Visa Inc - Class A (V) — Q3 2017 Earnings Call Transcript

Thanks, Jenny. Good afternoon, everyone, and welcome to Visa, Inc.’s fiscal third quarter 2017 earnings conference call. Joining us today are Al Kelly, Visa’s Chief Executive Officer; and Vasant Prabhu, Visa’s Chief Financial Officer. This call is currently being webcast over the Internet and is accessible on the Investor Relations section of our website at www.investor.visa.com. A replay of the webcast will be archived on our site for 90 days. A PowerPoint deck containing the financial and statistical highlights of today’s call has been posted to our IR website. Let me also remind you this presentation may include forward-looking statements. These statements aren’t guarantees of future performance, and our actual results could materially differ as a result of a variety of factors. Additional information concerning those factors is available on our most recent reports on Forms 10-K and Q, which you can find on the SEC’s website and in the Investor Relations section of Visa’s website. For historical non-GAAP pro forma related financial information disclosed in this call, related GAAP measures and other information required by Reg G of the SEC are available in the financial and statistical summary accompanying today’s press release. And with that, I’ll turn the call over to Al.

Jack, thank you, and good afternoon to everybody, and thanks for joining us today. We had another strong quarter of business results much like the first half of our fiscal year; we saw consistently solid trends in our operating metrics with very good growth in payments volume, processed transactions, and cross-border revenue. Our global business benefited from an overall healthy economy as payments volume grew in every major region. In the United States, we saw strong consumer confidence continue to drive spending growth. After three quarters here at Visa, I’m quite pleased with our business progress and our high level of execution. It’s a real testimony to our talented and dedicated employees around the world for creating a strong culture focused on leadership development, operational excellence, and driving results. As I move to the highlights of the quarter, I do want to thank everybody for joining us at our recent Investor Day, both in person and via the webcast. As the leadership team, we enjoyed the opportunity to meet and spend time with our shareholders and the financial community. We hope that you find the information and discussions to be useful. We were pleased to have received quite positive and helpful feedback from the event. Given that we provided a significant amount of information just a couple of weeks ago, my prepared remarks today will be relatively brief. In Q3, our business continued to perform well against our operating plan and our strategic priorities for the year. We saw healthy growth in our key metrics for payments, volume, and processed transactions. Payment volume was solid across all five regions. Growth was particularly strong in India, the United States, Russia, Mexico, and Australia. China payments volume growth remained low in the quarter driven by the dual currency, dual badged card run-off. But I should note that China’s cross-border volume growth continued to be strong. This was reflective of the overall trend as cross-border growth was robust around the globe. In addition to China, Latin America, the U.S., Japan, Russia, and parts of Europe were among the areas of real strength. Looking closer at processed transactions, growth was driven by Asia Pacific, Europe, and North America regions. Client incentives came in lower than expected primarily driven by timing delays and variances relative to our European clients. This translated to financial performance ahead of our expectations for the quarter as we grew both net revenue and EPS by 26% versus last year’s comparable results. Vasant will go into greater financial detail and cover some of the normalized comparisons to last year. As we mentioned during Investor Day, the integration of our European business is progressing well and is on track. More specific to the technology side of the integration, we are focused on migrating the European systems to our global authorization clearing and settlement system, as well as deploying our global data platform and other corporate systems into Europe. We are well underway in that effort and have just completed the upgrade of our U.K. data center on schedule. We expect that client migrations to the new systems will begin by the end of the full year 2018. In moving our European clients to VisaNet, we confirm pride enhanced network capabilities, greater scale, resilience, and additional levels of cybersecurity that will