Visa Q3 Earnings

 

Key takeaways:

• Beat estimates – Net revenue rose 27%, far exceeding mgmt. expectations due to the strength in the US, improving cross-border volumes and lower-than-expected client incentives
• Record quarter in terms of payment volumes with much more recover to come – especially in cross border which is improving but still well below 2019 levels particularly w/ travel related spending. Some of the improvement came from a spike in cross-border cryptocurrency purchases in April and May.
• Seeing no reduction in spend due to the Delta COVID variant, even in countries with high case counts.
• No specific guidance

 

Additional Highlights:

• Quote from the call…

• “we have seen immediate impacts when popular travel destinations open their borders. Greece opened borders in April and inbound card-present spend rose nearly 30 points by the end of June relative to 2019 levels. France opened on June 9 and inbound card-present volume rose nearly 20 points by the end of June relative to 2019.”

• Strong Q3 trends:

• Payments volume ahead of 2019 – was +21% vs 2019, which is up five points sequentially from 2Q and represents a 34% year-over-year growth rate
• Debit remained strong and has accelerated since Q2
• Credit spending is now also improving – global credit payments volume was 104% of 2019
• Face-to-face payments volume trends are stable to improving, while e-commerce or card-not-present remains elevated
• Cross border improving but still below 2019 – cross-border volume, excluding intra-Europe, was 82% of 2019, seven points better than 2Q and up 53% year-over-year. Cross border volumes related to travel (ex-intra Europe) are at 50% of 2019 levels.
• Trends continuing to improve in July – through July 21 US Payment volume up 31% vs 2019, with debit up 36% and credit up 17%.

• Tailwinds building: pending travel recovery, re-opening beneficiary, accelerated cash digitization and growing e-commerce penetration…

• Credit improvement is driven by acceleration in travel, entertainment, and restaurant spending, as well as affluent cardholder spending
• Cash digitization and eCommerce are driving debit growth
• Mgmt. said travel is approaching 2019 levels in July, while entertainment surpassed 2019 levels in May.
• Cross border spending drives International transaction revenues which are >25% of total net revenues. As international travel rebounds, Visa will see a recovery in this meaningful piece of revenue. The vast majority of the travel Visa captures on their credentials is consumer, and they are the global leader in travel co-branded cards.

• Crypto opportunity:

• “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 fintechs have a crypto option for their customers and upgraded their infrastructure to support digital currency settlement
• They have over 35 digital currency platforms/wallets that are working with them
• Working with Central Banks as digital currency is being explored in many nations

• Growth in “buy now, pay later”…

• Nascent but growing
• Visa is working with third party providers as well as offering their own proprietary platform that would allow issuers to offer their own buy now, pay later capability
• “we’re doing a lot in this space. We’re committed to it… I can’t predict exactly where it’s going to land, but we are going, to the degree it takes off, we’re going to be there to be part of it.”

• Growth areas…

• Consumer payments – digitizing the $18 trillion spent in cash and check globally. Continuing to grow acceptance (including contactless penetration) and grow credentials with traditional issuers, fintechs and wallets. In the last two years, they’ve grown their credentials to 3.6B and physical merchant locations to over 70m, up 7% and 34%, respectively. Notably, “merchant locations” only count partners like PayPal and Square each as one. LT opportunity to grow the pie for digital payments w/ the 1.7 billion unbanked.
• New Flows – $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. Four of the top five global money transfer operators were onboarded in fiscal year 2020, TransferWise, Western Union, Remitly, and MoneyGram. In G2C, for example, Visa Direct supported the US government’s disbursements of economic impact payments to nearly 13 million Visa prepaid credentials so far this year.
• 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 fiscal year 2020, more than 60% of their clients used at least five value-added services from Visa and more than 30% used 10 or more.