Operator:

Welcome to Visa's Fiscal Third Quarter 2024 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Ryan McInerney:

Good afternoon, everyone. Thank you for joining us. We delivered strong third quarter results with $8.9 billion in net revenue, up 10% year-over-year, and EPS up 12%. Our key business drivers were relatively stable as compared to Q2, adjusted for leap year. In constant dollars, overall payments volume grew 7% year-over-year, U.S. payments volume grew 5%, and international payments volume grew 10%. Cross-border volume excluding intra-Europe, rose 14%, and processed transactions grew 10% year-over-year. We recently received the results from our annual Global Client Engagement Survey where Visa achieved a Global Net Promoter Score, or NPS, of 76, up three points from last year. We saw NPS increases across all of our client types, merchants, issuers, fintechs, and processors and across our regions, the results remain strong, with a notable 6-point NPS improvement in North America. I want to thank all of our 30,000 employees who helped deliver these fantastic results. And as I review some highlights from the quarter, you'll see how this focus on serving our clients by meeting their needs, innovating, and helping them grow is fueling our success across consumer payments, new flows, and value-added services. Let's start with consumer payments, where we see more than $20 trillion of opportunity to capture cash, check, ACH, domestic schemes and other forms of electronic payment. In our client engagement survey, our clients ranked our strategic partnership and our brand as two of the most important factors to our successful relationships. I'll share some examples of how each of these played out this quarter. In strategic partnerships, we are constantly seeking ways to add more value and grow together with our clients. We are pleased to have been named the Preferred Network Partner by Lloyds Banking Group, renewing our debit relationship and significantly expanding our relationship in credit, winning 10 million additional credit credentials across the Group's consumer and commercial business. Also in the U.K., NatWest has launched a new Visa Travel Reward credit card, following the signing of our partnership last year. They will also be utilizing many value-added services, including transaction controls and card benefits. On the European continent, we worked with Raiffeisen Bank International AG, a leading bank in several markets. And recently, in the Czech Republic and Romania, we renewed our commercial business and expanded our consumer debit and credit business totaling over two million potential new credentials. In Korea, we deepened our partnership with leading issuer KB Kookmin Card. Already a user of Visa Direct cross-border money movement and a Visa consumer and commercial issuer, they will grow their consumer credit and debit portfolios with Visa and use value-added services, including consulting and marketing services. In Peru, we extended our partnership with leading issuer, Banco de Credito de Peru, across consumer and commercial portfolios with plans to launch additional new flows offerings and value-added services. In the U.S., we extended our agreement with Wells Fargo. This will allow us to continue to support Wells Fargo's strategy to reinvent their credit business and provide additional growth by leveraging key Visa assets like consulting and Visa sponsorships such as FIFA and the Olympic and Paralympic Games. On the brand front, with the Olympic Games opening ceremony later this week, it is exciting to see the engagement with the Visa brand and activation across the world in marketing campaigns, cardholder experiences and Olympic and Paralympic-branded Visa issuance, which I am happy to report in Europe is at nearly six million cards compared to the five million number I quoted just last quarter. We have also added nearly 100,000 new merchant locations in France in advance of the event. Our brand also plays an important role in winning co-brand partnerships. In India, growing credit issuance and reaching affluent and cross-border consumers remain areas of focus. We are excited about the launch of a co-brand card with Adani One and ICICI Bank as India's first co-branded credit card with rich airport-linked benefits for their target base of 400 million customers through the Adani One platform. We also signed an agreement to launch a new co-brand card with Tata Digital, along with an Indian banking partner, building on the success of our existing credit co-brand relationship. This new co-brand offering consists of a multicurrency prepaid foreign exchange card that will target travelers from India, also benefiting from the rewards of the Tata Digital Super App, Tata Neu. Across seven countries in Latin America, we will work with Unicomer, a major retailer and financial services provider with numerous brands to deliver a co-brand credit card in addition to using CyberSource. And in CEMEA, we reached a de novo co-brand arrangement with BinDawood, a leading grocer in the Kingdom of Saudi Arabia with 88 outlets and over five million loyalty program members. On the travel side, we extended our relationship with Malaysia Airlines from a prepaid co-brand card targeting millennials and Gen Z customers to also launch a new co-brand credit card for the travel-minded affluent. And in the U.S., Turkish Airlines have chosen Visa to be their exclusive network partner for their new Miles and Smiles co-brand credit card. Our consumer payment strategy is focused on growing credentials as we are doing across all the partnerships I just mentioned and increasing acceptance locations. And wallets are a great example of where this comes together, where Visa can be a funding source, an embedded credential, and an accepted form of payment by wallet merchants. This increases the value proposition for wallet providers and their users. Two wallet highlights this quarter are in Peru and Vietnam. Yape is a Peruvian super app with more than 15 million users who already have a Visa credential that enables them to send money across P2P apps via Visa Direct. And just recently, they launched Tap to Phone functionality for their more than two million merchants to accept Visa. And in Vietnam, a country with approximately 50 million wallet users, the three leading digital wallets, MoMo, VNPAY, and ZaloPay are now enabling their users to utilize Visa cards as a funding source for transactions at over 500,000 QR acceptance points managed by these wallets. One additional area that we are very focused on is delivering simple, easy, and secure checkout experiences. Let me share a few recent examples. First, we are integrating Click to Pay and the Visa Payment Passkey Service, enabling a customer to authenticate themselves using biometrics. Already, we have hundreds of issuers enabled for passkeys in Europe and a number of issuers who represent more than 50% of our e-commerce payments volume in Europe piloting the solution. Second, we crossed 10 billion tokens this quarter, a significant milestone. And in 2023 alone, Visa tokens helped generate more than an estimated $40 billion in incremental e-commerce revenue for businesses globally and saved more than $600 million in fraud. Third is the ability to tap for more use cases on a mobile device. With tapping as one of the best in-person commerce experiences, we want to provide Visa users with more ways to tap, including Tap to Pay, tap to authenticate an identity, tap to add a card, or tap to send money to family or friends. And finally, this quarter, Tap to Pay grew four percentage points from last year to 80% of face-to-face transactions globally, excluding the U.S. In the U.S., we surpassed 50% and have 30 U.S. cities above 60% penetration. Now moving on to new flows. This quarter, new flows revenue grew 18% year-over-year in constant dollars with Visa Direct overall transactions growing 41% for the quarter to 2.6 billion and commercial volumes up 7% year-over-year in constant dollars. Let me provide some updates, starting with B2B, where we have focused on penetrating new verticals and delivering innovative products and solutions. In healthcare, we will work with AXA and Paysure to launch a commercial virtual card solution to simplify the claims processes for their customers worldwide. We have also expanded our virtual card acceptance with a key business services provider, Cintas, who offers uniform, safety, and fire protection services to over one million customers. Together with our partner, Billtrust, we will help Cintas streamline their payments, automate processes, and manage costs on Billtrust's Business Payments Network or BPN. We also just recently extended our long-standing BPN collaboration with Billtrust that connects suppliers and buyers to facilitate straight-through processing of virtual card payments with rich data that optimizes acceptance costs. Our products and solutions in B2B remain very important in winning and growing our business. One such solution is the enhanced B2B data that we can provide. In Brazil, together with Solero, a leading business financial management solution, we will provide issuers with enhanced visibility into small business spend by aggregating data across cards, bank accounts, boletos and more, enabling them to better manage their client relationships and offer compelling products. Another solution is Spend Clarity, which provides expense program management, including card issuance, controls, and reporting. Wells Fargo has white-labeled our solution called Wells One Expense Manager, which has now onboarded 6,000 corporate clients representing over one million users, providing access to their spend data. Now moving on to Visa Direct. We continued to grow our transactions through expanded and new relationships. Over the past year, total Visa Direct cross-border P2P transactions have nearly doubled, with Europe and CEMEA being the largest regions. In CEMEA, we are very excited to have renewed our Visa Direct relationship with fintech Monobank in addition to renewing their consumer and commercial credit, debit, and prepaid portfolios. In Asia Pacific, we are partnering with China Zhongsheng Bank on cross-border capabilities, including Visa Direct and Currencycloud, allowing the bank to support cross-border payments for their merchant clients. Canadian fintech Nuvei has extended its agreement with us for Visa Direct across all cross-border use cases in more than 30 countries for their merchant clients and recently became the first Visa Direct enabler in Colombia. We also executed our first global agreement with WorldRemit and Sendwave, enabling their customers to eventually send Visa Direct cross-border remittances from 50 countries to recipients in 130 countries. Quickly, a leading South Asian marketplace, has enabled Visa Direct cross-border remittance solutions for U.S. customers to send money to relatives and friends in India and the rest of South Asia. And in earned wage access, we reached an agreement with Weaver, a U.K.-based embedded finance provider. In addition to card issuance, they will be utilizing Visa Direct to enable Weaver's business clients to offer employee expense reimbursement, reward and recognition, and earned wage access. Earned wage access provider PayActiv, who serves 4,000 businesses has renewed its agreement with us and will enable Visa+ for payouts. Similarly, we expanded our relationship with enabler, Astra. In addition to domestic disbursements, Astra will now offer cross-border remittances, implement Visa+ to reach domestic wallets in the U.S., and expand to additional use cases, including payroll, earned wage access and marketplaces. Visa+ is still in the early stages but is fully rolled out and live for PayPal and Venmo users and more providers continue to join the platform. Wrapping up new flows, we also renewed an agreement with FIS, an important issuer processing partner to enable a suite of value-added services and new flows capabilities for their clients, including Visa Direct. And now on to value-added services, where revenue was up 23% in the third quarter in constant dollars. Let me highlight some of the progress we have made in driving adoption and growth among our value-added services portfolio. First in issuing solutions. One area of strong revenue growth this quarter was in card benefits, where we enable our clients to offer unique value propositions tailored to their customer base in travel, entertainment, restaurants, insurance and more. Strong issuance in premium cards across most of our regions has fueled this growth in the third quarter. For example, in Latin America, travel benefits have grown with over 370,000 unique visits to our Visa Infinite Airport Lounge in Brazil, representing customers from a number of leading issuers. In addition, since its launch in 2022, our Visa Infinite Fast Pass in Brazil, which allows cardholders to get through airport security more quickly, has screened over one million travelers. These are among the top five card benefits in Brazil and deliver value to customers, issuers and Visa. We continue to add more benefits like the recently launched partnership with OpenTable to offer eligible Visa cardholders access to coveted restaurant reservations and experiences in the U.S., with plans to expand into Canada and Mexico. In Acceptance Solutions, third quarter growth was driven by increasing utilization across both token and e-commerce-related services. In e-commerce, one such example is with iFood, the largest food delivery platform in Brazil who is utilizing our Verifi solution to help prevent disputes before they become chargebacks. In addition, they will be using our authentication solutions. In Risk & Identity Solutions, we continued to see strong adoption by new and existing clients, driven in part by growth in card-not-present transactions. In North America, acquirer Worldpay will be expanding their use of our authentication solutions from CardinalCommerce, fostering collaboration and real-time enhanced data exchange between Worldpay merchants and issuers during card-not-present transactions, reducing fraud and allowing more transactions to be properly authenticated and authorized securely. We are also pleased that the pilot of our account-to-account risk scoring solution Visa Protect with Pay.UK has had great results, showing an average 40% uplift in fraud detection over the 3-month pilot period. In addition, we are now launching Visa Protect in Argentina with a core payments technology company, Celsa after successfully piloting the solution there as well. The last two value-added services are open banking and advisory services. We continue to sign new partners with Tink in Europe and the U.S. And as I mentioned earlier, we continue to see strong growth in client demand for our consulting and marketing services, particularly around marquee events such as the Olympic and Paralympic Games. Our value-added services portfolio solutions is strong and is driving meaningful growth for our clients and for Visa. Before I close, I wanted to speak to the fact that the settlement reached for the injunctive relief class was rejected by the court. We are, of course, disappointed with this decision. We believe that the prior settlement provided meaningful relief to all merchants and we will continue to work towards another settlement. To close, so far this fiscal year, we have seen strong revenue and EPS growth as a result of relatively stable volume and transaction growth. I remain very excited about the opportunity that lies ahead of us. At Visa, we come to work in service of our clients and partners and are focused on building and deploying the best solutions possible across consumer payments, new flows, and value-added services. Now over to Chris.

Jennifer Como:

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

Darrin Peller:

Hi, thanks guys. Look, let me just start. The U.S. volume growth rate obviously is a bit softer. And if you could help us distill what you consider structural versus cyclical, I think that'd be a good place to start. But adding on to it really is, just the ability for you to grow double-digit revenue with only four, five, six, mid-single-digit U.S. volume growth is, coming from value added services. It's coming from cross border. Can you help us understand if that kind of trend, you believe the company has that capability to grow those rates on revenues, even in this context of U.S. volume trends? Thanks guys.

Ryan McInerney:

No, nothing to add from me, Chris. Thanks, Darrin.

Operator:

Next, we'll go to the line of Andrew Jeffrey from William Blair. Please go ahead.

Ryan McInerney:

It's Ryan, Andrew. Thanks for the question. And yes, we're very excited about not only what we delivered, in terms of value-added services growth for the quarter. What we've been delivering consistently for several years now, since we shared with you all the strategy, and kind of became very purposeful about our go-to-market approach. I mean, you go back to I think it was 2021, we did about $5 billion in revenue, 2022, $6 billion. Last year was $7 billion. Like you said, we did $2.2 billion this quarter, up 23%. So I think what we've shown, is that we have delivered consistent growth quarter-after-quarter, and year-after-year in these businesses. And we're super optimistic about where we go from here. I mean, we think about the opportunities really in three different segments. The first is, we have a series of value-added services, some of which Chris outlined in his previous answer that, are very focused on enhancing value for Visa transactions. Risk products like Visa Secure, dispute tools like Visa Resolve Online, card benefits, like I mentioned in my prepared remarks. And we've - that has historically been the largest part of our value-added services business. And we've shown that we can drive great growth in that area. Increasingly, we're building out a set of services that add value for non-Visa transactions. We've done some things in this space before. Some of our platforms like CyberSource, Authorize.Net, Verifi. But then you've heard me talk in the last couple of quarters about expanding our risk capabilities. For example, to not just other card networks, but also to RFCP and account-to-account services. And I mentioned the great results we've had in both the U.K. and in Argentina on that front. And then the third area of opportunity for us, is expanding our value-added services beyond payments. Historically, we've had things like Visa Consulting and Analytics and our marketing services And some of the open banking services delivered by Tink, but we're continuing to build out a portfolio of value-added services, for our clients and partners beyond payments things like the cyber protection capabilities that we've been bringing to market. So, we've demonstrated consistent growth. We believe we'll be able to continue to demonstrate consistent growth. We've got a product pipeline, and a go-to-market approach all over the world with a diverse set of clients, and we feel good about the opportunity.

Operator:

Next, we'll go to the line of Bryan Keane from Deutsche Bank. Please go ahead.

Chris Suh:

Thanks for the question. I'll even take us back a little bit about the expectations that, we had for incentives coming into the fiscal year. As we ended fiscal '23, that was a high year for us in terms of volume of renewals, a little higher than our typical sort of normal cadence. That did impact how we thought about the incentive volumes in FY '24. And even last year, we had sort of a different growth rate in the first half and the second half of the year. And so as we looked across this year, we had a slightly lower volume of renewals this year. Obviously, year-to-date incentives have played out slightly differently, largely due to client performance, deal timing, things like that. And overall, it's been better than, as it's been lower, I guess, than what we anticipated. When we go into Q4, sort of the same trend applies. We still expect Q4 to benefit from the lapping of the high incentives that, we saw in the second half of last year, which informs, again, the growth rate that we anticipate in Q4. We don't have a lot to share about FY 2025 at this point, but we'll share plenty in the next earnings call.

Operator:

Next, we'll go to the line of Ken Suchoski from Autonomous Research. Please go ahead.

Ryan McInerney:

Yes Ken, it's Ryan. On the second part of your question, our ability to price for value is a function of the value that we bring to the market, and we feel great about the value that we're bringing to the market. And I think you see it in our results. Across the various different areas of issuing solutions, Acceptance Solutions, Risk & Identity Solutions, Advisory. I mean, we just continue to bring products and services that are ultimately, helping our clients grow their business, helping our clients reduce fraud, grow authorizations, those types of things. And we believe we'll continue to do that, and we believe we'll be able to continue to price for value. As I think I was saying earlier, there is - the biggest portion of our value-added services, are a function of Visa transactions. And so obviously, Visa transactions, as they go up or down, have an impact on that, but so does our ability to sell more services. On previous calls, I've talked about the fact that we still have the majority of our clients that have yet to have the type of penetration and depth that, we've been able to achieve with others. So, as we continue to penetrate our clients, all around the world in the various markets that we deliver, as I was saying earlier, to the earlier question, I'm very optimistic about our ability to continue to grow this business as we have.

Operator:

Next, we'll go to the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

Chris Suh:

Hi, Tien-Tsin. Thanks for the question. Yes, we had forecasted ATS, as you know, growth to improve throughout the pace of this year from quarter-to-quarter, and we did see that. We saw ATS improve in the third quarter. Specifically in the U.S., ATS was slightly better in Q3 than in Q2. It got to basically flat year-over-year in Q3. We saw improvement in a number of categories, sequentially, restaurant, QSR fuel, telecom, utilities, insurance, to name a few. And we do anticipate in Q4 that we'll continue to see, slight improvement sequentially again. The one thing - the one watch out I'll call out is the fuel prices could impact that trajectory and so, we'll watch that closely. So yes, it is playing out as we anticipated. The pace is slightly varied from what we anticipated, but it is continuing to improve. And I think that's the important thing.

Operator:

Next, we'll go to the line of Gus Gala from Monness, Crespi, Hardt. Please go ahead.

Ryan McInerney:

You're asking - just so I heard, you're asking about Tap to Pay?

Ryan McInerney:

I mean, yes, maybe just back up first in the big picture of things. The fact that outside of the United States, eight out of 10 of all the Visa face-to-face transactions around the entire planet are Tap to Pay now, I mean, that just tells you right there that it's all segments, all demographics, all use cases, all product types. I mean, we're at 80% overall around the world. We've got, I think, more than 55 countries that are now more than 90% contactless penetration. So increasingly, in most countries for most customers, for most products all around the world, that's just the default way that people are paying. And in the U.S., the curve is maturing exactly how we'd expect it based on what we've seen in 100-plus countries all around the world. As I said in my prepared remarks, now one out of every two transactions in the U.S. are taps. In a place like New York City, where many of you on the call spend time, we're above 75% now. So in New York City, where - which is one of the early adopters of transit, we're above, I think, 75%-plus of all face-to-face transactions. That's up from just 50% two years ago. So again, at that level of penetration in a market the size of New York City, it's across the board in terms of products and issuers, and segments and the like. So, I think as we continue to see this growth happen, buyers, sellers, they love tapping as a way to pay. And we're going to continue to see that growth accelerate in a place like the U.S.

Operator:

Next, we'll go to the line of Will Nance from Goldman Sachs. Please go ahead.

