Visa Inc. (NYSE:V) Bank of America Securities 2020 Global Technology Conference June 2, 2020 5:30 PM ET
Jack Forestell – Chief Product Officer
Conference Call Participants
Jason Kupferberg – Bank of America
Hello everybody. I’m Jason Kupferberg, the payment processes processors and IP services analysts here at Bank of America and we’re very excited to have Visa with us today. Specifically, we had Jack Forestell, who is Chief Product Officer at the company. Jack, thanks very much for joining us. We appreciate it.
Thanks for having me, Jason. Hello, everybody.
So Visa has been very good about providing some regular updates on key metrics amid this macro backdrop and obviously, we saw the latest updates that you disclosed last night. So I thought just to start maybe for those who might have missed some of the details. Can you just give us kind of the highlights for the month of May, and maybe talk a little bit about some of the growth rate that you saw as you actually exited the month and perhaps a little bit of color on the types of transactions that have been driving some of the reacceleration?
Yes, I’d be happy to, Jason. And look where, I know I am we are, Visa is spending a ton of time pouring over the numbers. There’s so much going on, so many moving pieces by individual country by market, by vertical, by channel, by day, by week. So we know you guys are as scares as we are so we thought we would try and package up May and get that out there and how do we do that in advance of today’s conversation. So hopefully people had a chance to see some of it so why don’t we just dig in. So maybe starting with the U.S. in payments volume overall spending declined in May by 5% on a year-on-year basis. Though May was actually 13 percentage points better than April, and we saw pretty steady improvement in spending week over week and we’ve seen that happening since mid-April.
Another big thing we’ve seen is a real debit credit mix shift. Debit continued to significantly outperform credit that would had positive year-over-year growth and has had since late April. It grew 12% in the month of May. Credit also improved from April to May by 9 percentage points, by the way I can’t believe that I’ve seen percentage points and all these things month to month, I mean we’re used to talking little more. But credit improved in May by 9 percentage points but it’s still down year-on-year 21%.
And there shouldn’t be any big surprise there, debit outperforming credit, we’ve seen it before, people tend to want to rely on their own funds in tougher times, especially when it comes to purchases for essentials. And we’ve definitely seen a mix shift away from more discretionary items where consumers are more likely to turn to credit. But look when we look across different verticals and different ticket size bands, in almost every case, the larger share outstanding is now on debit and pre crisis, even as I said for some of the higher ticket stuff, which people may find surprising.
Turning outside of the U.S. for most of Europe and then handful countries like Australia, Canada, Japan, we’ve seen pretty similar performance to what we’ve seen in the U.S. I mean there’s the cycle of the crisis so far has been pretty similar across most of those markets, different levels, there’s different degrees of stringency on lockdowns in different places that driven different rates of drop offs. And so if you adjust for that in those markets that I just listed, we’ve seen similar patterns of relative improvement. We also have seen kind of a consistent approach to stimulus in those markets, which we think is a big factor in some of the bounce back that we’re seeing.
We definitely have markets where strong restrictions got put in place, we saw big drops in spend, and we’re just seeing flat at bottom. India is a good example of that. Singapore, which initially was doing pretty well, but then had a sort of second wave of the virus and instituted some pretty severe lockdown in position is also in that kind of hard down and sort of flat. We’ve also seen some of our larger markets have really positive year-over-year growth, especially May as things starting to open up more.
New Zealand, Denmark and Chile, have all done really well. New Zealand is a particularly interesting example. New Zealand is limited in really tight restrictions, saw pretty sharp drop in spends earlier in the crisis, largely eradicated knock on wood the virus and was able to open all the way up to sort of level to opening mid-May. In the New Zealand in our numbers we saw a pretty dramatic shift relatively quickly in consumers getting back out in face-to-face while doing transactions, actually saw growth pop by 60 percentage points. And so far has remained exactly, as like I said, I have to stop myself at a few times here and say did I really mean percentage points? Yes, I really mean percentage points, and it kind of at that level so far.
So if look at the whole world, process transactions declined 12% in May, which is actually 12 percentage points better than April. Let’s see what else can I tell you. Since April, we’ve seen elevated average ticket sizes and that’s sort of a reflection of a few things. We’re certainly seeing people buy more on a single shopping trip. I’m sure many of you listening that resonates, if you’re in a certain place so if you get to the grocery store and buy as much as you can to last a little while so you don’t have to go back again.