benefit our clients and certainly be more efficient in the long term. We are also making significant progress in strengthening our partnerships and building digital capabilities to drive growth. Earlier this week, we extended our partnership with PayPal to include Europe. We were already collaborating with them in the United States and Asia Pacific to provide a better online experience and this now extends the benefits to European consumers and businesses. Additionally, they have joined the Visa network of clients, financial institutions, and will be able to offer Visa accounts in Europe, enabling consumers and businesses to use their PayPal funds to spend wherever Visa is accepted. The partnership makes it easier for financial institutions to offer their Visa account holders the ability to check out anywhere PayPal is accepted online by offering greater consumer choice. We also announced a strategic investment and planned partnership with Klarna, one of Europe’s leading payment providers. Our planned investment is part of the global strategy to open up our ecosystem and support a broad range of new partners to help redefine and enhance the purchase experience for consumers online and in a mobile environment. Klarna develops products that address changing consumer preferences, giving them the flexibility and seamless experience that they expect and hope for when shopping online. In June, we signed 13 new partners to participate in our token service provider program in all major regions. With the expected increase in digital payments embedded in a growing number of devices, we continue to build out a global network of partners to offer secure digital payment token services and create a more secure commerce platform. We launched the Visa Ready Program for Business Solutions. This is a strategic framework and solidification program to help technology companies that integrate with our B2B payment services to ensure that they meet standards and are market ready. Five initial partners in the U.S. have become Visa Ready as this program will help accelerate growth and enable new use cases for B2B payments. Turning to the international markets, let me first make a couple of comments on China. Yesterday we filed an application with the People’s Bank of China in order to participate in the China domestic market as a bank card clearing institution. China is one of the world’s fastest growing payments markets and is leading the way in payments innovation. Our commitment to this market is long term. We look forward to bringing our capabilities to the industry by stepping up our engagement with all the ecosystem partners to open a constructive collaboration aiming to create added value and introduce innovative products as well as reliable and safe payment experiences for Chinese consumers. We expect that the PDOC will consider our application in line with the publicly released measures and guidelines for PCCI applicants. India represents a large opportunity and we provided some thoughts during Investor Day on how we are approaching the market. We are seeing steady progress with digital payments despite the recent remonetization of cash. Currency in circulation is stabilizing as remonetization comes to an end. The transition to the digital economy has been broad-based across several categories including everyday spend and suggests wide societal participation. This past quarter, we saw payments volume increase over 80% and processed transactions more than double versus last year. In a couple of weeks, I’ll be in India for the first time since joining Visa, and I look forward to seeing firsthand the opportunity that we have in meeting with local partners, officials, and our teammates in India. Once again, we delivered on our commitment to drive value for our shareholders in the quarter by maintaining a prudent capital allocation plan. We invested in support of the growth in our core business through capital spending and expenses. In fiscal Q3, we returned approximately $2.1 billion of capital to shareholders consisting of $1.7 billion of share repurchases and nearly $400 million through dividends. We continue to accelerate our share buyback activity to offset the equity dilution from the Visa Europe transaction. In closing, we continue to see strong momentum in the business, and we are excited about the long-term growth prospects for Visa. As we highlighted during Investor Day, there is a significant opportunity to displace cash and checks of $17 trillion in front of us. We will continue to focus on partnering strategically and driving digital innovation to substantially grow our business into the future. With that, let me now turn the call over to Vasant for some more on the financials.

