Visa Inc. (V) Management Presents at Wolfe Research Fintech Forum Conference (Transcript)

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About: Visa Inc. (V)
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Earning Call Audio

Visa Inc (NYSE:V) Wolfe Research Fintech Forum Conference Call March 13, 2019 12:10 PM ET

Company Participants

Vasant Prabhu - Chief Financial Officer and Executive Vice President

Conference Call Participants

Darrin Peller - Wolfe Research

Darrin Peller

Vasant I really just want to thank you very much for being here.

Vasant Prabhu

No, good to be here. Thanks for having us.

Darrin Peller

So I was saying to a lot of folks in the room, I mean, it's impressive, the interest and the demand for this space grows every year. And in fact, registration of this conference is up well over 500 people. And kind of shows you the incremental demand for companies like yourselves, given the opportunity for growth. Before we go into the deep dive on what's going to allow Visa to really keep growing in that way, maybe you could just give us a quick recap of last quarter's trends and your guidance. Just to help us level-set the room of where we stand?

Vasant Prabhu

Sure, yes, I'll just go through what we reported a couple months ago. So we had strong growth -- revenue growth of 13%. So we were happy to have low teens growth. In general payments volume growth was strong around the world, almost every region was a little bit stronger than the prior quarter, a little bit less in the US and I'll get to that in a minute. It was about I believe about 10% growth in the US in total and roughly I think it was about 8% and 12%, 12% on debit, 8% on credit something in that range. It was 1 point lower than the prior quarter on all those factors. Debit growth was pretty strong across the board. In January it was a little slower. I believe the numbers were 10% for January, but it was 11% in the prior quarter. So credit was 13% in the prior quarter -- I mean debit was 13% in the prior quarter, 12% in January, small slowdown in the US but that was all linked to sort of our interlinked business which doesn’t have a lot of revenue impact and you can have changes within a few weeks and so on.

Where we saw change was the credit business was a little slower in the fourth quarter. We saw some slowdown in the last few weeks of December. But we saw a jump back up in January. So January was back at about 8%. The quarter itself was at about 9%. Some of it is -- we’ve had one client Cabela's that’s been converted and that impact will sort of show up increasingly started last quarter and it will continue on. So net-net, by and large, good growth in the US.

In terms of the cross-border business as we told you the growth rate had slowed from about 10% to about 7% level. And then we had a further slowdown in January. We highlighted the fact that there was a slowdown in December that continued into January. There are a few things that don’t have much revenue impact. And it has to do with what happened intra-Europe. People move their acquiring around in Europe, it affects our reported cross-border volumes for intra-Europe transactions but not much revenue impact. We do have cryptocurrency having an impact which will now play out this quarter. So that explains some of it.

We did highlight the fact that we had seen a slowdown in December that was continuing into January and we gave you some facts on that. And just to reiterate I mean the way we saw it was that in general as I said a strong quarter and we typically are very factual in our quarterly calls. If the trend is better, obviously we tell you it’s better and then you say that we are being bullish.

In this case the trend especially in one dimension cross-border was a little weaker and we want to make sure that you are aware of that, it was very recent and some of you thought we were being bearish or cautious when in fact we were just being factual. And we tried to give you as many facts as we could. It's just too early to call a trend to say that it will either going to improve or get worse or whatever, so we just gave you the facts and obviously we'll update you as time goes by and in another month or so when we report our earnings.

As it relates to the cross-border trend itself, I mean there are macro factors that could be a factor. We highlighted a few of that time that were uncertain, and many of them are being sorted out. Exchange rates are always a factor. We said that strength of the dollar certainly doesn't help the cross-border business. But overall, as we said, I mean what we do is every quarter we look at what the facts we have and make a judgment and we felt that there was no need to change our outlook for the year. We weren’t trying to set a stage for anything. We were just stating the facts as they were and gave you a sense of the fact that as far as we could see the outlook we gave you which is always a range, was still valid. And we did tell you that in the absence of better information we were going to assume that that cross-border trend continue through the quarter or the second quarter. So that’s a quick summary I think of what we told you.

Question-and-Answer Session

Q - Darrin Peller

One of the nuances we saw was that volume growth it was down a bit or decelerated a bit, but transactions held up pretty well. Was there something around mix or anything going on that you can call out?