So we’re definitely seeing that show up in ticket sizes. And we’re also seeing a change in mix to spending that people are staying home. So they’re not bouncing around from the coffee shop without low ticket purchase to buying the lunch whether at the office, such as low ticket purchased to tapping to pay for their commute or paying for the commute. So meaning all that is driving some degree of elevation in average ticket sizes for the time being.
My single comment on is cross border. So if we look at constant dollar cross border spend stripping out transactions within Europe, those transactions shrunk by 45% in May, which is about 6% improvement from April. The overall constant dollar cross border volume for Visa, by the way declined 35%, which is 10 percentage points better than the volume excluding intra Europe, so it’s a reasonable significant difference. But the reason we wanted to split that out is our international fee revenues really driven by the volume, excluding those intra European transactions. So those the numbers we thought you’d most really want to track.
And so sticking with those numbers, excluding the intra-European transactions, it’s a little more detail in there. We’ve seen travel related spends remain really weak, shrank [7% to 8%] in May and very little improvement from April. And then if you’re thinking about travel within that perhaps not surprisingly, just not a lot of activity on long haul trips, and not a ton of short trips either but maybe a little bit more than long haul. And then again inside of cross border card in our present spends, we saw that increased relatively early in the crisis and it’s sort of maintained that level throughout May. It’s up about 18% year on year, mostly driven by retail.
So sorry if that was a bit long, I think because I see a lot more than in the 8-K than I covered there. Those are some of the highlights that I thought might be most top of mind for people.
Yes, no, super helpful. And maybe we can talk about card not present just overall as kind of on a category for a second. Obviously COVID has been stimulating a shift in that direction. Curious if you’ve seen any reversal in those ecommerce behaviors and [technical difficulty] fees that were earliest to start reopening. I thought it was interesting in the data you released last night that card not present ex-travel actually seems to be accelerating in recent weeks.
Yes, it’s really interesting things going on. Let’s give you some numbers. First, let me talk a little bit about what’s happening. So we saw card not present, excluding travel growth pop early on, and it’s really remained there consistently. I’m talking in the U.S. right now, about 30% of, well, card present spending at the same time improved in April, it was down almost, in May over April, is down with 50% down year-over-year in April, actually in the mid-20s. So you sort of see as you imagine the graph, the card not present stuff popped up 30%, stayed up there. The card present stuff dropped 50 and it’s now kind of climbed back up to 20. So the big question is what are we going to see in terms of that as a acceleration in a secular consumer shift in behavior away from the face to face card present transactions. And there I would just say, it is just way too early to say. I anticipate there will be some degree of acceleration there. I also anticipate we’ll see a little bit of a shift back to normal as things start to open up. Yes, so, you go ahead Jason.
Yes, now that all make sense. So maybe we can zoom out a little bit now and just reflect back on your Analyst Day, which is amazing. I though it was only four months ago, it feels more like four years. But there was some very important growth initiatives highlighted at that meeting. I was hoping you could just walk us through how Visa’s network of network strategy has evolved over the past year or so, where do you see the greatest opportunities to expand your addressable market beyond that?
Yes, and I agree that Investor Day was actually just a few weeks before this crisis really started and it feels like it was years before that.
But we talked at that Investor Day our strategy has really evolved from facilitating commerce to facilitating and enhancing all forms in money movement. So we’re enabling the movement of money for everyone everywhere and really want to be a single point of connection for any kind of transaction on the Visa network and beyond the Visa network. So that’s kind of in a really short form what our network to network strategy is all about.
I’d say that the way we’re delivering on it is, by building and assembling a set of assets that enable us to do three or four things one, move money to any endpoint and to all form factors to be able to push money out to anywhere, any bank account endpoints, any card confidential endpoint and really any form factor. We want to be able to provide a single point of connection to all available networks for our partners. We want to leverage our sort of world leading Visa settlement service to facilitate liquidity and guaranteed payment for our partners. And then if I were to add a fourth, I’d say, we’re going to provide any set of value added services across all Visa transactions, no matter what the underlying rail is that’s being used to switch the transactions.
So sort of going from that articulation of the network to network strategy to the sort of our broader growth strategy, which has three pieces and the three pieces are expanding consumer payments, penetrating new payment flows and delivering value on services. If you remember at Investor Day it was was sort of structured around those three themes. The network to network strategy actually plays in all of them. If you think about in consumer payment, it’s about core Visa switch transactions on our proprietary networks VisaNet, Interlink, Plus.