Thank you, Al. Business momentum stayed strong globally through our third quarter. Net revenue and EPS once again exceeded our expectations. Fiscal third quarter net revenue of $4.6 million was up 26%. Net income for the quarter was $2.1 billion or $0.86 per share. Adjusting last year’s results for several special items related to the acquisition of Visa Europe, both net income and EPS were up 26%. Exchange rate shifts versus the prior year negatively impacted net revenue growth by approximately 1.5 percentage points and EPS by approximately 2 percentage points. A few points to note: global growth rates in payment volumes, processed transactions, and cross-border volumes remain strong and stable. Exchange rate headwinds moderated, though currency volatilities remained below the long-term mean. Timing of client incentives added almost $0.02 to third-quarter results due to delays primarily in Europe, more on this later. We bought back 17.8 million shares of Class A common stock for $1.7 billion in the third quarter at an average price of $93.82. Year-to-date in fiscal 2017 we’ve bought back 59.2 million shares of Class A common stock at an average price of $86.82 per share. A quick review of our key business drivers in the third quarter: U.S. payments volume grew 12%, with credit growing 19% and debit 5%. The slowdown in credit growth from the prior quarter reflects the start of COFCO and U.S. AA Credit conversion in the third quarter of fiscal 2016. Excluding Interlink, debit grew 9%. Declining gas prices negatively impacted payment volume by half a point. Adjusted for conversion and gas prices, underlying credit and debit growth rates have been stable all year. As reported, international payment volume grew 72% in constant dollars. On a comparable and normalized basis, robust payment volume growth continued across the globe. Asia sustained double-digit growth rates excluding China. Domestic payment volume growth in China was impacted by the decline in active dual-branded cards. Strong growth was sustained across EMEA, and Latin America business picked up modestly. In Europe, excluding core batch payment volumes, growth was 9% with strength across most markets. On a constant dollar basis, cross-border volumes grew 147% driven by the inclusion of Europe. Adding Europe to prior results, constant dollar cross-border growth was up over 11%. Through the quarter the dollar weakened and the pound strengthened moderately. Despite these shifts, outbound commerce from the U.S. and inbound commerce into the U.K. remained very strong. U.S. cross-border growth accelerated in the third quarter largely driven by outbound commerce. The cross-international markets, particularly strong corridors, were inbound into Canada, Japan, and Australia and outbound from Latin America, the Middle East, South, and Southeast Asia. Reported cross-border volume growth rates were negatively impacted by over three percentage points by an e-commerce payments platform shifting acquiring of U.K. cardholder volume to the U.K. from another yield location. While this shift impacted our reported cross-border growth rates, it had a minor effect on revenue since this is an intra-EU move the platform made to optimize the European business. As reported, processed transactions grew 44% due to the inclusion of Europe. On a comparable and normalized basis, which includes Europe in prior results, global processed transactions grew 13%. U.S. growth rates were stable; international growth rates were helped by India and some new business in Europe. India processed transaction growth stayed above 100%. Through July 14, U.S. payment volumes are up 10%, global constant dollar cross-border volumes grew 12%, and processed transaction growth was 14%. A brief review of fiscal third-quarter financial results: With strong momentum in the key business drivers and helped by some moderation in exchange rate headwinds, growth rates on all key revenue lines stepped up in Q3. Service revenues grew 19%, data processing revenues grew 29%, and international revenues grew 45%, even as currency volatility stayed below the long-term mean. As I mentioned earlier, client incentives came in lower than expected and added almost $0.02 to the third-quarter EPS. This was primarily due to delays in Europe. We are making good progress in resetting our commercial terms for key clients post-removal of rebates. We are pushing hard to get most of the deals we wanted done before the end of this fiscal year. Our current expectation is we will get 75% to 80% of the way there by September. At this point, we expect the remaining 20% to 25% to shift into fiscal 2018, largely due to client preferences and timetables. This shift in Europe is the primary reason why we now expect client incentives as a percent of gross revenues to come in below the low end of our original outlook range of 20.5% to 21.5%. After adjusting for various special items in last year’s results, expenses grew 31%. As expected, expense growth ramped up from the first-half levels as we stepped up technology as well as Europe integration spending. Our tax rate was 29.3% driven by the geographic mix of our global earnings and the benefits of the legal entity reorganization we completed last quarter. As we look ahead to the fourth quarter, it’s important to remind you of three events that occurred in June 2016 which will significantly impact our reported growth rates on key metrics going forward. First and foremost, and the most important, is the closing of the Visa Europe transaction. Starting with the fourth quarter, reported growth rates will include Visa Europe and all prior year numbers. Second is the COFCO conversion. Starting in the fourth quarter of fiscal 2017, our U.S. credit growth rates will include COFCO in prior year numbers. In addition, the U.S. AA Credit conversion was completed in September and the debit conversion was finished by October last year. Third is the 2016 Brexit vote followed by sharp declines in the Pound and later the Euro. This will reduce the exchange rate drag we have experienced so far this year. This also drove the sharp increase of cross-border commerce into the U.K. Also of note, the fourth quarter of fiscal year 2016 was the first time cross-border growth rates globally hit double digits in almost three years. Starting in the fourth quarter, we will begin to lap the global cross-border recovery. We have factored all this into our updated outlook for the year. We are raising nominal net revenue growth expectations for the year to approximately 20%. This is a result of the strong growth we have reported to date, lower client incentives at 20% to 20.5% of gross revenues, and moderation in the exchange rate drag to approximately 2 percentage points. With higher revenue growth, we are also raising a nominal adjusted EPS growth outlook to approximately 20% with a 2.5 percentage point exchange rate drag. Included in this outlook is a reduction in European integration costs of $60 million. Margin and tax rate expectations remain unchanged. Finally, a couple of updates on cash and debt. We returned more cash to the U.S. in the third quarter. Year-to-date, we have returned approximately $4 billion back to the U.S. As you know, in December 2016, we issued $16 billion of debt. The first tranche of this debt, $1.7 billion, matures in December this year. Between Labor Day and December, we plan to access debt markets to refinance maturing debt and an additional amount to fund the completion of stock buybacks that neutralize the impact of stock issued in connection with the Visa Europe acquisition. Before I finish, I have one more topic. A couple of weeks back, Jack informed me of his intention to retire at the end of this year. On behalf of Visa’s management, I want to thank Jack for his decade of contributions to Visa. As most of you know, Jack was Visa’s first IR leader as a public company. Jack built our investor relations department from the ground up, establishing and nurturing relationships with all of you over the years, and he has been a key advocate for Visa.

