Welcome to Visa's Fiscal Third Quarter 2022 Earnings Conference Call. All participants are in a listen-only mode until the question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the conference over to your host, Ms. Jennifer Como, Senior Vice President and Global Head of Investor Relations. Ms. Como, you may begin.

Thanks, Jordan. Good afternoon, everyone, and welcome to Visa's fiscal third quarter 2022 earnings call. Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer; and Vasant Prabhu, Visa's Vice Chair and Chief Financial Officer. This call is being webcast on the Investor Relations section of our website at www.investor.visa.com. A replay will be archived on our site for 30 days. A slide deck containing financial and statistical highlights has been posted on our IR website. Let me also remind you that this presentation includes forward-looking statements. These statements are not guarantees of future performance, and our actual results could differ materially as a result of many factors. Additional information concerning those factors is available in our most recent reports on Forms 10-K and 10-Q, which you can find on the SEC's website and the Investor Relations section of our website. For non-GAAP financial information disclosed in this call, the related GAAP measures and reconciliation are available in today's earnings release. And with that, let me turn the call over to Al.

Jennifer, thank you, and good afternoon, everybody, and thank you for joining us. Before I talk about the quarter, I wanted to acknowledge the passing of Dee Hock, Visa's Founder and Chief Executive Officer Emeritus. The whole Visa family deeply mourns the loss of a true visionary and a great man. Even with several global and macro events from the war in Ukraine to inflation, to concerns over a broader recession, Visa's business model has proven to be very resilient, with strong financial performance. Net revenues grew 19% year-over-year, and non-GAAP EPS was $1.98, up 33%. Total Q3 payment volume was 136% versus three years ago, up 1 point from Q2. In the U.S., payments volume indexed to 2019 was 146% in the quarter. U.S. debit volumes were 155% and credit 138% of 2019, both up modestly from Q2. Card-not-present, excluding travel volumes in the U.S., remained significantly ahead of prepandemic levels at 170% of 2019, consistent with Q2. International volume was 120% of 2019, down 1 point from Q2. Excluding China and Russia, it was 146% of 2019, up 6 points. Q3 Cross-border volumes, excluding intra-Europe, were 123% versus three years ago, up 11 points from Q2, and this includes Russia in prior period numbers. Travel-related cross-border volumes rose 22 points from 82% of 2019 in Q2 to 104% in Q3, as we continue to see strong recovery in consumer and commercial travel. Process transactions were 139% versus 2019, 1 point above Q2. Credentials increased 8% year-over-year and are up 11%, excluding Russia. Before I dive into the client wins and progress towards our strategy, I wanted to take a moment to discuss two topics: recession and inflation. On the first, we're not economic forecasters, so I'm not going to predict the future or a potential likelihood of a recession. Instead, let's focus on the facts. From the numbers I just reviewed relative to 2019 levels, growth has been stable or improving in overall domestic payment volume, credit, debit, card present and card-not-present volume. And this indicates most of 2022 with no indication of any slowdown, including in more recent weeks. In cross-border, of course, the recovery has continued to strengthen, while growth has been stable in aggregate; there are big shifts under the surface that continue to demonstrate the momentum of the recovery. First, from goods to services. Early in the pandemic, goods surpassed services. We were seeing the historic trend. Even as services have rebounded in the last six months, the percentage spending on goods in our payments volumes still remained high, higher than the pre-pandemic levels. For example, while U.S. home improvement and retail good spending during the third quarter grew only low single-digit year-over-year, it remains well ahead of pre-pandemic trendline. Second, many discretionary segments have further strengthened. If you look at U.S. travel spend, it is not back to the pre-COVID trendline, but grew more than 40% versus last year. Third, the affluent spend continues to recover, particularly in the areas of restaurants, travel, and entertainment. At the same time, non-affluent spend remained relatively resilient. We mentioned the affluent spend returning to restaurants last quarter. That trend continued this quarter with affluent restaurant spend indexing in the 160% to 180% range versus 2019. Similarly, in Europe in the last six months, luxury hotel payments volume and average ticket size outpaced growth in the overall hotel category versus 2019. At the same time, budget and mid-priced hotels saw modest improvements. Based on our numbers, we haven't seen any evidence of consumer pulling back spending in our markets. Now, a few words on inflation. It's just too early to draw any definitive conclusions. A few observations though on inflation. One, keep in mind that the headline CPI inflation number does not necessarily apply to Visa as our basket of goods isn't the same. Consumers just don't buy homes or use cards with their Visa cards, for example. So, we see a several point gap between headline inflation and inflation in card-related spend categories. Two, thus far, U.S. transaction growth relative to 2019 is strong and stable. Ticket sizes remain around 15 points above 2019 levels as they had for much of the pandemic due to several factors. Three, historically, in the