Vasant Prabhu

No, I think transactions growth was quite good and it was about 11%. There was no specific factor. I mean generally speaking as contactless grows around the world, it is helping transactions growth. Contactless technology is a incredible reduction in friction. It is a clearly preferred way to pay. And as it expands around the world it is definitely helping transactions growth more than it does let's call it payments volume growth. So that helps us to some degree. Beyond that I wouldn't say there were any specific factors that explain transaction growth holding up. In general conditions are good.

Darrin Peller

Okay, so in that we’re still seeing strong growth.

Vasant Prabhu

Exactly.

Darrin Peller

What about the rebate and incentive timing and in terms of the cadence through the year? And then also just bigger picture, I mean anything you're seeing in terms of the way the market is playing out on pricing or competition that's changing your view on versus maybe a year ago, two years ago on rebates, incentives?

Vasant Prabhu

We gave our best sense of that as you know the whole idea of incentives in terms of providing an outlook, you make some judgments, right? You have to make some judgments, what you know is what's already been done. You are making judgments on the renewals that are coming up, you're making judgments on the terms on which they will be done, you're making judgments on whether you'd have any wins, renewal rates are extremely high. So you can assume that most renewals will happen. You just don't know exactly the terms and the timing. We know occasionally you could have early renewals when you or the client decides that it's mutually beneficial to do that and that could happen and it could be a surprise.

So what we typically do is we give you our best sense at the start of the year, we give you a range, typically a 100 basis point range. We then take a very hard look in the middle of the year to say now gone through half the year the visibility is greater. Typically, we sort of try and give you a more precise view, maybe narrow the range. And if you look at our history, mid-year we tend to take another look at that and tell you what we think. So we'll do that again I'm sure.

Darrin Peller

Yes, I mean on that note last year you did narrow the range, it ended up being at the low end there, you did better than you expected I guess. And that was a source of upside that we've seen for a number of years, on a couple of years. And so just wonder if there is something -- what were the nuances that led to being better than expected last year?

Vasant Prabhu

Yes. I don’t think you should assume that we are deliberately in one direction or the other, right? In other words, last couple of years, yes, we ended up being lower than we expected, which was great, we were happy about the outcome. Some of it was because there was a lot going on in Europe. And we had the whole European business that we had to in many ways redo. And you have to make some adjustment -- assumptions on terms under which it would be done. Same thing, assumptions around the timing and as you know there were some delays in some cases. In some cases, the deals were better than we expected. And net-net we ended up where we did.

So I don't think you should -- there was a very unusual set of things going on in the last two years around Europe. So Europe explained a lot of it. I don’t think you should just assume that just because it happened it will happen again. I'm not saying it might not, I'm just saying you shouldn’t just assume that the last two years is indicative of what you should always expect.

Darrin Peller

So there has been a lot movement in FX in different -- I mean is there anything that's changed in your low double-digit confidence for the top-line with -- I think it was a 100 basis points of FX impact expected. Anything from what you've previously thought in terms of what -- again FX or just macro related?

Vasant Prabhu

No, I think in general I mean we gave you a best sense at that time, and once we talk again in another month or so we’d have half the year under our belt. We gave you a clear idea as to sort of how we were coming up with that point of view in the second quarter. And I think just to reiterate, we spent quite a bit of time in October last year giving you a feel for revenue growth cadence for this year. We wanted to make sure people understood that because of year-over-year comparisons there would be some variability in the rate of growth from quarter-to-quarter. And the second quarter was clearly going to be our lowest growth quarter. And we were delighted that the first quarter was better than we expected at about 13%. Given some slowdown in the cross-border we said the second quarter we’re just going to assume that continues. And I don't think there is much more we can add at this point, and certainly we'll give you a best sense again in a month.

Darrin Peller

So let me be clear. The cross-border that slowed down, you're expecting that to stay the way it was, which was a 2% growth rate. And I know there were factors that if you back out because they're unusual, would have been more like 5 or 6. So that you're expecting to persist through the fiscal second quarter and then potentially get a little better?