Thanks, Vasant. And before we start the Q&A, let me just add to Vasant’s very nice comments there. It’s been a real honor and a privilege working for this organization and the people in it for the last 10 years. But it’s always good to go out on top. I’ve known a lot of you for ten years, and some of you for as many as 20. And it’s been a great ride and I really enjoy the interactions with each and every one of you. And so with that, Jenny, we are ready for questions.

Jack I know that Visa stock has gone up too much, and you are too rich, so it’s not a big surprise here, so I hope to take the ski lift that you’ll be running. But....

He doesn’t need a lift.

No it’s great, congratulations. But just, I guess I mean the numbers have been very good obviously to Investor Day; I think the company seems pretty upbeat. I just wanted to know if there is a way that as you look at your numbers, if you can split out the growth and tell us if there has been acceleration in the secular shift away from cash and checks to electronic payments. I know there’s a lot going on with market share in COFCO and different things, but I just wanted if you look at that, if there is a way if you think there’s been some acceleration in secular trends.

Yes, if you – I think as I said in my comments, if you start to take out the conversions and adjust for gas prices and volatile things like that, the underlying trend of credit growth in the U.S. for the last three quarters has been very steady and stable in the high single-digit, and debit growth has also been very steady and stable. If you look at our payments volumes through the first three quarters of this year, again strong and stable. We have been converting cash to digital at a pretty hefty clip for the past five years and I would say there is no change in that trend. Global economies recovering have clearly helped this year, so if you remember on Investor Day, we talked about PCE penetration and PCE growth; the PCE growth component certainly has been helpful. And then the last thing of course is the recovery on the cross-border side. And Al, I don’t know if you want to add. I agree with everything Vasant mentioned. While we've certainly seen significant digital adoption, we are still in the early stages. As we discussed on Investor Day, when we venture into E&M commerce, we effectively neutralize our main competitor, which is cash. This will continue to serve as a strong growth driver for us moving forward.

Great. Thank you. Appreciate it.

Hey, thanks. So, another quarter of very strong results internationally. It seems that Visa Europe has been exceeding at least our expectations to almost every quarter since the transaction kind of took place. Is there any way to kind of get us some color in terms of where you see the upside coming from versus original expectations? And then, on top of that, I think you've indicated that the yields from renewing some of that book of business have been better than expected, maybe some more color on that as well. Thank you.

I think we’ve been very pleased with Europe on a number of fronts, especially given the fact that there's been a fair amount of disruption for the people who work in that business between the integration as well as the regulatory requirement to split scheme and processing in the marketplace. Our employees have remained incredibly resilient. And I think in general the European economy has been frankly better than we thought. As you know, our largest presence by quite a large measure is in the U.K., and the U.K. has held up well and as Vasant said in his remarks, benefited from the lower value of the pound, driving lots of inbound traffic into the U.K., that certainly has helped. And when we look around the rest of Europe, our largest presences are in France and Spain, which have also held up well. And then we’re seeing countries like the Nordics continue to do well. In terms of the yield side of it, we’re still working our way through redoing the contracts. As both of us alluded to in our remarks, it's just a bit more of a slog to get there than we might have thought or hoped in the first place. But we are making good progress. I think we’ll continue to make good progress as we proceed through into the fourth quarter, and to the degree that we've got good incentives built in place and we’re getting good volume growth, all boats rise, which is a good thing for everybody.

