Visa Inc. (V) Presents at Deutsche Bank Technology Conference Call (Transcript) No ratings yet.

Visa Inc. (NYSE:V) Deutsche Bank Technology Conference Call September 10, 2019 2:45 PM ET

Company Participants

Bill Sheedy – EVP, Global Strategy Group

Conference Call Participants

Bryan Keane – Deutsche Bank

Bryan Keane

Okay, I think we’ll get started my name is Bryan Keane, I cover the payments processors and IT services at Deutsche Bank and I’m happy to have Bill Sheedy and I’ve known Bill for a while, I think he has beat me at a golf tournament before. So I know Bill’s golf game and he has obviously done a fabulous job as the EVP and Global Strategy Group head for Visa. So, Bill thanks for coming.

Bill Sheedy

Thank you, Bryan.

Question-and-Answer Session

Q – Bryan Keane

I want to first ask about Europe. I know Europe, you were instrumental in getting the Visa Europe deal done and you ran that business for I think over a year, I believe. So how would you assess the success of the Visa Europe acquisition compared to kind of your original expectations?

Bill Sheedy

Sure. As you all probably know, it’s been a bit over three years since we acquired Visa Europe, it had been owned by the banks in Europe and it’s been a challenge for us to operate a global payment system where Visa Inc. owned and controlled the business everywhere, but Europe. So filling that in and acquiring the asset as we did was — is a critical strategic initiative for us that just made sense.

As you might imagine, with any significant deployment of capital resources, there were a lot of conversations, a lot of work done around the pro forma modeling of what the financial expectations would be of owning the business in Europe. And suffice it to say that the acquisition on a financial level has greatly exceeded our expectations on really almost any metric you want to focus on. It’s been even more important strategically, because getting global alignment and engaging our clients, whether they be merchants or financial institutions on the acquiring side or the issuing side, being able to engage them multi regionally, globally, in a more seamless way has been transformational for us, not just in Europe, but globally.

And I think what we found with Europe business was a lot of wonderful executives focused on a great franchise, but it was much more narrowly focused on a subset of paper products particularly debit. And what we’ve done, I think over the last three years in — is expanded the focus in our European business across not just the importance of the debit product, but built capabilities on credit and B2B and on a whole host of initiatives that I think have significance innovation in digital payments that I think has the potential to be really meaningful, short, medium, and long term.

So it’s been an enormous focus and priority for us. We’ve got a leader in Charlotte Hogg, who’s running the business there has made a lot of really important changes in bringing talent into the organization. And I think Bryan just to wrap it up, I think we’ve been really strongly encouraged, but it’s still on a journey. I would say that even our European team would agree. We’ve got more work to do, which means there’s more opportunity.

Bryan Keane

Are you still getting cost synergies benefits out of Visa Europe or is that been mostly completed by now since the acquisition?

Bill Sheedy

I’m pausing, because I think the technology integration was completed last year. So wouldn’t surprise me, if we’re still lapping some cost synergies. But the focus internally now, I think the management and the technology integration has been completed.

Bryan Keane

And as you turn to the offensive, and you guys go after gaining business, how — what’s that game plan look like?

Bill Sheedy

Multifaceted as you might expect, the — one of the planks of the strategy, I’ve already referred to which is expanding our capabilities across a broader range of products, which has been a combination of both technology platform, which getting onto the global authorization clearing and settlement system last year was really important and enabling for us. And that technology transition happened seamlessly and well ahead of schedule.

Building out the product management and the capabilities around digital and innovation has been critical. I’d say one of the other really important initiatives as to increase the strength of our in country and in market teams. We liked the organization that came into Visa Inc. when we acquired it. But we found that they were — that the in country teams were not as capable. They weren’t as large and they weren’t as enabled to be able to engage our clients locally on a whole host of in country initiatives that you can get if you build out a more robust country management team.

And we’ve done so across the highest priority markets in Germany and in Spain and Italy and Turkey. And you’re going to continue to see us, I think, increased the strength of our local teams in market.

Bryan Keane

It seem like you guys did a pretty good job and — or an excellent job in renewing the existing business of contracts after the acquisition. Now you’re — as you go forward and try to get new business, have you seen win rates start to improve as integration has improved and you have more seizing behind the offerings?

Bill Sheedy

We have. As Bryan you mentioned the relationship that these in Europe had with its clients in Europe was more akin to the association, where the financial relationship with the issuing and acquiring clients was dividending out of excess capital at the end of the year. And right after the acquisition among the most important activities was to convert those relationships into commercial agreements. And the majority of which became long-term commercial contracts.

And as you mentioned that transition, which was really important over the first year or so after the acquisition was performed really successfully, though it exceeded our expectations in terms of our win rates and our renewals. And we were able, I think, with our clients to lay out really positive, longer term plans for how we would work commercially with the business that we had enjoyed in Europe.