Vasant Prabhu

No, I think I can -- what I'll do is just stick to what we had said. We were quite clear that in the second quarter the absence of better information we would assume that cross-border trend continues. As always you look at the rest of the year and you make a bunch of judgments on how variable -- various variables could change. And my best judgment was what we told you.

Darrin Peller

Okay. When we think about the deceleration a lot of it was inbound to the US, right? I think you talked about that going negative even in the January weeks. I mean what is the dynamic happening there that you think caused that. Was it -- I mean you mentioned FX, but anything else you're seeing?

Vasant Prabhu

No, I think FX has -- there is some corridors that matter a lot when you talk about the inbound US business, even the Canadian corridor is a big one for example. The European corridor is a big one, the Chinese corridor is big one. The biggest factors typically are exchange rates and macro conditions.

On the margin, was there some impact from some of the uncertainty at that point in time around the government shutdown? Hard to know. On the margin, was there some impact from kind of the events in Canada around the CFO, did that cause some impacts on travel to China? We don't know, it's hard to tell all these things, right? So those corridors were impacted, and time will tell whether those were transient impacts or whether they were changes in trend.

Darrin Peller

I mean, you can -- I would be remiss to not ask the question over the comparison between you and MasterCard's results on cross-borders, just given there was pretty widespread of -- I think it was somewhere around 17%, 18% growth versus 7% in the calendar fourth quarter. I mean we have done a lot of research. We have actually explained away almost half of that for variables, like your re-platforming which wasn’t yours. But someone else there with maybe a couple hundred basis points mix as well as some other variables like Maestro conversion at MasterCard which you don’t think really is what I would call fundamentally different?

Vasant Prabhu

Yes.

Darrin Peller

But we do wonder about some of the other differences. So I was just wonder if you can comment on what you see?

Vasant Prabhu

Yes. Look, I think it’s very hard from the outside to really understand especially volume differences, right? Because the revenue difference was much less than any volume difference, revenue growth were more in line on that line and we can get into both if you like. But in terms of volume differences, yes, there are some definitional differences like you said. Using issuer currency or merchant currency to convert it to volumes -- in constant dollar volumes, that has no revenue impact. And what we found is the methodology we use which we can argue what is better can cause anywhere between 1 to 2 point higher rate of growth for them versus us. It’s closer to 2 when the dollar is stronger, it’s closer to 1 when the dollar is a little weaker. So it can be in that range.

Darrin Peller

And just to explain, you account for where the issuer is based?

Vasant Prabhu

That’s right.

Darrin Peller

And that’s where the cross-border activity is taking place and originating?

Vasant Prabhu

Yes, we use what we think is more than economic definition of the transaction, right? So they -- we both use different currencies for that. And that has an impact. It has no revenue impact. The second definitional difference is as you said the Maestro conversions where for whatever reason they don’t report the Maestro volume and there is a lot of intra-European volume on Maestro that is not reported, that gets reported once it’s converted to a MasterCard. Now I'm told that additional volume they indicate comes up when they convert but if you just take the reported volume and it’s hard for us to know from the outside, they should tell you that. That’s probably a point -- a couple of points.

Darrin Peller

Yes, well, I mean we got maybe 250 basis points. They say the Maestro cards couldn’t be used for cross-border. Now that they convert over to MasteCard it really does add to that line item especially.

Vasant Prabhu

Yes, but the intra-Europe transactions with people traveling around Europe Maestro card are usable for interface and all that. So as you said that, is that impact. The third one has no revenue impact on us and it may not impact them because of the way Visa Europe set things up years ago, we had a lot of acquirers in Europe setting themselves up in country that were not the home country, they are rejiggering all that which we don’t really care about. They are entitled to do that. It converts it from a volume standpoint to a domestic transaction but has no real revenue impact. We told you that was about 1 point.

Darrin Peller

Do you know why that happened?

Vasant Prabhu

Yes, basically Europe has certain rules that made it worth their while or made it easier for them to do it that way. And we are sort of the very flexible saying you can do whatever you want because it’s revenue neutral by and large for us. And maybe it has something to do with Brexit, they are moving things to local countries maybe it’s tax planning you know it, it could be other things.

Darrin Peller

You are referencing a big processing company or a technology company?

