you know, the card presence side of things. Obviously, in the e-commerce side of things, you know, it requires issuers to enable two unaffiliated networks for e-com. Most visa issuers were already in compliance. Those that aren't will be. We've said and continue to believe that there'll be minimum impact in fiscal year 23. And beyond that, it's yet to be determined. We'll kind of see how the marketplace plays out. We continue to believe that merchants are going to want to choose to route transactions to Visa for a number of reasons. One is, you know, in the e-commerce space, the merchants bear the liability for fraud in e-commerce. So the ability to save a couple of basis points in cost has to be weighed against the risk that comes from the liability of fraud in the e-commerce space. We believe that our tools, capabilities, and platforms to help reduce fraud are second to none. You know, we've got advanced fraud and risk processing capabilities that help both issuers, acquirers, and sellers reduce fraud. And we've also got a product that has dual messaging functionality that, you know, in a number of different use cases, whether it's airlines or hotels or rental cars you know, the retail space where there's ordering multiple products that are shipped at different times, you know, the enhanced dual messaging functionality is, you know, is really required. So, you know, as always, we're going to continue to compete vigorously. We're going to continue to invest in our products, our capabilities, our services. The market is very competitive today. It's going to get more competitive, but we like our chances to continue to win. Next question, Jordan.

Our next question comes from Trevor Williams with Jefferies. Your line is open.

Great, thanks. I want to follow up on value-added services and how much cyclicality we should expect on that line. I mean, they've been consistently growing faster than net revenue. Vasant, I know you said maintaining that elevated growth in new flows and value-added services is a priority. But if we are an environment with slowing volume growth, just how do you expect value-added services in aggregate, and I know there's a wide range of what gets folded in under that label, but just in aggregate, how you expect value-added services to hold up relative to the consumer payments business. Thanks.

Yeah, I'll start, and I'm sure Ryan will add. Yeah, our goal, of course, is to grow the value-added services business faster than the consumer payments business. And you have to remember that there's secular growth in that business coming from adding new services, which we are doing regularly, from expanding services outside the US, which we're doing, as well as deepening penetration with existing clients, because not all of them buy all of the services. So there's already a secular growth component. In terms of being affected by market trends, there are services clearly that are linked to transactions. That's true of many of our services, like our DPS business, which is issue processing, or a cyber source business, and even to some degree, the fraud businesses. So yes, these transactions are impacted in some way. There will be some impact on it, but there is underlying secular growth in that business. I don't know if you would add anything. Nothing to add. Well said.

Next question, Jordan. Our next question comes from Bob Napoli with William Blair. Your line is open.

Thank you, and good afternoon. I wanted to, with all the growth in new flows and networks, I just wanted to pull up on the evolution of new technologies uh uh ai and uh you know blockchain and how that's affecting your business how are visas utilizing those technologies uh and do they add any opportunities or risks to your business uh hey bob i think i i think i heard the gist of the question uh cut in and out a little bit let me let me hit ai and blockchain i think that's what you're asking i think more broadly

You know, we're obviously monitoring anything and everything that's impacting commerce and money movement around the world. And, you know, our approach is what it has been, which is to lean into those technologies and use them to add value to our products and services and clients and capabilities around the world. You know, I guess hit AI and blockchain. On AI, clearly a lot of activity in generative AI right now. You know, before I get to that, I'll just mention that, you know, we have a long history developing and using predictive AI and deep learning. We were one of the pioneers of applied predictive AI. We have an enormous data set that we've architected to be utilized at scale by hundreds of AI and ML different services that people use all across Visa. We use it to run our company more effectively. We use it to serve our clients more effectively. And this will continue to be a big part of what we do. As you transition to generative AI, this is where we see this as an opportunity to take our current AI services to the next level. We are, as a platform, experimenting with a lot of the new capabilities that are available. We've got people all over the company that are tinkering and dreaming and thinking and doing testing. and figuring out ways that we could use generative AI to transform how we do what we do, which is deliver simple, safe, and easy-to-use payment solutions. And we're also spending a fair bit of time thinking how generative AI will change the way that sellers sell and we all buy and all of this shop. So it's a big area of opportunity that we're looking at in many different ways across the company. In terms of, I guess, blockchain and crypto, As far as we see it, it's still early days, still emerging technologies. But as we've said in other venues, we see the potential for blockchain. We see the potential for stablecoins. If you look at what we're doing in the market today, it's relatively basic, but I'd call it important work. We're enabling on and off ramps on crypto. We're working with exchanges around the world to issue their users Visa credentials. And we're developing the capability for our issuer and acquire partners to have a choice to settle in stablecoins. And we're engaging with central banks all around the world on CBDC priorities. Now, the stuff we've got going in the lab, if you will, the R&D work that we're doing is we're testing and ideating on all sorts of different ideas on how we could leverage blockchain and Web3 and layer one and layer two solutions, smart contracts. We've got teams of people that are exploring all those different types of innovations and, you know, we'll see how they play out in the market. And if there's things to scale, we want to be part of that. Next question.