In new flows, we drive a wide range of low ticket high velocity use cases through Visa Direct, which can use a combination of VisaNet and Earthport, which we’ve added into the Visa family. Earthport has direct ACH and RTT connections to 88 countries, so you can get an account for account payments just pretty much any endpoint on Earth at this stage. And then for higher ticket lower velocity transactions between businesses, we’re focused on the cross border side of that and scaling our B2B connect platform, a whole new network that connects banks globally to enable cross border payments.
And then lastly on value added services, like I said, that’s about offering a set of capabilities that really can differentiate Visa transactions, even when those transactions aren’t switched on our own rails. So think about things like tokenization, dispute, resolution, fraud scoring, payer authentication, we can deliver all of those obviously over Visa transactions but increasingly over as actually better switched across a different rail [multiple speakers] with the acquisition of Plaid our network to network, so I think it’s going to expand even more. Plaid itself is a network connecting financial institutions and app developers and in of itself represents an opportunity to sort of expand the scope and reach of our whole network to networks model so we’re pretty excited about it.
For sure. So I wanted to come back, you mentioned B2B in the last answer, and I wanted to get a little deeper on that topic. Maybe just to start there. Can you talk about to what extent COVID might be having either a positive or a negative impact on the pace on some of these initiatives?
Yes, look I think it’s been a theme of the day and in some of our conversations, it’s a little early to say how exactly COVID is going to impact B2B space, certainly T&E has been hit substantially and we aren’t expecting any return to normal in corporate T&E until likely there’s a vaccine and even with one. We think most businesses are going to really think differently about how business travel look. So there’s probably some long term impact there but we just don’t know what it looks like yet.
In the sort of accounts receivable accounts payable space, we certainly saw some initial contraction caused by supply chain disruptions, but there we kind of expecting to more or less return to normal. A third area that we focus on in the B2B space is cross border B2B transactions. There, we don’t really see that much of an impact. And I know we already mentioned our own cross border face to face business and certainly in cross border travel space face is impacted, but here we’re talking about enterprise level transactions across large businesses, we never really see much of a long-term effect there either.
Look the bottom line is I think businesses are going to be looking to gain efficiencies over the short to medium term. And whether it’s the carded B2B space, or the cross border B2B enterprise payment space or the domestic accounts receivable, accounts payable space, I think our solutions have the promise and the opportunity to deliver efficiencies for our partners across the board. So on balance, I think, there will be some long-term tailwinds here.
Sure. And I’m curious just to get your perspective on how you see Visa’s overall B2B product portfolio being differentiated in the marketplace?
Yes, let me tell you the three things I was just kind of alluding to this card-based component of the market, the cross border piece that we’re focused on and then the domestic accounts receivable account payable space. In card, we are the market leader and we do over a trillion dollars worth of volume. We offer unprecedented scale and breadth of product in core key procurement and virtual card, as well as reconciliation and data capability. So, we’ve got the full suite of products and we’re continuing to invest more to enhance and support them, extend our capabilities in virtual fleet and governance payments. So, we feel like we’re pretty differentiated in the card space and in a great spot.
In the cross border B2B space, we just launched a brand new network, B2B Connect, which is a multilateral real time network to get funds from one entity in one country to another entity in another country. In today’s world of cross border B2B payments, it’s a complex and multistep linear corresponding process that could really take a lot of time and carry a lot of uncertainty. So we really like and have met with a lot of positive receptivity on B2B connects in the short term. But it’s a new network and new networks always have a chicken and egg, so we’re working hard to scale it. We got great partners on board. We can reach 70 countries already. We think we’ll add another 30 over the next 18 to 24 months and hopefully, get the platform to scale by 2022.
But in that space, there really isn’t anything like B2B Connect out there. And then lastly in the accounts receivable and accounts payable space, we’re trying out some different things. Where we’re relying on virtual card wear, we’re working with a few different partners like PayMate in India and Billtrust here to work with them to build platforms there. But really we’re still in the process of mapping out exactly what the key pain points are and how we can best help build solutions that are differentiated and unique for Visa.
Great, appreciate that. So as we were talking about before, ecommerce is a clear beneficiary from COVID. So it might be a good opportunity for you to give us an update on click to pay. Curious if you’ve seen a ramp in merchant acceptance given the recent shifts in consumers spending online or are you seeing merchants just be a bit too distracted by the crisis to focus on making changes to their checkout experience?