Vasant mentioned some new business opportunities in Europe. Is there anything significant happening there?

No. I had said that on the processed transaction side, yes, we’ve been saying for a couple of quarters that we had some gains in Europe on the processed transaction side. But overall, as Al said, I mean, we’re very pleased with the way the vast majority of our business in Europe is under contract, and we have been for a certain portion of that working with clients to reset commercial terms once rebates went away, and that's gone well longer than we would have liked, but it's going well. So, on all fronts, Europe has done, as we’ve said before, equal to or better than we expected. And from an accretion standpoint, certainly has been performing better than we expected, and we’ll give you a little more about that once we are through with the year and can give you a full sense of the year.

Good afternoon. Thanks for taking my question and good luck to you, Jack, in your future endeavors. I guess my question really comes down to the cross-border. Obviously, the volume is holding in there, but at least by our calculations it looks like the cross-border yield improved somewhat. So, can you maybe give us a sense of whether that's correct, and if so, what drove it? Was it regional mix? Was there some pricing impact or was it one of wins you just referred to?

No, I don't think you should assume that there was an improvement in yield. Clearly, there are some changes from quarter to quarter in the mix. Some of this could be attributed to the exchange rate moderating a bit, which helps our reported cross-border dollar figures. However, there was no significant change that would lead to a major shift in yields in the cross-border business.

And maybe you could also just kind of address the incentive levels, and you talked about being almost 80% of the way there by the time you finish this fiscal year. Can you maybe just address directionally where those incentive levels would go in terms of normalizing as we head into 2018?

Yes. We’ll talk about that when we talk about 2018. We’re not – I mean, if your question was what’s the likely range of incentives or the percent of gross revenues and all that next year. I think we can get into all that when we talk about 2018, so it’s a little too early to talk about all that right now. I think all we were signaling was that there is going to be some shift in Europe of incentives from what we thought we would get done this year into next year. And I want to emphasize that is driven more by client preferences and timetables and their desire to do things on a certain timetable than ours, and we’re adapting to their requirements.

Thank you, Jack. Congratulations, my friend. It’s been enjoyable. I have a question about the change in guidance. Can you explain the change in guidance? How much of it is due to incentives versus other factors? Regarding the change to the incentive outlook, is it related to timing, or do you expect to pay a bit less than what you estimated previously?

Well, there’s a little bit of let's call it better than expected execution, a little bit of it in Europe, but you should think of it as almost all timing and almost all Europe. So that's one contributor. The three factors that went into sort of the change in the outlook are the performance we’ve had to date, some moderation in the exchange rate headwind, and some reduction in the original expectation on incentives. And on the EPS side, it reflects the benefits we’re getting from the tax rate we now have, which we talked about last quarter, as well as the revenue being stronger than we had thought at the beginning of the year. So there's no – there’s nothing unusual other than the actual results and the trends we’re seeing.

Hi, everyone, and congratulations, Jack; we’re going to miss your unique sense of humor. I have a follow-up question regarding incentives related to Tien-Tsin's inquiry. As the expected level of incentives gets pushed out, does that increase the likelihood of some unexpected volatility? Will there be a quarter where we experience a sudden rebound that surprises people, or will it likely just continue to gradually trend out?

I’d like to remind everyone that there are several factors that make this difficult to predict. We've demonstrated how challenging it is to forecast since we haven't achieved the expected numbers in the last few quarters. The key issues are when the deal will actually be finalized, what the terms of the deal will be as we enter the final negotiation stages, and what volumes will be delivered under those terms. The fact is, the time required to finalize over a hundred client contracts is taking longer than we anticipated. We prefer not to predict or forecast business on a quarter-by-quarter basis. Instead, this is simply a process we need to complete, and as Vasant mentioned, we hope to conclude about 80% of it by the end of the fiscal year.

And as we’ve told you before, I mean, it’s not something we think should be focused on to the extent it is on a quarter by quarter basis. And as you know, we explicitly don't try to get deals done based on quarterly timetables and so on. So the short answer to your question is that a snapback kind of thing? No. But is there likely to be a quarter where incentives run higher than we might have expected? Of course, I mean just as they’ve run lower than we expected in some quarters and some quarters they could run higher than we expected. But that isn’t any snapback kind of reasons that you should expect. We typically look ahead and give you our better sense of what might get done in the quarter coming up.

