VISA

Visa CEO On Europe, Partnerships And Going Cashless

According to CEO Alfred Kelly, Visa ended its financial year as it began, “with strong growth across payments volume, cross-border volume and processed transactions, which was bolstered by the addition of Visa Europe.” That sent Visa’s stock price up 2 percent, to a record high of $110.61.

The headline was, of course, the marked increase in payment volume of nearly 10 percent (9.8 percent) to $1.93 trillion, on a constant dollar basis. The U.S. is about 43 percent of the total. The forecast for 2018 is for continued high single-digit growth in 2018.

Earnings were up 11 percent to $2.14 billion for the quarter that ended September 30, beating analyst’s estimates for the eighth straight quarter. Total operating revenue rose 14 percent to $4.86 billion, beating estimates for the fifth straight quarter, reflecting growth in payment volumes and processed transactions.

Cross-border volume was also strong, showing an increase of 10 percent on a constant dollar basis. All in all, Visa’s stock price was up 37.6 percent this year as of Tuesday’s close, more than double the18 percent growth of the Dow.

“Overall, we see trends as sound, and while some may see net revenue guidance as light, we see another year of strong growth,” Barclays said in a note.

The Bigger Vision

The end of Visa’s fiscal year also marked close to Kelly’s first full year as CEO. He told analysts on the call that his first year in the role was marked by the ability of Visa to execute its operating plan “guided by our strategic pillars.”

In particular, Kelly highlighted a number of strategic partnerships that Visa has forged over the last year, including the expansion of Visa’s PayPal partnership into South Asia and Europe, the national rollout of local card-linked offers with Uber, new issuer relationships with USAA and Costco, B2B bill pay with Billtrust, contactless payments within Fitbit and Garmin wearables, and Marqeta for instant digital issuance that’s now powering a number of new use cases, including POS installment loans with alt lender, Affirm.

Kelly also highlighted a number of new solutions that leverage Visa’s card rails and that are getting traction. Visa Direct, Visa’s digital disbursements solution, saw volumes increase by 75 percent over last year, driven by push payment demand from the U.S. and CEMEA regions. Visa ID Intelligence, an ecosystem of authentication solutions, enables the easy and interoperable integration of a portfolio of digital identity solutions provided by Visa vetted partners.

On the digital product side, Kelly mentioned the launch of the mVisa mobile solution in Kenya and Nigeria as an example of solutions that Visa is bringing to market in developing economies. He also pointed out that developed market solutions, such as Visa Checkout and Visa Token Service, are starting to take hold in developed countries, although he noted that “it is still early innings.”

Kelly also offered a glimpse of insight into the 2018 vision: aggressive investment aimed at “driving greater and faster adoption of our digital solutions, expanding Visa Direct, extending acceptance around the world, driving cross-border growth and advancing Open VisaNet.”

The Global Picture

Much of the focus of the investor Q&A was focused on Visa’s $2.3 billion acquisition and subsequent integration of Visa Europe, a topic that Kelly acknowledged has been top-of-mind for many since the deal was announced in November of 2015 and closed in June of 2016.

“The overall headline is that we are pleased with the progress and running well ahead of where we thought we would be,” Kelly remarked, adding that the strategy is both consistent with Visa’s global direction and tailored to the European market.

It’s also an environment marked by a number of regulatory changes, including matters relating to consumer data privacy, security and access by licensed third parties to bank assets and infrastructure. While acknowledging that the “use cases” for the implementation of these changes are not at all clear, Kelly emphasized the importance of having an “open dialogue” with the regulators while working with Visa issuers and acquirers to navigate the landscape, assure safety and soundness in an open banking world and maximize the opportunities to create “win-win” opportunities for all.

And much of that win-win, Kelly also emphasized, will be found within the great potential he sees in the “market diversity” in Europe with economics that are both cash-based and near-cashless.  He did, however, acknowledge competition in these markets for direct-to-bank solutions.

“We’re going to have to make sure that we have strong offerings in credit as well as debit,” Kelly offered in response to an analyst’s question, suggesting that Visa will create value propositions that are both differentiated and relevant.

When asked specifically about the potential threat of Alipay and WeChat Pay to Visa’s ability to make a digital dent in the emerging markets in which they are expanding, Kelly suggested that it is something that he and his team are closely watching.

“While we just talked about very, very strong results in FY 2017, I can tell you that we are really laser-focused on the future and the fact that there are disruptive forces in the marketplace,” he said. “We’re going to do everything we can to make sure that we remain a key player at the focal point of the payments ecosystem,” adding that the best thing Visa can do now is get back to work.

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