That being said, there were some transitions that were happening in Europe, in particular, around that time. There was continues to be, but around that time was a pretty significant growth in the FinTech community and a lot of Neo banks, as they refer to in Europe that were evolving. And we missed a bit of an early growth cycle on some of those higher growth, extraordinarily innovative players that were focused on whole host of mobile initiatives, virtual prepaid, focused on affluent European travelers.

And I think that after, I think, some early losses in some of that new business, organic business, there has been an improvement in our win rates and more of a focus that we’ve had on not just servicing our store clients, but being a lot more open to engaging some of these newer players. And it’s definitely resulting in some increased business for us. And we’ve considered to be a material growth opportunity.

In addition to that, I think, the long lead cycle you’ve got on selling into the credit business, which we’ve had some in Europe, but I think it’s been underdeveloped continues to be a high priority for us. And we’ll continue to look for opportunities to increase our win rate in our growth in credit and commercial products across Europe.

Bryan Keane

In Europe, there is a lot of questions around the SCA, which is a Strong Customer Authentication that regulation. Are people ready? Is it going to get pushed out? How is that going to impact e-commerce volumes? Love to get your opinion on that.

Bill Sheedy

Yes, the secure customer authentication elements of the PSD2 regulation were due to be coming into effect around now. And I think we had some concerns as many of the players in the market had concerns about the market’s readiness to be able to support two factor authentication for consumers on a much broader set of transactions.

Fortunately, I think after a lot of conversations with the Commission, the European Central Bank, regulators like the SCA, we’re now sort of in a holding pattern where I think the enforcement of the SCA regulations is probably going to hold for another 12 to 18 months. In some instances, it will depend on the country level regulators to determine how much time they’re going to give before they start applying the SCA requirements, but we’re encouraged by the amount of time that’s been given.

And I think that, at least at this point we’re — I think everyone’s aligned in terms of what it is they want to create, which are positive experiences for consumers and increase the capabilities for merchants and consumers and financial institutions to be able to increase the strength of authentication.

But also rollout services, like waitlisting that will enable the consumer and empower the consumer to be able to decide when and where they want to be challenged with that higher level of authentication. And I think that’s just one example.

There are a host of other examples that I think fit under a broader open banking strategy where we have an opportunity to differentiate our platform and provide services and potentially look for opportunities to grow Visa’s business in Europe and that’s why we genuinely consider PSD2 and open banking as a growth opportunity.

Bryan Keane

Great. While I move to account-to-account Visa Direct, I know, transactions growing at 100% year-over-year. We estimate the run rate volume over $150 billion. So, I guess, where are we in the adoption of Visa Direct use cases in U.S. and international markets? And what’s a further opportunity to grow it from here?

Bill Sheedy

I’d still say we don’t have many businesses that are growing at triple digit growth levels. And I think we’ve tried to be a bit more clear about the size of that business. And it’s a significant size and it continues and continues to grow at that impressive clip, but I’d consider it to be early days. The growth started in the most pronounced way at home in the North American market.

We’re focused on tapping into growth opportunities globally as we sell Visa Direct into markets around the world. Europe is definitely a priority, but I would say really any of our markets around the world, we’re getting a lot of traction with Visa Direct.

And, the flexibility of what it provides in terms of account-to-account funds transfer is almost — it’s only limited by your imagination. So, yes, whether it’s a more simple peer-to-peer person to person funds transfer, or insurance companies providing payments to an individual or a business against a policy or the in effect a payroll transaction for the gig economy. These are just like three examples of massive growth opportunities for us that, we are tapping into a global opportunity for us to just expand and grow the reach of the payment system.

So, I think it bridges into a whole host of things around real time payments. But I’d say that, we’re really encouraged by what Visa Direct is driving for us. And the greatest opportunity at the moment is just to continue to globalize the platform and to sell it as broadly as we can across our traditional and emerging clients.

Bryan Keane

I know the yields are lower for Visa Direct, but it feels like it has been the backbone. And most of these tech companies, FinTech companies that are starting up, I always hear them figuring out how are they actually doing this. And a lot of it they’re doing it through, Visa, using Visa Direct. So, do you have — I mean, it feels like to me, you have an ability to use price and to actually raise price. It’s kind of you don’t have to do it today. But is that a future lever?

Bill Sheedy

Getting the pricing right on new business is always tough. Because in some instances, you’re not moving transactions that had occurred on someone else’s platform and you’ve got an established market. In some instances, you’re creating a brand new transaction set. And I think, as investors, you want us to be looking at a balance of capitalizing on the growth opportunity, the transaction growth opportunity, the revenue growth opportunity, but also conditioning the market with a pricing model that I think is something that we can live with longer term.