Our next question comes from Sanjay Sarani from KBW. Your line is open.

Thank you. I'm just trying to think about all the areas that are impacting you differently than what you may have planned for for the fiscal year, like this transitory impact that you mentioned in March and April. that are persisting, and then the moderating FX volatility. As we pull up and think about the fiscal year, do you feel like we're in about the same place where you started in terms of your forecast, given the strength in other places? Just trying to think through all of that. Thanks.

Yeah, I think that's right. Clearly, the moderation and volatility is not a big surprise. Volatility last year was very high by historical standards. If anything, they've held up better than we expected so far this year. And even now, they're, I'd say, a little bit higher than long-run medians, but not as, you know, last year was real highs that we hadn't seen in a while. So that's not a surprise. The cross-border business is recovering, you know, almost on track with our expectations, which, again, we had no real crystal ball, but we are very close to what we were expecting, and it's recovering nicely, and it's exactly as we expected. Asia driving it, China playing an important role, cross-border e-commerce business. In general, the e-commerce business is holding up well. International is very strong, especially Europe. Europe is strong, defying what we may have expected going into the year. If there is a positive surprise, it's clearly Europe. And then other parts of the world like Latin America, most parts of Latin America and the Middle East are also doing well, and Asia is recovering. So, yes, I mean, as you would expect, some things are better than you expect, some things a little bit lower. But in aggregate, the business is doing as well or better than we expected, as you saw from our results.

Next question.

Our next question comes from Jason Kupferberg with Bank of America. Your line is open.

Good afternoon, guys. Just going back to your initial expectations for fiscal 23, at the outset of the fiscal year, I believe you were forecasting the Q4 net revenue growth would accelerate versus Q3. Just wondering if that's still the case, given some of the quarterly moving parts here, including on the incentive line. Thank you.

I don't think we gave you quarterly revenue growth outlooks. So I don't know exactly where that came from. I mean, we said we gave you some sense of our planning assumptions for the full year and said that we would give you one quarter out our best sense of the quarter out, which we've done for Q3. And we'll give you our best sense of Q4 when we get to July.

Next question.

Our next question comes from Lisa Ellis with Moffett Nathanson. Your line is open.

Hey, good afternoon. Thanks for taking my question. I have just a question on the upcoming official launch of FedNow in July. Brian, you mentioned in your prepared remarks of course, that Visa Direct works with dozens of other networks around the world. Are you anticipating connecting into FedNow, and can you just update us again on how you see the rollout of FedNow affecting Visa, particularly your ability to win in new flows? Thank you.

Thanks, Lisa. Yeah, we want to connect to any real-time payment network on the planet, and, you know, that's been our track record so far. That's the short answer to the first part of your question. Just back up. I'll just take a minute on this. Before I dive into FedNow, let me put it in context as it relates to Visa. Today, let's start with Visa Debit. Visa Debit is a feature-rich, widely adopted, safe, simple, secure payment option. We've got global broad-based acceptance. We've got dual message capabilities, as I mentioned earlier, well-established disputes and chargeback processes. well-understood rules and accepted rules, not just in the US but around the world. We've got zero liability fraud protection, tokenization capabilities, risk management tools, security services, and it's a really, really good customer experience. It's a great buying experience. It's a great selling experience. So that's Visa Debit. On Visa Direct, you know, Visa Direct builds on all those features, the scale, the ubiquity, you know, the great experiences. to deliver push payment solutions, both domestically and, you know, around the world, as I mentioned earlier, to 7 billion endpoints. And there, too, it's a really, really good customer experience, both for the user and for the, you know, the kind of enabler of the experience. So if you put FedNow in context of all of that, so just to talk specifically about FedNow, The first thing I would say is that modernizing the payments infrastructure in the United States is a smart thing to do, it's a necessary thing to do, and it's good for Americans. It's something that is a good thing happening in the US. And I'd also say that any force that's digitizing money movement is a catalyzing force for all of us. And I expect that the Fed now, like TCH, It's going to take some time. It'll eventually get traction, but it'll take some time to build adoption. And, you know, one of the most, I say it this way, one of the most powerful capabilities in payments is ubiquity. You know, RTP doesn't have that yet in the U.S. It'll happen, but it's going to take time. And the other thing I'd say is that, you know, an RTP transaction is a relatively simple transaction type. It's instant, it's permanent, and it's irrevocable. I think over time it'll get enhanced, but that's kind of where we are. So if you take all that and say, what does it mean? I think the most instructive thing to do as we think about real-time payments in the U.S. is look around the world. And if you go to the U.K., we've had faster payments in the U.K. for 15 years now. We haven't seen much, if any, impact on Visa Debit. And the UK is also, it's a robust and growing market for Visa Direct. So I think we'll see what happens. We'll see how things expand in the US. But kind of like I was saying earlier, we like our products. We love our clients. We love the capabilities and teams that we have. And we feel good about our ability to continue to add value and grow the businesses in the US. Next question.

