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Poor cross-border transactions drives Visa’s poor Q4 earnings

Similar to its global counter-part Mastercard, Visa Inc. reported a 17% YoY drop in revenues and a 30% YoY drop in profits for Q4 2020, due to a significant fall in cross-border transactions between July and September this year. The company suffered a 38% YoY drop in cross-border payments globally in Q4 2020, while cross-border volumes excluding intra-Europe fell by 41% YoY, according to its investor presentation.

“While our business drivers and financial results were impacted by Covid-19 in 2020, we’ve made significant progress in advancing our growth strategy. Visa drove the adoption of eCommerce and tap to pay to accelerate cash digitization, successfully unlocked new flows by expanding Visa Direct and B2B partnerships, and facilitated client innovation through our value added services,” said Alfred Kelly Jr., chairman and chief executive officer, Visa.

Early improvement in cross-border transactions

The cross-border recovery has been sluggish during the quarter since most borders remained closed or there were restrictions, Kelly said. However, there were improvements from September onwards as travel was eased between the US, Mexico and the Caribbean, as well as Persian Gulf States and Turkey, he said.

The sharp recovery in these corridors provide some early indicators for how cross-border travel may recover and borders duly opened. And finally, the recovery so far has been uneven. V-shaped for domestic volumes, but L-shaped for cross-border volumes. The cross-border business remains a significant and continued drag on revenue growth. – Alfred Kelly Jr, chairman and CEO, Visa

Focus on electronic payments

“While the underlying business was in various stages of recovery, we saw the acceleration of cash digitization through debit, e-commerce and tap-to-pay and the penetration of new flows through Visa Direct,” said Kelly. In the wake of Covid-19, there was increased interest for digital payments through virtual cards, he said.

The company also expanded its card tokenisation globally crossing the 1.4 billion tokens milestone and enabling over 8,300 issuers across 192 markets,” he said. Visa Direct is the card networks’ payment app that enables real-time fund transferring domestically and internationally.

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“Contact-less penetration grew to 43% of all face-to-face transactions around the world, 65% excluding the United States. U.S. tap-to-pay cards reached $255 million and globally, they were 23 countries that increased their penetration by 25 points or more over fiscal 2019,” Kelly said.

Increasing global partnerships

Visa has expanded its partnerships with fintechs and banks across the world. “We expanded wallet partnerships which now represent over $2 billion in potential credentials and nearly 70 million additional potential acceptance location,” said Kelly.

In India, the card network partnered with Paytm to improve both its acquiring and issuing business, which resulted in 80,000 incremental acceptance points and 1.4 million incremental credentials, Kelly said.

Other partnerships include a renewed agreement with Bank of Communications in China and a deeper partnership with Malaysia-based AmBank, who will be an exclusive Visa credit card issuer. “In the last 90 days, we signed multiple deals with digital wallets including Yandex in Russia, Wing in Cambodia, PAYCO in Korea, Naranja X in Argentina and Easypaisa in Pakistan,” Kelly said.

Financial Snapshot

Overall, debit and credit card transactions grew by 4% YoY to $2,349 globally during the July to October 2020 quarter, according to the investor presentation. There was a 20% YoY growth in global debit card payment volumes to $1,227 billion , while there was a 10% YoY decrease in global credit card payment volumes to $1,121 billion as of September 2020.

Global growth for Visa’s credit and debit card witnessed a deceleration as growth fell in Latin America and Carribean by 16.4% YoY to $201 billions, followed by Asia Pacific at 10.6% to $545 billion, Central and Eastern Europe, Middle East and Africa at Canada by 2.3% YoY to $301 billion at the end of September 2020.

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In the United States, the credit, charge and debit program grew by 8% YoY to $1,262 billion while in Europe it grew by 5.9% YoY to $613 billion, during the same period. While there was a de-growth in credit card transactions by 11% YoY worldwide to $667 billion, the debit card program grew by 9.4% YoY to $1,829 billion.

  • Total payment volumes increased by 4% YoY
  • International transaction revenues declined to $1.3 billion (down by 38% YoY)
  • Total card issuances grew to stood at nearly 3.5 billion (up by 3% YoY)
  • Net revenues stood at $5.1 billion (down by 17% YoY)
  • Net income stood at $2.14 billion (down by 29% YoY)

Investor Presentation | Financial results | Transcript

Also read: Drop in cross-border transactions impacts Mastercard’s Q3 earnings

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Reports on banking, payments, fintech and crypto-curencies. Additional reporting on media regulations, data protection and other areas.

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