And in some instances, when you are looking at new organic growth opportunities, we’re going to have to test and learn different pricing models. Whether or not that translates into pricing leverage over time, I think remains to be seen the focus of the organization however is really more on driving more volume over Visa Direct and looking for revenue growth opportunities that I think comes from the volume and not the pricing.

Bryan Keane

I know there was a little bit of a battle for Earthport and it ended up in your guys hands. And I think that — with that, with Earthport, I think now you guys have access to 99% of bank accounts across the top 50 markets globally. What is that asset now allow you guys to do? where’s — why is that asset so important? And what made you guys really want that?

Bill Sheedy

Yes, it’s a little bit of my same answer that I gave you on Visa Direct, which is the opportunity that that presents itself is really just limited by your imagination. So historically, the volume that ran over our network was enabled by a consumer or a business that had a visa payment credential, and accessing an account that was enabled with a payment credential.

The great thing about the Earthport acquisition is you can be sitting here, where one end of the transaction is enabled with the Visa Payment credential, and it’s interacting with an account that may not have any payment credentials associated with it at all. And that connectivity, I think, definitely intuitively has an opportunity in the remittance market, a much more robust set of peer-to-peer transactions.

But, the ways in which that may ultimately be leveraged in enabling us to penetrate business to business opportunities, or partner with our clients to facilitate a whole host of transactions, I think we’re more interested in exposing the capabilities that we now have with Earthport and sitting down with young FinTech companies, large merchants, large financial institution, governments, and thinking openly and creatively about how we might be able to bring commerce on to the network that right now either doesn’t exist or is sitting in other networks that have a bit more friction or for whatever reason would take advantage of the greater capabilities that you’ll have associated with an Earthport enabled VisaNet.

Bryan Keane

I want to get your thoughts on Mastercard’s recently announced acquisition of Nets their account-to-account business and what potentially that gives them versus some of the assets you guys have at Visa?

Bill Sheedy

I think, I’m not going to comment on Mastercard acquisition or announcement. But I will say that real time payments, which I believe is an element of the acquisition, it continues to be an exceptionally high priority for Visa. The development of RTP platforms around the world, almost always sponsored by governments or central banks, and designed to be open commerce rails, that all support peer-to-peer payments, bill payment, commercial commerce. These things I think are really interesting and have the potential for massive amounts of long-term growth, against which we’re very focused and organized.

We’re going to be interested in anything across the spectrum of partnering with folks as we’ve said publicly to look to help operate these RTP rails for governments and are in the process of participating in RFPs around the world, try to capitalize on those opportunities. But candidly, I think the longer term more compelling opportunity or the differentiating value added services that can be extended to enhanced value to transactions running on these open rails.

So yes, to either de-risk transactions tokenize them, add value through the capabilities that we bring, that may reside on Visa net, or may reside in assets that we hold outside of VisaNet. We’re going to look to expose those as best we can to add value to our commerce flow that would exist on these other RTP platforms, it’s important that to reinforce that we like VisaNet very much. We do think that it has a continued growth opportunity and will maintain a high priority for us. But we are also very focused on extending our capabilities to add value to transactions that run over these other networks as well.

Bryan Keane

You have Visa Direct account-to-account RTP, it just seems like this is all offensive and growth avenues and you can just tell from talking to you and others that this is a huge opportunity. Is there any part of this that could be defensive as well, that you’re — there could be some cannibalization of volume that goes to these networks versus your own existing business?

Bill Sheedy

Yes, it’s a matter how you define cannibalization, I think, all great companies try to cannibalize themselves as they in the journey to try to add more value to your clients. So, I think, the real positive trend here is whether it’s RTP, or some of the other initiatives that we’ve talked about is just the expansion of electronification of commerce globally, in the creation of these new used cases.

So if in — so the pursuit of that growth, and adding more value to governments as clients, financial institutions, merchants, newer players, technology players, if we end-up moving volume from one platform onto a different platform, maybe you can think of that as cannibalization. But if you’re in a position where you’re creating more value and adding more value to your clients then I think you’ve created a virtuous cycle.

Bryan Keane

And a lot more volume. Just on B2B and that opportunity, you just described what you guys the strategy there and I know you guys launched globally, the B2B Connect.

Bill Sheedy

Yes. So first, we start with a position of strength in B2B. We’ve got over a trillion dollars in volume across our business-to-business products today, we’re the world’s largest B2B network by a comfortable margin. And I think there’s a lot of growth to be had by continuing to ride the product set that we’ve had traditionally, and expanding that into Europe, and our other regions around the world.

So that business is growing faster for us than our consumer-to-business product set and we won’t take our eye off continuing to drive that growth and that expansion. Incremental to that growth is — are opportunities that are able to be penetrated by initiatives like B2B Connect, which provide a much more robust environment that can handle a larger data set, invoice line item level three data can be married with a transaction set.