Vasant Prabhu

Mostly it’s like a big acquirer -- merchant acquiring platform or something like that. You still acquire all the European transactions let's say in the UK and now you are saying okay, I'll acquire my German transactions in Germany.

Darrin Peller

That’s interesting. But so is Visa specific not MasterCard because of the Visa…?

Vasant Prabhu

I can't tell you that it doesn’t have an impact on them. All I can tell you is that these were set up pre our acquisition in a certain way and people have been rejiggering that and it’s not new, it’s been going on for a bit. It goes up and down. They go through phases of doing it and it’s different people sometimes. Has no revenue impact, but it was about a point in growth. Then it makes -- and this is a hard one and I don’t know if you can do it from the outside, we can do it from the inside. Like it or not, our business is more heavily skewed to the US which when times are good emerging markets can have higher growth but they are also more volatile. We have sizable as -- we're much larger than our competitor, we have sizable businesses in all these emerging markets, but as a proportion they’re smaller. And if you assume the same growth rates by region, and look at our mix versus theirs you always get a delta, just because of mix [indiscernible], right? And even in Europe we're heavily UK and France for example. So mix is a pretty big factor.

Now there are two areas where clearly they are doing better than we are, but we are clearly making headway. One has to do with the fact that our Visa Europe business we didn't do much with fintechs for quite a while. And then we were very busy, redoing all our contracts, but now we're making good headway with fintechs. So there is a lot of activity in Europe on the cross-border side, and you’ve heard about some of that. And then several years ago, we chose not to be in the virtual card business and we are very much in it. And so both are big opportunities for us. There’s a lot of upside and hopefully over time we'll neutralize that delta. It's not common to have a business where we have the position we have relatively speaking. So I think there’s a bunch of things there. And hopefully over time these all sort of -- some of these dimensions change and becomes easier to understand.

Darrin Peller

Yes. First of all just quickly last one on the revenue versus volume side. I mean cross-border revenue was a little stronger than. So some of that sounds like you just explained. Was everything you just said …?

Vasant Prabhu

Yes, the cross-border revenue I think was about 4 points better than the volume. And there are about four factors that explain at least for us the delta, right? And they're roughly all equal. One is this intra-Europe thing which has no revenue impact, that's about 1 point. Second is as you know, we do a certain amount of hedging, which smooth things out in a way it really doesn't -- we are not taking position. So when the dollar is strengthening the hedging helps our reported revenue numbers by a bit, so it's probably a point there. So that can go both ways. We have little better pricing from last year there, that helps the revenue line. And then we do report our currency volatility, I mean our treasury revenues in there. And if you look at last year first quarter, volatility was quite low compared to this year's first fiscal quarter, now that changes in the second quarter. But that also helps that line from a revenue standpoint. I mean those four factors are roughly in equal proportion.

Darrin Peller

So should we still expect revenue to outpace cross-border volumes?

Vasant Prabhu

If you look at each of these factors that I just gave you that were causing the delta, right, the first one will be what it is, right? So to the extent that that continues and that will help spread volumes but help revenues, the pricing I think continues for another quarter. So that should also be sort of the same probably. Volatility shifts, right -- last year volatility in the second quarter was quite high compared to what is running at now, that's all publicly available information so that will be a tougher comp. So yes, the four variables, they have different impacts on the second quarter. So you have to watch those variables to be able to say will that same gap continue or not.

Darrin Peller

So put it all together now I mean it's an area that first of all, I wonder, do you guys as a company: A, strategically focused on cross-border as an area that you think is more profitable maybe, even better business than some domestic business and go out of your way to invest in that opportunity? And then just second part of that is what do you -- I mean you have talked I remember two years ago, when I was visiting your office, you mentioned you kind of said cross-border can grow call it 9, 10, low double digit range for years and years to come, with e-comm and B2B helping and others. Is that still the case?

Vasant Prabhu

Look I think the cross-border business has lots of reasons to be bullish about it, right? Number one, the new engine of cross-border growth is clearly e-commerce, that wasn’t there a few years ago. The general trend for the global economy has historically been towards greater integration. We don’t know if the new world changes but has led to a lot more cross-border trade which means more cross-border travel and all those kind of things.