U.S., we have seen PCE growth, which is the most important metric that drives our growth, remains strong even during inflationary periods. That said, lastly, excessive and long-term inflation is not good for consumers or the overall economy. Looking ahead, we'll continue to monitor the potential impact of inflation on ticket sizes, transaction counts, as well as volumes across spend categories. With all of that as backdrop, I'll now provide an update on progress with clients. Traditional issuers remain a key component of our consumer payments growth. And this quarter, we had several important partnership renewals globally. First, in China, we renewed our partnership with ICBC, the largest bank in the world, in terms of assets and the biggest credit card issuer in China in terms of the number of cards. In Japan, we renewed one of the country's largest credit issuers, Credit Saison, and expanded our issuing relationship with Toyota Finance. In Australia, we extended our credit and debit issuing agreements with NAV and CDA, two of the largest banks in the country. And in the U.S., we recently renewed our relationship with Green Dot, a top 20 issuer in debit and a top 10 issuer in prepaid. Fintechs are also key to our consumer payments growth. In Europe alone, we have more than 100 fintech programs that continue to deepen our relationship with these partners. Revolut is a great example. They already utilized a number of our capabilities, including Visa Direct and Currencycloud, and we just renewed our global issuing partnership. They also recently selected Tink for payment initiation services, which will allow users across Europe to seamlessly move money into their Revolut accounts. In many countries, the mobile operators are particularly important partners. We previously mentioned our partnerships with M-Pesa Africa and Safaricom, and I'm happy to report that we have begun issuance with these partners who are part of the Vodacom Group that cover 130 million customers in Sub-Saharan Africa. In a similar light, we also recently signed partnerships to issue Visa credentials, and in some cases, also enable Visa Direct with other mobile operators around the world. Mobily in Saudi Arabia with 10 million customers, Ooredoo in Qatar with around 2 million customers, Azercell in Azerbaijan with 5 million customers, and Orange Egypt with 27 million customers. I now want to dive a little deeper on two important markets, Brazil and India. Starting in Brazil, over the past two years, we have grown our business through issuing agreements with Itaú, Mercado, Pago, Pataday and Caixa, with a 70% increase in credentials. In addition to traditional credit card issuance partners like Banco do Brasil have been growing their credit base by utilizing Visa's digital acquisition platform that allows them to instantly issue cards in a digital environment. Further, our fintech partners in Brazil, including Banco XP and Neon Pagamentos, have issued more than 20 million credentials over the past two years. On the acceptance side, we've doubled acceptance points since 2020, reaching more than 10 million merchant locations in Brazil. The results of our efforts over the past 8 to 10 quarters is evident in Brazil's payment volume, which in the third quarter was more than 200% of 2019, with e-commerce nearing 300%. In India, our efforts over the last few years are paying off and Q3 payments volume was 184% of 2019, with e-commerce above 300%. Building on that momentum, we had co-brand wins with two of the largest multibillion-dollar revenue Indian conglomerates that collectively represent millions of potential credentials. One with TataNeu, a super app for e-commerce financial services and loyalty programs across the Tata Group; two, with Aditya Birla Finance and SBI Cards, which provide rewards for spending across all of their group companies. We also signed a co-brand with IndiGo, India's largest airline by number of passengers. And let me briefly touch on the U.S., where there's still great opportunity for cash digitization. We're excited about Tap to Pay, which has now reached 24% of face-to-face transactions in Q3. We're seeing positive trends in terms of additional spend and transaction lift in the U.S. In 2021, the average contactless active debit cardholder had two more transactions and $65 in additional spend each month. We expect this trend to continue, driving incremental payment volumes and transactions for contactless card issuers through faster, simpler POS experiences. Now moving to new flows, which in Q3 had over 20% revenue growth. In B2B, our Q3 commercial payments volume was 145% of 2019, up 6 points from Q2, driven by the return of travel. Q3 was the first quarter in which spend on business travel surpassed 2019 levels. This quarter, we're excited to have reached a significant multiyear agreement with WEX to enable their travel, health, and corporate clients to make payments using Visa virtual card capabilities. WEX is a global leader in financial technology solutions for commercial payments, and we are proud to partner with them. In the fleet space, we reached an agreement with M-PESA, a fintech based out of Kenya. Their fleet and expense management digital platform will address the problem of paying cash in the African trucking business through Visa prepaid reloadable credentials. Visa Direct is a powerful capability for many of our new flows. In this quarter, transactions grew 35%, excluding Russia. On the remittance side, Western Union has enabled Visa Direct for their U.S. customers to send money to select countries globally, expanding upon their initial rollout across Europe in 2021. We also expanded our agreement with Remitly, one of the world's premier digital