Our next question comes from Raina Kumar with UBS. Your line is open.

Good afternoon. Thanks for taking my question. B2B Connect seems like it could be a big opportunity to capture B2B cross-border. I know, Ryan, you mentioned that over the last six months, Visa has signed nearly 30 banks for B2B Connect. Can you talk about the competitive environment and the sales process with those customers, and if you can give us a sense of how much volume has been flowing through B2B Connect? Thank you.

Yeah, thanks for the question. You know, we're building out a new network. We know how to do that, and we also know it takes time. If I give an example and then come back to your question, we're excited to talk with all of you about the success we're having with Visa Direct, the billions of transactions, the use cases, everything that we're seeing now. That journey started many, many years ago, country by country, client by client, working with our issuing clients especially to get into their tech cues, build out the functionality, and then you fast forward many years and we're having the success that we're having with that platform today. B2B Connect is in the earlier stages of that. So to your question around the sales cycles, we know how to do it. We've done it with other networks as we've built out, but it takes time. Country by country around the world, we're working with our banks. We're helping them understand the value of the product and the solution, which almost unanimously is the easiest part of the sales process. Like when you compare B2B Connect versus the alternatives that are out there, I mean, I mentioned in my prepared remarks, you know, side by side to almost any other alternative that's out there, B2B Connect is a far superior product. But it takes work. So, you know, we're working on it country by country. I mentioned some of the numbers in my prepared remarks. I don't have any numbers to share today beyond those. And we expect over time we'll share more with you about the success we're hopefully having.

Next question. Our next question comes from Dave Koning with Baird. Your line is open.

Yeah. Hey, guys. Thank you. And my question, just personnel expense was up 24% year over year. It was one of the biggest increases we've seen, which is kind of in the face of a lot of tech companies that are cutting. Why was it up so much, I guess, is just the question.

Yeah, it's additions we had made over the last 12 months in headcount. There's also some unusual items that flow through there that are offset. This is the deferred comp. It hits you on the personnel line, but it's offset on the non-operating income line. So that distorts it a little bit. But you will see that growth rate start to decline quite a bit because we've been moderating headcount increases as we went through the year. And it's all incorporated in the output we gave you for expenses, which we told you the growth of expenses will slow through the year. You know, it was two or three points lower than last quarter. This quarter it will be two or three points lower next quarter. Another two or three points lower in the fourth quarter, and we're on track for that. Last question, Jordan.

Our final question comes from Darren Peller with Wolf Research. Your line is open.

Hey, thanks, guys. You know, Vasant, we heard your comments on third quarter growth expectations, but we'd just love to hear a little bit more on full year. You've obviously outperformed so far, especially early on both reported and constant currency basis, the first fiscal quarters. And then guidance seems to be shaping up better than your full year outlook. So just maybe a little more comment on how you see the full year versus guidance. And then I guess, Ryan, on the yields, it looks so strong. Do you see a long runway for value-added services to keep growing as a percentage of every transaction revenue mix going forward so that that can keep being sustainable?

Yeah, look, I think we'll stick with what we said earlier. I think you have a good sense of the trends. And if the trends continue, it's very easy for you to assess what the fourth quarter would look like. And as it relates to value-added services, I don't know, Ryan, if you want to add anything, but clearly, I mean, the approach to value-added services is the yield enhancer. If you have the transaction, the more value-added services you can provide, the higher the yield you can get on the transaction, and that is clearly the objective.

Yeah, and then, you know, we've got great sales teams, great product teams all around the world. They're doing a great job sitting with our clients, helping them understand these products and services and getting those products and services embedded into our clients. And, you know, we've got a very robust product pipeline across all of our various types of value added services. And, you know, we're optimistic about the ability to continue to grow that business.

And with that, we'd like to thank you for joining us today. If you have additional questions, please feel free to call or email our investor relations team. Thanks again and have a great day.