Nice, guys. Just first of all, Jack, congrats again. We’ll catch up soon, but we’re going to miss you, obviously. Just on the higher level now, if you can just touch again, I mean on the pricing environment a bit more. You know, again, you commented on yields coming in better in Europe since the deal, and we've seen a number of years where obviously incentives and rebates have been higher both as a percentage of gross revenues on a year-to-year basis. It feels like at some point on the gross yield side, it's going higher, but the rebate side is keeping up pace to some extent that you would see a bit of a divergence between the two. I mean, is there anything you can comment on conceptually and what you're seeing in your conversations with clients? Has there been more of a realization that the value add you guys provide has reached the level where pricing is at a point where we don't need to keep providing higher and higher incentives and rebates? This is about the right points. Just a little more color on that would be great? And then just a quick comment on Q4, I know you're saying some of the European stuff is pushed and there’s been a lot of questions on incentives, but it looks like calculating what you're guiding would be about $200 million sequential increase in your incentive and rebate line, which is kind of a lot. I mean, it's just hard to envision why that would all be in one quarter unless there’s I think someone else has other things going on. So that’s really just the thought of the question. Thanks, guys.

In response to the first question, Darrin, the overall numbers reflect hundreds of deals worldwide, each with its unique characteristics. Generally, many of our clients value various aspects of Visa's offerings, as evidenced by the longstanding nature of our relationships that span decades. Clients appreciate our global scale, risk and fraud prevention tools, and brand reputation. However, negotiations can lead to compromises for all parties involved. From my discussions with clients globally, I haven't observed a diminished perception of the value we provide. As we transition into a more digital landscape and strive to lead in digital tools and solutions, many issuers, especially those outside the top-tier with the means to invest, find significant value in what we offer. Vasant, do you have anything to add?

The only thing was that there was a specific question on why client incentive if you derived the fourth quarter might look the way they do. I would say a couple of things. There is the fiscal fourth quarter effect to some degree in that we have been talking to people, especially in Europe for several months now in and it back and forth on finalizing agreements and the documentation and so on. And there’s a fair amount of that is happening in the fourth quarter and as we get it done in the fourth quarter since these discussions have been underway for a few months. As happens in many cases, the incentives you pay reflect when the deal was either agreed to or initially discussed. So there’s an element of retro-attractiveness to it, all of which is captured in the incentives you would probably recognize in the fourth quarter. So some elements of all that flow into it, and then as Al said, I mean, we have a fairly rigorous process, and we do the best we can to give you the best sense, but in the end we won't sign a deal because a quarterly deadline is approaching, but we’ll do our very best to get done everything we are setting out to do right now.

Hi. Jack, it’s been a pleasure over the better part of 15 years, hopefully we can meet up in Tahoe one day. Regarding the business, can you first comment on what your success rate has been in Asia and China specifically in converting dual-brand cards into a single brand companion card for cross-border? And secondly, was there any benefit in service fees from the restructuring of contracts around the breakup of scheme and processing in Europe? Thanks.

On service fees in Europe, really sort of it’s – the breakup of scheme and processing. We’ll see over time what the impact is. But in the short run, it really has no impact on the fee structure that was in place. But it will evolve over time, I’m sure. In China you know...

I think in China we have I think we have 55 banks and 42 of them only issue the single branded card. The remaining 14, 13 do the dual branded. We’ve had some success, frankly not as good as we would like it to be and it's going to continue to be a real focus of ours and something that given the importance of the cross-border volume from China, something that we’re working closely with the banks on. I’m going to be in India and China in three weeks and that is something that I will be talking to both our team there as well as our Chinese client.

Thank you.

Thank you and congratulations Jack, it’s bittersweet. I have another question about incentives, specifically regarding Europe and the commercialization of the contract there. I understand there are some timing-related impacts that are causing lower incentives this year. Are there any specific pricing impacts occurring at the same time as the commercialization of those contracts, or should we expect those changes to occur simultaneously? Thank you.

We made a few pricing changes in the year that we've owned Visa Europe, and we are continuing to evaluate additional pricing changes along with the commercialization of the contracts to eliminate rebates and establish incentives.

