Visa B2B Biz Nears The Trillion-Dollar Mark

Visa earnings saw double-digit growth across key metrics — from cross-border volumes to debit and credit card spending — in its fiscal fourth quarter (Q4). However, even those growth rates were overshadowed by digital initiatives and growth in its B2B endeavors.

In terms of headline numbers, the company beat Wall Street expectations on the bottom line at $1.23 per Class A share, compared to estimates of $1.19, and adjusted revenues of $5.43 billion was slightly below the Street at $5.44 billion.

Supplemental materials from Visa showed that payments volume — which accounts for the dollar amount of transactions using Visa’s cards — was $2.1 trillion in the latest quarter. Growth was 11 percent in constant dollar terms, and international volumes were accounted for $1.2 trillion. Within the payments volume numbers, credit transactions were up 10 percent year over year in constant dollar terms to $1.2 trillion, while debit transactions gained at a 12 percent rate to $915 billion.

Client incentives came in at $1.5 billion for the quarter, up from $1.3 billion in the same period of 2017.

Delving Into The Business

Visa CEO Alfred Kelly said on the post release conference call with analysts that “all our key business drivers remained robust, despite the stronger dollar.” He noted of the aforementioned payments growth of 11 percent, which was in line with last quarter, that strength in the U.S. offset a slowdown in dual-branded card volume in China.

Looking back on the fiscal year (FY), Kelly said the number of cards — including virtual cards — increased by about 80 million to 3.3 billion. He noted that merchant locations increased by 7 million (15 percent), reaching a total of 54 million locations globally. In addition, for the year, new contracts with clients accounted for roughly 15 percent of the company’s total payments volume.

In FY 2019, he told analysts, new deals with clients should drive roughly 20 percent of global payments volume.

Initiatives Outside The US

Kelly called out a number of co-branded relationships beyond U.S. borders, with some higher-level activity viewed by region.

He noted that, in Europe, the technical migration to the global Visa Net platform was complete as of late September. “Our European clients now have access to all of our global capabilities,” he said, adding later on in the call that a Visa priority is to gain momentum with FinTech firms, where signings are gaining traction, as are agreements that have yet to be contracted.

In other remarks, Kelly turned attention to India and the data localization mandate. As of Oct. 15, he said, the company has begun storing data locally and has “submitted a detailed status and action plan” to the country’s central bank, including how the firm will rearchitect its existing global processing system to comply with what he termed as the “data only in India requirement.”

Growth In Visa Direct

Turning away from regional highlights toward network-specific growth via digital payments, Kelly explained that Visa Direct remains a key way for the firm to gain ground with new, incremental payment methods. “Global growth continued to be over 100 percent this quarter,” he told listeners on the call, fueled by increased activity by end users, “as well as continued expansion of our reach and our scale.” Throughout the fiscal year, the 2 billion-plus Visa debit credentials globally enabled the company to execute Visa Direct transactions across more than 150 countries.

“We are quickly increasing the number of issuers moving to real-time payments,” he said, with Spain and Ireland added in the quarter to over 70 countries that are fast-funds-enabled. Kelly noted that the company would look to access accounts not directly linked to Visa, and took note of the Plus Interbank ATM Network expansion during the quarter.

Visa Direct will also see broadened reach through use-case expansion, where the firm has gained ground in existing verticals, such as property and casualty insurance — a market ripe for real-time disbursements that represents $330 billion in claims payments, and where, in the U.S., 45 percent of those payments are done via check.

“There are also use cases that support the gig economy,” he said, where employees want access to wages as they are earned.

Kelly stated that this past week’s announcement of the tokenization of credentials on file via 20 partners was another leg of a digital strategy, with one key feature being the ability to push “dynamic updates” on lost, stolen or expired credentials to boost a “frictionless merchant and customer experience.” He said that, at present, there are 60 token requestors across 40 markets for the token platform.

Contactless payments continue to grow rapidly, said Kelly, as one in four domestic face-to-face transactions that run over the global Visa network are now contactless. Excluding the U.S., domestic contactless penetration is over 40 percent, which is up 12 percentage points year over year and four points since the third quarter of the current FY.

“More than 20 countries have increased their domestic contactless penetration by more than 20 points since last year,” Kelly said. One standout here has been Russia, which boosted its 38 percent penetration rate by over 50 percent through the last year.

All in all, over 70 of the top 100 merchants by transaction size now accept contactless payments, up by 20 merchants in the past year. Over half of all face-to-face transactions now occur at a contactless-enabled merchant, he stated, where that had been one-third of merchants one year ago.

B2B Bonanza?

B2B payments remain a top priority, Kelly said, and Visa continues to grow its presence across both core card solutions and new payment offerings. The company’s B2B payments volume was $950 billion, he said, now at 11 percent of payments volume in the FY, where the growth has been accelerating into the mid-teens across the past two quarters.

Forward guidance for FY 2019 looks for profit to grow in a high-teens percentage range and for revenue to grow on the order of “low double-digits.” The Street looks for top-line growth of 11 percent and bottom-line gains of about 20 percent, measured on a per-share basis.