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Weak cross-border flows continue to weigh down on Visa’s earnings, posts net profit of $3.12 billion

Global card network Visa Inc. posted a net profit of $3.12 billion for the October to December quarter of the financial year, down by 4% from the corresponding period of the previous year. While over payments volumes processed by Visa improved by 5% on an annual basis, cross-border flows remained weak, lower by 21% annually, the company said in its financial statements.

Visa net revenues decreased by 6% YoY to $5.7 billion in Q1FY21, primarily because of weak flows in cross-border payments. The company processed 39.2 billion payment transactions during the quarter, which is 4% higher than in the previous year.

Visa continues to monitor the COVID-19 impact globally. During the quarter, several countries experienced a rise in cases and implemented restrictive measures, primarily impacting card present spending. While cross-border spending did improve for the quarter, it remains depressed, led by travel spending, as the majority of borders remain closed. Card not present excluding travel in both domestic and cross-border volume continued to grow at elevated levels.

Weak recovery in cross-border payments

According to Vasant Prabhu, vice chairman and chief financial officer at Visa, while overall global payments volumes had improved from the previous quarter they were still weaker than expected since credit card spending under-performed and was only slightly offset by higher debit card spending. “In the first quarter of fiscal ’21 our cross-border volumes were almost 40% lower excluding Intra-Europe volumes than they might have been had the pandemic never happened, largely due to travel. Cross-border travel volume both card present and card-not-present is still down almost 70% relative to where it might have been at this point,” he said during an earnings call with analysts.

Prabhu says that the driving factor for growth during the quarter came from debit cards and e-commerce, both of which are well above their pre-COVID levels. “Cross-border growth is poised to recover sharply once vaccines facilitate reopening of borders and we lap last year’s steep declines. Our new flows and value-added services businesses have continued to grow robustly through the worst of the pandemic,” he said.

Focus on small merchants in India

By partnering with State Bank of India and HDFC Bank to push their merchant payments acceptance network in the country, the global card network company hopes to tap the small merchant market providing app-based solutions which bundle payments, banking and value-added services. “We’re also contributing to India’s payment infrastructure development fund to encourage growth of physical and digital acceptance in underpenetrated geography by adding 1 million points of sale and 2 million QR points per year over the next three years. All of these efforts build on our leading credit and debit market share in India,” Alfred F. Kelly, Jr, chairman and chief executive officer at Visa Inc, said during an earnings call with analysts.

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Cryptocurrencies and digital currencies

Kelly says that Visa wants to lead the way in ensuring crypto currency and digital currencies become widely accepted, safe and convenient to use. “We think of the crypto market in two segments. First, there are crypto currencies that represent new assets such as Bitcoin. Second, there are digital currencies or Stablecoins that are directly backed by existing Fiat currencies,” he said.

“Our strategy here is to work with wallets and exchanges to enable users to purchase these currencies using their Visa credentials or to cash out onto a Visa credential to make a Fiat purchase at any of the 70 million merchants where Visa’s accepted globally. This is similar to our approach to connect closed loop wallets such as LINE Pay and Paytm. For the second segment, Fiat backed digital currencies including Stablecoins and Central Bank digital currencies these are an emerging payments innovation that could have the potential to be used for global commerce much like any other Fiat currency…So we see them as part of our network of networks strategy,” Kelly said.

Around 35 leading digital currency platforms and wallets have already partnered with Visa. “These wallet relationships represent the potential for more than 50 million Visa credentials. The next leading network has a fraction of that. And it goes without saying to the extent specific digital currency becomes a recognized means of exchange, there is no reason why we cannot add it to our network, which already is supporting over 160 currencies today,” he said.

Future areas of growth

Kelly says that while domestic growth was driven by debit card spending and e-commerce, holiday spending across categories had improved and is now on a positive momentum despite the COVID-19 pandemic still playing out. “All of these growth levers, consumer payments, new flows and value-added services are driven by our network of networks strategy, which is enabling all forms of payment, utilizing all networks and providing the value-added services you would expect from Visa as we enable money movement,” he said.

“We continue to win and renew business as we transfer money movement globally through consumer payments, new flows and value-added services. In consumer payments, we continue to focus on digitizing $18 trillion spend in cash and check globally by working with partners to grow endpoints and deepen customer engagement with innovation. We are growing credentials with traditional issuers, fintech’s and wallets,” Kelly said. Adding that the company is scaling its commercial card solutions to tap the Business-2-Business payments space, which represents a $185 trillion in opportunity.

Going forward, the company plans to expand its services in cross-border Person-2-Person payments. “Four of the top five global money transfer operators were on-boarded in fiscal year ’20, TransferWise, Western Union, Remitly and MoneyGram, which noted a 500% increase year-over-year in real-time transfers in December alone. Our efforts to expand remittance also extends to fintech’s and banks who can enable this capability,” Kelly said.

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Operational Highlights

  • Payment volumes: Up by 5% YoY to $2.47 trillion
  • Cross Board volumes excluding Europe: Down by 33% YoY to 39.2 billion
  • Global Cross Board volumes: D0wn by 21% YoY to 51.45 billion
  • Credit transactions: Down  by 5% YoY to $1.21 trillion
  • Debit transactions: Up by 17% to $1.26 trillion

Financial Snapshot

  • Net Revenues: $5.7 billion, down by 6% YoY
  • Operating expenses: $1.84 billion, down by 10% YoY
  • Net Income: $3.1 billion, down by 4% YoY

Also read

Download: Financial Results| Investor Presentation|Transcript

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