Ryan McInerney:

Hi, Will. Thanks for the question. And you're asking about the MDL litigation. I guess I'll just back up. The first thing I would say is we strongly disagree with the judge's decision. We believe the settlement was fair. We believe the settlement provided meaningful relief to all merchants. The second thing, I would say is the decision failed to take into consideration a number of things, especially the complex multisided ecosystem that we operate in. The role that - the complicated role that many different players in the ecosystem delivered. So, but having said that, we're pursuing a revised settlement. It's too early to speculate on what that settlement is. So I just - I won't do that today. But I would ask everybody to keep in mind, a settlement can occur at any point before, during, or even after the trial. So just keep that in mind as the process plays out.

Operator:

Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead.

Ryan McInerney:

Yes. I'll just give you the high level on this. The value in-kind is a great way for us to, as it says, to deliver value to our clients. And increasingly, our clients, as you see in our performance are preferring to buy our value-added services, versus just take incentives that might drop to the bottom line. So that is absolutely something that, our clients are asking for more of. It's something that is helping our clients grow their businesses. And I talked earlier about just the last several years about our product pipeline, how we've gone to market, how we built new products to solutions and services for our clients. And that's what's driving the demand. So that's kind of become a more important part of our client renewals and our client renewal discussions. And increasingly value-added services are becoming a way for us to differentiate ourselves with our clients, and grow our consumer payments business. Do you want to talk about the organics?

Jennifer Como:

Next question, please.

James Faucette:

Great. Thank you very much. I wanted to just ask a follow-up question on near-term trends. We've seen a little bit of further slowing in credit than in debit over the last couple of months, and in the past has been a little bit of an indication of consumer stress. And I'm just wondering how you're thinking about that. And it seems like you're looking for the rest of the September quarter that, there's a little bit of a re-acceleration, as we get past some of the issues that you identified in July. Just want to make sure that I'm understanding that correctly, and kind of how we should interpret a little bit of the divergence in credit and debit growth right now? Thanks.

Chris Suh:

Yes. Well, I think I'll refer back to a little bit of a comment that we made, and we're seeing the July results. I also commented on the call that we are seeing a little bit of moderation in what I would call the lower spend band cohorts. And I think that's a little bit correlated, to some of the volume numbers that we're seeing in the quarter, related to credit versus debit. But all in all, when we look at it relative to, again, Q2 and Q3, we see it to be relatively stable once you factor in sort of the days mix with the leap year.

Operator:

Next, we'll go to the line of Bryan Bergin from TD Cowen. Please go ahead.

Chris Suh:

Yes. Thanks for the question. 18% growth, as I mentioned, feel really good about the execution and the momentum in the business. It is an enormous opportunity that we have in front of us, across both our commercial business and money movement with Visa Direct. I think you're familiar with the numbers, 41% growth in the transactions and stable commercial volumes as well. I think what - this acceleration that you're referring to, we had a unique situation in Q1 where we had some onetime items that really kind of depressed the growth, reported growth in Q1. And if you look at the last couple of quarters, it's more reflective, I think, of the underlying health in the business. That said, as we saw in Q1, that growth rate can vary from quarter-to-quarter, based on deal timing and terms and one-time items like the one that impacted Q1. And so overall, I'd say at the macro level, good momentum. The underlying business is healthy, and we're continuing to see that level of growth. And the growth rate should be healthier, and should continue to grow faster than consumer payments, with some normal expected variability quarter-to-quarter.

Jennifer Como:

Next question, please.

Sanjay Sakhrani:

Thank you. I guess most of my questions have been asked and answered. But just on that last point, Ryan, you were making, I'm just wondering, where are we in the evolution of yield there? Can those go higher as you continue to expand in some of those categories with Visa Direct? And then just in terms of Reg II, is the full impact of Reg II now in the run rate, or should we expect there be any uncertainties related to that? Thank you.

Jennifer Como:

Next question, please.

Jason Kupferberg:

Thanks guys. So just a clarification on revenue, and then a question on volumes for this fiscal year. So it sounds like for Q4, you're looking for revenue growth of, call it, 11% to 12%. I think that would put you at the low end of the low double-digit guide, you're maintaining for the year. So that's what I wanted to clarify. And then just a question on volumes. I think you said Q4 should be in line with Q3, which I think would bring the full year to around 7%, versus the high single-digit updated guide last quarter. So just as we start to tune our models for next year, what are some of the potential accelerants off that 7% level we should be considering?

Jennifer Como:

Next question, please.

Dan Perlin:

Thanks. I guess more of a big picture question here, Ryan. So your AI and gen AI investment, you've talked about, I think at conferences, your desire to kind of build out your own large language model. So I'm wondering, one, where do those investments stand today? I guess, two, what would be your expectation for early use cases of those investments, and kind of the payback period? And then three, is there an opportunity to drive, like true incremental sales, or better outcomes for your merchant constituents as opposed to just the banks? Thanks.

Jennifer Como:

We'll do one more question, please.

Harshita Rawat:

Good afternoon. Ryan, Chris U.S. card volume growth of 5% in surface kind of suggests a little bit more of a mature market. Now I understand the category differences between card volume growth and DC growth, which influence the delta here. Ryan, you discussed your global down estimate of $20 trillion in consumer payments for Visa. How should we think about, the secular digitization opportunity and the growth algorithm for the U.S., which is your biggest market? Thank you.

Jennifer Como:

And with that, we'd like to thank you for joining us today. If you have any additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great day.

Operator:

Welcome to Visa's Fiscal Second Quarter 2024 Earnings Conference Call. All participant lines are in a listen-only mode until the question-and-answer session. Today's conference is being recorded. If you object, 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.

Ryan McInerney:

Good afternoon, everyone. Thank you for joining us. We delivered strong second quarter results with $8.8 billion in net revenue up 10%, GAAP EPS up 12% and non-GAAP EPS up 20%. For our key business drivers, we saw relative stability. Overall payments volume grew 8% year-over-year in constant dollars, US payment volume grew 6% year-over-year and international payments volume grew 11%. Cross-border volume excluding Intra-Europe rose 16% year-over-year and process transactions grew 11%. Visa's business performance demonstrates our strategy at work in consumer payments, new flows, and value-added services. Furthermore, across all of these growth levers, tremendous opportunity remains. I'll spend a few moments on each growth lever. Let's start with consumer payments. The opportunity in consumer payments is enormous. Based on the latest public data from calendar year 2022 and our analysis, we estimate that the total global purchase personal consumption expenditure or PPCE excluding Russia and China was approximately $40 trillion. Within that $40 trillion, our addressable opportunity is more than $20 trillion. This includes three components. One, cash and check, which is about half of the addressable opportunity. Tap-to-pay is a great example of how we are converting small ticket cash transactions to Visa credentials. Two, ACH and other electronic transactions. We have many examples in this space, including the work we are doing to extend Visa as a bill pay method in acceptance categories like rent, education and loan repayments. And three, cards that run primarily on domestic networks. We have been focused on converting these domestic based cards to Visa credentials in countries around the world and I'll share a good example from Europe in a moment. There is a very long runway ahead and I remain excited about Visa's future growth opportunity in consumer payments. We continue to capture that growth by delivering innovative and secure payment solutions for buyers and sellers, including new credentials and issuance, tap-to-pay and e-commerce. I'll briefly talk about each. First, we're making great progress in expanding the number of Visa credentials. We have added over 100 million credentials from September to December for a year-over-year growth rate of 6%. One area of focus is in Europe. With the UK growing credentials at its fastest rate since 2016, driven in part by strong growth from fintech clients. In addition, from 2018 to 2023, we converted more than 20 million credentials in Europe that primarily ran on domestic networks to Visa debit credentials with millions more in the process of being migrated. This is a great example of the opportunity I mentioned a moment ago. We're particularly excited as we prepare for the Paris Olympics, which are less than 100 days away. We have close to 300 clients across 85 countries globally working with Visa to activate our Olympic sponsorship for marketing campaigns and cardholder engagements such as credential issuance and onsite cardholder events. And in Europe alone, we expect our clients to have issued over 5 million Olympic and Paralympic branded Visa credentials before the start of the games. Also this quarter in Europe, we renewed our relationship with Caixa Geral de Depositos in Portugal across consumer credit, debit and prepaid and commercial credit and debit as well as a suite of value-added services, including risk solutions and analytics. Another area of strength is our co-brand issuance. Visa is the primary network partner for eight of the top 10 co-brand partnerships in the US today and we are pleased that Visa has finalized a multi-year extension of our successful credit co-branded partnership with Alaska Airlines, a portfolio that benefits from a loyal customer base and high cross-border usage. We have also had significant co-brand momentum in CEMEA. First, we launched a new co-brand card in partnership with Qatar Airways, British Airways and the National Bank of Kuwait. Second, we expanded our strong global Marriott relationship to launch Qatar's first hospitality co-branded card with Qatar Islamic Bank. Across the United Arab Emirates, we now have exclusive agreements with all the leading airlines marked by a recent agreement with Emirates Skywards. And we also signed an inaugural Airline co-brand agreement in Morocco with Royal Air Maroc. Now newer digital issuers are equally important to our future growth in consumer payments. And in Saudi Arabia, fintech stc pay, which has over 12 million customers is transitioning from a digital wallet to a full digital bank and expanding its Visa prepay business into Visa debit and credit. Digital Bank Maya in the Philippines has chosen Visa to offer its millions of mobile wallet users and bank depositors access to consumer credit cards with new issuance of affluent products. In the US, we signed a newly expanded credit deal with brokerage platform Robinhood, including the launch of a new Robinhood Gold Card, which offers 3% cashback for all purchases. In Europe, broker and savings platform Trade Republic has launched a new Visa card that combines spending and savings for their 4 million customers across 17 markets. Over 1 million people joined the waitlist for the card in just a few weeks. As I've mentioned in the past, we feel great about our products, our value-added services, our new flows capabilities, our brand, and our people, all coming together to deepen and expand our partnerships with our clients around the world. As we think about Visa's growth, tap-to-pay and e-commerce are key drivers in the digitization of payments. This quarter, tap-to-pay grew five percentage points from last year to 79% of face-to-face transactions globally, excluding the US. Of note, Japan nearly doubled its penetration since last year to almost 30%. In the US, in the second quarter, we're nearing 50% penetration with New York City at over 75%. The first US city to reach this milestone up from 50% two years ago, demonstrating the impact that transit and our focused issuance and acceptance have on accelerating growth. On the e-commerce front, we continued to see Visa's US e-commerce payments volume grow several points faster year-over-year than face-to-face spend. And the same is true in many key countries around the world, including Canada, Brazil, Australia and India. And this matters to Visa's growth because in the e-commerce space, cash is not usually an option. And although e-commerce payments are a highly competitive environment, we believe our capabilities and our focus on safety, security, reliability, and user experience position us very well. Adding to the potential for growth is tokenization, which brings several benefits to the ecosystem, especially in e-commerce, including reducing fraud, improving authorization rates and therefore making it easier for a customer to purchase a good or service. As of the second quarter, we have over 9.5 billion tokens globally and have surpassed a milestone of 1 billion tokens in Asia-Pacific joining the ranks of the US and Europe. We continue to be focused across all of these efforts in addition to seeking new areas of acceptance and spending. Now moving to new flows. We mentioned last quarter that we see $200 trillion of opportunity excluding Russia and China and we are delivering Visa's commercial and money movement solutions to help digitize these flows. This quarter, new flows revenue growth improved to 14% year-over-year on a constant dollar basis with Visa Direct overall transactions growing 31% for the quarter to $2.3 billion and commercial volumes up 8% year-over-year in constant dollars. Throughout the quarter, we remain focused on our Visa Direct strategy across several areas of growth, including through new use cases, expansion to new geographies and enablers. One recent example is our expanded agreement with Thunes, which increased the number of countries in which Visa Direct can enable push-to-wallet from 78 to 108. In addition, Thunes is implementing Visa Direct's push-to-card capability to enable payouts made to eligible Visa cards and accounts. We have also expanded earned wage access in Canada through an agreement with Payfare and have brought our first Visa Direct cross-border capability into Taiwan with Taishin Bank. On the enabler front, we are pleased that our long-time partner JPMorgan Payments will be seamlessly integrating Visa Direct into their acquiring operations to offer their business clients faster push payments capabilities. In addition, we continued to deepen our relationship with Chase in the small business market with investment and enhancements in products and services. And in accounts receivable and payable, we renewed and expanded our multi-year agreement with Bill on their accounts payable, spend and expense management platforms. We have also reached a global partnership with Taulia, an SAP company and a leading provider of working capital management solutions. The collaboration will incorporate Visa's digital payments technology into Taulia's virtual cards, a solution that integrates with SAP ERP solutions and business applications to make embedded finance accessible for businesses through a seamless and streamlined payments experience for buyers and suppliers. One vertical in new flows that has immense potential is government payments, representing over $15 trillion in annual payments volume opportunity, where we are in a strong position to combine many of our new flows offerings. A recent example is in Kenya, where we signed an agreement with Pesaflow, a technology partner for the government of Kenya to expand card payments on eCitizen, the government's electronic platform with over 12 million users. We achieved this by bringing together Visa Virtual credentials and Visa Direct into the platform. Now let me move on to value-added services, where revenue was up 23% in the second quarter in constant dollars. The growth and opportunity in value-added services continue to be significant and broad-based. In Acceptance Solutions, we signed an agreement with Millicom International Cellular in Latin America for cybersource gateway, decision manager and token management solutions. As it relates to open banking, just about two years ago, we acquired Tink as we saw the opportunity in open banking to enable the movement of data and money and to provide consumers with control over their financial data. Over those two years, we have been expanding our presence in Europe, winning deals with such as Adyen and Revolut. We're now expanding open banking solutions through Tink into the United States having signed several data access agreements, including with Capital One, Fiserv, and Jack Henry, so that their customers may share data with Tink. We've also signed partnerships on the fintech and merchant side including Dwolla and Max Rewards. And across our risk offerings, we continue to bolster them through our technology, innovation and AI expertise and are expanding their utility beyond the Visa network. Recently, we announced three such capabilities in our Visa Protect offering. The first is the expansion of our signature solutions Visa Advanced Authorization and Visa Risk Manager for non-VISA card payments making them network agnostic. This allows issuers to simplify their fraud operations into a single fraud detection solution. The second is the release of Visa Protect for account-to-account payments, our first fraud prevention solution built specifically for real-time payments, including P2P digital wallets, account-to-account transactions and Central Bank's instant payment systems. Powered by AI-based fraud detection models, this new service provides a real-time risk score that can be used to identify fraud on account-to-account payments. We've been piloting both of these in a number of countries and our strong results thus far have informed our decision to roll these out globally. The third solution is Visa Deep Authorization. It is a new transaction risk scoring solution tailored specifically to the US market to better manage e-commerce payments powered by a world-class deep learning recurrent neural network model and petabytes of contextual data. We also continue to make our offerings available through third-party platforms. We mentioned ServiceNow last quarter and we are excited to have recently joined the AWS Partner Network to help seamlessly provide our clients running systems in the cloud access to Visa's solutions, initially starting with Currencycloud, now known as Visa Cross-Border Solutions and Pismo. We also signed an agreement with Stripe for them to distribute Verify solutions through a self-service dispute management platform for their merchants. All of these efforts are part of our strategy to build and offer our solutions for both Visa and our network of networks. Before I hand it to Chris, I wanted to note that we have commenced the exchange offer for Visa's Class B1 common stock that is set to expire at the end of next week. I also wanted to highlight that this quarter, after nearly 20 years of litigation, we have agreed to a landmark settlement with US merchants, more than 90% of which are small businesses, lowering credit interchange rates and capping those rates into 2030 once approved by the court. The injunctive relief class settlement also provides updates to several key network rules, giving merchants more choice in how they accept digital payments. Last, let me share a few closing thoughts on the quarter and beyond. First, our second quarter was marked by stable results and strengthened relationships with clients across the globe. Second, as we head into the back half of our fiscal year and beyond, new flows and value-added services remain key areas of focus. We also see significant opportunity in consumer payments by digitizing cash and check, enhancing our capabilities in e-commerce, and building new solutions for our network of networks. I could not be more excited for what lies ahead. Finally, all of this is possible because of the 30,000 Visa employees who come to work every day in service of our clients and partners, I am grateful for everything that you do, thank you. And now over to Chris.

Jennifer Como:

Thanks, Chris. And with that, we're ready to take questions, Holly.

Sanjay Sakhrani:

Thank you. Chris, a clarification question. You mentioned Easter was mainly affecting the quarter-to-date trends. Is it fair to assume that the growth rate would be commensurate with the last quarter if you adjust it for that? And then just on a related matter, did the tax refund timings have any impact later in the quarter or in the quarter or into the quarter-to-date trends? Thanks.

Jennifer Como:

Next question, Holly.

Timothy Chiodo:

Great. Thank you for taking the question. There were some helpful comments around the e-commerce strength within cross-border offsetting some of the travel weakness. When we think about the components of overall cross-border, clearly, there's the traditional travel, so card present and card not present. And then there's the traditional e-commerce, right, so retail e-commerce. But there are other faster growing but smaller portions, whether it be the remittances or marketplace payouts or you gave the Thunes example earlier. I was wondering if you could maybe size the, in aggregate, how large some of those other maybe faster growing portions of cross-border have become as a part of the overall mix?

Jennifer Como:

Next question, Holly.

Craig Maurer:

Yeah, thanks for taking the question. I wanted to ask a question on US debit trends. April continued the trend of weakening that we've seen -- that we saw also in March and basically since February. I wanted to know to what degree your guidance for both third quarter and the year embeds continued weakening in US debit. It seems if we look at the restaurant data released by the likes of Darden that the lower-income portion of the US is significantly reducing spend in certain areas. So curious about commentary there. Thanks.

Jennifer Como:

Next question, Holly.

Bryan Bergin:

Hi. Good afternoon. Thank you. I wanted to ask on new flows, so a nice recovery there in growth. Can you give a comment on what areas were most pronounced in the underlying growth recovery relative to what you saw last quarter?

Jennifer Como:

Next question, Holly.

Will Nance:

Hey, guys. I appreciate you taking the question. A bit of a dual-part question on just some of the prior guidance commentary you made around first-half versus second-half dynamics and some of the drivers of acceleration over the course of the year. And I guess specifically, I guess, incentives, you talked about a step-down in the growth rate from first half to second half. Is that still your expectation despite that coming in a lot lower in the most recent quarter? And then for the similar question on the volume growth trends, I guess, I hear you on the Asia trends, but I guess overall, you had some kind of upbeat commentary on ticket sizes over the course of the year and kind of easing inflation in comps, it seems like gas prices might help that as well. So just any commentary on ticket sizes and specifically the negative ticket sizes you've seen in the US? Any commentary on kind of what's structural versus kind of more environmental there? Thanks.

Jennifer Como:

Next question, Holly.

Moshe Katri:

Hey, thanks for taking my question. It seems that there was a pretty significant uptick sequentially in growth for value-added services. Is there anything to call out there? Thanks.

Jennifer Como:

Next question.

Cristopher Kennedy:

Good afternoon. Thanks for taking the question. You talked about bringing Tink into the US. Can you talk about the open banking opportunity in the US relative to Europe? Thank you.