service remittance companies to offer Visa Direct cross-border payments originating from Canada to bank accounts globally. Another Visa Direct P2P expansion is with LINE Pay in Japan. Already a large wallet issuer, with 6 million Visa credentials, LINE Pay is now enabling Visa Direct for cross-border and domestic use cases such as remittances and cash outs. On wage disbursement, GrubHub, a leading food ordering and delivery marketplace available in over 4,000 U.S. cities, will enable drivers to quickly send their earnings to their eligible debit cards using Visa Direct. We are excited for them to join our other food delivery platforms, including DoorDash and SkipTheDishes. We also reached an agreement with the U.S. tip enabler, TipSend to enable millions of tips disbursements to be pushed to employees' accounts through eligible debit cards at thousands of restaurant locations they serve. For TipSend, 90% of tips in the United States are still dispersed with cash today. In Canada, we reached an agreement with a large fintech, Wealthsimple, for accounts funds in and funds out for their over 2 million clients. Finally, enablers are key to our success in Visa Direct, and we recently signed a deal with Finastra, one of the world's largest financial services software companies and open banking platforms with 8,600 customers and serving 90 of the world's top 100 banks. Together, we will offer Finastra's clients access to cross-border business, the small business at B2C payouts to eligible accounts in multiple currencies and countries. While the U.S. was one of our first markets to achieve scale for Visa Direct, we have many other countries and regions that are growing and scaling. For example, in Latin America, third quarter transactions quadrupled versus last year. We have over 20 domestic and cross-border P2P programs commercially launched or in pilot, such as PLIN and Yape in Peru, WhatsApp in Brazil, and Cash across Central America, in addition to many other programs for other use cases. Now let me move to value-added services, which had Q3 revenue growth of almost 20%. Evaluated services grow through new and existing clients, existing services, expanding geographically and adding new services both organically and through acquisitions. Today, I'll provide an update on recent wins with some of our acquired entities. First, one of our earlier acquisitions, CyberSource, recently added NCR and Global Payments as partners, both intend to offer CyberSource capabilities to their merchant clients. This is an important strategy as our merchant base utilizing CyberSource through acquirers is growing payments volume twice as fast as the rest of our CyberSource business. Cardinal Commerce, our network-agnostic authentication capability, has grown transactions 30% globally year-to-date, with more than double that in Europe, where the secure customer authentication requirement has driven faster adoption of 3D Secure. VERIFI, our network agnostic dispute resolution solution, recently extended its agreement with PNC for VERIFI's cardholder dispute resolution network product. YellowPepper, the network agnostic connectivity platform, just signed Vex, the Brazilian bank that offers its $50 million corporate and individual clients worldwide trade, e-commerce, staff solutions, and most recently an FX API platform. Vex will use YellowPepper's payment initiation services to enable cross-border money movement starting with Visa Direct to send payouts to eligible cards. I mentioned Tink's recent win earlier. Our other acquisition from this fiscal year, Currencycloud, has signed more than 100 Fintech clients since December to provide innovative foreign exchange solutions for cross-border payments. And finally, the tokenization capabilities we acquired, now called Token ID, have been selected by several partners. First, Global Payments will use Visa's Token ID as their strategic go-forward solution for multiple EMV network tokenization services to reduce card-not-present fraud and realize operational efficiencies for their clients. Second, the Clearinghouse, the first U.S. real-time payment network in one of two U.S. ACH networks, chose Visa's Token ID solution to power the secure token exchange. This industry-first account tokenization solution in the United States is utilizing Visa's Token ID payment account tokenization technology to replace sensitive customer account data with unique tokens and reduce the amount of exposed payment data. Our internally developed value-added services are just as important. One very compelling solution is from Visa consulting and analytics. Together with FIS, we recently launched a risk-as-a-service solution powered by data and risk experts. Key components of progress over the past 12 months include our real-time monitoring through our AI-enabled platform has blocked over $2 billion in fraudulent payments volume. Our analysis of potential fraud for proactive testing identified a $15 million exposure to clients. Our capabilities to proactively detect and mitigate cybercriminals' attempts to inject payment skimming malware onto online merchant checkout pages have prevented over $10 million in e-commerce-related losses. And our ability to detect terminal cloning has successfully blocked $3 million in fraud from attempted downloads. In sum, we had a very strong quarter and our results showed it. We made progress continuing to build relationships and solutions across consumer payments, new flows, and value-added services that will fuel future growth around the globe. We remain vigilant in monitoring the trends in our business and the economy and confident in our strategy as we enable the movement of money globally. With that, let me turn it over to Vasant.