Yes, I think the first thing I’d say, Jason, is that digital commerce experience, it’s too complicated. It’s too complicated for consumers. It results in too many bad outcomes, high shopping cart abandonment, too many failed transactions too much fraud. And the click to pay solution is really designed to streamline the whole consumer experience by offering a stronger security tokenization, improved transaction success rate and ultimately, better outcomes for the consumer and more sales on the merchant side.
So look in the near-term, I’m not sure it’s a matter of distraction on the part of sellers with respect to click to pay. Our approach with click to pay was really to get a handful of merchants up on the platform prior to the holiday season. We did that successfully and then we started turning our attention to a more scaled conversion of our pre-existing Visa checkout solution into click to pay. At the end of our second quarter, we now have 10,000 merchants enabled, that’s up from over 5,000 at the end of the first quarter. So we’ve been focused on getting that migrations done we’ve been able to do that in ways that that are really low impact for those merchants.
So like I said, I’m not sure it’s a matter of distraction or priority. I think we’re seeing that those merchants just happy to get that more streamlined efficient solution in place. And now we’re starting to turn our attention more toward working with partners to scale that out, really get the mid to long tail merchants up and running and to start to take it outside of the initial geographic deployment here in the U.S.
So thinking back to the last earnings call, you announced that you’ve extended and expanded your relationship with Truist. Wondering if you can give us a little bit more color on which parts of this are extensions versus new business, why you think Visa won those pieces of incremental business?
Yes. In terms of why did we win, I think we kind of need to ask Truist. But in general I mean the thing I’d say when we win a deal, it is about a whole package, it’s rarely about price and much more about the brand. It’s about our products. It’s about our people. It’s about the work we’ll do. It’s about the solutions and the thinking that we put in the process. I want to emphasize the point about the strength of the brand, because as everyone knows the brand well, but I’m not sure we emphasize the point and now it looks like any measure. Our brand is among the top global brands, not just in the payment space or broader financial space, we just flat out top level brands. We’re proud of it but we’re also really focused on the tangible value that our brand can generate for our clients. And it really is and we demonstrated with the facts and with the numbers through meaningfully higher consumer preference for our brand that consequently turns into higher levels of spend and engagement.
So there’s nothing specific to Truist here but that’s certainly a key ingredient. When it comes to our products and our people, look, I think we have the best lines in payment, we put those lines to work alongside our clients to help drive their business forward. We do joint solution design and we pull things together across risk and digital marketing, the portfolio analytics, loyalty, digital solutions and so much more, to develop solutions with our clients that drive real growth for them. So I mean, that’s how things come together to create an outcome like the one that we’re so happy to have created with Truist.
So when the incremental business that you’ve won there clips to Visa will that be a big bang or will that just be as the card expire? And I’m just curious once this conversion is complete, does this move the needle on your overall U.S. volumes?
Well, in the last part of your question, look, there it’s a marquee deal for us we’re really excited about, super important to us on the first part of the question. Now when you really do need to ask to Truist. I mean, the Truist leadership team is focused on delivering a larger scale integration of BB&T and SunTrust and those brands and its operations. So, we’re just here to help them deliver that in a way that they see fit along their own timeframe. So however that turns out, we’re going to be, we are and we’re going to be incredibly excited to be a part of it.
Yes, fair enough. So let’s talk a little bit about contactless, as you guys like to call it, tap to pay. We’ve got a report on this yesterday, just the expectation that there’ll be some acceleration in this direction, because of hygiene concerns related to COVID. So wanted to get your perspective to the extent that this dynamic does play out. How much of it do you think will represent an outright displacement of cash versus consumers just switching from a non contactless card to a contactless card, or to a mobile wallet like Apple Pay?
Yes, look there’s certainly movement happening here. We can see it in our own numbers. I actually see it in my text messages. I have had so many people take pictures sales from around the world where sellers have put together signage that says please use contactless. And I’ve often actually got those pictures back to the team and said, hey, what’s happened and the whole, when merchants put up that little bit of encouragement, we start to see the contactless transaction rates popping. And look from a consumer behavioral standpoint, one of the things I think is happening here is that the virus is helping really accelerate the trial repeat purchase cycle of a consumer product. So if you think of contactless transaction, like a consumer product, you got to get people to try it and then you got to get them to repeat it.