Jennifer Como:

Next question, please.

Daniel Perlin:

Thanks. Ryan, I just wanted to ask a question on the Visa Deep Authorization commentary and kind of that market there. I just want to make sure I understand, are you -- are you doing this as a means with which to like equalize kind of e-commerce across the market for authorization rates, so that like acquirers need to be partnered with you more specifically and therefore, they're not competing maybe shows individually on kind of author rates within e-commerce or is there something different within this platform? Thank you.

Jennifer Como:

Next question, please.

Tien-Tsin Huang:

Thanks so much. It sounded like the Middle East deal activity is in a good place here. I believe Emirates is a takeaway for you. I'm just curious if there's something new going on there from a pipeline perspective. It sounds like maybe some investing. Is this the growth market we should be paying more attention to maybe? Thanks.

Jennifer Como:

Next question, please.

Trevor Williams:

Great. Thanks a lot. This one is for Ryan. Just wanted to go back to the merchant settlement in the US, clearly you guys aren't directly impacted by lower interchange, but I'm just curious kind of what you're expecting the downstream impact to be on Visa, the relationships between you and your issuing banks. And if you think it in any way kind of changes the competitive dynamics at all within the US credit market? Thanks.

Jennifer Como:

Next question, please.

Harshita Rawat:

Good afternoon. So, Ryan, I want to follow up on value-added services, such an important part of your growth story. I know you've talked about the five types of services you offer and how your top 250 clients use almost 2x the number of services versus the rest of your client base. Can you give us some sense on how these penetration numbers have evolved over time? And finally as you kind of think about pricing for these services, to what extent it's a bundle pricing along with core versus kind of a separately priced service? Thank you.

Jennifer Como:

Next question, please.

Ramsey El-Assal:

Hi. Thanks for taking my question. I wanted to ask about one of the consumer payment opportunities that Ryan called out, namely taking share from domestic card networks. How do you drive that? Is it just a question of getting banks to issue more of your cards or is it more on the acceptance or consumer side? What are the levers that you have to basically speed that up?

Jennifer Como:

Next question, please.

James Friedman:

Hi. I was wondering if you could share some color on how Prosa is doing so far and how you view the opportunity in Mexico as you start to press and productize into the Mexican market. Thank you.

Jennifer Como:

Next question, please.

Andrew Schmidt:

Hey, Ryan. Hey, Chris. Thanks for having me on the call here. I wanted to go back to cross-border for a second. Obviously, a part of the back-half growth is the narrowing of the spread between cross-border revs and volumes. Maybe if you could talk a little about how, whether those assumptions have changed at all with FX volumes coming down or if there's other puts and takes we should consider there? Thanks a lot.

Jennifer Como:

Next question, please.

Jason Kupferberg:

Thank you, guys. Can you talk about your second half expectations for new flows and VAS revenue growth as well as cross-border travel volume growth? Thanks.

Jennifer Como:

Next question, please.

Kenneth Suchoski:

Hey, good afternoon. Thanks for taking the question. A lot of my questions have been asked. I just want to ask about the service yields, though, because they came in a little bit lighter than we were expecting. So can you just talk about what drove that? It looks like the service yield declined year-over-year, but maybe there's some offset with client incentives also coming a little bit lower in the quarter. So any detail there would be helpful. Any thoughts on how to think about the year-over-year change in that yield going forward? Thanks.

Jennifer Como:

Great. And last question please, Holly.

Paul Golding:

Thanks so much. Ryan, you were talking about the addressable opportunity of $20 trillion of which cash and check was half. I was wondering if you can give any thought to quantifying the ACH versus the domestic network conversion and where you think you are in that opportunity capture for each of those. Thanks.

Jennifer Como:

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.

Operator:

Welcome to Visa's Fiscal First Quarter 2024 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 conference over to your host, Ms. Jennifer Como, Senior Vice-President and Global Head of Investor Relations. Ms. Como, you may begin.

Ryan McInerney:

Hi, everyone. Good afternoon and thank you for joining us. We are off to a solid start in 2024. Consumer spending remained resilient with first-quarter year-over-year payments volume growth at 8%. U.S. payments volume grew 5% year-over-year. International payments volume grew 11%. Cross-border volume excluding intra-Europe rose 16% year-over-year in constant dollars with cross-border travel at 142% of 2019 levels, up from 139% in the fourth quarter. Processed transactions rose 9%. Our net revenues increased 9% with GAAP EPS up 20% and non-GAAP EPS up 11%. As I reflect on the execution of our strategy this quarter across consumer payments, new flows and value-added services, I wanted to highlight a few key themes. One, we remain obsessed about serving our customers including traditional bank partners, neobanks, fintechs, wallets, sellers, acquirers and everyone else. Our focus on clients has enabled us to deepen our relationships with partners across all three pillars of our strategy. Two, we continue to seek new partnerships, new use cases and new verticals to drive our business forward with a particular emphasis on cross-border. Three, we have gone to market with innovative solutions across our network of networks, seeking to add value for all transactions, no matter the network. And four, we are always looking for new and innovative ways to amplify our brand in service of our partners. With those themes in mind, let me provide some more details on the quarter. Let's start with consumer payments. We saw continued growth in credentials, acceptance and engagement. Credentials grew 6% and we now have more than 8.7 billion network tokens, up 55%. Acceptance locations grew 17%. And let me highlight two recent examples of where we have expanded acceptance. The first was in Brazil with Caixa for cash conversion at their over 10,000 lottery branches. They are now accepting Visa credit and debit cards to pay for utilities, tax collection, lotteries and voucher payments which are called boletos. Another example was in Asia-Pacific where we signed an agreement with Bcash, the largest mobile financial services player in Bangladesh. Already a client with Visa Direct, they now have enabled Visa's 15 million plus cardholders in the country to use their in-app QR code to pay at more than 550,000 Bcash merchants. These examples demonstrate our local approach to expanding our global acceptance footprint. Tap to pay grew five percentage points from last year to 77% of face-to-face transactions globally, excluding the U.S. In the U.S., we reached 45% penetration. One highlight from the first-quarter is that Lowe's has enabled tap to pay acceptance. We believe the tapping provides the best buyer and seller experience in the face-to-face environment and we've seen that play-out in the results. In a recent Visa study in the U.S., we saw on average two more transactions a month and spend lift of $70 a month for those who tap with a Visa debit card versus those who don't tap. Now on to some noteworthy updates from the quarter, which demonstrate our ability to deepen and expand partnerships as well as create new ones. In Europe, we renewed our agreement with isbank, the largest private bank in Turkey with 33 million cards for its consumer and commercial credit and debit portfolios. As part of that renewal, they will be issuing the first Olympic and Paralympic Games credit card in Europe outside of France, leveraging our sponsorship. In Poland, we signed a new issuing agreement with PKO Bank Polski, the largest issuer and acquirer in Poland and Central Eastern Europe for consumer and commercial debit. In Greece, we expanded our partnership with Piraeus Bank, the largest bank in the country to become their exclusive payment network across their consumer and commercial credit and debit portfolios. These are all fantastic examples of the attractive position and strong pipeline in Continental Europe I spoke about last quarter. In Japan, we expanded our credit issuance partnership with e-Pass, one of the fastest-growing issuers in the country, affiliated with department store Marui. They will use Visa Managed Services, which is a part of our advisory solutions where we embed Visa employees within a client organization to help execute against key initiatives. In Korea, we renewed and expanded our partnership with Shinhan Card, the largest issuer in the country for a consumer and commercial credit and debit. Shinhan has also committed to utilizing a suite of Visa's value-added services, including consulting and marketing to advance their business. In Mexico, we renewed our agreement with BBVA across consumer and commercial credit and debit along with value-added services, including risk, advisory and data tools. And last, in the U.S., we extended our agreement with Bank of America for multiple value-added services, including visas loyalty platform service, CardinalCommerce 3D secure service, Verifi Order Insight digital service and DPS debit processing. We also continue to be a partner of choice for fintechs around the world. First, in the U.S., we renewed with leading fintech chime, further debit and credit builder secured card portfolios as well as for Visa Direct. In Latin-America, we renewed our debit and credit contracts with Rappi, one of the largest fintech and merchant clients in the region with more than 30 million customers. They will also utilize numerous value-added services, including CyberSource and Decision Manager. And finally, we are excited about a new global partnership with HSBC for their fintech initiative Zing. Starting with the U.K., we are supporting the ambition to launch this multi-currency proposition in more than 30 markets. Visa's capabilities through Tink, currency cloud and our consumer payment solutions offer a powerful customer proposition and rapid deployment for Zing and HSBC. Through these renewals and new partnerships, you can see how we are focused on building a deep relationship across all the capabilities Visa offers. Now moving to new flows. We have updated our sizing of the new flows opportunity using the latest market data available. Excluding Russia and China, we see $200 trillion of opportunity annually across B2B, B2C, P2P and G2C, certainly an enormous number. We are working with our clients to deliver Visa's commercial and money movement solutions to help digitize these flows on our network of networks. Starting with Visa Direct. Total transactions this quarter grew 20% to $2.2 billion. And on the P2P cross-border front, transactions grew more than 65% year-over-year. In terms of client highlights for this quarter, we have been developing partnerships for new use cases in verticals and we are continuing to drive cross-border volumes. First, in new use cases, in addition to our existing P2P partnership in the U.S., we have expanded our Visa Direct relationship with Meta, launching the ability for content creators on Meta's family of apps to cash out their earnings to a debit card. This launch, now live in the U.S., U.K., France and Italy, allows for creators to receive their payout quickly and safely. Second, on cross-border volumes, we have continued to make progress in enabling global money movement across our 8.5 billion endpoints in nearly 200 countries and territories. Western Union is a great example. We just signed a long-term global partnership agreement with Western Union covering issuance, Visa Direct and other services across 40 countries in five regions. This long-term collaboration will bring product innovations and digital-first customer experiences to enhance cross-border money movement. We also expanded our relationship with Remitly to enable customers from 30 countries to send cross-border payments to eligible debit cards and bank accounts in over 100 countries globally. In Canada, we recently announced our agreement with CIBC and Simplii to provide millions of clients the ability to send money to digital wallets in key remittance destinations including the Philippines, China and Bangladesh. On to the commercial side, total payments volume grew 8% in constant dollars. And throughout the quarter, we continued to focus on new verticals. Let me highlight a few specific areas. First, in the cross-border travel vertical, we recently expanded our agreement with Singapore based B2B platform Nium. Their virtual card B2B travel program will expand from the U.S. and Europe into Australia, Singapore, Hong-Kong and Japan. Also in B2B travel, we signed a new virtual card agreement with Worldline, a leading global payment provider for travel intermediaries to pay their suppliers more quickly. In the contractor vertical, we recently signed an agreement with United Overseas Bank and Doxa, a Singapore fintech for contractors. In partnership with Visa, the Doxa platform has further been enhanced to provide embedded financing capabilities. Subcontractors will be given the option to be paid for their services through UOB virtual cards. And also with UOB, we renewed and expanded our commercial relationship across commercial debit and credit including the enablement of payment flows for the Singapore government. Let me move on to value-added services. Our network of networks strategy is also playing a key role in value-added services. As a reminder, this has three components. One, moving money to all end-points and to all form factors. Two, using all available networks and being a single connection point for our partners. And three, providing our value-added services on all transactions, no matter the network. We have continued to develop and expand our value-added services as part of this strategy. Let me cover three recent examples. Processing capabilities for RTP networks, Pismo and Prosa. Last quarter, I noted that Visa is becoming a certified service provider for FedNow, enabling financial institutions to receive funds through the FedNow service. We have now enabled the ability to also send funds. The second example is Pismo, which we just closed last week. As I talk to clients around the world, particularly issuing clients, there are two priorities that are increasingly on the minds of CEOs. The first is for many of our issuing clients, they've either recently embarked on or they're considering embarking on a transformation of their tech-stack from their legacy infrastructure to cloud-native API-based tech stacks. The second is that many clients, whether they'd be traditional issuers or fintechs, are increasingly looking to rapidly expand their issuance to new regions and countries, especially the more developing markets around the world. Our clients are looking to Visa to help them with both of these priorities. And with Pismo, we will be able to deliver to our clients the best cloud-native issuer processor in core banking platform in the world. Pismo offers global core banking and multi-product issuer processing covering credit, debit and commercial with connectivity to local payment networks such as Pix. Our goal is for Pismo to be the platform of choice for our issuing partners around the world, enabling them to accelerate their global expansion and transition to cloud-native platforms. And the third example of our network of networks is our announcement to acquire a majority interest in Prosa, a payments processor in Mexico. A couple things about the Mexican market. One, cash and check represent more than 50% of personal consumption expenditures. And two, today Visa has limited ability to process domestically. We believe we can bring enhanced technology infrastructure and lay the groundwork to develop new innovative ways for consumers, small businesses and local issuers and acquirers in Mexico to pay and be paid. This includes improving safety, security and reliability and providing better experiences through our value-added services such as tokenization, risk products and more. We can also bring our innovation and commitment to continued investment for both face-to-face and online transactions. Together, these efforts will help further digitize payments in the country. The investment is subject to regulatory review and we hope to close in the second-half of calendar year 2024. And finally, I want to highlight the opportunities to drive further growth in value-added services via the development of new partnerships. These enable us to enhance our overall offering and distribution reach. Yesterday, we announced an agreement with digital workflow leader ServiceNow to build solutions and distribute Visa's products and solutions to joint customers. To start, ServiceNow will launch in end-to-end disputes management solution for issuers with plans to expand to additional segments and products over-time. This partnership showcases the demand for our value-added services and provides a compelling distribution channel to reach more customers around the globe. So, across consumer payments, new flows and value-added services, you can see the enormous opportunity as well as Visa strong relationships, commitments to our clients and innovation in new ways to pay and be paid. What helps to amplify all of these efforts is our brand. We recently renewed our long-standing partnership with FIFA, creating a powerful opportunity to drive business for both Visa and our clients, improve brand lift and maximize global reach. Not to mention, providing an opportunity to showcase and implement Visa's innovative payment technology. We're also launching our first new global sports sponsorship in more than 15 years with the Red Bull Formula One teams. The partnership aligns our brand with two teams within Formula One which is one of the fastest-growing sports on the planet, providing another opportunity to drive business for our clients. As we look ahead this year, we're excited to be activating our brand with our clients across all of these partnerships as well as the Olympic and Paralympic games in Paris. Before I hand it over to Chris, I wanted to mention that we hold our Annual Meeting on Tuesday. All of the proposals that the Board recommended past including the exchange offer program proposal. As such, we will be moving promptly to file an S-4 with the SEC relating to the initial exchange offer. I also wanted to give a special thanks to my colleague, partner and friend, Alf Kelly, as Tuesday he officially retired as Executive Chairman. Alf, on behalf of the entire Visa family, thank you for your exceptional leadership. You led this business to incredible heights, while also driving innovation, deepening our client relationships and strengthening our culture in so many ways. Your impact on Visa will be visible for generations. In closing, in the first-quarter, Visa once again demonstrated the effective execution of our strategy across the globe. While uncertainty seems to be the norm, Visa has the experience and discipline to manage through the challenging environments and I remain optimistic and confident about our future. Now over to Chris.

Jennifer Como:

Thanks, Chris, and with that, we're ready to take questions.

Tien-Tsin Huang:

Hey, thanks so much. Just want a clarification and a bigger question here. Just on the clarification, the new flows up low single digits versus mid-teens last quarter. How did that come in versus plan? Were there some onetime issues? Because it sounds like the other metrics were in line. And then my question was just on U.S. volume running in the mid-single-digits here, it's pretty tight to PCE. I know there are a lot of factors like gas and e-com and Reg II, but just can you clarify your view on U.S. volume here in relation to PCE growth in the short to mid-term? Thank you.

Chris Suh:

Sure. Yes, in new flows, so the underlying fundamentals of our commercial business remain sound. Commercial payment volumes grew 8% and Visa Direct transactions grew 20%. And importantly, the new flows business continues to be a growth engine for Visa. We do expect the full-year revenue growth to exceed consumer revenue growth. Now specific to your question around the first quarter, it was impacted by a couple of factors

Jennifer Como:

Next question, Jordan.

Dan Perlin:

Thanks. I just wanted to ask a question around the new partnerships within value-added services. Ryan, it sounds like, as part of the priorities, you want to get value-added services on all the networks. And I think you were alluding to the fact that this is going to be maybe a bigger shared responsibility with this partnership growth, and ServiceNow is obviously a great example. But I'm just trying to reconcile kind of how we should be thinking about Visa maybe opening up those opportunities with these two partnerships and what that may do at some point to the financial picture of the company? Thanks.

Jennifer Como:

Next question, Jordan.

Jennifer Como:

Craig, are you there?

Jennifer Como:

We sure can.

Ryan McInerney:

So let me talk a little bit about the business aspect of Reg II, and then Chris, you can hit both of those specific questions, the Reg II and the onetime items. I think it's important at this point to just observe. We're 6 months in now since Reg II in the U.S. And we've had a chance to really engage with our clients and partners on the merchant side of what we do. And we're having really good discussions, really good dialogues. It's been a great opportunity for us to highlight our products, our services and especially the various different things that differentiate a Visa debit transaction from other alternatives. And to be honest, we're getting the chance to have conversations at more senior levels in the organization about the details of our products than we've ever had before, which is great. And so far, we're having great success. The sales conversations have been positive. The results client by client that we're finding as we're able to talk to them about the features and benefits of Visa Direct are great so far and feel really good about our results 6 months into this so far. So Chris, you want to hit the two pieces specifically?

Jennifer Como:

Next question, Jordan.

Sanjay Sakhrani:

Thanks, good evening. I guess just a question on the slower volumes year-to-date, on the severe weather. I'm just curious if there's been any softness beyond that. And then maybe, do you expect that spending to sort of reaccelerate because the weather has gotten better? Or maybe you can just speak about that a little bit.

Jennifer Como:

Next question, Jordan.

Ken Suchoski:

Hi, good afternoon. Thanks for taking the question. I wanted to ask about the EPS growth outlook. It looks like you're guiding to high-teens EPS growth in fiscal 2Q, which I think implies a mid-single-digit decline in the share count quarter-over-quarter. But I'm just trying to figure out why that doesn't flow through to the full year EPS growth figure where you're guiding it to low-teens growth. So if you can help us reconcile that, that would be great. Maybe there's some tax, certain OpEx impacts in the back half of the year that we're not accounting for.

Jennifer Como:

Next question, Jordan.

Harshita Rawat:

Good afternoon. I want to follow-up on services. Given how increasingly important these are to your revenue growth, can you give us some insights, quantification on the composition of your value-added services, DPS, CyberSource, risk, et cetera? And maybe also expand about the growth drivers here with regards to attach rates, processing penetration, geo expansion. They're growing almost 2 times faster than your card volumes' overall services, so we are trying to just have a clear guidance here.

Jennifer Como:

Next question, Jordan.

Bryan Keane:

Hi, guys. Just wanted to get a couple of clarifications. I think last quarter, Chris, you talked about growth would be at a low point in the first quarter, and then you would see that trough accelerate going forward. Just a nuance of the guide is mid to high single digits, so just trying to make sure if there was anything else new to report on Q2 versus Q1 being the trough. And then secondly, just a slightly higher operating expense in constant currency from, I think, it was high single to low double, just the low double now. Was there anything to factor in for that?