Thank you, Al. Good afternoon, everyone. Our fiscal third quarter results showed strong domestic spending and a solid recovery in travel, with net revenues increasing by 19% and GAAP EPS up by 36%. Non-GAAP EPS rose by 33%. The strengthening dollar negatively impacted reported net revenue growth by nearly three points and non-GAAP EPS growth by about three and a half points. In constant dollars, net revenue growth surpassed 21%, and non-GAAP EPS growth was 36%. Excluding Russia, constant dollar net revenue growth reached 26%. Key highlights include strong and stable global payments volume growth compared to pre-COVID levels. In constant dollars, the U.S. index was 2 points higher than in the second quarter, with a 46% increase compared to 2019. The international index, excluding China and Russia, rose by 6 points from the second quarter, also 46% above 2019. Cross-border travel recovery remained robust, with indexed cross-border travel volume, excluding transactions within Europe, increasing from 94 in March to 112 in June, largely due to the reopening of much of Asia at the start of the quarter. The U.S. inbound corridor showed growth, as did travel to and from Europe, ahead of the peak summer travel season. Our three growth drivers—consumer payments, new flows, and value-added services—each grew revenues around 20%. During the quarter, we repurchased nearly $2.5 billion in stock at an average price of $202.16 and added $600 million to the MDL litigation escrow account, effectively acting as a stock buyback at $200.25. We issued EUR 3 billion in debt with maturities between 4 and 12 years, securing attractive coupon rates on our inaugural eurobond issuance, ranging from 1.5% to 2.375%. We have prefunded debt maturities coming due in September and December. Additionally, we suspended operations in Russia late in the second quarter, so there are no volumes, transactions, or revenues from Russia reflected in our third quarter results. Any comparisons to prior periods will include Russia unless stated otherwise. Now regarding the specifics. In constant dollars, global payments volume increased by 12% year-over-year and was 36% above 2019. Excluding China and Russia, total payments volume grew by 17% and was 46% higher than 2019. In the U.S., credit increased by 21%, improving by 3 points to 38% when compared to 2019, driven by travel and fuel spending. Debit grew by 4% year-over-year while maintaining a significant increase of 55% relative to 2019, sustaining over the pre-COVID trend line even as credit has rebounded. Debit has benefited from accelerated cash digitization during the pandemic. U.S. card-present spending increased by 13% and was 27% above 2019, up 6 points. Card-not-present volume, excluding travel, rose by 7% and was 70% higher than 2019. E-commerce levels remain well elevated against the pre-COVID trend, even as card-present spending continues its recovery. Internationally, constant dollar payments volumes, excluding China and Russia, grew by 24% and were 46% higher than 2019. In specific regions, Latin America saw a 40% year-over-year increase, more than doubling levels from 2019, fueled by cash digitization and new client wins. The CEMEA region, excluding Russia, grew by 34% year-over-year, also doubling compared to 2019, supported by client acquisitions and cash digitization. Europe rose by 17% year-over-year and 37% compared to 2019, influenced by a portfolio conversion in the UK; excluding the UK, Europe was 66% above 2019, reflecting market share gains. In Asia Pacific, while still the weakest region, growth improved significantly from the second quarter, showing a 24% year-over-year increase and being 30% above 2019, gaining ground in the second quarter. Global processed transactions increased by 16% year-over-year and were 39% above 2019 levels. Our reported processed transactions were not materially affected by the suspension of operations in Russia, as we did not process domestic transactions there. As for cross-border transactions, constant dollar volume, excluding intra-Europe transactions, increased by 48% year-over-year and 23% compared to 2019. Cross-border card-not-present volume, excluding travel and intra-Europe, grew by 4% year-over-year and was 62% higher than 2019. Travel-related cross-border spending, excluding intra-Europe, surged by 129% year-over-year and has now exceeded pre-COVID levels for the first time, indexing at 104 of 2019. The cross-border travel index increased from low 90s in March and April to 108% in May and 112% in June, demonstrating a significant ramp-up in travel following the easing of restrictions. To highlight a few developments: Canada lifted testing requirements for vaccinated travelers in April, resulting in a 16-point increase in travel to the U.S. in the third quarter to 86% of 2019 levels, aided by visitors from Canada, Europe, and Asia. The removal of entry testing requirements in June offers promise for sustained recovery in U.S. travel. In Latin America and the Caribbean, inbound travel remained robust throughout the COVID years, particularly to Mexico, with significant increases following lifted COVID protocols in multiple countries. Travel to Europe surged dramatically in the third quarter as EU states removed previous travel restrictions, recovering 30 points compared to prior quarters, with North American travel accounting for a significant portion of that. Outbound travel from the CEMEA region also grew, despite the loss of Russia, thanks to tourism and religious travel. With ongoing border openings in Asia, inbound travel recovered by 22 points in the third quarter, reaching 58% of 2019 levels. Turning to our third quarter financials, service revenues increased by 13%, slightly below the nominal growth in Q2 payments volume. Reported Q2 payments volumes included Russia, while third quarter revenues did not, as we accounted for Russia's contributions before halting operations. Data processing revenues grew by 8%, below the growth in transaction volumes due to the Russia operations suspension. Our reported process transactions did not include any domestic transactions from Russia, so the impact on transaction