Earnings Call Transcript
VISA INC. (V)
Earnings Call Transcript - V Q4 2021
Operator, Operator
Welcome to Visa's Fiscal Fourth Quarter and Full Year 2021 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 from Investor Relations, Ms. Jennifer Como and Mr. Mike Miltec. MS. Como, you may begin.
Jennifer Como, Investor Relations
Thanks, Michelle. Good afternoon, everyone. And welcome to Visa's fiscal fourth quarter and full year 2021 earnings call. Joining us today are Al Kelly, Visa's Chairman and Chief Executive Officer and Vasant Prabhu, Visa's Vice Chairman 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 90 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 Form 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.
Al Kelly, CEO
Jennifer, thank you very much. And good afternoon, everyone. And thanks for joining us today. In the fourth quarter and throughout Fiscal 2021, Visa delivered strong results against the backdrop of economic uncertainty and the lingering impacts of the COVID pandemic. In doing so, we demonstrated the resiliency of our business and validated our growth strategy as we continue to drive the rapid growth of digital payments and enable innovation in money movement globally. A quick summary of Q4 results. Fourth-quarter payments volume was 121% of 2019, up about 0.8 points from Q3 and up 17% year-over-year despite the backdrop of a global pandemic this quarter. We also set a record with total global payments volume of $2.8 trillion. Cross-border volume, excluding intra-Europe, was 86% of 2019, 4 points better than Q3 and up 46% year-over-year and process transactions were 124% of 2019, up 4 points from Q3 and up 21% year-over-year. Our net revenues grew 29% year-over-year, and non-GAAP EPS was $1.62, up 44%. And talking to many of you over the last few months, I know you're wondering what lies ahead for Visa and the payments ecosystem as we emerge from the pandemic. So rather than doing my usual report card on the quarter, I'm going to speak more broadly today about the four key reasons why we believe Visa is even better positioned for growth than before the pandemic: 1. There's still enormous opportunity ahead in consumer payments, 2. We continue to enhance our network of networks capability to facilitate money movement more seamlessly and securely for all players in the ecosystem and accelerate the penetration of new flows. Third, value-added services simultaneously help our clients leverage our scale and sophistication while diversifying Visa's business and driving more volume. 4. We enable much of the disruption and innovation in the payments ecosystem, which helps to accelerate Visa's growth. So let me start with number 1, the enormous opportunity in consumer payments. We see that the pandemic has helped to further digitize cash. In the last 12 months, global debit cash volumes, which are primarily the amount of cash withdrawn from Visa debit cards, have increased 4%, while debit payments volume has grown 23%, both on a constant dollar basis. In 2021, the number of monthly active e-commerce credentials and spend per active credential continued to grow strongly. For example, in the U.S., monthly active credentials and active spend per credential both grew by more than 20% on average versus 2019. We've grown credentials for both traditional and new players to 3.7 billion, up 7% year-over-year. After renewing client contracts that represented 55% of our payments volume in the previous 2 years, we renewed contracts that represented 20% in 2021. Let me just highlight a few of those deals in Q4. In our Asia-Pacific region, we renewed 3 of our top 20 issuers, including China Merchants Bank and Bank of China. And in North America, we renewed 3 of the top 15 issuers. PNC renewed the prepaid consumer credit and debit, commercial credit at small business credit, and debit portfolios. Regions also renewed the prepaid consumer credit and debit, commercial credit at small business credit and debit portfolios. And RBC and Visa have ventured into a renewal of their agreement with respect to the issuance of credit, debit, and prepaid cards in Canada. Fintechs have also fueled our growth. In the last year, nearly 30% more fintechs issued Visa credentials, and they have more than doubled their payments volume. Furthermore, fintechs are scaling. Robust, growing acceptance to more than 80 million merchant locations, up 14% year-over-year. And when you include small businesses behind players like Stripe and Square, the number is north of 100 million merchant locations. We've grown to pay to 70% of all face-to-face transactions globally. Excluding the U.S., we have more than 70 countries with over 50% contactless penetration. U.S. penetration is now over 15%, more than double from just a year ago with 400 million cards; quadruple what we had 2 years ago. We know from other markets that tapping brings increased spending and transactions while digitizing cash. We also continue to innovate to make it easier for partners to access and utilize our platforms and capabilities. One recent example is Visa Cloud Connect, which enables clients to connect to VisaNet via the Cloud, eliminating the need for investment in local data centers, telecommunications infrastructure, and any specialized payment hardware. To summarize, consumer payments represent an opportunity, and Visa's credentials, acceptance, and innovation make us confident