Visa at UBS Conference Notes

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Vasant Prabhu

Most of our growth has come from conversion of cash to electronic payment and that has been boosted by the smartphone

“And the global economy hasn’t been booming for the last five years, in fact if you look at personal consumption expenditures globally in real terms — in nominal terms they’ve only grown about 2% or 3%. So, if we were dependant strictly on personal consumption expenditures, we’d be heart stretched to grow our revenue much more than 2% or 3%. The other seven points of growth has come from the most important thing in our business which is the conversion of cash to electronic forms of payment, the digitization of cash. So it’s what we call personal consumption expenditure penetration by cards.

And what is making the biggest difference there is technology. So, today if you live in the Bay Area, you don’t never have to use cash, because thanks to Square and dongles and you can pay for parking with cards, you can pay for taxies, you can pay for everything with cards. And that is a revolution. So, every smart device is both a potential digitized card or a point of sale. So, what’s phenomenal for our business is — mobile is the future, because if you go around the world, of course they’re bypassing landlines; remember the old Visa business was built on hardwires, landline that went from bank-to-bank and so on, and from merchant-to-bank and processor and so on. Today every smartphone or every mobile is either a point of sale or a potential device to use to pay. That is a revolution and extraordinarily attractive to us.”

We are not in China

“Yes from the very beginning when it was announced a year ago that China was opening up, if you listen to everything we said we urge everyone to be cautious on a whole range of front. So I think by and large I think our caution has been filled right. It’s taken the lot longer to get to the point where we can even submit an application and once you submit an application they have to get us a license and then once you get a license we have to get a proximity infrastructure up and running in China. And remember that we don’t operate in China today. We have a nice business in China that is a cross broader business, but we have no real domestic business in China. Visa cards are really not prevalent in most of China, because there was a government monopoly there and we’re not allowed to participate in the domestic market. So we have to build acceptance, and that can take time it costs money.”

Not sure what the economics will be like in China anyways

“And then China already have a relative well developed card based economy as well as alternative payments like Alipay, Tenpay and so on. So it’s a very competitive market it’s not clear what the economics are because when it will setup, it will setup more as a public good and so we have to figure out what the future economics of the business are going to be. So in the short run it’s waiting till we can get started, then it’s a lot of investment and expense, so it’s quite a while before China is something that will meaningfully contribute and we have to be careful in how we do this because it’s not totally clear what the right business model is for China. Because it is a different kind of market and it’ll have to evolve as we go along.”

China has done a very good job of digitizing cash

“China is very unique. I think the Chinese have done a spectacular job of digitizing cash compared to other emerging economies. Between what some of the internet players have done like Alipay and others and what China UnionPay has done, they have actually made a lot of progress in both building card — having cards out there, building the acceptance base and then driving volume. So in many ways China has moved far ahead of a lot of other emerging economies and has evolved in a very different way from them. So I think you go into China, normally we go into countries and we are the pioneers, right, we are the ones who are out there doing the missionary work in building acceptance and building digitization of cash and all that. We go into China where somebody is else has already done that. ”

What makes Visa Visa

“Yes, look Blockchain is a technology that we are watching closely from everything that we hear from our technology people, it’s not something that is easily used in our kind of business which is low ticket transactions with very high volumes. It seems to be more applicable to lower volumes sort of larger transactions and so initially I think the commercial cases are all in back office type clearing systems, where there is certainly an opportunity because a lot of what happens in the back office is not as efficient as it could be. So certainly Blockchain and we are watching it given investment in one of the companies is being used in these kinds of systems and there are experiments going on in other areas, and we’ll watch this closely. But remember that it is very important to remember that yes we are at heart a processing and technology enterprise, but there are three components to what makes Visa, Visa. One is the technology and yes it’s possible there are other technologies that could do what we do, but the real power of Visa is the other two things, which is our network and remember that we are essentially in network of 42 million points of acceptance being connected to 3 billion card holders. So you can have a technology that does what we do, but the real value is in the loans you have in the network. We have to somehow create the network too. So you got to watch both. Is there a technology that can do what we do, but how do you build that network and the chicken and egg issues that go with it. And then on top of all that is our brand because if you are going to carry something in your wallet that is as good as cash and as a result of it you are not carrying cash, it better work all the time.”

Some things have changed in the past two weeks

“we just had our earnings calls less than a month ago, and we went through in some detail what we saw going on around the world. I would say on the margins things are still the same, but clearly in the last two weeks we have seen the few big shifts. I wouldn’t say big shifts but we have seen some shifts and the bulk of the shifts have been in currencies as it relates to our business. In a week the world’s economy can’t change but currencies did move and that does have an impact on our business.”