growth was minimal. However, the absence of prior data processing revenue from Russia negatively affected growth by over four points, with an additional two-point drag from exchange rates. International transaction revenues increased by 51%, reflecting a higher increase than the nominal cross-border volume growth. Growth in revenue was supported by currency fluctuations and selective pricing actions. Other revenues rose by 26%, led by consulting and travel benefits services. Robust revenue growth continued across all three of our growth sectors, with each sector increasing about 20%. Consumer payment growth benefited from recovering cross-border volumes, high currency volatility, and strong domestic performance. New flows were bolstered by B2B recovery, with commercial volumes growing by 27% year-over-year and up 45% compared to 2019. Excluding Russia, Visa Direct transactions increased by 35%, driven mainly by strong growth outside the U.S. Value-added services growth was primarily led by consulting services and risk solutions, aided by higher volumes from existing clients, strong retention, and selective pricing adjustments. Client incentives stood at 26.1% of gross revenues, falling short of expectations due to an unexpected recovery in higher-yielding cross-border volumes. Our acquisitions of Currencycloud and Tink contributed approximately 0.5 points to revenue growth, while exchange rates had a roughly 3-point negative influence. The suspension of Russia's operations reduced revenues by about 5 points. GAAP operating expenses grew by 51%, which included a $716 million provision tied to litigation. Non-GAAP operating expenses rose by 15%, with Currencycloud and Tink adding roughly 3 points to this figure. The suspension of Russian operations took out about 3 points of expenses, and beneficial exchange rates had a positive impact of about 2 points. We faced losses from equity investments totaling $246 million, but excluding these losses, non-GAAP non-operating expenses were $73 million. The non-GAAP tax rate stood at 13.3%, with both GAAP and non-GAAP tax rates benefitting by 6 points due to certain resolutions regarding U.S. and foreign tax matters from previous years. Our recurring tax rate remains in the range of 19% to 19.5%. GAAP EPS was reported at $1.60 and non-GAAP EPS at $1.98, reflecting a 33% increase from last year and accounting for a nearly 3.5-point impact from the strengthening dollar. We returned $3.3 billion in capital to shareholders during the quarter through dividends and stock buybacks. In the first three weeks of July, business trends continued to be robust and stable. Year-over-year, U.S. payments volume was up 12%, with debit increasing by 6% and credit by 18%. Compared to 2019, spend growth in the U.S. was 46%, with debit up 55% and credit up 38%. These trends align with the strong third-quarter performance and show consistency across major global markets. Processed transactions rose by 14% year-over-year, achieving a 40% growth compared to 2019. Constant dollar cross-border volume, excluding intra-Europe transactions, surged by 60% compared to the previous year and was 29% over 2019. Card-not-present non-travel growth reached 57% above 2019 levels, while travel-related cross-border volumes were 16% higher. Looking ahead to our fourth-quarter outlook: as Al mentioned, we do not see any signs of decreased consumer spending. U.S. payments volumes have remained steady in the mid-140 range compared to 2019 from January to July 21. International payments volumes, excluding Russia and China, have also remained about 140 since the start of the year. Processed transactions have stabilized around 140 versus 2019. Consequently, we anticipate that the trends observed in payments and processed transactions will continue into the fourth quarter. We will remain vigilant to any changes due to rising interest rates, high inflation, and declining consumer confidence. As of July, the recovery in cross-border volumes has advanced more rapidly than we anticipated last October. For the fourth quarter, we expect stable growth compared to 2019 in cross-border e-commerce, accompanied by improvements in travel to and from Europe and the U.S., particularly from Asia. The next phase of the cross-border travel recovery relies heavily on a full reopening in China, which we do not foresee happening soon. Based on these factors, we predict that fourth quarter net revenues could grow in the high teens to 20% in constant dollars, including contributions from Tink and Currencycloud, which add about 0.5 points, balanced by roughly 5 points deducted due to the suspension of Russia operations. The strengthening dollar continues to impose a significant exchange rate drag, which we estimate will reduce reported net revenue growth by 4 to 5 points. We expect client incentives in Q4 to fall between 26% and 27% of gross revenues, primarily driven by strong expected volume performance across all regions. For the year, we predict client incentives as a percentage of gross revenues to average in the middle of the 25.5% to 26.5% range. We anticipate non-GAAP operating expenses in constant dollars to grow on the low end of the high teens, including 2 points rising from Currencycloud and Tink but offset by 3 points from the cost reductions stemming from the suspension of Russia operations. Personnel costs will see an increase due to granting annual salary raises a quarter earlier than usual for all employees below the SVP level, adding three points to Q4 operating expense growth. Exchange rates may also lower reported operating expense growth by around two points. We expect our tax rate to remain stable in the 19% to 19.5% range. Despite some uncertainties, consumer spending continues to show strength, with stable growth in payments volume, cross-border volume, and processed transactions globally. We have proven our ability to adapt to different environments and are ready to do so again if necessary. We will maintain vigilance, flexibility, and agility moving forward. We are fortunate to have a resilient business model with significant momentum and exceptional long-term growth opportunities.