Jennifer Como:

Next question, Jordan.

Andrew Jeffrey:

Thanks. I appreciate you taking the question. Ryan, I wanted to dig in a little bit on the impressive 17% merchant acceptance growth. It sounds like that really highlights the possibility or the opportunity for continued volume growth even in markets maybe where the secular growth rate is slowing a little bit. Is that sustainable? Should we continue to think about that kind of mid-teens acceptance growth as being a key driver of overall volume expansion?

Jennifer Como:

Next question, Jordan.

James Faucette:

Thank you. I wanted to touch on the cross-border travel volume growth. It looks like it slowed from roughly 25% to maybe 16% to 17% in January. And back when you're kind of outlining your assumptions for fiscal '24, you thought it would be in the low-20%, and we see a 4 to 5 percentage point improvement compared to 2019. Just wondering how we should think about that as an assumption going forward. Do you think we'll bounce back to that low 20s? Or do you think something closer to where you've seen in January makes more sense? Now this is an area that sometimes you have at least some forward visibility, so trying to get a sense of where we should be thinking about that component?

Jennifer Como:

Next question, Jordan.

Ashwin Shirvaikar:

Hey, Ryan. Chris, Jen, how are you? I just want to drill down into sort of expectations or implied expectations for second half of fiscal '24 given Q1 results, upper single digits; Q2 expectations around growth, mid- to high single digits, so there's an acceleration that's implied. And the question is, what drives it?

Jennifer Como:

Next question Jordan.

Timothy Chiodo:

Great. Thanks for taking the question. I wanted to dig into Pismo a little bit. The website talks about large banks, marketplaces and fintechs. And you mentioned earlier the movement away from the legacy systems into more modern cores. I want to talk a little bit about the ambitions and the potential in terms of the bank sizing. And also, these core conversions, are they for new product and sort of sidecar cores, if you will? Or are we talking about the potential for your core kind of issuing clients in the U.S., midsized banks, to be moving their legacy core potentially over to something offered by Pismo in the future?

Jennifer Como:

Last question, Jordan.

Jason Kupferberg:

Thank you. Just wanted to ask if we're still comfortable with low double-digit process volume and transaction growth for this year. I know both of those started off kind of in the high-single-digit range, ticked down a little bit in January. And also, any change in your thoughts around fiscal '24 incentive guidance? I think we were looking for modestly less dollar growth than in F '23, but you did a little better than expected in Q1. Thanks.

Jason Kupferberg:

Just on the incentive guide.

Jennifer Como:

Great. And with that, we'd like to thank you for joining us today. If you have additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great day.

Operator:

Welcome to Visa’s Fiscal Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Ryan McInerney:

Good afternoon and thank you for joining us. Before we begin, I wanted to take a moment to acknowledge the tragic loss of life and suffering in Israel and Gaza. We are in constant contact with our teams in Israel and throughout the region, and I have the deepest admiration for their commitment to each other and their clients during this exceptionally challenging time. We continue to monitor the situation, prioritize the safety of our people and stay close to our clients to ensure the continuity of business operations. Turning now to our results. At the beginning of 2023, there was a lot of uncertainty around the macroeconomic environment with fears of a recession. There were many unknowns around FX, volatility, interest rates and inflation. There was also some noise in our growth rates in early 2023 due to the effects of Omicron and the suspension of operations in Russia. Against that backdrop, Visa delivered. Total full fiscal year net revenues grew 11% with GAAP EPS up 18% and non-GAAP EPS up 17%. Credentials grew 7%. We also surpassed 7.5 billion tokens. Total transactions, including cash and payment transactions, were 276 billion, which means that Visa credentials were used, on average, 757 million times a day during the fiscal year. We signed over 500 commercial partnerships with fintechs globally from early-stage companies to growing and mature players, up 25% versus last year. Merchant locations were up 17%, helped by strong growth in Latin America and CEMEA. Global Tap to Pay penetration, excluding the US, grew 5 points from last year to 76% of total face-to-face transactions. And in the US, penetration expanded 13 points to surpass 40%. Global tap to ride transactions were 1.6 billion for the full year 2023, up over 30%, and we added nearly 150 new transit systems throughout the year, such as in Philadelphia and Bangkok, bringing the footprint to more than 750 systems. More than 40% of our transit system launches this year also included our value-added services, Acceptance Solutions. On the new flows side, total revenue grew 17% in constant dollars for the full year. I'll note a few highlights. Total commercial volume was $1.57 trillion, up 12% in constant dollars. We have increased the number of banks that have signed on to Visa B2B Connect by more than 70% this year, and activation continues to happen with the number of transacting banks more than doubling. Visa Direct had 7.5 billion transactions, up 19% year-over-year and nearly 30%, excluding Russia, across 65-plus use cases and over 2,800 programs helped by more than 500 enablers. Cross-border P2P transactions grew 65% year-over-year and reached a new record for payments volume in the fourth quarter. Value-added services revenue grew 18% for the full year in constant dollars. Across our hundreds of products, our top 265 largest clients used 22 products on average, up 8% from last year versus our overall clients who used 11 products on average. With all of this strong momentum and performance, we finished the fourth quarter with net revenue growth of 11% and GAAP EPS growth of 22%. Other highlights from the fourth quarter include the following in constant dollars

Jennifer Como:

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

Darrin Peller:

Hey guys. Thanks for the time and congrats on the quarter. Just when thinking about your guidance for the fiscal year ahead, it's good to see the constant currency double-digit growth rate. So, I just want to make sure we understand the inputs and how you think about structural growth as far as some of the inputs like value-added services, new flows? So, number one, I mean, maybe you can give us a little more color on what you're assuming for some of those -- some of the VAS and new flows growth potential? And then more importantly, do you believe that's the right algorithm medium term? Is the structural growth of this company sustainably yet at the same 10% to 12% rate it's been or has anything changed?

Jennifer Como:

Next question Jordan.

Dave Koning:

Yes, thanks so much. Good job. And I guess two quick ones. Asia-Pacific constant currency volume growth was 4%, a little lower than normal. Maybe you could dive into that. And then tax rate longer term, basically in the out years, 19.5% to 20%, that's how we should think about it? Thank you.

Chris Suh:

Yes, sure. Hi, Dave. Yes, I do think that's the right way to think about it. At least based on what we know now, the new run rate, we would put at about 19.5% to 20%. It does -- it is related to how our tax -- the mix of our tax jurisdictions around the world and certain tax increases in certain parts of the world. As we talked about in the next fiscal year, we'll be below that due to some of the benefits that we anticipate in the second half of the year. But based on what we know today, the new run rate is as you estimated.

Operator:

Our next question comes from David Togut with Evercore ISI. Your line is open.

Ryan McInerney:

Hey, David. Cross-border remittances is a big one. Since you called that out, I'll highlight it. And I mentioned, I think, on this call and some others, the work we're doing with Paysend and Shinhan and things we're doing around the world we've mentioned in previous calls with some of the both kind of traditional and fintech remittance players. 65% year-over-year growth is strong and continue to invest behind that with new partners and try to drive further growth going forward. We're focused on bill payments. We're focused on earned wage access. We're focused on insurance disbursements. We continue to focus on P2P more broadly in new geographies around the world, both domestic and cross-border. If you just back up, I've said this, I think, on previous calls. I believe at this point in time, Visa Direct is the largest at-scale money movement network on the planet. We have made investments consistently year-over-year to get to a point where we now have 8.5 billion endpoints, 3 billion cards, 3 billion accounts with some of the news I announced in my prepared remarks, 2.5 billion digital wallets. And we'll continue to invest in expanding the network even further. But now we've got the ability to work with enablers around the world, sell new use cases in and put this network to work. And we're going to continue to do that and look forward to hopefully talking to you about more good results to come.

Operator:

Our next question comes from Ramsey El-Assal with Barclays. Your line is open.

Ryan McInerney:

Yes, thanks. It was -- we did have some really good commercial wins in the quarter. I'd put it in a couple of different buckets. One is we're looking to expand our partnerships, right? So I mentioned Citi and IBM this quarter. I mentioned SAP last quarter. And we're just -- we're having good success building and expanding those partnerships around the world. Second thing we're focused on is expanding verticals. You've heard us talk about government, travel, fleet and fuel. I talked about agro, I think, last quarter, working and selling into marketplaces, like I mentioned, healthcare. So taking these products, innovating, creating new use cases and delivering them into new verticals. And then just making the products easier to use. Yesterday, we announced that actually we had a new product to make it easier to accept virtual cards. We call it virtual card acceptance platform. Virtual cards are a preferred acceptance of many suppliers, but they're not as easy to accept as sometimes we'd like them to be. So putting new platforms out to make the core products like virtual cards easier to use. And then continuing to invest in the partnerships that we've announced over the last couple of years. WEX is a great example of a partner that we announced a couple of years ago that we've invested in and growing in and really getting to see some of the benefits of that around the world. So, I guess the last thing I would say, Ramsey, is just also taking these products more broadly around the world. In so many different countries outside of the most developed markets that we work in, there's opportunity to get some of the basic products into the hands of small businesses, for example. In a lot of countries we're doing business, there's still a lot of small businesses that are actually using consumer products instead of the more sophisticated advanced small business products, let alone the large and middle market products that we can get out there. So, more partners, more use cases, more verticals, more countries, we'll continue to invest in that business.

Operator:

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

Ryan McInerney:

Yes, sure. I mean, we're very focused on processing share for a couple of reasons, but the one I noted in my prepared remarks is a very important one, which is we can deliver more of our value-added services when we're actually processing the transaction. Obviously, we earn more yield when we process the transaction as well, just on the core processing of it. But the ability to serve our clients more effectively, deliver them our risk capabilities, our issuing capabilities, our loyalty capabilities and those types of things are enhanced when we actually process the transaction. So, we spend a lot of time on it. I think we've made very good progress over the last many years. I mentioned Colombia in my prepared remarks, and Colombia is a good use case. In a lot of these markets, to really unlock the processing, we have to work with the local processor, which we did in Colombia and then worked with the clients to get them on that processor. They will then test out the transaction, see how they're working and ultimately move those transactions to VisaNet, which we like. We've been very focused in Latin America. We've made some good strides in several different countries in Latin America, and I think we continue to have opportunity in Latin America. We're making strides in Europe, and we'll continue to focus on processing opportunities in several of the different countries that have local schemes in Europe as well as some places in Asia-Pacific. So, those are some of the opportunities we have, Will. Thanks.

Operator:

Our next question comes from James Faucette with Morgan Stanley. Your line is open.

Ryan McInerney:

Let me give some context on how we think about just cross-border travel in general, and then, Chris, you can add and/or fill in the blanks on the assumptions that we've made for the year. Here's how we think about it. In and out of Asia, we still have yet to normalize. So, as Chris alluded to or said in his prepared remarks, we have opportunity to continue to catch up to pre-COVID travel levels in and out of Asia. There's also the opportunity to still catch up into the United States. But more broadly around the world, I would say we've got to normalize in terms of cross-border travel. But I think what's interesting is we've normalized at a growth rate higher than pre-pandemic levels. People are traveling international at this new normal at a faster rate than they would have been, all else equal, before the pre-COVID level. So in a couple of quarters, we still have an opportunity to catch up to what would be normalized levels. Around the rest of the corners around the world, I think we've normalized but at higher growth rates than we saw pre-COVID. Do you want to mention the numbers for the year?

Jennifer Como:

Next question, Jordan?

Jamie Friedman:

Hi. Thanks for taking my question. Ryan, in your prepared remarks, you called out CyberSource. I know it's a very important asset for you and always has been. But why is -- am I inferring that there's an increased cadence in the business? And if so, why would that be? Thank you.

Jennifer Como:

Next question, Jordan?

Sanjay Sakhrani:

Thanks. I have a question on Reg II. Chris, you mentioned no impact yet and also caveated the outlook. I'm just wondering, is there anything that gives you pause there? And then, Ryan, anything you guys are doing proactively to get in front of any adverse impacts? Thanks.

Chris Suh:

Yes, and I'll just add on from a guidance perspective. Hopefully, we're very clear on the call, we have not seen any meaningful impact thus far, and therefore, haven't included any impact of that in our FY 2024 guidance. But it is early days and there's a lot going on, as Ryan described at length, and so we'll keep you posted as things evolve in the coming months.

Operator:

Our next question comes from Dan Perlin with RBC Capital Markets. Your line is open.

Ryan McInerney:

Yes, thanks for the question. Just for a reminder for everyone, tokenization is technology that we use that essentially helps protect issuers, merchants and consumers, and to your question, ultimately, drives higher authorizations and lower fraud. I think I said in my prepared remarks, we crossed 7.5 billion tokens as of the end of September. We're in 198 markets. I think we have 14 billion token transactions in the fourth quarter, which is growing at like 60%. So, this is another example of a platform and a service that we invested in over many years and we're now scaling broadly around the world. To your question, we are. We're seeing, on average, somewhere between 4% and 5% higher approval rates across our partners. And we also see it with a reduction in fraud -- a 30% reduction in fraud. So, you say, why do we have 7.5 billion tokens that are now out there in the ecosystem? Well, if you're one of our partners, as you said, and you can reduce your fraud rates 30% and drive your auth rates four or five percentage points, that is a great opportunity. That's higher sales, that's lower fraud, that's better customer experience. And we continue to invest in that platform as well. We see a lot of benefits to our issuers, to our consumers who ultimately use the products. You'll see more from us enhancing the platform in terms of using the Fido biometrics and enabling merchants to be able to authorize and authenticate customers across multiple devices and those types of things. So, yes, higher auth, lower fraud. We love the platform, continue to invest in it.

Operator:

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

Chris Suh:

Hi, Jeff [ph]. Yeah, let me try to clarify a bit. As I said, 2024 is, in many ways, a normal year. It's still normalizing in some aspects, but in many ways, it is normalizing. And as a result, we've made some changes. We've returned to pre-COVID practices on a number of fronts. We provided formal guidance as you went through -- as we went through in detail, and we talked about on this call, for the full year and next quarter, and we'll continue that practice. And that guidance is on net revenue guide specifically and directional commentary about the growth in incentives, which to your specific question, it is a dollar year-over-year growth rate that we said will grow slower in 2024 relative to 2023. Importantly, this is very, very consistent and it's aligned with how we think about the business, how we manage the business going forward. We haven't guided on the percentage, which is the other part of your question because, again, this is consistent with how we manage the business. The thing that we do track very importantly is that we look at the yield across our net revenue yield specifically, and that's remained very stable, and that's very consistent again with how we think about deal economics.

Operator:

Our next question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

Ryan McInerney:

Hi, Tien-Tsin. Glad there's great energy at Money20/20, and I hope my Visa team members that are there are serving clients, finding sales opportunities growing our business. Yeah, we see a great pipeline. We really do with clients issuing, fintechs, co-brands, with opportunities to grow credentials. I mentioned some of the new things on my prepared remarks. And we're having good success. I think just some of the wins on the call, whether it's Citi or US Bank, FNBO, Fidelity, Shinhan, China Merchants Bank, Shopify, I mean, list goes on, right? IBM, DBS, Etihad, Saudi. We feel good about the pipeline. We feel good about the way our teams are out there serving clients around the world. We feel good about the wins that we have and feel good about the growth that it's generating.

Operator:

Our next question comes from Ashwin Shirvaikar with Citi. Your line is open.

Ryan McInerney:

Thanks for the question. I think the CFPB rule that they put out is good for Americans. I think it's great for clarifying the structure and the regulatory framework here in America. I think it's likely to be a catalyst for growth of open banking in the United States, is it gives clarity to all the various different players in the ecosystem. If you think about it, like, it's a great opportunity for Americans to be able to put their own data to work in different types of digital tools that will help their own personal financial management, help them manage their financial lives better, get a better view of their finances across multiple different providers. And then to your point, we've seen different regulatory frameworks in different markets around the world. Our Tink business continues to perform very well in Europe, which obviously was one of the leaders in terms of establishing a regulatory framework for open banking. And we look forward to the opportunity to bring Tink outside of Europe. So when we look at the proposed rules here in the US, we welcome that because we want to understand what the regulatory expectations are so that we can build a business that will thrive and serve our clients and serve consumers effectively. So thanks for the question.

Operator:

Our final question comes from Harshita Rawat with Bernstein. Your line is open.

Ryan McInerney:

Yes. Thanks for the question. We continue to be excited about the cash, check digitization opportunity around the world. We continue to digitize cash and check around the world, and economies continue to grow around the world. So I think continues to surprise many people when they look at developed markets like the United States, how much cash and check still exists. And certainly, when you look to the developing world, how much cash and checks still exist. So we continue to be excited about the runway. We think it offers us tremendous growth opportunity. And we're going to continue to work with our partners across the ecosystem to get more credentials into consumers' hands, get more acceptance out there in the ecosystem, especially among micro and nano merchants and work with our partners to drive more activation and usage among the credentials and feel good about that entire algorithm.

Operator:

Thank you for your participation in today's conference. You may disconnect at this time.

Operator:

Welcome to Visa’s Fiscal Third Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Ryan McInerney:

Good afternoon and thank you for joining us. Our financial performance in the third quarter of 2023 was strong, with net revenues up 12% year-over-year. Non-GAAP earnings per share, was $2.16, up 9%. Overall, our global quarterly payments volume was up 9% year-over-year. In the U.S., quarterly payments volume was up 6%, as expected, primarily due to moderating inflation. Outside the U.S., international payments volume was up 12%. Excluding intra-Europe, total cross-border volume remained strong, up 22%, with cross-border travel volume at 136% of 2019. Processed transactions grew 10% year-over-year. As I mentioned on our previous earnings call, my priorities are focused on doing everything that we can to accelerate our growth by executing our strategy, including supporting our go-to-market teams, delivering for our clients, shipping innovative products even faster and selling our solutions even more effectively. With those priorities in mind, I would like to review our progress across our three growth levers

Jennifer Como:

Thanks, Vasant. And with that, we’re ready to take questions, Jordan.

Harshita Rawat:

Good afternoon, thank you for taking my question. I want to ask about the Block lawsuit. They have been close partner of yours and all the issuers of Cash App, Visa cards on which they ought to benefit from interchange. And Ryan, you talked about the current partnership there. Any comments you have on the lawsuit will be helpful. And also just broadly, how should we think about the relationships with fin-tech and Cash App. Thank you.

Jennifer Como:

Next question, Jordan?

Dan Perlin:

Thanks. Good evening. I wanted to just touch base real quickly on value-added services from the standpoint of penetration for a second. I think it’s around 20% or so of the company’s net revenues. It’s clearly yield enhancing. So it seems like a pretty large business. But Ryan, every time you talk about it, it sounds like there is so much room for growth, and it’s hard for us to kind of pinpoint where you are in terms of penetration within your existing business. So any way you could frame that either anecdotally or quantitatively would be great. Thank you.

Dan Perlin:

Thank you.

Operator:

Our next question comes from Craig Maurer with FT Partners. Your line is open.