Thanks. Jack, I can only say I’m jealous but congratulations. Well deserved, I'm sure. A lot was discussed at the Analyst Day regarding Visa Direct, and I wanted to focus on the partnership you have with PayPal and the collaboration you’re undertaking. Are the debit cards that will be issued going to be routed through Visa Direct? Additionally, do you believe that this partnership will protect you from some of the risks associated with PSD2? Thanks.

Well, first of all, we’re very pleased to extend our deals that we have with PayPal in North America and Asia into Europe. And particularly the fact that we’re operating full consumer choice, and obviously part of the deal is the ability to use Visa Direct to push PayPal account balance to bank accounts. And it's a fairly extensive deal because there’s also an enablement of Visa Checkout relative to the Braintree Gateway. And in Europe in particular, given the fact that PayPal has a banking license, we’re obviously licensing them as a full-fledged issuer where they'll issue PayPal’s debit cards in Europe. So it's an extensive agreement that absolutely covers Visa Direct, but it also covers the very important aspect of the prior deals centered around full consumer choice as well as then working closely with us in enabling Visa Checkout as well.

I think that everywhere that we can further embed a Visa card into the payment stream and build the loyalty of the consumer certainly helps us. I mean, I think that at the end of the day, PSD2 is going to generate a requirement that everybody focuses really hard on consumers and trying to make sure that they're providing the best possible consumer value propositions and the best possible consumer experiences. So to the degree that we could help further solidify the relationship that our issuers have with their customers, all that can only go to help fortify the issuers against the competition that can come from their accounts happening to be opened.

Hi, guys. Wanted to just ask what percentage of the European contracts are done today? I know you said 75% to 80% is the goal for the end of the year, but just looking for a mark for today. And then secondly, at the time of the Visa Europe acquisition, I think the deal was to be EPS accretive in low single digits for fiscal year 2017 and then high single-digit percentage points range by fiscal year 2020. There’s been a lot of moving pieces here. I'm just looking for an update now on if those goals will stand?

Well, to question number one, Bryan, and I’ll let Vasant answer question number two. We don’t want to get into a daily tally sheet on this, but again we’re not probably going to disappoint by not quantifying exactly where we are, but I think you can assume that we’re somewhere below 80, but above a fairly decent number since we are confident in being able to say we think we can get to 80% by the end of the fourth quarter, but we don't really want to get into setting a precedent of providing that kind of update. Vasant, in terms of accretion?

Yes. In terms of accretion, as you all know, volumes, European economies have been stronger than we expected, so our volumes as you’ve seen have been running better than we might have expected at the beginning of the year. All when we did the acquisition model that valued Visa Europe. Certainly, the weak pound and the euro have helped the cross-border business; frankly, the weak pound has caused a massive amount of cross-border into the U.K. In addition to that, you know that we have taken some pricing and our yields have run a little better than we expected. And so far, things are well in terms of renewals and retaining contracts and business, and so on. So when you put it all together, clearly Visa Europe is doing better than we expected this year, and accretion is running ahead of the low single digits we have told you. But the year isn't over yet, so we’ll till the end of the year and give you an update in October as to whether accretion was in the first year and whether we have a different perspective on the longer-term outlook on accretion. But it's early days and things are going well.

Hi. This is Vasu Govil for James. Thanks for taking my question and Jack, congratulations.

I have a couple of questions. First for Vasant, you mentioned that cross-border volumes will likely surpass the double-digit growth rate next quarter. Can you clarify what is included in your guidance? Are you anticipating that this double-digit growth is sustainable, or do you believe it might slow down to the high single-digit range? Secondly, for Al regarding India, Visa is clearly gaining from the government's push for non-cash payments, but there are local mobile wallet competitors that seem to be capturing significant market share and growing quickly. Could you discuss the competitive landscape and the possibility for the Indian market to skip traditional card payments in favor of mobile? Additionally, how is Visa positioned on the ground to maintain and enhance its presence in electronic payments in India?