Thanks, Vasant. And with that, we're ready to take questions, Jordan.

Our first question comes from Sanjay Sakhrani with KBW. Your line is open.

Thanks. I know we're indexing well below where we normally would be if the pandemic didn't occur for cross-border travel. However, I guess there's a fear that we're seeing the strength partly because it's pent-up demand and then inflation. Could you help us think about how you feel about the risks associated with the drop-off in cross-border? And then Vasant, you talked about Asia being the key. How much more strength can we see out of the non-China region? Thanks.

So, I'll start, Sanjay. I actually think cross-border travel has come back very strongly and quicker than we expected, especially considering Asia is still quite low. You heard the numbers for both inbound and outbound travel in Vasant's remarks. Inbound travel to the U.S. was somewhat up until recently due to the required COVID test, and now the strength of the U.S. dollar still presents an opportunity for growth. So, yes, there is definitely some pent-up demand, but I believe that demand will remain strong for some time. I don’t think people will be discouraged even by the higher costs of airline tickets they are facing. If anything, the longer wait times at airports, due to understaffing in various parts of the world, is what concerns me more, but I expect that situation to improve soon. Vasant, do you want to add anything?

Yes, there are several factors influencing this situation. First, there has been a noticeable change in consumer preferences, with a shift from purchasing goods to seeking experiences, and travel is a significant beneficiary of this trend. This includes not only cross-border travel but all types of travel, emphasizing a widespread desire to travel. Secondly, people are eager to travel, and once restrictions are lifted, the response is immediate. The recovery in Asia has been particularly robust, with improvements of nearly 20 points this quarter, and this momentum continues across the region, although entry into countries like China, Japan, and Taiwan remains challenging. Interest in traveling to Europe is also significant, with European travel recovering rapidly and measuring favorably against pre-COVID levels. Latin America is another surprise, where travel interest remains high, and it increased by another 20 points last quarter, indicating strong inbound travel. Overall, this trend appears sustainable, with more recovery anticipated since both Asia and the U.S. are still below 2019 travel levels, suggesting that this growth is likely to continue for some time.

Great. Next question, Jordan?

Our next question comes from Lisa Ellis with MoffettNathanson. Your line is open.

Hi. Good afternoon, guys. Al, you had a number of callouts in the prepared remarks related to Visa Direct. I was hoping to get your perspective on the news that the CFPB is investigating the levels of fraud in Zelle and other domestic P2P services. Can you just comment a bit or give us a little bit of color on how the fraud protections associated with Visa Direct are different or similar to those services and sort of how that type of investigation might impact Visa Direct's role in P2P over the long-term? Thank you.

Well, thanks, Lisa. One of the terrific things about Visa Direct is that it isn't running on a different new platform. It runs on VisaNet and, therefore, has the ability to utilize all of the same capabilities that we have on VisaNet, including those related to KYC and those related to fraud prevention. So, certainly, this is something that we're well aware of and we'll continue to watch closely. I do think that consumers value this P2P capability in very, very big ways, not just in the United States, but around the world, and I certainly expect it to be a use case that continues to grow around the world, and we'll just have to make sure that we're working closely with Zelle and other partners to make sure that we're contributing as much as we can to make sure that that service is as secure as can be, because as you know, trust is a basic underpinning of money movement in every single use case around the world.

Next question, Jordan?

Our next question comes from Darrin Peller with Wolfe Research. Your line is open.

Hey, guys. Thanks. I really want to touch on your willingness and ability to manage expenses and margins going forward in different outcomes, different scenarios. You pulled forward, it looks like salary increases. So does that pull forward some of the OpEx growth we normally see in fiscal 2023? And then just thinking through, if we were to see downturns economically, what kind of willingness and ability do you have to really manage margins going forward?

Yes. The acceleration of salary increases means that when we reach the fourth quarter of next year, we'll be comparing against the increase that is already in place. So, it does slightly reduce the impact on next year since some of it is accounted for this year. In the past, we've adjusted based on external factors, and we will continue to monitor trends and stay flexible, ready to act quickly if necessary. With that said, this business presents significant long-term growth prospects. The new use cases in the new flows business and our opportunities in value-added services for global expansion, deeper client engagement, and adding new services are very substantial. It's important to focus on long-term opportunities and avoid under-investing. However, if challenging times arise, as we did during the pandemic, we will prioritize and sequence our investments. We won't completely halt all investments; instead, we will adapt to the new reality. For instance, during the pandemic, we limited spending in certain areas like cross-border marketing, which was ineffective due to border closures. We will approach similar situations in the future if necessary.

Next question.

Our next question comes from Tien-Tsin Huang with JPMorgan. Your line is open.

Hi, thanks so much. Great results. Very clear. The consumer is strong here. And I know, Al, you said you don't want to predict the macro, but I figured I'd ask if you can comment here on how resilient Visa might be now versus past recessions, because on the one hand, I'm thinking of this product credentials, acceptance, contactless, or that would suggest more resilience. But on the other side, you have more value-added services revenue that might be more cyclical. So I know aside from shocks like the financial crisis and pandemic, your growth premium to PC has been clear. But what about now? Do you feel differently? Any new thinking on how Visa might be different versus past recessions? Thanks.

Thank you, Tien-Tsin. I believe we are significantly different from previous recessions, especially when we look back at the 2008-2009 period. For starters, we are much stronger in debit, which tends to be the preferred payment method during economic downturns. We also have stronger positions in everyday spending categories and in e-commerce. The pandemic accelerated cash utilization, which benefited us. Since the last recession, we have expanded into Europe, which is now a critical part of our business and contributes to our growth. Additionally, we've put more focus on value-added services and new flows. Some of these services are tied to transaction volumes, so if volumes decrease, those services may be affected as well. However, we also have more opportunities to offer value-added services on the volumes we maintain compared to previous recessions. Lastly, it is quite possible that while consumer preferences may shift in what they buy, their payment methods remain consistent, and we fit into that latter category. Overall, we continue to see high spending levels, and consumers are still choosing to pay with Visa regardless of any changes in their purchasing habits.

Next question?

Our next question comes from Harshita Rawat with Bernstein. Your line is open.

Hi, good afternoon. So Al, I want to follow up on your comments on banking. So now that you closed the Tink acquisition earlier this year, can you elaborate on your efforts in open banking and what role can just play? And just taking a step back, how excited are you about the opportunity that open banking presents for Visa? Thanks.