Craig Maurer:

Yes. Thanks for taking the question. Sorry, wasn’t quick enough on the unmute button. So I wanted to ask about the loss of what I think I heard was a Visa Direct client in LatAm and why the transition to an internal system for them. And that leads to my follow-on which is, can you discuss the trends you’re seeing globally in terms of domestic payments moving away from or back to domestic networks? Your comments in the beginning of the call seemed to indicate that there might be an acceleration toward the global networks to take advantage of what has clearly been greater investment levels into the capabilities. Thanks.

Craig Maurer:

Thanks, Ryan.

Operator:

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

Vasant Prabhu:

Thanks, Sanjay. Yes. I mean the general term we’ve used all along is stability, and we think things are still very stable. You look at transactions growth, it’s been very stable in the U.S., around 8%. If you just adjust for the Omicron uptick we had last quarter, and you go back to pre-COVID trends or first quarter trends, transactions growth has been very stable. Clearly, some of the change in trends we pointed to ticket size. I don’t think I want to get into talking about next year. We will leave that to Ryan and Chris in October, which is when we normally do talk about next year. But more – in the more near-term, the fourth quarter, the biggest hit to ticket size has been fuel, and fuel comparisons are going to moderate. And so that should help us a bit in the fourth quarter, and that’s reflected in our expectations. In general, I would say the trends we’re seeing across the board are unchanged from where they have been for the past several months.

Operator:

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

Ryan McInerney:

No implications you should be considering. It won’t surprise you, we don’t feel great that consumers get surcharge. But of course, in certain jurisdictions in the U.S. and around the world, merchants have the ability to do that, and some choose to do it. Many choose to do it, and then they choose to pull back on it because it’s not a great customer experience. The small adjustment that we made that you referenced was one. Just making sure that when consumers do get surcharge, it’s something that’s fair and equitable, and that was the purpose of the change.

Operator:

Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Vasant Prabhu:

Yes. I mean it’s – well, thanks for saying those nice things. I – in general, on incentives, they were in line with what we expected. So there were no surprises there. And incentives, everybody focuses on the percentage. If you look at what really counts, which is net revenue growth, we had healthy net revenue growth in the quarter. Even with the exchange rate drag, we were almost 12%, and the exchange rate drag would have added another point. If you look at yields, net revenue yields are higher than they were a year ago. We did have some renewals happen earlier than we expected. So we did have some renewals come into this year and Q3 that we might have thought would happen next year, but we’re happy about that. We’re always happy to renew clients even if we have to do it a little earlier. So all in all, no surprises there.

Operator:

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

Ryan McInerney:

Hi Lisa. Yes, thanks. So, it is one of the things we have been talking about is how we can build value-added services for new networks, specifically for RTP as it starts to grow and expand around the world. So, I guess how it works to the core of your question. So, first of all, what we have done is we have built a real-time risk score. We have built it uniquely for instant payments, where there is often unique cases of fraud in terms of how they work. We built it using deep learning AI models. And what it does is it enables banks to be able to decide whether to approve or reject the transaction in real time, which is the capability that most banks or most real-time payments networks around the world have been very hungry for. It’s a score from 1 to 99. It comes with an instant real-time code that explains the score. And what it does is it leverages our proprietary data that kind of we have used to enhance our own risk algorithms as well as the data that we see on a lot of our payment platforms, including Visa Direct. And one of the benefits of us bringing that to market is it integrates with the bank’s existing fraud and risk tools. Because we are often providing these types of risk scores to banks and they are ingesting them from us, it directly integrates into their fraud and risk tools, so the real-time information, their systems know how to use it. It can be automated into their decisioning algorithms and those types of things. So, think about it – if you back way up, if you think about it, it’s similar to our Visa Advanced Authorization service that we offer on VisaNet. But we have built from the bottoms up, clean sheet of paper, a customized solution, leveraging deep learning AI models and integrated that directly into the bank system so that they can ingest that in real time. The pilot is just getting going. It’s very early days, so we will report back as we learn more. And hopefully, we will have more examples like this to talk about around the world.

Operator:

Our next question comes from Ashwin Shirvaikar with Citi. Your line is open.

Vasant Prabhu:

Yes. FX volatility would not affect value-added services. We don’t count our treasury revenues in value-added services. So, value-added services are benefiting from structural and secular things. First, it’s deepening our penetration of existing clients. So, it’s a concerted effort to sell more services to existing clients. Second is some of the services were not operating globally. We are now making these services available around the world. So, it allows us to clearly increase the scope of the market. And then third, as you know, we have been adding services over time. So, this is a long-term growth engine for us. Our goal is to continue to grow it at a very hefty clip. And think about it as, to get a transaction and the more services you can layer on and the more value you can add to the transaction, the more yield you can get on it. So, it’s very much a growth engine, one of three, and we think it can grow for a very long time.

Operator:

Our next question comes from Ken Suchoski with Autonomous Research. Your line is open.

Vasant Prabhu:

Yes. So, just to correct, the way to think about value-added services yield, and I know you are looking at the revenue and dividing it by the volume, is there the yield on the transaction and then there is the yield on the exchange rate translation services we provide. Where the yield has gone down, because it was very high last year, is on the exchange rate translation service, what we call our treasury revenues, because currency volatility last year was 30% to 40% higher than it is right now. Currency volatility right now is a little higher than the long-term average. But last year, it was at extraordinary highs. In fact, in the fourth quarter, we will lap some of the highest levels of currency volatility reached last year. And based on where volatilities are today versus last year, volatilities are down almost 40%. So, it’s a sizable move. So, any yield difference you see in that line is because of treasury revenues. It’s not from our core cross-border yields, which remain very steady. It’s going to fluctuate based on currency volatility. And really, it’s still decent. It’s just that it was very high last year.

Operator:

Our next question comes from Darrin Peller with Wolfe Research. Your line is open.

Vasant Prabhu:

Yes. I will start and maybe Ryan can add. No, there is no change in capital allocation strategy, which is pay a dividend. The dividend has a certain set of criteria we use between a certain percentage range of our EPS. It gets to a certain yield, and it’s almost $1 billion a quarter now. We do buybacks generally out of free cash flow. We have historically not borrowed to do buybacks. And clearly, our first priority is to invest in the core business and to do acquisitions that make sense. And as you can see, we have been doing both. In terms of the volume of buybacks, remember that we did contribute $850 million to the escrow account, which is also equivalent to a buyback. So, if you count that in, we are probably around $9 billion or so in buybacks, if I remember right, so far this year. Clearly, we have more capacity if you want to do buybacks. We have always said that if we felt there was a disruption in the market and stock was trading at levels that did not reflect intrinsic value, we would be willing to step up our buybacks and borrow money if that made sense. So obviously, we will keep you posted if any of our plans change. Ryan, you may want to add some things.

Jennifer Como:

Next question Jordan.

Andrew Jeffrey:

I appreciate you taking the question and Vasant, best of luck to you. It’s been a pleasure. Ryan, I wanted to ask about the – some of the commercial efforts that Visa is making. I know it’s a pretty important driver of sort of new flows, the non-consumer part of your business growth. And this quarter, it was a little bit slower than overall volume. Can you just comment on the pipeline and what you see as the opportunities in commercial and how we should think about that business growing over the next few years?

Jennifer Como:

Next question Jordan.

Ramsey El-Assal:

Hi. Thanks for taking my question and congratulations to you Vasant. I wanted to ask for a follow-up on Reg II. You mentioned not seeing any impact yet. I am just wondering from your vantage point, whether you are now seeing that routing choice more broadly available to kind of all merchants or are we still in the midst of an implementation and rollout. And then just quickly and separately, your tax rate guidance would imply no impact from the recent Brazil tax law changes that did impact Mastercard, but I am just double checking if that’s the case.

Vasant Prabhu:

Yes. On the Brazil topic, you should ask Mastercard what was unique to them, really no change from our standpoint as it relates to Brazil.

Operator:

Our next question comes from Timothy Chiodo with Credit Suisse. Your line is open.

Vasant Prabhu:

Yes. Thank you. Yes, it is largely volatility-driven because of the very high volatilities we had last year and more normal volatilities we are getting to now. Beyond that, there is some FX impact, obviously. That line is always affected by FX more than any other line in the P&L. And other than that, there are always mix factors. It depends on corridors and all that. There is always some impact from that. But I would say the bulk of it is the two we have talked about, volatility and exchange rates.

Jennifer Como:

Last question Jordan.

Tien-Tsin Huang:

Hey. Thanks so much. Last question, so I won’t ask you, for Vasant. That’s my gift and way to thank you, so I will spare you a macro question. I will ask Ryan instead on Pismo if that’s okay. Ryan, you mentioned – I think you mentioned shipping products faster in your upfront remarks that made me think about Pismo a little bit. Is buying Pismo an indication in any way that Visa is more interested in owning tech and infrastructure that touches products, the consumer and that gives you a chance to develop products faster? Just I am curious to get your thoughts on that. It feels like you are widening the swim lane a little bit here. Is that fair to say? I would love your thoughts. Thanks.

Jennifer Como:

And with that, we would like to thank you for joining us today. If you have additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great day, and please join me in wishing Vasant the best.

Operator:

Welcome to Visa's Fiscal Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Ryan McInerney:

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 check spent globally. There is a very long runway for growth in this business. In consumer payments, the flywheel has three parts

Jennifer Como:

Thanks, Vasant. And with that, we're ready to take questions, Jordin.

Timothy Chiodo:

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

Jennifer Como:

Next question, Jordin.

Operator:

Our next question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

Tien-Tsin Huang:

Hi, Jennifer, can you hear me?

Tien-Tsin Huang:

Sorry about that. Thanks for taking my question and for all the good detail here. Just -- I want to make sure just can we infer from the no change in the operating expense outlook here that Vasant 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 otherwise no real surprises in the consumer globally, just wanted to rehash that back to you.

Jennifer Como:

Next question, Jordin.

Will Nance:

Hi, guys. I appreciate you taking my question. We've heard a couple of instances of several large merchants that have made the decision to start routing more e-commerce -- 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 U.S. based on conversations with acquirers, merchants, and issuers, are there any updated thoughts or expectations around the potential impact of new regulations that are implemented over the next few several months?

Jennifer Como:

Next question, Jordin.

Trevor Williams:

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 in 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-add services to hold up relative to the consumer payments business? Thanks.

Ryan McInerney:

Nothing to add, well said.

Operator:

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

Ryan McInerney:

Hi Bob. I think I heard gist of the question cut in and out a little bit. Let me hit AI and blockchain. I think that's what you're asking. I think more broadly. We're obviously monitoring anything and everything that's impacting commerce and money movement around the world. And 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. I guess, AI and blockchain. On AI, clearly, a lot of activity in generative AI right now. Before I get to that, I'll just mention that we have a long history of 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 -- we need 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 kind of 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 time thinking how generative AI will change the way that sellers sell, and we all buy and all of the shop. So that is -- 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, it's -- as far as we see, 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 stable coins. 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 acquirer partners to have a choice to settle in stable coins. 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 1 and Layer 2 solutions, smart contracts. I mean we've got teams of people that are exploring all those different types of innovations. And we'll see how they play out in the market. And if there's things to scale, we want to be part of that.

Operator:

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

Vasant Prabhu:

Yes, I think that's right. Clearly, the moderation in volatility is not a big surprise. Volatility last year were 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 -- last year was real highs that we haven't seen in a while. So that's not a surprise. The cross-border business is recovering 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. The cross-border e-commerce business, in general, the e-commerce business is holding up well. International is very strong, especially Europe. Europe is strong. Define 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, many 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 something is better than you expect, something is a little bit lower. But in aggregate, the business is doing as well or better than we expected, as you saw from our results.

Operator:

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

Vasant Prabhu:

I don't think we gave you a quarterly revenue growth outlook. 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.

Operator:

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

Ryan McInerney:

Thanks, Lisa. Yes, we want to connect to any real-time payment network in the planet - on the planet, and that's been our track record so far. That's the short answer to the first part of your question. Just back up, and 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, I'll 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 charge-back processes, well-understood rules and accepted rules, not just in the U.S. 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, Visa Direct builds on all those features, the scale, the ubiquity, the great experiences to deliver push payment solutions, both domestically and 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 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. So that's -- it's something that is a good thing happening in the U.S. And I'd also say that any force that digitizing money movement is a catalyzing force for all of us. And I expect that the FedNow, like TCH, it's going to take some time. It will eventually get traction, but it will take some time to build adoption. And one of the most -- I'd say it this way. One of the most powerful capabilities in payments is ubiquity. RTP doesn't have that yet in the U.S. It will happen, but it's going to take time. And the other thing I'd say is that an RTP transaction is a relatively simple transaction type, it's instant, it's permanent and it's irrevocable. I think over time, it will 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 U.K. is also -- it's a robust and growing market for Visa Direct. So just I think we'll see what happens. We'll see how things expand in the U.S., 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 U.S.

Operator:

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

Ryan McInerney:

Yes, thanks for the question. We're building out a new network. We know how to do that, and we also know it takes time. If I give you 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 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 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, side-by-side to almost any other alternative that's out there, B2B Connect is a far superior product but it takes store. So 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.

Operator:

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

Vasant Prabhu:

Yes. It's additions, we had made over the last 12 months in head count. 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 nonoperating 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 outlook we gave you for expenses, which we told you with the growth of expenses will flow through the year. It was 2 points or 3 points lower than last quarter. This quarter, it will be 2 points to 3 points lower next quarter and another 2 points to 3 points lower in the fourth quarter, and we're on track for that.

Operator:

Our final question comes from Darrin Peller with Wolfe Research. Your line is open.

Vasant Prabhu:

Yes. 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, you have -- 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 and answer. 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.

Jennifer Como:

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

Operator:

Welcome to Visa's Fiscal First Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Al Kelly :

Jennifer, thank you, and good afternoon, everybody, and thank you for joining us. Visa's performance in the first quarter of 2023 reflects stable domestic volumes and transactions and a continued recovery of cross-border travel. Total Q1 payments volume was up 7% year-over-year or 135% versus three years ago, flat with Q4. Excluding Russia and China, payments volume was up 12% or 146% of 2019. U.S. Q1 payments volume was up 9% year-over-year or 144% of 2019, down 1 point from Q4. International volume, excluding Russia and China, was up 15% or 147% of 2019, up 1 point from Q4. Q1 cross-border volumes, excluding intra-Europe, grew 31% year-over-year and 132% versus three years ago, up 5 points from Q4. Excluding Russia, cross-border year-over-year growth was higher by 4 points. Travel-related cross-border volumes rose 6 points from 112% of 2019 in Q4 to 118% in Q1, driven by Asia Pacific, helped by China lifting restrictions, continued modest improvements inbound into the United States and CEMEA benefiting from the FIFA World Cup. Processed transactions were up 10% year-over-year or 139% versus 2019, and we processed 571 million transactions a day during the quarter. Although first quarter net revenues grew -- altogether, I should say, first quarter net revenues grew 12% year-over-year and non-GAAP EPS was $2.18, up 21%. In each of our growth levers, consumer payments, new flows and value-added services, we saw strong revenue growth. In our consumer payments business, we made significant progress this quarter through large deals with traditional issuers and co-brands. And with the pandemic largely behind us, we saw many businesses focused on payments through Visa's new flows capabilities. In addition, we continue to develop and expand our global value-added services globally. Now let me explore each of these growth areas. In consumer payments, credentials grew 8% overall, 11% excluding Russia, with strong double-digit growth in the United States, India and Brazil. Tap-to-pay penetration of face-to-face transactions globally was 72%, excluding Russia and the United States. In the United States, we surpassed a notable 30%, with San Jose, San Francisco and New York City all above 50%. U.S. drugstores went above 40% for the first time in the United States, and nearly 65% of Costco's face-to-face credit transactions were made with a tap. In the United States, we had several important renewals. First, we renewed our partnership with Bank of America in the United States, maintaining our current debit and credit business, including their cash rewards, travel rewards, premium rewards and newly launched Premium Rewards Elite consumer credit cards. We're excited to continue to invest together in the growth of our joint business and to innovate with Bank of America to deliver enhanced capabilities and improved experiences for their customers. Second, we renewed with Commerce Bank, a top 25 Visa U.S. issuer across their consumer and commercial portfolios. Finally, we also renewed our agreement with Capital One. In Australia, we renewed our agreement with the country's largest independent payment solutions provider, Costco, with over 4 million cardholders for debit and prepaid and also signed a new agreement for credit issuance. Also in the region, we extended our exclusive relationship with Kiwibank, the largest New Zealand-owned bank. In Latin America, we renewed with ICBC Argentina, one of the largest issuers in the country, and with Banco do Brasil, one of the largest Visa issuers in the region. In addition, we entered into a new agreement with one of the largest banks in Panama, Banco Nacional de Panamá. Also in Latin America, we reached a new strategic deal with fintech platform, Tigo Money and parent company, Millicom, a leading provider of telecommunication services in the region. Visa and Millicom expect to offer Tigo Money's more than 5 million wallet users the ability to digitize their cash in an easy and secure way, making purchases wherever Visa is accepted with the Visa-Tigo Money Access Card. Another strategic fintech deal was with Niyo in India, a fast-growing cross-border focused neobank with 5 million customers. We've extended our relationship from debit into credit to grow cross-border spending with affluent as well as corporate customers. We're also happy to share that we renewed and extended our global partnership with HSBC. Our agreement covers consumer and commercial and it will foster growth and digital acceleration. This deal also cuts across all of Visa's five regions. As you know, Visa is the leader in travel co-brand globally, and I'm happy to report that we recently reached agreements with three important travel relationships. First, Qatar Airways' Privilege Club, which today has a split portfolio across networks around the world, has signed a new 10-year exclusive partnership with Visa to enhance and expand its portfolio of co-branded payment initiatives with key financial partners across key markets worldwide. This expanded partnership creates a new world of opportunities for our Visa customers and Privilege Club members to collect and spend Avios, the rewards currency of Privilege Club. Second, with Southwest Airlines in the United States, Visa will continue to be the exclusive payment network for their co-brand credit card issued by JPMorgan Chase. It represents one of the largest co-brand partnerships in the world. Third, with Star Alliance and HSBC in Australia, this is the world's first credit card created with an airline alliance and is issued exclusively on Visa Credit. At the time of the launch, it brought together seven Star Alliance carriers in a single credit card platform. Also, we recently advanced our co-brand partnership with Flipkart, one of India's leading digital commerce entities with a registered customer base of 450 million. So whether it's with traditional issuers or co-brand partners, we are continuing to position Visa well for the future. On to new flows, where this past quarter, new flows continued to grow with revenue up more than 20% in constant dollars led by strong growth in B2B payments volume and Visa Direct transactions. First, on the Visa Direct side, Visa Direct had 1.9 billion transactions in Q1, up 39% year-over-year, excluding Russia. We continue to grow globally. Non-U.S. Visa Direct transactions as a percentage of total transactions expanded nearly 20 points, excluding Russia, from Q1 '21 to Q1 '23. Building on the success of our remittance program with Standard Chartered Bank in Hong Kong, we recently launched Malaysia as an additional origination market spanning across six currency payers with more currencies to come. We also continue to bring existing use cases to new markets. First, in Australia, Visa Direct is now enabling driver payouts with DoorDash. Second, we launched our inaugural P2P program in South Africa with FNB, one of the country's largest banks to enable their 10 million active customers to move money within their mobile app using Visa Direct rails. Third, we launched our wallet cash payout program in Bangladesh with bKash. With this launch, the nearly 65 million bKash users can make wallet to money, bank transfers, 24/7 in near real time using Visa Direct. We are enabling several use cases, including seller payouts in the United States on Poshmark, a social media marketplace where more than 80 million registered users, and card top-offs with fintech, GoHenry. As a follow-on to the issuance deal we announced last quarter with them, GoHenry is enabling its members to top up their child's prepaid Visa card with Visa Direct first in the UK, with plans to expand this service across Europe in the future. In addition to Visa Direct, we had noteworthy developments in the B2B space this past quarter, where commercial payments volume grew 15% in constant dollars. In traditional issuance, we signed an agreement with Raiffeisen Bank for a new commercial credit partnership in addition to renewing customer -- consumer credit across their 3 million clients in Austria. And in the United States, we renewed with UBS for consumer credit and debit as well as several business credit portfolios and Visa Spend Clarity for business. Another issuing partnership was with Stone, one of the largest acquirers in Brazil focused on small businesses. Stone has recently become a Visa debit and credit issuer of cards that could be embedded digitally in its wallet. On the virtual card front, for accounts receivable and payable, we completed several agreements. First, Divvy, an expense management platform owned by BILL, has renewed its agreement to offer Visa virtual cards for small and midsized businesses in the United States as part of its expense and vendor payment solutions. Second, Viewpost converts U.S.-based B2B check payments to Visa virtual cards. And together, we are expanding card opportunities for issuers and corporates by offering a solution that can be deployed easily to every commercial business that still produces checks. Third, we've reached an agreement with Plate IQ, a leading end-to-end accounts payable automation provider in the United States with direct integrations to accounting systems. Plate IQ will be offering a Visa virtual card solution to commercial partners across multiple industries including restaurants and hospitality, retail and accounting and bookkeeping, among others. Fourth, in our Asia Pacific region, SUNRATE, a global payment and treasury management platform has launched Visa virtual cards as part of its solution for more than 1,000 B2B clients, including global online travel agencies and small business customers. Fleet issuance continues to grow as well. This quarter, we issued -- we signed with Zemo a European fleet and mobility solutions provider to issue Visa Open Loop fleet and fuel commercial cards as they expand from three European markets to 10. In the United States, Highnote, a cloud-native card issuance and embedded finance platform, expanded its relationship with Visa with a five-year card issuance agreement across credit, debit, virtual solutions and fleet. In addition, Highnote became certified as a Visa Fleet card processor, which provides businesses with more specific product category level controls and more detailed and faster data for real-time decisions on new fleet and fuel card programs. B2B is an active space for fintechs and Visa continues to partner with new players to drive innovation for businesses. A recent example is Konfio, a fintech in Mexico that has already issued approximately 50,000 Visa small business cards and recently expanded its agreement to issue Visa Business Infinite cards. In addition, they are positioned to grow acceptance in the market with their newly established acquiring business, Sr. Pago. Now moving to value-added services, which had about $1.7 billion in revenue this first quarter, up more than 20% in constant dollars. Remember that our focus for value-added services is threefold