There’s seamless integration with the block chain, which I think will create lots of capabilities for folks to run more complicated, larger transactions on the network. And do so taking advantage of all of the underlying capabilities of VisaNet, it’s stability of the technology platform, the cyber protections that we provide that I think are a point of differentiation.

So when you look at globally, we think that — and I think others agree that the commercial B2B opportunity exceeds $100 trillion globally, which greatly exceeds the massive opportunities that we’ve been talking about in the secular shift with consumers. So, I think there’s a reason why, the B2B businesses can continue to get a lot of intention internally within Visa, we’re going to put our best thinking and a lot of capital against it, because of what we consider to be a massive long-term growth potential it will be — it will take time for it to develop.

There are complexities associated with building out the value chains within the different commercial verticals. But even outside of VisaNet and B2B Connect, which we’re very bullish about you’ve seen a lot of smart capital and a lot of good progress in accounts receivable automation, accounts payable automation, ERP integration. And so I think the conditions are right for us to start on a stronger growth cycle for B2B that, I think will create even more distance between that and the growth in the underline business.

Bryan Keane

If you have a question, go ahead and raise your hand and we have a mic that comes around. I wanted to ask on contactless, I know that’s a big initiative of Visa. Can you talk a little bit about the contact that is pushing you in the U.S. and will we see — it feels like that’s almost a little more near-term to see a more material benefit to the model in 2020 and 2021.

Bill Sheedy

Yes, when I look at — when I talked about business-to-business, I think that’s a lot of near-term focus, a lot of near-term investments with medium and long-term growth. Contactless in the United States following really impressive rollouts of contactless in the UK, Australia and in other number of markets around the world which have reinforced for us the power that contactless can bring.

We at the moment are really encouraged by the merchant adoption of contactless in the U.S. We’ve got 80 of the top 100 merchants enabled with contactless as we sit here today. Almost two-thirds of the transactions in the U.S. today in a physical face-to-face environment are occurring at contactless enabled merchants. So — and that’s the harder part of the value chain to roll out is the point of sale.

The consumer side with cards we have roughly 100 million Visa cards enabled with contactless at the moment in the United States. Our projections are by the end of 2020 that is going to be triple to 300 million and the growth and the penetration of contactless is measured by the transactions — incremental transactions over the network.

This isn’t going to be linear. There will be a step function movement in the marketplace once you reach a level of concentration of cards and terminals. And then you see the power of networks like Visa financial institutions, merchants all coming together to drive consumer awareness.

And our experience in other markets suggests that this is going to be material to help — in the U.S. to help penetrate the $3 trillion of cash that continues to sit in the U.S. that is disproportionately sitting in small dollar transactions that we think are going to be nicely penetrated with contactless.

Bryan Keane

I had two questions when I asked you on the last earnings call that were kind of call outs. One was the cross border, we saw a nice recovery in cross border growth rates. What’s driving that given that FX volatility for the most part is still been on the lower end?

Bill Sheedy

Yes. If you take out the European — intra-European cross border volume, which is important, but sort of a different type of transaction. We’re running at about a 9% year-over-year growth on cross border, which has been pretty stable. You’ve got a whole host of things driving it. It’s a mix, almost an equal mix of consumers traveling and the sort of continued globalization of retailing and people facilitating e-commerce transactions. And I think, it seems to grow irrespective of currency volatility.

We’ve seen that the market actually shifts pretty efficiently as currencies strengthen and weaken. And we’re encouraged that the sort of dip that occurred in cross border activity, really early in 2019 seems to have been what I just described it to be, which was a blip. So we’re encouraged by the stable growth that we’re seeing around cross border.

Bryan Keane

And the other comment that was on the call was it sounds like you guys are doing a good job in landing new partnerships and new business with new logos and renewals. Is there any anything in particularly driving that or is that just the sales effort and a constant kind of pound in the pavement talking about exactly your value proposition?

Bill Sheedy

Yes, the sales effort, the business development activities, pound in the pavement, I’d say are most of it. I would say that we become aware of places where we were difficult to work with small, fast growing innovative companies. We’re finding it difficult for — to get our attention, to get licensed by us, to deal with some of our capital requirements.

And you go through what fortunately was some brief period of losses you interrogate those losses as hopefully the good companies do and you realize that you had an opportunity to design your engagement with the FinTech community with these Neo banks with some of these emerging technology players, and you serve them better, you structure their participation in the payment system to be more commercial, more reasonable.

And we’ve seen that in compliment the pounding the pavement and the strong sales efforts that you described. So I think after some periods where we went through that learning we’re really encouraged by the growth cycle we’re on that.

Bryan Keane

Okay, with that Bill, I enjoyed the discussion we’ll keep it there.

Bill Sheedy


Bryan Keane

Thanks so much.

Source link

Please rate this