I believe open banking is still in its early stages, but we are well positioned for this market. As you know, Europe is the starting point for open banking, and we have a strong business presence there. Tink operates in 18 European markets and offers a single API that enables customers, mainly developers, to access financial data. It connects to 3,400 banks and financial institutions and has over 10,000 developers. We think that combining our capabilities and relationships will strengthen Tink's existing position and help expand its reach. We are discussing with Tink where to focus next globally. Additionally, we believe our infrastructure, along with our cyber and fraud prevention capabilities, will enhance the security of customer transactions at every stage and promote open banking adoption in Europe. We are enthusiastic about the potential and feel we are in a great position. The key will be how quickly this develops, but we are ready for it to take off.

Next question?

Our next question comes from Bryan Keane with Deutsche Bank. Your line is open.

Hi, guys. I wanted to ask about the three key drivers, all growing over 20% in consumer payments, the new flows and value-added services. As we think about going forward and how this is likely to normalize some, I assume consumer payments growth will slow as cross-border eventually laps some tougher comps. But maybe new flows and value-added services still has some extra juice for growth. Just hoping maybe you could parse through some of the pluses and minuses for the three segments.

Well, Bryan, that's been the thesis from the beginning that we want to make sure that we generate on a sustained ongoing basis attractive revenue growth. And you're certainly correct that at some point in time, depending upon the pace at which Asia cross-border comes back and U.S. inbound cross-border continues to come back, that will settle back into some more normal-level growth rate for consumer payments. I'm not going to predict when that will be, whether that's in two quarters or six quarters or seven quarters, but it will happen at some point in time. And our expectation and aspiration has been that value-added services and new flows will grow at numbers of percentage points higher than consumer payments that will, therefore, allow us to get to sustained revenue growth rate that we think, over time, will be attractive to the investors in the company.

Next question.

Our next question comes from Don Fandetti with Wells Fargo. Your line is open.

I just want to confirm, so just given all the weakness of some of the retailers, you're not seeing any signs on the low-end consumer weakness. And then does your data historically show any correlation around a wealth effect for the more affluent U.S. consumers at Visa?

Don, there are several factors influencing our volumes, and I want to highlight a few. Affluent consumers are coming back to the economy, contributing to increased spending in areas like restaurants and travel, among others. This shift is not solely due to inflation but rather a change in spending habits. The trend of remote and hybrid work continues to affect smaller purchases that typically happen during commutes and lunchtime in an office setting. Smaller transactions, as a portion of total sales, remain lower than pre-pandemic levels. Last year, stimulus measures clearly boosted ticket sizes, especially in discretionary spending, and we are now facing the impact of that. What remains uncertain is the extent of substitution occurring, where people might be purchasing more essentials and fewer discretionary items while maintaining their overall spending, or whether, as some retailers have noted, consumers are shifting from brand-name products to private label options. Additionally, understanding the reduction in consumption is challenging. For instance, consumers might be buying less fuel but spending the same amount overall, or opting for smaller package sizes of items like snacks while maintaining their overall expenditure. Clearly, inflation is reflected in our figures, and shopping habits are likely evolving, but, as I mentioned earlier in response to Tien-Tsin’s question, people are not altering their payment methods.

Yes. I mean going back to your question on whether we're seeing any slowdown in spending by lower income consumers. No, we're not. We keep looking for it because we've heard some other people say it, and we're not seeing any evidence of that. Your second question, I presume was the wealth effect on affluent consumers of what's happening in the stock market and things like that? As Al said, I mean we're not seeing that. If anything, affluent spending has been on the rise and is one of the reasons why we've seen some of the robust growth we saw this quarter. Remember, we're lapping a very significant growth quarter last year that included sizable stimulus payments. And despite that, we had some very good growth this quarter. And a lot of that is driven by affluent consumers, by discretionary spending coming back and no evidence of a wealth effect that people are holding back.

Next question, Jordan.

Our next question comes from David Togut with Evercore ISI. Your line is open.

Thank you. Good afternoon. You've clearly been continuing to be very aggressive on share repurchase. But could you update us on your capital allocation priorities in this particular environment? We've seen obviously a pretty big pullback in valuations and payments. How is your acquisition appetite and pipeline changed today versus, let's say, a year ago?

Yes, our approach to capital allocation hasn't changed. Our top priority remains investing in our core business, which generates substantial free cash flow. We aim to invest in our strong business that has significant growth opportunities, including new use cases and enhancements in value-added services, as well as our core consumer payments operations. Following that, we will assess how mergers and acquisitions can enhance our capabilities. This could involve acquiring companies that expand what we do or those that offer new capabilities, like Tink with open banking or Currencycloud with real-time FX solutions tailored for newer enterprises and fintechs rather than traditional firms. We will keep looking for opportunities that can improve our offerings. As for timing and opportunities, we have remained disciplined in the fluctuating valuation landscape. Our balance sheet is robust, providing us with considerable capacity. We are indeed interested in acquisitions that are justifiable in terms of value. It will take time to see if valuations in private markets become attractive and if companies are available for sale. Nevertheless, M&A is a crucial part of our strategy moving forward. We have specific areas in mind for expansion through M&A, and we will share more details as they develop.

Next question, Jordan.

