Visa CEO On PayPal’s Future Threat

Visa was everywhere it wanted to be — except, maybe, in the U.S.

The California payments processing company put up numbers Thursday (July 23) night that showcased fiscal third quarter earnings that were up 25 percent, buoyed by a double-digit percentage gain in payments processed across its platform.

Earnings per share, adjusted for a tax benefit, were $0.74, handily topping the Street at $0.58, with revenues of $3.5 billion edging the consensus of $3.4 billion and nicely higher than last year’s $3.1 billion top line. As had been seen in previous periods, core results managed to overshadow a drag from foreign exchange rates, which represented a two-and-a-half-percentage-point headwind on the continued strength of the U.S. dollar and cross-border transactions, where the latter was up 8 percent in terms of growth (constant dollar basis).

Total transactions processed came in at 18 billion with a value of $1.2 trillion, with volume growing across the network year to year at 11 percent in the third quarter. And total cards issued on the network itself stood at 2.4 billion, up 7 percent from last year’s comparable period. The growth in total volume processed comes despite the two-percentage-point drag stemming from the loss in transactions done domestically in Russia, a byproduct of changes in that country’s national payment systems, and Visa now is processing only cross-border transactions related to the country.

But drilling a bit deeper into the numbers, things seem relatively slower in the U.S. Transactions in the States were up just under 9 percent in the period, year on year — nothing to sneeze at but sporting a bit slower growth than the overall network on a global basis.

The U.S. was in fact a call out during management’s commentary discussing the latest results. On the conference call with analysts following the earnings release after the stock markets had closed for the day, Charles Scharf, Visa’s chief executive officer, said Visa has seen what he termed “very little improvement with the U.S. consumer in our numbers thus far, if any.” “That may be a temporary lull,” said the executive, as “there are positive signs in employment and housing, lower gas prices should help, but we’ll have to wait and see."

Turning to the digital side of the business, management turned the spotlight onto Visa Checkout, which “continued to gain momentum.” “We have over 270 financial institution partners globally,” with over 160,000 merchants “currently live globally” and $50 billion in total addressable volume in 16 markets around the globe with recent markets having been established in China and New Zealand, among other places. Apple Pay is also seeing growth, though unquantified in the call.

And in reference to PayPal, newly independent management stated that there’s a relationship that stretches into the past, continues and does not necessarily change whether PayPal is owned by another company or standalone. Roughly half of transactions moving across PayPal are with general cards, of which Visa is again half, and that remains a big business. But the CEO also noted that PayPal uses Visa transactions as a vein to “mine from” and possibly disintermediate the relationship between Visa and clients and is something that is “not sustainable for the long term."

One bit of news — or perhaps non-news? — comes through the continued discussions with Visa Europe. Visa said last night it is in talks about combining the two companies, talks driven by “compelling logic … to consummate a business transaction.” As had been reported earlier this year, Visa had been looking over the idea of buying its former unit for as much as $20 billion, and talks in May had been rumored to have been in the early stages. Management said during discussion of its latest results last night that a decision could come as early as October.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 Pay Advances: The Gig Economy’s New Normal, a PYMNTS and Mastercard collaboration, examines pay advances – full or partial payments received before an ad hoc job is completed – including how gig workers currently use them and their potential for future adoption.



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