So the underlying drivers remain very strong. We continue to build our network and we will continue to build it even more. We continue to add capabilities, so all that bodes very well for the cross-border business. In the short-term the cross-border business will be susceptible to exchange rate shifts, will be susceptible to macroeconomic conditions. The exchange rate shifts can have a different impact on the cross-border business whether it’s e-commerce or face-to-face. Face-to-face tends to have a lag, e-commerce people can adjust faster. So those kinds of things we have to consider.

So yes, it’s a very important business for us. It is a business where we know, we all have a differential advantage, it is an important area of focus. We will make whatever investments we need to. Things we’re doing when we’re able to talk more freely about it, we can tell you more about some of the additional things we’re doing whether it’s on the B2B side. B2B Connect is a capability that should go live this year that is the cross-border B2B service. That’s distributor leisure based, that we think as substantially more value than the Swift-based transaction, allows banks to not need correspondent bank network, financial institutions are very interested in it. And when we can, we can tell you about more about other strategies. Obviously at this point we’re constrained in terms of what we can say about what's going on in the UK because of takeover panel rules and all that. But strategy wise our goal is to get as close as we can to global coverage of bank accounts as fast as we can. And so you'll see us talk a lot more about all that.

Darrin Peller

So it is an area of focus.

Vasant Prabhu

Absolutely. Sure.

Darrin Peller

I mean in our own research we had checked, I think it was somewhere we thought mid single-digit percentage of your volume was cross-border. And yet almost 40% of revenue could be in some way connected to it. Just we do get the question a lot on how is the company strategically thinking about it. But it does sound like there is some …?

Vasant Prabhu

No I mean there is no question whatsoever. If you look at our three lines on the revenue line the big ones you got service fees, you got international revenues, you got transaction fees and cross-border is all in international revenues and it’s a third, a third, a third, between the three. So yes it’s a very important part of our business, but I wouldn’t underestimate the size of our transactions processing business and I wouldn’t underestimate the size of our domestic business which mostly showed up and so ...

Darrin Peller

You mentioned how some of the issues in Europe are after the deal out of way that Visa structured itself pre the deal, may have led to some changes that you’re trying to put forth now. I remember when we spoke to Al and he talked about the integration pretty much being done, right? The back end at least the integration being done. And so you you’re ready to now go after market share in different more aggressively than even before. What does that mean, and what could that mean for the business in Europe?

Vasant Prabhu

Well, look I think we’re very excited about Europe as a long-term opportunity and clearly we want to approach the market in a responsible way. This is clearly opportunity for us to do better in many areas. So going through them one-by-one, I already talked about one. There was clearly need to do more with some of the -- Europe has had much more activity in terms of fintechs at this stage of the game, partly because of some of the regulatory changes going on there. And we need to do some catching up there. I think we’ve made a hell of a lot of progress in the last 12 months and you should see a lot more there. So the team there has done a far better job of both working with these fintechs and making it easier for them to work with us and so that’s one dimension.

If you pass that, there are parts of Europe for historical reasons European business was based on who the members were and the membership was heavily concentrated in France and the UK and for various reasons then the positions Visa Europe had in other parts of Europe were not typically as strong as they are for most parts of the world. So there is clearly opportunity for us in those markets. That will take time. Incumbency helps them and us. Renewal cycles have to come up for renewal. We have to do it in a way that makes business sense for us. So that will take its time.

Historically credit was not an area that Visa Europe focused, our position in Europe is nothing like it is anywhere else in the world, that is a particular area of opportunity. Scheme and processing separation opens up different kinds of opportunities for us to get some processing business that was not available before. So we would be looking at that clearly.

Many parts of Europe look more like emerging markets, the traditional cash conversion opportunity is still very large and there is a lot we can do to invest in those markets to build acceptance, to build card coverage, to build a card habit. Europe goes all the way from 90% penetration up in Sweden to low 30s as you go to Southern and Eastern Europe and so on.

So there is lots of opportunity just in the very traditional locking and tackling cash conversion opportunity. So there is a lot to do in Europe.

Darrin Peller

Yes. I mean it sounded from us like there could be some real change in terms of rate of growth in Europe if you execute on some of these initiatives to the upside.