Our next question comes from Rayna Kumar with UBS. Your line is open.

Good afternoon. Thanks for taking my question. In your remarks, you mentioned pricing actions helped your cross-border revenue. As you look across the breadth of your products and services, do you think there's still more opportunity to improve pricing in certain areas?

Yes, we will continue to monitor this closely. We have extensive experience in pricing within the consumer payments sector and are enhancing our pricing strategy in our newer business areas and value-added services. As we've mentioned before, our goal is to ensure that our pricing is balanced for all stakeholders in the ecosystem while encouraging greater cash digitization and increased money movement throughout our network. In summary, we believe there are still additional opportunities to leverage pricing effectively.

Next question Jordan.

Our next question comes from Ashwin Shirvaikar from Citi. Your line is open.

Thank you. Hey Al, hi Vasant. Great quarter here. It's pretty clear based on your results and comments that the consumer seems unaffected so far. My question was, are you seeing an impact in your conversations with enterprises, so basically banks, merchants, and fintechs, given what's going on in terms of either the pace of decision-making or the types of products or services that they're seeking out now? If you could comment on that.

I have not heard that from any clients or partners that I have talked to. Look, I think everybody is out there wondering whether we're going to or not going to face a recession. We're certainly undeniably in a high inflation environment right now. But given that, that was really driven by a shortage of workers leading to a shortage of production of goods and services and then, you throw the Ukrainian war on top of it, which had some impacts along the way, and all of this coming off of a pandemic, there really isn't a history that provides any kind of insight into exactly what might happen here. We're continuing to do two things. One is to make sure that we're smartly investing in the future to drive our three growth levers. And as Vasant alluded to in response to a question earlier, we're being very vigilant in looking into the numbers and seeing if we see anything that requires us to be proactive in any action that we might take. But at this point, as I think we've said a few times now, the level of consumer spending up through July 21, which was reported on in Vasant's remarks, has remained very resilient. And for how long that will be, one, it remains to be seen. But again, I'd remind everybody that we don't have the same input costs and COGS as other businesses. And we're a company that facilitates payments. So regardless of whether people are consuming differently or substituting one good for another good, they still need to pay for it and they're utilizing our services to do that.

Next question?

Our last question comes from James Faucette with Morgan Stanley. Your line is open.

Great. Thank you very much. Thanks for all the color and commentary, Al and Vasant. Obviously, you can track quite well how the consumer is tracking now across all the different metrics, as we've talked a lot about. When you look forward, can you talk a little bit about what you look at as potential indicators? And I guess, especially since as Sanjay started off the questions around travel, what are you seeing in things around forward bookings and any changes or indications there or elsewhere? Thank you.

Yes, we do not see ourselves as economic forecasters and prefer not to delve into that area. We have mentioned before that we are more likely coincident indicators rather than leading ones. If there’s a shift in spending, we will notice it in real-time. The only segment where we can see a bit ahead is in travel bookings, which remain strong. Whether it’s cross-border or domestic travel bookings, the card-not-present aspect of travel shows no change in trend. Looking out 30 to 60 days, which is the typical lead time for these matters, we do not see any trend changes. In general, much of what we observe aligns with intuition. There is a noticeable shift towards discretionary spending, particularly on experiences that were restricted during the pandemic, such as dining out, entertainment, and travel. While the growth of goods may not match previous year-over-year figures, they are still significantly above pre-COVID trends. Overall, there is nothing unusual to report at this time.

Last question, Jordan.

Our last question comes from Jason Kupferberg with Bank of America. Your line is open.

Thanks guys. I just wanted to come back to cross-border travel. Now that you were at, I think, 116% of 2019 levels in July, I know your prior target was to be at 100% by the end of the fiscal year. So what would be your new target there? And then can you just comment on inbound versus outbound U.S., kind of where that's tracking versus 2019 levels and your thoughts going forward there just given the strength of the dollar? Thank you.

Yeah. I mean outbound from the U.S. is very strong. It's been about 2019 levels now for a few, if not weeks, a couple of months. Inbound to the U.S., we told you was indexing in the high 80s. So it's still below 2019 levels. And we think that there's room for recovery there. What we've seen on the cross-border side is a little bit of a stair step where you have periods where there's rapid growth like you saw in April and May and we saw in October and November, when a variety of countries remove restrictions, you see a huge amount of travel happening fairly quickly. And then you see a certain amount of stabilization after that, like we saw partly because of Omicron in December and January, and we saw in March and April. As you look at the fourth quarter, most of the world is open. And so we are assuming steady improvement in travel out of Asia, steady improvement of travel into and out of Europe, improvement of travel into the U.S. But there are no big openings left, which is why we don't think there'll be a big stair step up in the fourth quarter. We'll wait and see. The big openings left would be China, of course, which we gave you the index. It's still very low. And there's recovery left in Japan, because letting in 20,000 people is one-fifth of what the normal amount of people who go into Japan were. It's more like 100,000 people. So there's a few left. So the short answer is a modest recovery in the fourth quarter, and we'll see what happens.

And with that, we'd like to thank you for joining us today. If you have any additional questions, please feel free to call or email our Investor Relations team. Thanks again, and have a great day.

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