Jennifer Como :

Thanks, Vasant. And with that, we're ready to take questions, Jordin.

Sanjay Sakhrani :

Thanks, and congratulations to Al and Ryan as well. Vasant, as we think about your baseline plan forecast, how are you factoring in the economy? I mean, are we assuming resilient consumer, stable economy or are you assuming some mild downturn?

Operator:

Our next question comes from Darrin Peller with Wolfe Research.

Vasant Prabhu :

Yes. On debit, it's what we told you earlier. In general, if you look at the -- looking at 2019 has kept us honest, so to speak. It's a good view of what's going on. And there's -- in total spend, it's remarkable stability. What's happening is as good spending slowed down a bit, services spending really took up all the slack. And so consumers have just shifted their spending but they're spending the same amount, and that's why debit has stayed resilient. Debit has been the biggest beneficiary of the move to digitization that happened globally and including in the U.S., more e-commerce, more tap-to-pay, more people using digital credentials just about on any payment occasion. So some people were worried that when things settle down, that debit might start to see some slowdown. But as you've seen, debit has stayed resilient even as credit has recovered, which has kept our overall payment volumes very stable. Those would be the big trends and the other question?

Vasant Prabhu :

And other revenue was helped by mostly marketing services and consulting revenue, a fair amount of that linked to the FIFA World Cup. There was a lot of client-related marketing and spending related to the World Cup. Clients ask us to activate a variety of programs and that certainly helped the revenue.

Will Nance :

Wanted to kind of double click on some of the comments you made around China. It sounds like you guys are looking towards that region as being a fairly big driver of continued recovery in cross-border travel. I think we heard this morning from your competitor that those volumes in aggregate seem to only be something like 1% to 2% of overall cross-border volumes pre COVID. So was wondering, given how much of a focus this is for investors as a driver of continued strong growth, can you put some guardrails around how we should be thinking about the magnitude of impact of China once it's fully reopened relative to kind of what we saw in the most recent quarter?

Vasant Prabhu :

Yes. I mean, in terms of thinking about the impact, you all and we all have been tracking how is our cross-border recovering relative to pre-COVID levels and are we back on the trend line and so on, as you know? And we've told you now for a few quarters that many corridors, and I went through a lot of that, are well above the 2019 level. The three that were not and are still not, U.S. is approaching -- U.S. inbound is approaching 2019 levels and was held back by the strong dollar, but Asia is still -- and I went through the numbers, quite a bit below 2019 levels. Most of Asia is open, only China isn't. So if Asia is going to get back to pre-COVID levels and back to the original trend line, that's where the China impact is going to be visible. And then you expect and we expect that cross-border travel index to keep improving through the year. For that to happen, we obviously need China to come back. So it is important.

Lisa Ellis :

I had a question about the evolution of Visa Direct. You highlighted the plus 39% year-on-year growth ex Russia in the quarter. Over the last few years, you've been talking a lot with tap-to-pay and contactless about there being sort of this inflection point dynamic where you reach a certain level of critical mass and then growth really accelerates. Is this similar dynamic true for Visa Direct? And can you give us a sense for sort of how we should think about that evolve over the next couple of years?

Operator:

Our next question comes from Dave Koning with Baird.

Al Kelly:

I think, Dave, when you look at it ex China and ex Russia, it grew over 10%. And then, yes, the UK migrations, in particular, are happening at a faster pace than we thought. And as Vasant said in his remarks, they're almost fully migrated, so certainly, that is having a dragging impact on the growth as well.

Ramsey El-Assal :

Al, could you give us your latest thoughts on sort of balance sheet deployment, M&A strategy, what you might be looking for, whether this environment is yielding more potential opportunities or deals? Or is it time maybe to not pursue additional deals as the macro environment remains volatile?

Operator:

Our next question comes from James Faucette with Morgan Stanley.

Al Kelly:

I'll start, and then certainly, Ryan, can add. First, I would say that I believe deeply that there is tremendous opportunity in the card -- traditional card world, both in the consumer space as well as in the B2B space. There are still hundreds and hundreds of millions of people to bring into the financial mainstream. There are still trillions of dollars spent on cash and check. And when you look in the B2B space, we see a total addressable market of about $120 billion across carded opportunities, cross-border and payables and receivables, where I talked a bunch about a number of examples that we have worked on over the course of the last quarter. RTP systems are helping to digitize money movement. That's a good thing. If you look at the disruption caused by monetization in India, it ended up being extraordinarily positive in terms of what it's done in terms of growth in card credentials as well as acceptance, which by the way, I also should have said in the traditional world, there's still a tremendous opportunity to grow our acceptance footprint from the level that it's at today. These RTP systems are also helping us and we're leaning into them. They're helping us extend the reach of Visa Direct as we utilize them as part of our network-of-network strategies. They're helping us with open banking through Tink, where we can facilitate greater access to more developers on 1 end and more financial institutions on the other end. I think RTPs represent an opportunity for us to sell value-added services. And I still think the advantages of -- and the capabilities associated with the carded space are still far superior to account that the consumer protections, et cetera. And if you look at PICs in Brazil, you look at UPI in India, these things developed and were put in the marketplace, and we're seeing a fair amount of -- hearing a lot from clients in terms of fraud associated with these networks. And in many ways, that makes sense. They haven't spent the decades and hundreds of millions of dollars that Visa has to build security, fraud capability, risk management capabilities that help keep the ecosystem secure and trusted by consumers. And I think we have the opportunity over time in the A2A space to bring some of those capabilities and earn some good revenue and yield from them. So Ryan, what would you add to it?

Operator:

Our next question comes from Dan Perlin with RBC Capital Markets.

Al Kelly:

Well, I'd say a couple of things, Dan. Number one, on the travel front, it's been a focus for us for a long time. And I think we have about 650 co-brands around the world. Many of them are travel co-brands, and I think we're the leading co-brand player on the planet. I think that when I look around the world, there's certainly opportunities with traditional issuers. We've made a lot of inroads in markets like Brazil and Chile, the Netherlands, Germany, Japan over the past year. We've had some great renewals in the United States over the last couple of years from JPMorgan Chase to Wells to the ones I talked about today in terms of Bank of America, Cap One, Commerce Bank. But we've also made great inroads with fintechs and neobanks. We have had a great track record of wins in the last 24 to 36 months. And a lot of these people are getting to scale in their particular markets. And I think for us, we have to have a wider lens in terms of who can provide services. We're trying to get -- make sure we get Visa cards in as many wallets as we can around the world. And then I'm going to come back to acceptance. One of the great ways to continue to grow our business is to grow our acceptance footprint, which still requires a lot of growth around the world. One of the places we've concentrated on that in the last 1.5 years is Latin America. And if you look at the ratio of spending in Latin America that went from -- moved from cash to PV in the last couple of years. Back in full year 2020, only 46% of Latin America's volume was PV, with 54% being cash. This past quarter, we just finished [59%] of their PV -- [69%] of their volume was purchase volume, so there was a 13-point swing in the Latin America region in the last not even quite three years. And that's a combination of winning with traditional FIs, winning with fintechs, having a localized market-by-market approach with a lot of good -- really good progress in countries that's out in Latin America like Brazil and Chile.

Harshita Rawat :

Al, best wishes to you and we'll miss hearing from you on this call. Ryan, congratulations. Can you talk about how business growth strategy in organization that has evolved under your leadership? Are you starting to focus more or less on certain things or do some things differently? And Vasant very quickly, can you comment under your decel from your fourth fiscal quarter to 1Q? You talked about some of the dynamics, but how is that relative to your initial expectations?

Vasant Prabhu :

I think you were asking about -- you said decel, I'm assuming you meant deceleration between the first and the second?

Vasant Prabhu :

Yes. I mean, just a couple of things. The Russia impact is a little larger in the second quarter because we had almost two quarters' worth of service fees last year. Remember, we recognize service fees with a lag, so the service fees recognized in the first quarter were based on Q4 growth rates. So sequentially, Q1 was a little lower, so Q2 service fees will be impacted by that. Also, currency volatility is moderating as we speak. It has been moderating for a few weeks. And incentive growth is a little higher as you saw. So you put it all together, we were a little better than we expected. As you know, we thought we would be high single digits in the first quarter. We were higher for the reasons I mentioned, will be high single digits in the second quarter. That's our expectation right now.

Ryan McInerney :

Yes, on the first part of your question, I've been a President now for close to 10 years, so I've been shoulder to shoulder with Al and Vasant and the rest of our team as we've made all of our key decisions, as we've developed our strategy, as we've executed our strategy. So probably won't or shouldn't surprise you, I'm going to continue to focus on the three growth pillars that we've laid out, consumer payments, new inflows and value-added services. And my priorities are going to be focused on doing everything that we can to accelerate our progress and accelerate our momentum. So how do we go to market, how do we work with clients, how do we ship product faster, how do we sell solutions more effectively to our clients? And to part of your question, how do we organize. So earlier this month, I announced a new organizational structure that really reflects our strategy that we talked with all of you about all the time. And we believe it's going to help us accelerate our progress in all 3 of those growth factors. To give you a quick sketch of that, Oliver Jenkyn, long-time Visa veteran, who many of you know, is going to lead a new global markets organization that includes driving our consumer payments growth in all of our markets around the world. So our five regional presidents will report to Oliver. Chris Newkirk, who formally led our strategy organization, is going to lead our new flows business unit reporting directly to me. Antony Cahill, who is our former Deputy CEO of Europe, is going to lead our value-added services business unit reporting directly to me. So our global markets team, our value-added services business unit, our new flows business unit, all will report directly to me. And then just to round that out a little bit, Jack Forestell, who also many of you know, will become our Chief Product and Strategy Officer and will partner closely with our President of Technology, Rajat Taneja. And the two of them are focused on delivering a robust product and innovation road map, shipping world-class products and services that help our clients grow their businesses and deepen their relationships with their customers. So that gives you a sense of where we are with strategy and the organization.

Kenneth Suchoski :

Thanks for taking the question and congrats to Al and Ryan. I think you mentioned earlier that you're keeping the second half guidance unchanged. Can you just remind us what that guidance was from either a volume or a net revenue standpoint? Just because I think we have only the prior kind of full year guidance, and I know there's FX that's becoming less of a headwind as you get into the second half.

Operator:

Our final question comes from Tien-tsin Huang with JPMorgan.

Al Kelly:

Well, it's a competitive world out there, Tien-tsin, as you well know. I think that there's a price that you need to get to and then a lot of it has to do with the combination of incumbency or not, the capabilities you have, what your line-up of customers' clients are in that market, what kind of experience you've had, what kind of innovative ideas you bring to the table, the other kinds of capabilities that we have in terms of services and new flows. So every deal is different and potentially hinging on on different things depending upon the needs of a particular client. And we tried to be very bespoke when we look at deals and talk to clients because their needs and their situation will always tend to be a bit different.

Operator:

Thank you for your participation in today's conference. You may disconnect at this time.

Operator:

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.

Al Kelly:

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 in FY 2022, surpassing 1 billion transactions for the first time ever. In FY 2022, 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 value-added 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, up 19%. Total Q4 payments volume was up 10% year-over-year or 135% versus three years ago, down 1 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 1 point. International volume was up 9% year-over-year or 126% of 2019, down 1 point versus Q3. Excluding Russia and China, International volume was up 20% or 146% of 2019, flat to Q3. Q4 cross-border volumes, excluding intra-Europe were up 49% year-over-year and 130% versus three years ago, up 7 points from Q3. Excluding Russia, cross-border year-over-year growth was higher by about 5 points. Travel-related cross-border volumes rose 12 points from 104% of 2019 in Q3 to 116% in Q4 as travel continued to recover. Processed transactions were up 12% year-over-year or 140% versus 2019 and we processed 553 million transactions a day during the quarter. Now I will provide an update on the drivers that propel 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 CEMEA 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 Davivienda, including credit, debit, commercial and Visa Direct. Another key renewal in Latin America this quarter was with Dock, one of the Visa’s a few full stock enablers providing BINs [ph] sponsorship, issuer processing, acquiring as a service and program management via a single connection, already servicing more than 100 fintechs in Brazil, Dock 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 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 are 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 U.S., Visa and Kohl’s with Capital One as the issuer recently entered into an agreement to launch at Kohl’s co-branded Visa credit card. And also in the U.S., we are excited to share that Visa signed a multiyear co-brand agreement extension with Disney for cards issued by JPMorgan Chase. Now moving to fintech and wallet clients. In Egypt, mobile network operated 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 banks seeking to digitize payments and drive a cashless society through Visa credit, debit and prepaid card issuance across their 400,000 customers. And large cryptocurrency exchange, FTX, with over 5 million registered users has 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 the U.S., U.K. and Europe-based fintech that provides prepaid cards and financial education app for children age six to 18 to over 2 million members. They will be expanding their U.K. Visa issuance to Continental Europe and the U.S. On the acceptance front, we signed an agreement with Flywire, 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 win processing share has 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 tap 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 5 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 have made progress across all three this quarter. Visa has signed a long-term agreement with European payments as a service provider, Modulr, to issue Visa virtual cards to support B2B travel clients issuing out of Europe. Also in Europe, Visa won the credit card portfolio, Crédit du Nord, 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 Edenred, I am sorry, which is making their Edenred 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 CEMEA 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 flows, 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 7 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 am 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 Etisalat Egypt. Other new geographies also include Norway, Norwegian mobile payment application, Vipps, will offer users access to Visa Direct for all domestic payments. This will improve the card-based experience for Vipps, 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 business as 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, Thunes, with a network of mobile wallets across 44 countries and territories. Our partnership will add a send-to-wallet capability with either direct through Thunes’ 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 will expand our total reach to nearly 7 billion end points covering cards, accounts and wallets. As part of new flows, aligned with our global network of network strategy, we are 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, Currencycloud, signed 35 new partnerships this quarter, including Paycent, a global end-to-end payment platform with over 7 million customers and 17,000 SMEs. Paycent intends to expand capabilities of its Paycent 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. For the fourth quarter, revenues were up $1.7 billion and grew 20% in cost dollars as well. Our strategy here is also three-fold; 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 FY 2022. DPS has 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 environment. 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 Adyen to offer a white-label pay-by-bank open banking solution on its single platform. Adyen will utilize Tink’s payment initiation technology, so businesses can enable account-to-account payments. Adyen’s open banking integration will launch first in the U.K. with plan 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 CEMEA signed engagements for the service, which aims to deliver enhanced fraud prevention and management. On 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 clients. Across Europe, clients enrolling onto Visa advance through authentication and Visa risk management products tripled between October 2019 and September 2022. And these clients span across 14 different European countries. In CEMEA, Visa Risk Manager launched a network-agnostic pilot with Emirates NBD, a leading issuer in the UAE. As part of Visa’s network of network strategy, network-agnostic VRM will allow clients to manage card payment risk across their entire portfolio. 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 Simon’s 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 strategy 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. Vasant is 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 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 a recession into our numbers. To the one -- 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 we 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 have 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 Vasant.

Jennifer Como:

Thanks, Vasant. And with that, we are ready to take questions, Holly.

Lisa Ellis:

Thank you. Thanks for taking my question. Hey, Al. I wanted to follow up on your comment in the prepared remarks about Visa now having 4.3 billion tokens, up doubling more than 2x year-on-year. Can you elaborate a bit on a couple of aspects of tokenization? First, have you made any progress or what level of progress have you made on selling your tokenization services as a value-added service into other networks -- alternative networks? And then also on some of -- given that you don’t monetize tokens directly, what -- how should we think about the indirect benefits of tokenization to Visa now that the number of tokens exceeds card credentials out there? Thank you.

Operator:

Our next question is from David Togut with Evercore ISI. You may go ahead.