Vasant Prabhu

Yes, and the thing is, nothing in this business moves really fast, right? Things to take their time because of the nature of the business the long-term contracts, the advantage of their incumbency that both of us can benefit from. So what we know now of course is that what our clients know now is that all the capabilities available on the global basis are available in Europe which wasn’t true before. The disadvantage that we had in the credit business that had mostly to do with interchange differentials have gone because interchange is regulated. So it’s more even playing field on the credit side.

The quality of the services we offer whether it’s risk authentication or whatever is far superior to what was available before. So when you put it all together we are a much more attractive partner for most institutions in Europe than Visa Europe might have been three years ago.

Darrin Peller

And is there, I mean I remember AL had mentioned pricing opportunities there but you still see there being a decent runway of pricing opportunities in Europe given kind of where you were left off after the acquisition of Visa Europe?

Vasant Prabhu

Yes I mean we typically don’t like to talk about pricing and so what we would say is we do think that our opportunities in Europe we will need to sort of approach them over time and do what we normally do on pricing. It has to be sort of focused on value, it has to be focused on competitive alternatives, it has to be focused on what’s prudent et cetera. So it will play out over time.

Darrin Peller

Could we shift to services for a minute in terms of differentiated offerings?

Vasant Prabhu

Yes.

Darrin Peller

I was just curious I always got the impression that you guys had many of the same services as others in the industry but its package a little bit differently where it’s more part of the actual contract versus broken out. First of all, am I characterizing that correctly?

Vasant Prabhu

Yes, absolutely.

Darrin Peller

When it comes to things like data analytics or issuer service solutions or just comment on what you think you guys are proud of right now in terms of your services offerings and what you want to invest more in?

Vasant Prabhu

Yes, so I mean the services that we offer that are extremely high value-added and in many ways have economics that are very similar to our core business and very much leverage of core business or things like risks services, fraud management and all that, authentication services, data analytics where we continue to add to our capabilities with AI. I mean we've always been doing machine leaning especially on fraud, but we have offered a broader range of services on data analytics in a much more user friendly way to our clients, loyalty solutions. And then we have a sizable business in CyberSource which is increasingly valuable on a global basis. And we have an issuer processing business mostly in the US which has potential around the world. And yes we're don’t pull it all out. Where we don't have as much is in traditional what you might call consulting. We're doing more of it but we don't have as much as.

Now the other thing we don't do typically is there is an accounting where you can do this and we do it somewhat differently where you could substitute your incentives with value and time. And what that allows you to do is report less in incentives and more in revenue but you also have an expense that goes with it. So you can have a lot of services in your report as revenues that are effectively really on the revenue line and sort of the incentives line. And there is an associated expense. So you could have higher expenses and higher revenues and report higher revenue growth with essentially the same profile. We don't do as much of that.

If that makes sense that we might do more. Typically from a client standpoint, when they want to buy a generic service like consulting, they might be more interested in best of breed than being forced to buy from you because it's sort of free. So there is a difference in how we do things. And if you adjust for that, some of that growth difference shows a bit.

Darrin Peller

Forcing somebody to what you're paying back in rebates, incentives basically four year own services?

Vasant Prabhu

Yes you can structure them differently. You can structure them as part of your whole package or you can structure them as I'm going to give this to you and attach a revenue stream to it. I get to book it as revenue and I haven't expense of it, but I won't have those incentives. So you could end up for the same kind of deal having a higher revenue reported from doing it that way, right? We've tended not to do as much of that, as others do.

Darrin Peller

So you have never broken out what percentage of revenue you think is actually service?

Vasant Prabhu

I think at some point we gave you that number on our Investor Day. I believe it was about $2 billion at that point in time if I remember right, when you add these things together.

Darrin Peller

Okay. You mentioned CyberSources as an asset you think could be getting even more attractive? It's interesting we haven't seen a lot of -- you need to disclose more data on it. Why do we say that is more attractive there?