about our ability to accelerate growth in the future. Moving now to our network of networks, we continue to enhance our capabilities to facilitate money movement seamlessly and securely for all players in the ecosystem while accelerating the penetration of new flows. The total new flows opportunity is $185 trillion. Payments infrastructure, regulations and settlement systems are all very local in nature, creating a lot of complexity in a world of global trade. Our network of networks capability enables Visa to be the single connection point to help clients move value domestically and cross-border over all networks including Visa's own networks, RTPs, and ACHs, as well as new networks in the future, like stable coins and public blockchain. In FY '21, we continued to build out Visa Direct's global reach surpassing 5 billion transactions across 500 programs in nearly 550 enablers, such as acquirers, processors, banks, and fintechs. In the U.S. alone, nearly 120 million cards have sent or received funds using Visa Direct. Visa Direct is uniquely positioned as it has more endpoints and more use cases compared to the next competitor and offers flexible technology. Our growth plan for Visa Direct focuses on four key levers. First, we want to trench existing use cases. P2P is our largest use case, and in FY 2021, we surpassed 200 P2P programs globally. An insurance disbursement is another use case, and this quarter we added nationwide to begin distributing claims. Second, we want to capture the cross-border opportunity for cross-border P2P. During the fourth quarter, we added PaySend, and soon Western Union's U.S. customers will be able to send funds to eligible Visa cards in the Philippines, Thailand, Colombia, and Jamaica, followed by a robust expansion plan for other countries. With the remittances, we're also leveraging our cross-border capabilities for marketplaces, supplier payments, student tuition payments and more. Our third lever to grow is scaling the over 20 live use cases. Recent examples include tipping, fund raising, brokerage account funding in airline vouchers, and in the fourth quarter, we added Yardi in the rental space area for property managers to distribute the security deposits. Finally, we are scaling into new markets. Visa Direct scaled rapidly in several markets, but there are many more where the market conditions are right for acceleration. For example, in Peru, we have a strong P2P footprint and are now adding new use cases, like the innovative payroll solution launched in partnership with Swell, a salary on-demand provider that also seeks to improve financial inclusion. Globally, we have more than quadrupled the number of earned wage access providers on our platform since 2019. In short, we are just scratching the surface on Visa Direct and expect to drive rapid growth in the years ahead to capture the $65 trillion market opportunity. We also have many examples of partners utilizing Visa Direct and our B2B capabilities. This quarter we're pleased that BIM will offer their 400,000 plus business customers the ability to make B2B payments via Visa Direct and through Visa virtual cards. We also have wins with Credorax in Europe for travel through a new commercial card agreement and through JPMorgan's participation in Visa's commercial pace solution. These initiatives will support virtual card capabilities, spur growth in new payment flows and drive incremental volume over time. Visa B2B Connect now operates in more than 100 markets and offers a multilateral network with distributed ledger technology that addresses the pain points of existing solutions, which include transparency and speed. We're also pleased to have launched a partnership with Citi to be a global settlement bank for Visa B2B Connect, which broadens the endpoints available for clients to include Citi's business accounts for moving money cross-border and their clearing capabilities for banks that have not yet been integrated into the B2B Connect network. Given the size and breadth of Citi and our role in facilitating money movement, we're very excited about this capability to expand the Visa B2B Connect network. Looking ahead, open banking plays a vital role in the network of networks. We believe Visa can accelerate the adoption of open banking in Europe with our pending acquisition of Tink. Together we can provide a secure, reliable platform for innovation that can be expanded globally. Whether it's leveraging account data for value-added services or facilitating account to account or pay by bank money movement, open banking creates opportunities for Visa to offer our clients and partners a one-stop shop for money movement, security, data, and valuable customer experiences. Blockchains will also continue to expand our network of networks. Our settlement capabilities on our continued innovation around Crypto APIs and services have been key to winning new partnerships. We have nearly 60 crypto platform partners with the capability to issue Visa credentials, and we’re already capturing over $3.5 billion of payment volume in FY21. The third reason we're even better positioned for growth post-COVID is value-added services, where our scale and sophistication simultaneously help our clients be more successful while diversifying Visa's business and driving more value. Our value-added solutions differentiate Visa's network, enable our clients to adapt to the changing