Vasant Prabhu:

Yeah. I will answer the first part of the question. I am sure Al will have more to add on the second part. Obviously, we have to wait and see the pace at which the second network is enabled on cards on e-commerce transactions. Our current expectation, given that our fiscal year, as you know, goes through September is that the effect in 2023 will be minimal, if any. But we will keep you posted. More broadly, just in terms of our views about the impact longer term, people come to us because of the value we create and that value comes in the form of having a dual message network and everything that goes with it, the security and the reliability we offer that is unmatched, as well as the dispute resolution and other sets of services, tokenization, all our risk management services that we layer on. We have competed for business in the past and merchants have chosen us based on the value we provide, and I am sure, Al, you have more to add on this front.

Jennifer Como:

Next question.

Darrin Peller:

Hey, guys. Thanks. Your outlook and your budget you gave us was obviously helpful and I clearly underscores the resilient of the consumer so far. But just to touch on the water for a minute. And I think you have about a third of your revenues now coming from new flows, services, many of which had are early stages of growth. So putting that together with higher inflation, Al, would you expect any type of difference and set of outcomes on the topline if we were to see a notable downturn? And then, Vasant, just maybe you could touch on the flexibility you think you have on the expense side to help manage through any type of change?

Darrin Peller:

Right.

Darrin Peller:

Yeah.

Vasant Prabhu:

Yeah. I mean and continuing on revenue for a minute, I mean, clearly, we now have new flows and value-added services, which are businesses, which are in new use cases that are very different than we have had in past times when we had recessions. So and they are also ramping in many cases and value-added services clearly is a whole range of new services that are not necessarily all tied to economic ups and downs. So clearly, there’s a lot of differences from the past. But as Al said, recessions can come in all forms and shapes and sizes, and they could be global or regional. They could be deep or shallow. They could be recessions that have lesser impact on consumer spending and so on. As it relates to expenses, as I said in my comments on planning assumptions, I’d say three things. One, we are moderating expense growth as we go into the year. So expense growth is clearly coming down from the levels you have seen. For the year, our going-in planning assumption is nominal growth of about 9%. But I would just note that in the second half of the year -- the fiscal year, the growth is actually at the high end of mid-single digits. So it is moderating through the year and we don’t know when there will be a recession or if there will be a recession. But if you look at what all the various prognosticators are saying, it appears that most people think if there’s going to be a recession, it’s sometime next year, probably, six months from now. Now that would put us in the second half of our fiscal year. So we already have expense growth moderating to the sort of the high end of mid-single digits. Clearly, we will look to reprioritize, scale back, postpone, et cetera. And depending on the nature of the recession and the impact it’s having on our revenue, we would seek to manage our expenses to be even better than what our planning assumptions might be and bring the rate -- growth rate down. So we will calibrate as we go along.

Operator:

Our next question is from Bob Napoli with William Blair. You may go ahead.

Al Kelly:

So in terms of what we are excited about, look, I think in all three businesses, we are seeing some really terrific green shoots and in the consumer payments, certainly excited about the realities of cash digitization getting more and more pronounced around the world. We are certainly excited about the continued progress we are seeing in Tap to Pay. The fact that our business in e-commerce has grown so much, really like what we are seeing in the continent in Europe in terms of the growth that we are seeing there, which is really strong. If we look at India, Brazil, Germany, Canada, Japan, all are growing at very, very good levels. There’s very different dynamics in each of those markets, but they are all growing very well. I just recently took a trip to Nigeria and the Democratic Republic of the Congo. Africa is a place that’s not going to help us in 2023 or 2024 necessarily, Bob. But the last -- we now have offices, I think, in 13 countries there in the last five or six offices we have opened there, opened around the world in Africa. In new flows, as we have organized that business as a single business, Oliver Jenkyn is bringing a great focus to it and making sure that we are driving new use cases around the globe, getting more and more enablers who help us drive those use cases and we are putting a particular focus there on B2 -- cross-border where previously, a lot of the early transact – early use cases in new flows have been in the area of things like domestic like P2P and B2B. And then in VAS [ph], certainly, we are excited about the two recent acquisitions we made of Tink and Currencycloud. I think they are both going to bring some very interesting and good capabilities to us. And we are -- in both cases, we have spent a lot of time and planning sessions between the folks who are running those businesses and our folks, and I think, there’s a great opportunity ahead. Vasant, do you want to tackle the goods versus services question?

Jennifer Como:

Next question.

Harshita Rawat:

Thank you for taking my question. Vasant, can you talk about actually [ph] on cross-border revenues in 2023? I know there’s still recovery to be had if you just look at, like, trend line on travel versus 2019 and also if you look at, like, metrics beyond spend, which is inflation in that. But on the flip side, this has very high beta to macro. U.S. dollar has strengthened a lot, which can impact cross-border inflows into the U.S. and FX volatility was a big benefit in revenue this year, but you are kind of against kind of tough comps next year. So lots of moving pieces, can you -- how are you thinking about it? Thank you.

Jennifer Como:

Next question.

Ashwin Shirvaikar:

Thank you. From a headline perspective, I guess, if you are seeing nothing but stability that has been the situation for a few months, as you mentioned, are there things to highlight on a more granular basis if there are particular areas of strength or weakness? So that’s part one. But then it also seems that you are implying that the business as a whole is more resilient, because you have new flows and value-added services in addition to consumer pay and kind of agree with that. But could you maybe talk about the new flows and value-added, what you might see in a downturn?

Jennifer Como:

Next question.

Timothy Chiodo:

Great. Thanks a lot for taking the question. I want to talk about the Visa Direct decision. So by businesses, platforms, governments that are deciding to use Visa Direct relative to other alternatives like RTP systems around the world. And I fully appreciate that Visa Direct leverages, many of these RTP and other ACH systems around the world, but what is it that is causing them to choose Visa Direct? And as a follow-up, you have often talked about the pricing for Visa Direct, it’s very use case-based. Maybe you could just give directional examples of what a higher priced use case might be and what a lower price use case might be?

Vasant Prabhu:

In regarding to your second question, maybe we will give you two examples. At one end is a high value use case and that will be cross-border remittances. The use of Visa Direct gives you extraordinary flexibility. You can do it account-to-account, account-to-account, account-to-account, sitting at home, you don’t have to go to someone to give them cash. It’s also tremendous flexibility at the other end in terms of how someone receives the money. It’s real time. It has all the other benefits Al mentioned. As you know, cross-border remittances have a very high cost right now. We can do all that for a lot less and still have a yield that is quite attractive relative to our traditional yield. At the other end of the spectrum, P2P, very much a preferred way to do it is to have your debit credentials in there, because it makes it a lot more secure and has all the value we can add. It’s a high volume but lower yielding use case and very often it’s the way we get going in most markets. So those are two examples, and in between, you have insurance disbursements, earn wage access, marketplace payouts and so on, all of which are different.

Operator:

Our last question comes from Tien-Tsin Huang. You may go ahead. With JPMorgan.

Vasant Prabhu:

Yeah. On operating leverage, as we said, we are trying to balance the short-term and the long-term. As you have heard, we think there are extraordinary opportunities in new flows and value-added services. These are long-cycle businesses. You have to invest now for the future. So, yes, we are choosing to invest in the business and that reflects the expenses that we plan -- our expense growth plan relative to the revenue growth. And the other part of the question was other revenues…

Vasant Prabhu:

Right. On other revenues, yeah, there are some things there that will also have some sequential slowdown, because there are things like car-related benefits and so on in the other revenue line that are linked to travel. And as you lap a stronger recovery of travel from last year, there will be some sequential slowdown. There are also a few other value-added services there. So just like the overall business where there is a sequential slowdown because of the lapping effects and some currency impacts in Russia and so on, you will see that in the other revenue line, too.

Operator:

And this concludes today’s conference. Thank you for participating. You may disconnect at this time.

Operator:

Welcome to Visa's Fiscal Third Quarter 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 conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Al Kelly:

Jennifer, thank you, and good afternoon, everybody, and thank you for joining us. Before I talk about the quarter, I wanted to acknowledge the passing of Dee Hock, Visa's Founder and Chief Executive Officer Emeritus. The whole Visa family deeply mourns the loss of a true visionary and a great man. Even with several global and macro events from the war in Ukraine to inflation, to concerns over a broader recession, Visa's business model has proven to be very resilient, with strong financial performance. Net revenues grew 19% year-over-year, and non-GAAP EPS was $1.98, up 33%. Total Q3 payment volume was 136% versus three years ago, up 1 point from Q2. In the U.S., payments volume index to 2019 was 146% in the quarter. U.S. debit volumes were 155% and credit 138% of 2019, both up modestly from Q2. Card-not-present, excluding travel volumes in the U.S., remained significantly ahead of prepandemic levels at 170% of 2019, consistent with Q2. International volume was 120% of 2019, down 1 point from Q2. Excluding China and Russia, it was 146% of 2019, up 6 points. Q3 Cross-border volumes, excluding intra-Europe, were 123% versus three years ago, up 11 points from Q2, and this includes Russia in prior period numbers. Travel-related cross-border volumes rose 22 points from 82% of 2019 in Q2 to 104% in Q3, as we continue to see strong recovery in consumer and commercial travel. Process transactions were 139% versus 2019, 1 point above Q2. Credentials increased 8% year-over-year and are up 11%, excluding Russia. Before I dive into the client wins and progress towards our strategy, I wanted to take a moment to discuss two topics

Jennifer Como:

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

Sanjay Sakhrani:

Thanks. I know we're indexing well below where we normally would be if the pandemic didn't occur for cross-border travel. However, I guess there's a fear that we're seeing the strength partly because it's pent-up demand and then inflation. Could you help us think about how you feel about the risks associated with the drop-off in cross-border? And then Vasant, you talked about Asia being the key. How much more strength can we see out of the non-China region? Thanks.

Vasant Prabhu:

Yes. Clearly, I mean, there's a variety of factors at play here. First, there has been a general shift in consumer preferences. You've heard this from other people, to move away from goods to experiences, and travel is very much a beneficiary of that. It's not just cross-border travel. As Al said in his remarks, it's all travel, including domestic travel. So, it's a pretty broad-based desire to travel. The second is people are keen to travel. So, as soon as restrictions are lifted, you see the reactions right away. In terms of where the strength is, clearly, the recovery in Asia has been quite strong. You saw how much it improved this quarter, almost 20 points, if I remember right. And it is continuing. It's happening all across Asia, except for places like China, and they're still -- it's not that easy to get in and out of Japan and Taiwan. But elsewhere, it's very strong across Asia. There's a huge amount of interest in traveling to Europe and significant interest in European traveling out of Europe. So Europe has been also recovering very fast and is indexing at pretty high levels relative to pre-COVID volumes. The other area that continues to surprise is Latin America. We told you that it was always quite high, because Latin America stayed fairly open. But in the last quarter it jumped another 20 points and is indexing in the 150 range for people traveling into Latin America. So as you look across it, this looks pretty durable. There's still recovery left to come, as you can see. Asia still was indexing well below 2019 levels. The U.S. is still below 2019 levels. So we don’t think this ends anytime soon.

Operator:

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

Al Kelly:

Well, thanks, Lisa. One of the terrific things about Visa Direct is that, it isn't running on a different new platform. It runs on VisaNet and, therefore, has the ability to utilize all of the same capabilities that we have on VisaNet, including those related to KYC and those related to fraud prevention. So, certainly, this is something that we're well aware of and we'll continue to watch closely. I do think that consumers value this P2P capability in very, very big ways, not just in the United States, but around the world, and I certainly expect it to be a use case that continues to grow around the world, and we'll just have to make sure that we're working closely with Zelle and other partners to make sure that we're contributing as much as we can to make sure that, that service is secure as can be, because as you know, trust is a basic underpinning of money movement in every single use case around the world.

Operator:

Our next question comes from Darrin Peller with Wolfe Research. Your line is open.

Vasant Prabhu:

Yes. The pull forward of salary increases means that when we get to the fourth quarter of next year, we'll lap the increase that we have. So in that sense, yes, it moderates a little bit the impact on next year since some of it comes into this year. You've seen us in the past adjust based on external circumstances, and we will be monitoring trends and will stay flexible and move fast if we have to, again. That said, this is a business with tremendous long-term growth opportunities. We think the new use cases that are being developed in the new flows business and the opportunities we have across value-added services for global expansion, for deeper penetration of existing clients as well as adding new services are very significant. So we have to be keeping an eye on the long-term opportunity and not under-investing. Having said that, if times get tough, we -- as we did during the pandemic, you prioritize, you sequence things, you pace things. You don't pull back on all the investment. You just try to do it based on a new reality. So during the pandemic, for example, we scale back in certain areas like cross-border where spending on marketing or things like that wouldn't have made any difference because borders were closed. And we'll try and do things like that if we have to again.

Operator:

Our next question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

Al Kelly:

Well, thanks, Tien-Tsin. I think we're a very different company from any past recession, I guess, going back to 2008-2009 time frame. First of all, we're strong -- much stronger in debit, which tends to be the vehicle, the card of choice for people in a slowdown period. We're stronger in everyday spend categories. We're stronger in e-commerce. We benefited from this acceleration in cash utilization that happened during the pandemic. Since the last recession, we've added Europe, which is a very important part of the company today and contributes to our growth. And then as you alluded to, we've added an emphasis on value-added services and new flows. Some of those value-added services are tied to volume. So the degree that some volumes might go down, those might go down as well. But on the other hand, for volumes that we will have today that we -- that will have the opportunity to sell more value-added services than we would have in the prior recession. The last thing I would say is that it is very possible that today, people are changing what they're buying, but they're not changing how they're paying. And we fall into the latter category. And we see overall spending levels, as we talked about remaining high, and we continue to see people choosing to pay with Visa not depending on any change that they might be making in what they're buying or the baskets that they have.

Operator:

Our next question comes from Harshita Rawat with Bernstein. Your line is open.

Al Kelly:

Well, I think open banking is in its early days, but I think that we're quite well positioned. As you well know, that the ground zero for open banking happens to be Europe. We have a very good business there. And obviously, Tink has a footprint in 18 markets in Europe. It has a single API that allows customers, primarily developers that access financial data. It has connectivity to 3,400 banks and financial institutions and greater than 10,000 developers. And we believe the thesis for us is that takes capabilities with our capabilities and our relationships will allow Tink to be stronger where it already is, and will -- with our help, we'll be able to broaden their footprint in which Tink operates. And that's certainly one of the things that we're in discussions internally with Tink, as to where we go next in the world. We also think that our infrastructure and our cyber and fraud capabilities and our capabilities related to protecting the customers' transaction at all the steps along the way is going to just help accelerate the adoption of open banking in Europe. So we're excited about the prospects of it. We think we're really well positioned. It's just going to be a matter of how quickly it takes off, but we're in good shape to the degree that it does.

Operator:

Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Al Kelly:

Well, Bryan, that's been the thesis from the beginning that we want to make sure that we generate on a sustained ongoing basis attractive revenue growth. And you're certainly correct that at some point in time, depending upon the pace at which Asia cross-border comes back and US inbound cross-border continues to come back, that will settle back into some more normal level growth rate for consumer payments. I'm not going to predict when that will be, whether that's in two quarters or six quarters or seven quarters, but it will happen at some point in time. And our expectation and aspiration has been that value-added services and new flows will grow at numbers of percentage points higher than consumer payments that will, therefore, allow us to get to sustained revenue growth rate that we think, over time, will be attractive to the investors in the company.

Operator:

Our next question comes from Don Fandetti with Wells Fargo. Your line is open.

Al Kelly:

Don, you're touching on -- there's a number of elements that impact our volumes. And we'll touch on a few of them. Affluent spenders are returning to the economy and their higher spending in restaurants and travel, among other categories. And this isn't necessarily inflation, but a mix shift. The impact of people working from home and hybrid work definitely continue to have impact on smaller tickets that are things that people buy in the mornings and at lunch time, when they're actually commuting and working in an office environment. Certainly, small tickets, as a percentage of overall tickets, are still below pre-pandemic levels as a result. Last year, stimulus clearly drove ticket sizes up, particularly in discretionary categories, and we're kind of lapping that now. What we don't know are what level of substitutions are taking place, where people might be buying more staples and less discretionary items, but they're spending at the same level they did, or whether as some retailers have said, people are trading down from brands to private labels. But it's also difficult for us to understand consumption reduction. So, for example, consumers could be buying less fuel, but spending at the same amount or buying smaller package sizes of things like snacks and yet spending the same amount. So, I think, Don, clearly, inflation is in our numbers. And people are likely to change, making some changes on what they're buying. But as I said earlier, I think in response to Tien-Tsin's question, they're not changing how they're paying.

Jennifer Como:

Next question, Jordan.

David Togut:

Thank you. Good afternoon. You've clearly been continuing to be very aggressive on share repurchase. But could you update us on your capital allocation priorities in this particular environment? We've seen obviously a pretty big pullback in valuations and payments. How is your acquisition appetite and pipeline changed today versus, let's say, a year ago?

Jennifer Como:

Next question Jordan.

Rayna Kumar:

Good afternoon. Thanks for taking my question. In your remarks, you mentioned pricing actions helped your cross-border revenue. As you look across the breadth of your products and services, do you think there's still more opportunity to improve pricing in certain areas?

Jennifer Como:

Next question Jordan.

Ashwin Shirvaikar:

Thank you. Hey Al, hi Vasant. Great quarter here. It's pretty clear based on your results and comments that the consumer seems unaffected so far. My question was, are you seeing an impact in your conversations with enterprises, so basically banks, merchants and fintechs, given what's going on in terms of either the pace of decision-making or the types of products or services that they're seeking out now? If you could comment on that.

Jennifer Como:

Next question?

James Faucette:

Great. Thank you very much. Thanks for all the color and commentary, Al and Vasant. Obviously, you can track quite well how the consumer is tracking now across all the different metrics, as we've talked a lot about. When you look at forward, can you talk a little bit about what you look at as potential indicators? And I guess, especially since as Sanjay started off the questions around travel, what are you seeing in things around forward bookings and any changes or indications there or elsewhere? Thank you.

Jennifer Como:

Last question Jordan.

Jason Kupferberg:

Thanks guys. I just wanted to come back to cross-border travel. Now that you were at, I think, 116% of 2019 levels in July, I know your prior target was to be at 100% by the end of the fiscal year. So what would be your new target there? And then can you just comment on inbound versus outbound US, kind of where that's tracking versus 2019 levels and your thoughts going forward there just given the strength of the dollar? Thank you.

Jennifer Como:

And with that, we'd like to thank you for joining us today. If you have any additional questions, please feel free to call or e-mail our Investor Relations team. Thanks again, and have a great day.

Operator:

Welcome to Visa's Fiscal Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I would like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Head of Investor Relations. Ms. Como, you may begin.