Vasant Prabhu

I think that as the world changes, and moves to e-commerce and things like that. And as it becomes harder and harder for merchants to come up with solutions through traditional gateways, I think our ability to provide those solutions through CyberSources becoming more attractive. And our ability to provide that on a global business where there are very few people who do it on a global basis, it’s becoming more attractive. So we are quite excited about CyberSource. I think CyberSource maybe entering in year of growth rates is going to pick up and CyberSource maybe entering in an era where the capability is more valuable and more integral part of what people want from us. So I hopefully at some point we can still growing on. It's doing extremely well and we think it's a great business. Even that's just quite big in it. And it has good economics and some real growth potential.

Darrin Peller

Visa Direct is a topic that we've been hearing about through a lot of our panelist because of the a lot of panelists are using it. I mean it's a fintech, it happens largely. And so when we think about what that can do, first of all it seems like they provide you with another source of taking cash out of the market, right? Can you give us examples of what Visa Direct is being used for obviously P2P being one of them?

Vasant Prabhu

So I think, what I want to make sure people understand is Visa Direct is not a product like debit or credit, right, Visa direct is a capability and the way I would describe that capability is that it's revolutionary in many ways because through our entire history money only moved one way in our network, right, it moved from your credit or your debit to a merchant. Now money can move both ways in our network, it can go into your account or out of your account and not only that it can go from one node to another. Right, so it can go any node in our network and we have 3 billion credentials on the consumer side and 60 million plus merchants. Now any one of those nodes can send money to any other node and do it both ways, that’s the capability. So what it really opens up is the P2P opportunity which means you can send money to anyone. And our goal would be to make it as ubiquitous as we can where we would willing to use other rails if we have to get to 100% global coverage and most of the big P2P platforms will allow you to use debit credentials or credit credentials to move your money around if we would argue is the safest way to do because it adds more security, reliability and functionality if you do that versus just using your bank account.

Darrin Peller

And the economics on Visa Direct for you are similar to other transaction?

Vasant Prabhu

Here is the other thing I should say about Visa Direct is that we don’t think about Visa Direct uniformly. So credit and debit are relatively standard kinds of fee structures. With Visa Direct you have to look at the use case and say what is the fee structure that looks for that use case, so P2P has a fee structure and in P2P a lot of people who are providing P2P don’t yet have revenues models, so yes we do get to collect fees on it. But they are also waiting for revenue models to develop so that we can have a better feel for what should be the fee structure for that kind of use case.

The other big use case that we’re really excited about is disbursements which has a lot of value and there is a revenue model in place in many cases. So we can enable all kinds of payroll and you’ve already heard us say how the Ubers of the world and the Lyfts of the world are allowing their drivers to get paid essentially on demand and they charge a fee for it. So we know what they charge, we know sort of what we can charge. But now we have a deal with a company called PayActiv that actually now is offering payroll services to companies and taking back payroll and converting it to flexible payrolls. There effectively employees can get paid on much frequent terms or frequency as they prefer. Visa is a service that the employer wants to provide for a fee in real time, right?

Then there is a whole disbursement opportunity outside payroll. Let's say in insurance areas like probably in casualty, it’s 330 billion in the US that flows to individuals, right, and half of it almost as cash and cheque. Visa Direct is a perfect solution, in many cases they would offer it as a customer benefit. You’ve seen the auto ad and that’s just probably casualty, there is auto, there is health insurance, etcetera. So that's a huge opportunity, high value, very often the people who provided see it as a competitive weapon and are willing to pay good yields for that then there is a B2B part. Any small business today can use their debit or credit credentials to do all their AP and AR because we can move money in both ways. There is many, many B2B cases that are enabled by Visa Direct, which are very exciting like the merchant payment square and the bunch of other people are offering merchants instant sort of cash for a fee, high value service, pricing could be different on that.

Darrin Peller

Do you believe you need -- do you believe you need to do like a VocaLink acquisition. I mean in other words any type of other real-time payment capability or do you have what you need?

Vasant Prabhu

Well, I mean the advantage -- let's talk about that for a minute. So there is two dimensions to that, right? First of all we have the advantage of having a network in place that is already global in scope and has broader and deeper reach than VocaLink does because VocaLink is in one country that it operates the network. And comes with a whole bunch of other capabilities that I'll get to in a minute but let also clear the air on something that I see a lot of confusion about right. Networks like Visa and MasterCard our proprietary. In that you access these networks if you have a license, right? So you have the license to issue our credentials and you have to be licensed to accept our credentials and you have to play by whatever the rules are that we operate networks with whatever the economics are for the various players. And we operate on our work for the benefit on all parties.

