Visa Q1 Earnings

Key takeaways:

• Cross border recovering faster than previously expected. They saw a very sharp recovery in cross-border travel in October and November. “This steep travel recovery started to lose momentum in the last week of December as Omicron spread around the globe. We expect this to be short-lived.”
• Increased guidance: revenues expected to be up at the “high end of the high-teens” for Q2 and FY22.
• Quote from the call, “E-commerce growth remains robust, even as card present spend continues to recover. U.S. retail spending during the holiday season grew double-digits and more than 40% above 2019 levels.”

Additional Highlights:

• Net revenue $7.06B +24% YoY vs estimate $6.8B
• Payment volume $2.97 trillion +20% vs estimate $2.86 trillion, +15.2%
• Cross-border volumes +40% vs estimate +26.5%. Cross-border travel saw immediate recovery as travel restrictions got lifted. This is a key area for them as cross-border is highly profitable. The vast majority of the travel Visa captures on their credentials is consumer, and they are the global leader in travel co-branded cards.

• They expect accelerated revenue growth versus pre-COVID over the coming years, driven by 3 strategic levers:

1. Consumer payments – enormous opportunity to displace cash and check globally ($18T) – the pandemic has helped accelerate this. Also a LT opportunity to grow the pie for digital payments w/ the 1.7 billion unbanked. This is driven by growing merchants, grow cardholders and new modes of acceptance. Many current trends in payments, including A2A, RTP, buy now pay later, crypto and wallet are enabling new ways to pay. Mgmt. says these represent opportunities for Visa (“We enable the disruptors”). Key to this is the easy onramp to their network, the instant scalability it provides to these new entrants, the value proposition w/ value identity protection, fraud prevention, dispute resolution, security, loyalty. Visa is agnostic to who wins this. They aim to sit in the middle as a “network of networks” and to continue to offer a high value proposition for the ~15bps that gets charged to merchants.

• Wallets: increasingly embed Visa credentials in their wallets to aid their own growth, so the consumer can use it anywhere Visa is accepted as well as receive and send cross-border P2P payments Wallet providers have been rapidly issuing Visa credentials that they see value in an open-loop ecosystem. Examples include Naranja X in Argentinian, PayPay wallet in Japan, Safaricom, the operator of M-PESA in Africa.
• Crypto: “leaning into in a very, very big way, and I think we are extremely well positioned”. Enabling purchases, enabling conversion of a digital currency to a fiat on a Visa credential, helping financial institutions and FinTech’s have a crypto option for their customers and upgraded their infrastructure to support digital currency settlement. They have over 65 crypto platform partners that are working with them. Also working with Central Banks as digital currency is being explored in many nations.
• E-commerce: closed a U.S. co-brand deal with Shopify. The Shopify Balance card will allow Shopify’s U.S. merchants to access funds from sales by the next business day and receive cash back on everyday business expenses like shipping and marketing.
• Buy Now Pay Later (“BNPL”): growth is coming in several ways. BNPL FinTech’s are issuing Visa credentials so they can scale through Visa’s broad acceptance. Affirm has chosen Visa as their network partner for the Affirm debit plus card. BNPL FinTech’s are increasingly using Visa virtual cards to settle with merchants. BNPL fintech consumers also continue to use their cards to pay off their instalments. And finally, for traditional issuers, they have a network installment solution called “Visa Installments,” which enables their financial institution clients to seamlessly offer BNPL capabilities through an existing credit credential on any Visa transaction.

2. New Flows – 10X the opportunity of Consumer payments. With a $185 trillion in B2B, P2P, B2C and G2C. P2P, which represents $20 trillion of the opp., was Visa Direct’s first use case and continues to grow substantially. A key area of future growth is cross-border P2P, or remittance.
3. Value-added services – includes consulting, technology platforms (e.g. Cybersource, issuer processing, and risk identity and authentication), data and insights, and card benefits, all which will improve with the recovery. Opportunity to increase penetration w/ existing clients. In 2021, 40% of their clients used five or more value-added services and nearly 30% use 10 or more. They expect sustainable high teens growth in this segment.