Al Kelly:

Good afternoon, everybody, and thank you for joining. Before jumping in, I want to acknowledge that this is Jennifer Como's first earnings call in her new position. About 2 months ago, Jennifer was promoted to Head of Investor Relations, which was a very well-deserved recognition of her work over the last 3 years with us. I want to start by briefly addressing the situation in Russia and Ukraine. I have seen firsthand the pain brought about by Russia's attack on Ukraine and its people, including our colleagues in both Ukraine and Russia. We are very focused on supporting them. The bravery, strength and resilience of our colleagues is incredibly inspiring, as is the grit of the Ukrainian military. Even with the invasion of Ukraine and lingering impacts of Omicron, volumes, transactions and credentials drove strong second quarter performance. Overall, PB was up 135% versus 3 years ago. Cross-border volumes, excluding inter-Europe, were 112% versus 3 years ago. And it's important to note that travel-related cross-border rose to 82% versus 3 years ago, up 5 points from Q1. Processed transactions were 138% versus 3 years ago. In terms of the big picture, after the short 4- to 5-week impact of Omnicon in December and January in the United States and many other parts of the world, the recovery continues to be robust. At this stage, in terms of volumes, we have seen no noticeable impact due to inflation, supply chain issues or the war in Ukraine. In the U.S., payments volume index to 2019 was 144 in the quarter. Volume growth relative to 3 years ago has been stable and strong now for 4 quarters in a row. When looking at specific spend categories for credit cards, we saw greater than a 10 percentage point improvement in the 3-year index from Q1 to 2Q -- Q2 in travel, retail goods, food and drug, restaurant, QSR and fuel. As a reminder, debit is growing over a quarter in fiscal '21, where there were 2 stimulus distributions. Even as credit continues to recover, debit remains 20% above the prepandemic trend line. Across all products, spend categories representing 88% of PB are over 120% indexed -- over 120 indexed to 3 years ago, and nearly 2/3 are between 1 40 and 1 60. Against this backdrop, Visa's performance was very strong. Net revenues grew 25% year-over-year and non-GAAP EPS was $1.79, up 30%. As we look ahead, our business will have a reset due to Russia, but we still expect accelerated revenue growth versus pre-COVID over the coming years. This is because there's still ample opportunity around the world across our 3 growth levers of consumer payments, new flows and value-added services, and our strategy is yielding excellent results. First, in consumer payments, we continue to displace cash at a strong rate. In Q2, we saw debit cash volumes at Visa grow 2%, while debit payments volumes grew 12%. Cash displacement continued around the world. Year-over-year, across debit and credit, there were 7.9 billion more payments transactions and 16 million less cash transactions. Last quarter, I highlighted the shift from cash to payments volume in Latin America, and that trend continued in this quarter. Additionally, CEMEA is experiencing a similar shift. In full year 2019, cash was 59% of total volume. Last year in Q2, it was 50%. And this quarter, it was 46%. Growth in consumer payments is driven by adding credentials and acceptance and deepening engagement. Our card credentials recently increased to over 3.9 billion, up 9% in 1 year, including 10% growth in the United States. On the acceptance side, we have 80 million merchant locations, including small businesses behind players like Stripe and Square, the number is actually over $100 million. We have seen very strong performance location growth recently in our Latin America and Asia Pacific regions, up 30% and 20%, respectively. Let me just highlight a few regional examples of progress in consumer payments. In Europe, overall credentials grew 6%, which is nearly double the historic rate for each of the past 8 quarters, helped by previously announced deals with BNP Paribas Fortis in Belgium contributing more than 4 million credentials since their announcement to issue with Visa. Across Europe, we continue to strengthen our debit business. We recently announced the [indiscernible] bank, representing a multimillion credential opportunity. We also renewed our business with one of the largest banks in the Nordics, Nordea. On the acceptance front, we continue to pioneer new areas of acceptance even in mature digital markets. One recent in example in Europe is with electronic -- electric vehicle charging. We were the first payments and financial services company that joined the charging interface initiative and are working with manufacturers to open up what is estimated to represent 3 million potential acceptance points in Europe by 2030. In Latin America, we saw strong credential growth, up 21% year-over-year. Two renewals to highlight this quarter

Jennifer Como:

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

Harshita Rawat:

Vasant, I want to ask about cross-border. So had the pandemic not happened, your cross-border volumes would have been at least 20% to 30% of the 2019 levels, if you just kind of go with historical run rates. Now clearly, the travel probably has been solid these past few months. My question is how important is it that Asia, specifically China, comes back for you to have cross-border travel, not just going to 2019 levels, but eventually kind of returning to the pre-pandemic rate of growth?

Operator:

Our next question comes from Lisa Ellis from MoffettNathanson.

Al Kelly:

Well, thank you, Lisa. This B2B segment is about $122 trillion opportunity, of which $20 trillion is in the carded space and then a $10 trillion in the cross-border space. So in the carded space, we already are the largest provider of commercial card volume. And our focus has continued to be on growing the number of issuers that are issuing commercial cards because it's a lot less than the number of people issue consumer cards. And we're also very focused on the travel and fuel use cases in addition to obviously purchasing cards and corporate cards, which are a more traditional element of this carded B2B space. We're also trying to continue to grow acceptance. There are acceptance gaps in the commercial space that hold us back from getting all the volume that we could potentially get. We are making strides, but there's still a ways to go in terms of having an acceptance footprint that mirrors the type of broad-based acceptance footprint that we have on the commercial side. It's a very important part of the business. It has attractive yields. It's -- generally has the ability to -- it was growing faster than consumer prior to COVID, and we believe that it can grow faster than consumer when we get back to a more normal time post the pandemic and obviously, one big factor there will be the pace at which business travel returns. In the cross-border space, obviously, our major thrust there is B2B Connect. And our major focus on B2B Connect continues to be to grow out the network by having more and more banks in more and more countries involved in the network, and that has been and continues to be our focus more so than driving transactions at this point. And our belief is that once we get the network to a level where it is quite robust that transaction flow will happen fairly quickly. So those are some of the things that we're focused on to try to drive this very, very important space, which I continue to believe is an enormous opportunity for us going forward.

Tien-Tsin Huang:

Thank you so much. Very strong broad-based results, which is what I want to ask about. With you far exceeding your revenue outlook, it looks like the client incentive planned is at the very low end of your expectations. So I just want to make sure I understand the relative performance there between the 2. Is it something that the upside and revenue brings with it very little incentive pressure? Or is it more complicated than that?

Al Kelly:

The only thing I would add, Tien-Tsin, you followed us for a while. I mean there's art and science to this, in forecasting. And a lot of times, just dealing with the timing point that Vasant was talking about, we make assumptions about when deals will get done. We then make assumptions about how long it will take to get a deal launched or get a migration going and then we make assumptions about the performance of that deal. And the odds of us getting all of that right across hundreds of deals that happened during the course of the year. make this not the easiest thing to always forecast. But I think we do a largely good job, but the explanation that Vasant gave about why we came in at the low end this quarter is those main 2 factors of timing and mix, driven by outperformance across the border.

Sanjay Sakhrani:

Vasant, you spoke to the 4 percentage point impact in the second half from Russia. And obviously, it seems like you're able to overcome some of that with the stronger cross-border trends. Maybe you could just parse through a little bit of the impact to EPS and the flow through for us? I know there's some expenses that you mentioned that can offset Russia, maybe just help us through that.

Sanjay Sakhrani:

Okay. Great. And you probably get more flow-through from the cross-border outperformance, correct?

Operator:

Our next question comes from Darrin Peller from Wolfe Research.

Al Kelly:

Well, I think the biggest thing, Darren, for me is we didn't take the last couple of years off in terms of going out and trying to convert business, sign fintechs, increase our business with traditional partners. We also have phenomenally grown our acceptance footprint in certain parts of the world. So there's actions that we have taken that -- you haven't seen the flow through because of the fact that the pandemic has, in many cases, suppressed spending. But as I think we come out of the pendent you'll see the flow-through of the various actions that we took. And then I think the pandemic itself has accelerated people's usage of card-not-present in e-commerce, and I think that's a sustaining model that's going to help drive growth on a going-forward basis as well. So I think we're going to see ourselves taking advantage of that. And then, certainly, we have continued to add use cases to things like Visa Direct. We've continued to build out our risk and identity tools. We've continued to grow our Visa consulting service. So I think that my view is that the market hasn't seen the flow-through of a lot of the investments -- the full flow through of a lot of the investments that we've made over the last 27 months-or-so when we've been operating in this kind of odd world driven by the pandemic. And I think that as we start to come into a more normal environment, I think you're going to see it. So that's the biggest factor. Vasant, do you want to address Darren's first question on I guess it was Russia?

Operator:

Our next question comes from Ashwin Shirvaikar from Citi.

Al Kelly:

Well, thank you. Just as a reminder for everybody, I highlighted Tink in my remarks, but I didn't talk about the fact that it's got thousands of developers on the other side of the 3,400 banks that I did cite. And today, it operates in 18 markets across Europe. Its revenue model is largely a per API call, although there are some subscription basis on some of its value-added services. Our goal is to position ourselves in the middle of open banking in a place -- in a world where it's most advanced, which is Europe. And we believe that our complementary capabilities will help drive adoption of Tink's capabilities and provide incremental value to clients. Clearly, our -- maybe not clearly, but I'll make it clear. Our focus initially is going to be on Europe. That's where Tink is strong, that's where it's got a large presence, and that's where we could -- we think that we could be additive in terms of driving their business forward. But certainly, we will -- we anticipate and anticipated when we looked at Tink and made the decision to buy it, that we will leverage its capabilities and extended their capabilities to other markets. But we want to make sure that our investment is focused. We never like to kind of peanut our investment across too many places at one time. So it's better, we think, to perfect our partnership together in the place where we both have strength, which is Europe, and we'll go from there.

Jason Kupferberg:

So I was just curious, for the quarter itself here in Q2, I think you would expected net revenue growth to be at the high end of high teens. Obviously, that was before the war started. You ended up in the mid-20s. So I'm just curious in terms of order of magnitude, like which revenue lines really surprised you the most to the upside? To what extent was inflation a meaningful contributor? And then it sounded like maybe you pulled forward some Russia service revenue, I think Vasant you made a comment there. I was hoping you could maybe quantify that piece as well.

Operator:

Our next question comes from Bob Napoli with William Blair.

Al Kelly:

Well, Bob, I'll start and Vasant can add any color he wants. We still have a stated preference for whatever we could do ourselves to do it ourselves. That said, we have a very robust and qualified corporate development function that looks at all kinds of various possibilities. And we're in constant review of various lists to determine what might be of interest and what might not be of interest. Will we can do it faster and get people who have unique skills that we might not have, and we could build that -- it's just much faster than building the capability ourselves, we'll certainly look to buy. And without getting too specific, I think that continuing to grow our toolbox as it relates to new flows and value-added services and things that would help us do that would be certainly areas that would be attractive to us. I probably wouldn't want to say more than that at this point. The only other thing I'd say is that we're really not -- we don't really look to be an active venture investor. Many of our -- and most of our investments or things where we're following on a commercial agreement, and often, when we do a commercial agreement with a smaller player, they ask us for us to endorse them a bit by making a small investment so they can add up to the roster of players that are investors in their company. But we're not out there speculating and looking for just venture investments where the vast majority of them, and Vasant can add or delete, almost 100% of them are because we've got a commercial deal in place first, that's the most important aspect to us. Vasant, anything you want to add?

Operator:

Our next question comes from Timothy Chiodo with Credit Suisse.

Al Kelly:

The -- for competitive reasons, I'd be reluctant to get too into the weeds on this. But obviously, our biggest market is the United States. Russia was our second largest market. And then there's a number of markets across the world that are maybe a half dozen to 10 that are somewhat together in terms of size that they represent. And our focus at this stage is to

Vasant Prabhu:

Yes. It's part of our network or network's approach. So we're network agnostic and acquisitions like YellowPepper and what we did with Earthport are the kinds of capabilities that allow us to send to any credential, including a bank account as part of -- we'll get your money there and part of the way maybe on the rail that's not ours.

James Faucette:

I appreciate all the details and color. Wanted to -- gotten a few questions from investors, just around the impact that inflation may be having. And A, can you help quantify it? Maybe how that's benefiting Visa? But also and maybe more importantly, can you talk about if you're seeing any shift in spending behavior by consumers and that mix between discretionary and nondiscretionary spend. And if that has any impact at all on how you're formulating your outlook.

Vasant Prabhu:

Yes. Just to add to what Al said, I mean we clearly have seen -- we've seen ticket sizes go up in the U.S., in particular, in Europe, but it's not all inflation. Some of it is mix. It's mix driven by the fact that the card-present transactions, which often tend to be smaller transactions, have not yet fully come back. It's mix also because e-commerce transactions, even when you do everyday purchases, can be larger ticket sizes. We could even see ticket sizes go down in inflationary times as card-present comes back. So as Al said, there's multiple impacts from inflation. Net-net, it's a positive for us. We have not seen any impact on discretionary spending that we can discern. If anything, discretionary spending, especially from affluent consumers and credit cardholders has been going up quite healthily. So in general, there isn't any evidence impact -- evident impact on inflation, but obviously, we'll keep looking for it.

Operator:

Our final question comes from Jamie Friedman with Susquehanna.

Vasant Prabhu:

Yes. So we talk about cross-border travel ex intra-Europe, and we are now expecting, given where it ended the second quarter to be at or about likely 2019 by the end of our fiscal year. And you’re absolutely right, the last time we talked to you, we said we'd probably be around 90%. We're running better than we expected so far, so we've definitely raised our view of that. Now inclusive of intra-Europe, that would put us above 2019 levels by the end of our fiscal year. So yes, I think you got it right.

Operator:

Thanks for your participation in today's conference. You may disconnect at this time.

Operator:

Welcome to Visa's Fiscal First Quarter 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 conference over to your host from Investor Relations, Ms. Jennifer Como; and Mr. Mike Milotich. Ms. Como, you may begin.

Al Kelly:

Jennifer, thank you, and good afternoon to everybody, and thanks for joining us. Amidst much uncertainty this quarter resulting from the ongoing COVID pandemic. Visa's financial performance was very strong. Our net revenues grew 24% year-over-year. Non-GAAP EPS was $1.81, up 27%. And our financial performance was driven by record volumes, transactions and credentials. In Q1, we crossed the $60 billion payment transaction mark for the first time in history, up 26% from two years ago. Visa cards were used 28 million times per hour in the last quarter. And we also increased our card credentials to over $3.8 billion, up 10% in one year. I'm going to leave the rest of the details to Vasant as I want to focus on the future. As we look ahead, we expect accelerated revenue growth versus pre-COVID over the coming years, driven by our three strategic levers of consumer payments, new flows and value-added services. Many current trends in payments, including A2A, RTP, Buy Now, Pay Later, crypto and wallets are enabling new ways to pay. These represent opportunities for Visa, where we are extraordinarily well positioned to utilize our unique strength and global network to help them grow and scale. Let me start by talking about consumer payments. The opportunity to displace cash and check is enormous. At our last Investor Day, we said it was $18 trillion. In Q1, we saw our debit cash volumes at Visa growth 6% while debit payment volumes grew 19%. While cash displacement is certainly a reality, global personal consumption expenditure of cash and check grew at a CAGR of 2% over the 10 years ending in 2019. When we look at the opportunity ahead, if you assume global cash grows at 1% annually, industry-wide digital penetration of personal consumption expenditure when it reached 90% for several decades. For example, in Latin America, until a few quarters ago, there was more cash volume than payments volume on Visa credentials. In fact, in the past year, there has been a nearly 6.5 point shift and payments volume is now 55% of the total volume, even with cash in Latin America growing 10% this past quarter. We have expanded acceptance locations in Latin America by almost 30% in the past year to 18.5 million locations, and we've grown credentials over 20%. This quarter, we signed an eight-year agreement with Santander Chile, one of the largest issuers in the country. And in Brazil, we recently signed a deal with Banco XP, one of the country's largest digital banks with over 3 million customers. Brazil remains a growth market with payments volume growth up more than 1.5x historic levels in recent quarters. The key to digitizing cash is that the on-ramps to our network have never been easier to access. Wallet providers have been rapidly issuing Visa credentials as they see value in an open-loop ecosystem. Naranja X is a rapidly growing Argentinian wallet using Visa cards with 2 million credentials issued between prepaid and debit over the last two years. This quarter, we renewed our partnership with PayPay Bank, which enables accounts to PayPay wallet users. PayPay is one of the fastest-growing digital wallets in Japan with 42 million users and the bank already has 4 million Visa debit users. We recently extended our partnership with Safaricom, the operator of M-PESA to cover African markets outside of Kenya, where M-PESA has 50 million customers. We're also providing on-ramps for crypto players creating connectivity with fiat economies. There are over 65 crypto platforms and exchanges that have partnered to issue Visa credentials. This quarter, Visa credentials and crypto wallets had more than $2.5 billion in payments volume, which is already 70% of the payments volume for all of fiscal 2021. In addition to embedding credentials and crypto platforms, we continue to innovate around our settlement and crypto API capabilities, which have been key differentiators for us for fintechs and financial institutions that are looking to extend crypto capabilities to their customers. We will continue to lean into the crypto space. And our strategy is to be a key partner to provide the connectivity, scale, consumer value propositions, reliability and security that is needed for crypto offerings to grow. Earlier this month, we previewed CBDC payment APIs currently in development, which would enable central banks to connect their Ethereum-based CBDCs with Visa rails through a wallet with digital issuance capabilities, enabling consumers to spend with CBDCs at any Visa merchant. We partnered with Consensus to develop this concept, which was selected as one of the winning entries out of 300 ideas from 50 countries at the global CBDC challenge as part of the Singapore FinTech Festival judged by representatives from the IMF, the World Bank, the Bank of International Settlements and the central banks of Brazil, India, Kenya and Indonesia. In the face-to-face world, tap to pay continues to accelerate growth. Let me highlight progress in a few larger markets. In Brazil, the tap to pay penetration has increased from 5% to 24% in the past year. In India, where we have increased merchant locations 30% since fiscal year 2019 to $6 million at the end of fiscal year '21, the tap to pay penetration has nearly doubled to 16% in the same period. And all of these efforts have helped to fuel our 40%-plus year-over-year growth rate in payments volume in India this past quarter. In the United States, we're nearing 20% tap to pay penetration with key metro cities showing even stronger growth

Mike Milotich:

Thank you, Vasant. We're now ready to take questions.

Darrin Peller:

Nice job. Al, can you start off by revisiting what you see as the key sustainable factors that's probably accelerated somewhat as the pandemic progressed? Whether that's services or it's just volume generally having shifted over faster? And then I guess on that note, as we get cross-border improving, you should get a pretty big pass-through to the bottom line. I'm just curious, your thought process around the potential for reinvestment versus rewarding shareholders?

Vasant Prabhu:

Yes. I mean going back to your question about shareholders and returning cash to shareholders, we did step up our dividend. It's $1.50 per quarter now. We did that last quarter. And then as you saw, we accelerated our stock buybacks. Our stock buyback is programmatic, but when we see opportunities, we step it up. And clearly, our cash flows are better. We felt there was an opportunity and we stepped up. As Al said, I mean our first priority is investing in our core business. There's plenty of opportunity here for growth. Second would be acquisitions that enhance our capabilities like Currencycloud and hopefully soon we close on Tink. And then, of course, we've always been returning cash to shareholders, most of our free cash flow in the form of dividends and buybacks.

Rayna Kumar:

So as you both highlighted your debit volume remains very strong. Can you discuss how much of that strength is coming from Visa Direct and how sustainable that growth is in '22, of course, excluding the second quarter comp issue with the government stimulus?

Operator:

Our next question comes from Harshita Rawat from Bernstein. Your line is open.