Things like RTP or VocaLink are typically regulated networks with regulated fees that are open to everyone. So it’s not proprietary. And they can fall into three buckets. They could be built by someone other than VocaLink or whatever, governments may build on their own as many have done. They could be built by VocaLink or someone else but not operated by them more like a software project, or it could be a service like in the UK they chose to go to a third party and say i.e. VocaLink you build this you will get around it for 10 years and you will collect whatever the fee we decide is going to be challenged. But then like it is open to everyone. So we can use those rails anywhere in the world unless via kept out of it typically governments will keep us all out of it or let us all live as international players. So big difference right.

RTP networks are typically nonproprietary, they are like ACH networks, anybody can use them with the regulated fee. Revenue building or not doesn’t give you any kind of like special treatment. So our approach has been, we want to connect to everything because we know not one company is going to build these RTP network, not one company is going to operate them but by and large we will have access to almost all of them except in a few cases where they choose to keep us all out.

Whether we need to build on them or not, I mean that’s sort of the secondary decision, right?0 Does it give you any differential advantage? Is there any real value in doing it? I don’t think that precludes you from essentially connecting to all of them which we think there the power is. In terms of the rails themselves, the rails themselves don't have a lot of value. It's the service you add on the rails that has value. A lot of these RTP network had existed for a long-time but have never been used, there’s not lot of traffic on them. What we can do is add value to them.

We can bring a greater level of foreign security. We can bring the greater level of authentication. We can bring all those capabilities you come to like, like if you make a mistake we can correct it you can dispute issues et cetera. When you have those types of capabilities even to a set of rails that don't have that kind of intelligence that’s where the value is. And so our intent would be whoever builds them as long as they are open we can ride them.

Darrin Peller

Anybody in the audience have any questions. I think we are just almost out of time.

Unidentified Analyst

Just to follow up on that last point you were making, just to make sure I guess I and maybe other people understand as well. With the real time payment networks for non-proprietary and they are open, can you add services on top of VocaLink and use their rails too so?

Vasant Prabhu

Well first of all VocaLink is in the UK and the way they operate in other places it’s a software arrangement and you should talk to them about it you will get more, but yes, we’ve really able to build whatever we want on top of our RTP networks. We need to connect with them and offer our capabilities on top of that, where we think there is business traction how to do it.

Darrin Peller

Okay and then just a quick follow up here. On the cross-border side obviously you've been investing in that area. You're investing in B2D. but I know you can't talk about the transaction or how it's going in particular with regards to Earthport but it’s public information that both you and MasterCard have been going after it. What kind of capabilities are you interested in building out. And just maybe explaining why both networks are competing for this asset and like what, what are you looking to fill in that area?

Vasant Prabhu

Yes I'm not going to talk about it Earthport. Other than the announcement that went out in the last couple of days that MasterCard has pulled out. They mentioned about something else, that's all in the public domain. So I won't talk about that, but I will talk more broadly, as I said earlier, strategy-wise, our intent is to get as fast as we can to every bank accounts we can globally, right? And we're willing to do it in whatever way it’s reasonable and economical to do. And we're willing to do it both way technologies like B2B Connect and the ability to do it with other technologies, that will allow us to not only leverage our existing rails but alternate rails to get the last mile that we have to and create services for you that allow you to essentially move money from anywhere to anywhere, anywhere in the world. You want the assurance, if you are a business or an individual that we can do whatever the hell you want, right, along with providing you with the security you expect from us, the reliability you expect from us, the services we offer on top of that whether it is information you want to transfer or your ability to pullback money if you make a mistake or you dispute a transaction. You want to be able to do it to whoever you want to do it with. And our objective is to provide it for you as fast as we can. And that's a game plan. How we executed I mean we'll tell you all the time. Thank you.

Darrin Peller

I think we have to stop it there. But Vasant thank you very much for being in person today. It’s great to have you.

Vasant Prabhu

Thank you.