And with a product like this one where you got to try it in physical space with other people around, there’s someone on the other side of the checkouts, there’s people behind you in line. There’s a little bit of apprehension there. Sometimes people think will it work? Will I know how to do it? What if the person behind me gets mad? Another thing to I think a real worry to take certainly loom over it and so I think you can get caused the adoption cycle to be a little bit slower. I think what’s happening here is those apprehensions are just being obliterated by COVID. I actually have heard stories of other shoppers kind of pointing out to people that they could use contactless, because their cards has been enabled.
So I think we’re really seeing a big shift on the consumer side toward it, people want it, the demand is there, we’re seeing a shift on the seller side. And the shift in the demand side is helping drive supply. So, issuers are delivering more contactless cards. In U.S. where we got more than 190 million cards now, nine of the top 10 issuers issuing them but we need more. We do have 900 million cards in the U.S., so we still have a long way to go. But I’m hopeful that the demand for the experience will help accelerate it. In U.S. it’s one of the markets in the world where we’re still at a pretty early stage. In countries that have more penetrated contactless card bases, we’re also seeing big increases in cash displacement. As at the end of April, we had received more than 50 countries that have 50% or more tap to pay penetration up from 30 a year ago. And we’re now at 12 countries where it’s more than 90% and a year ago at the time we only had three.
So you can just see it and then you’re asking a little bit about how do we know about how much cash is getting displaced by those transactions and really see the cash side, so it’s hard for us to do the calculus on that. That said, we like both the cash displacement and the migration from
a chip or [mag swipe] transaction over to contactless, because using contactless is just a better experience. I mean instead of a non-contactless transaction it’s creating a situation to a better experience, which leads to more cash displacement because it gets used more frequently and more everyday transactions and just off overall contributes to a stronger relationship with the product overall.
Yes, make sense. I wanted to also ask you a little bit about some international partnerships that were highlighted on the last earnings call. Paytm, Tencent, Safaricom. Can you maybe just make a couple of brief comments about the significance of each of those, and any sort of timeframe when you think they could start showing up more notably in volumes?
Yes, I mean, I’m like super excited about all three of those. I mentioned our network to network strategy. There are components there about driving growth in core consumer payments, but also penetrating new flows and getting to new endpoints. And all three of these contribute I think in meaningful ways to do that. So let me let me just try to think through them quickly. Paytm in India, I mean those guys are a juggernaut. They’ve grown massively over the last few years, more than 500 million users 16 million sellers in a closed loop network. But what we’re doing with them is helping them embed a visa credential into the Paytm wallet. When you think about it that wallet then becomes more valuable to the Paytm user, because they can use it anywhere Visa is accepted physically or online and Paytm can generate issuer type revenues from that product add.
On the merchant side, they’re enabling their sellers to accept Visa, so their sellers can attract a different more affluent client base and Paytm can generate a acquirer type revenue stream. So it’s like a win, win, win for Visa, for Paytm, and for Paytm’s users on both the consumer and seller side. With Tencent, we signed a partnership with them, their parent as you all well know of WeChat, which is a platform with more than a billion monthly active users on it. In this case, we’re going to enable a Visa credential to be embedded into WeChat Wallet for Chinese tourists to use at Visa acceptance points as they travel around the world and want to tap to pay or when Chinese consumer shopping online with merchants outside of China. And cross border outbound Chinese volume is very important to us so we’re really excited about the partnership. It’s a first of its kind for WeChat and for us.
Then the last one you mentioned was Safaricom, largest telco operator in Kenya and big provider of financial services through their M-Pesa platform. They have 24 million M-Pesa users. 173,000 M-Pesa of merchants. And this one is sort of a little bit similar to Paytm partnership where we’ll put them on the wallet side to expand cashless and remote payments to a huge number of merchants and consumers. So I think you also then ask that when will it show up. Look, it’s going to take time for these things. So there’s usually a lag from the time we announced the deal until we got all solutions done, we got things lit up, fully tested and then scaled.
So it could be a little while, I don’t want to give you an exact timeframe. But I just want you back to this significance of the opportunity when you combine the three of them, it’s a billion and a half potential end user credentials and 65 million merchant locations. So we’re pretty excited about the scope of it overall.
Well, that’s great. And time has flown here and unfortunately, we are out of time. Really appreciate all of your thoughts and commentary, Jack. And thanks again for taking the time to join us. I hope you stay safe.
Thanks for having me, Jason. And thanks to everyone for joining. Take care.
Okay, talk soon. Take care bye-bye.
End of Q&A