So, on the cross-border growth rate, real quick, we like what we see on the cross-border trend. We’ve seen the pound strengthen a bit, but that didn’t change the strength of the cross-border business into the U.K. We saw the dollar weaken a bit, but that didn’t seem to change the trend so far of cross-border business outside, going, leaving the U.S. So overall, the cross-border business seems to have pretty good momentum. And yes, the comparisons get tougher, but we feel pretty optimistic about it. So we’ll wait and see how it goes. When you lap big increases, of course you have to – it’s a little harder to forecast, but we like what we see a lot.

In terms of India, it’s such an exciting market and there's a lot going on, obviously. Because it's an exciting market and a lot going on, there are a number of players trying to get into the market. We’ve been there for a long time. We believe that as we think about growing our network, and in particular merchant acceptance, we have to have different plans in emerging markets versus developed markets, and in the case of India, we clearly have to have a way that's low cost, low hassle, low friction to enable merchants to sign up. And that is why we initially went with a QR code, and now we have worked closely with some of our network colleagues on an interoperable QR code that works with our mVisa application and allows a quick and easy setup for merchants and a relatively easy experience for the India consumer. It is very, very early in the payments maturation curve for India. There are years to still play out here, and we’re going to do everything we can to take advantage of our heritage and tradition, our brand, our different products that are our security, the globality of our network as well as our digital tools to make sure that we’re winning at least our fair share if not more of the business in India as it grows, recognizing clearly that we've got competitors that go beyond just the traditional players that we competed with over the last number of decades.

Thank you. Good evening. When you talk about the impact on expenses from tech investing, could you give us some color on where you’re investing? I assume part of it is China and where else in terms of either geography or products have you guys focused your dollars on?

I’m sorry, you’re talking about technology?

Yes. Your technology, because you guys mentioned that what's driving expense is technology and Visa Europe integration? What is in technology? Where are you spending the money in terms of....

I will begin, and Vasant can add to my comments. China is a key area where we have repeatedly mentioned that we are investing ahead of when we can actually operate there, without knowing the exact timeline. Other significant areas include the open VisaNet, which we discussed during Investor Day. We are working on creating a more open architecture and a modularized version of VisaNet to satisfy our future needs and provide us with the flexibility to conduct necessary processing within a country without complications, such as having a data center in a small closet instead of a large facility requiring extensive electronics and cooling systems. We are also heavily focused on developing various digital tools, which involves considerable research investment. In February, we opened a new facility dedicated to research, where we are exploring applications of blockchain, artificial intelligence, and other methods to enhance our data and analytics capabilities. Lastly, security and cybersecurity are crucial given their importance in the payments ecosystem. We continuously evaluate every available security solution for both physical and cyber threats, ensuring we are at the forefront of these investments to protect transactions both during processing and when stored. Those are the key areas I would mention. Would you like to add anything, Vasant?

Yes, I think the other things Al went through, I think a very comprehensive list. I mean a few other things just to highlight would be continued investment in the Visa developer platform. Investments and now rolling out Visa Checkout and Visa Token Service and mVisa around the world. A big push on mVisa in places like India and parts of Africa. Investments in our innovation centers; you heard about the London Innovation center and how significant it has become. Investments in co-development around our innovation centers with our clients. So there’s a lot of areas where the things we have developed are now in the process of being deployed.

Congratulations, Jack, and one last thing from me. Do you have any updated statistics on Visa Checkout? Additionally, considering the competitive landscape with other digital wallets globally, such as PayPal and some of the approaches from Amazon, are you thinking about enhancing Visa Checkout by adding features like the ability to maintain a store balance through a prepaid option or using Visa Direct for P2P transactions? Why or why not?

Hi Lisa. And answer to your first question, we are nearing 23 million users who have signed, you know actually signed up for Visa Checkout. I think we talked a little bit about this. The whole wallet thing is a bit of a mixed bag of activity around the industry, and I think not necessarily the most user-friendly thing for consumers because there are so many options. We think of this Checkout more as a platform that we necessarily think about it as a wallet. But that said, strategically, I think anything that supports the four-party model that makes sense in terms of integration or capability we’re going to be open to look at as we go forward, because ultimately, we want to be part of a solution of coming up with a smaller number of easy, convenient, and wallet that have the type of functionality that consumers would want and expect and hope that help brings some of what I think is a bit of confusion around wallets and Checkout in the e-commerce world, bring a bit more order to it over time.

Thanks, Lisa.