payments ecosystem, and deliver valuable services across other rails, enhancing our network and network capabilities. In 2021, 40% of our clients used 5 or more value-added services and nearly 30% use 10 or more, which is up from 20% in 2020. Let me highlight a few services that have grown significantly in 2021. Cybersource added 28 new acquirer partners and 45,000 merchants. As a result, we're growing payments volume twice as fast as our broader client base and our risk solution on Cybersource called Decision Manager grew over 30%. We have doubled the number of tokens over the past year to 2.6 billion and enhanced the capabilities to manage them through Visa Cloud Token across more than 8,600 issuers and 800,000 merchants. Tokens have led to a 2.5% increase in approval rates and a 28% reduction in fraud rates. These adept authorizations and Visa Risk Manager utilize artificial intelligence and machine learning capabilities, which helped reduce fraud by $26 billion screening 30% more transactions in 2021 than in 2020. All of our efforts in authentication, risk, identity, and authorization optimization have led to cross-border card-not-present approval rates increasing by nearly 2% in the past year. Therefore, value-added services revenue grew 25% in Q4 and also drove additional volume. Since the pandemic began, our value-added services revenue has averaged the quarterly growth rate in the high teens and was approximately $5 billion in FY21. Finally, the fourth reason that we believe we have great room to grow is that we can enable much of the disruption and innovation in the payments ecosystem, which helps accelerate Visa's growth. These past, present, and future developments are about fostering innovation and enabling new partners’ capabilities and use cases. We enable the disruptors; we help them scale. Disruptors are good for payments and good for Visa. Given our role in the ecosystem, we don't pick winners or losers, but we're well-positioned for growth across many potential outcomes. Let's take Wallets as an example. Wallets have done a tremendous job of building a user base and, in some cases, building acceptance. But at some point, they reach a point where they are seeking digital growth, and many of them are embedding Visa credentials in their wallets. So the consumer can use them anywhere Visa is accepted, as well as receive and send cross-border P2P payments. Line Pay is an excellent example with four portfolios totaling 5.6 million Visa credentials across 3 countries, including a new co-brand in Thailand that was launched in the fourth quarter. Buy Now Pay Later or BNPL is a newer example, but we think we'll have a similar outcome. While installments are fast-growing, they represent just a fraction of the total industry’s payment volume estimated to be about $100 to $150 billion. But we are bringing scale to disruptors. We have a two-pronged strategy where we provide a network solution as well as solutions for our BNPL fintech partners. The network solution offers issuers the ability to extend installments to their existing credit clients and merchants to offer a seamless installment option to their customers with flexible terms. We continue to expand our partnerships in Q4 with HSBC in Malaysia, Moneris, Canada's largest payment processor by volume, and ANZ in Australia with 2022 volume expectations. We also partnered with fintechs in several ways. We generate revenue as customers pay their installments with a Visa card through virtual cards for B2B or consumer payments and through value-added services. The majority of the installment payoffs are on cards today. For example, in Canada over the last year, the number of Visa cards used to repay installments has grown more than 300%. We believe we're currently experiencing BNPL 1.0. Individual fintechs and companies are cutting individual deals, merchant by merchant. Eventually, we believe the business model will evolve to BNPL 2.0, where fintech partners issue Visa credentials to leverage our acceptance and platforms to overcome the difficulty of scaling acceptance globally, merchant by merchant. We're already seeing this evolution begin to take shape. Just this quarter, a Florida company signed a global brand deal that accelerates expansion at scale into several markets. So to close, Visa is better positioned than before the pandemic to capture the opportunity ahead supported by the strong growth in consumer payments, the scale of our platforms, network and capabilities, and new flows and value-added services becoming a greater portion of our revenue. And as cross-border volumes return over the next 2 years, it will only help to further drive our growth. Furthermore, throughout our Company's history, we've demonstrated that our innovation, willingness to partner, and compelling and competitive offers have made our business resilient and successful. With that, I will now turn it over to Vasant to review Q4 and also provide a view of what we believe these opportunities mean for Visa's financial performance in the coming year. Vasant, over to you.
Vasant Prabhu, CFO
Thank you, Al. Good afternoon everyone. Fiscal year 2021 was certainly a year of two very different halves. In the first half, net revenues declined by 4%, and non-GAAP EPS was down 2% as we lapped a pre-COVID first half of 2020. In the second half, the recovery was well underway, and we were lapping some of the worst 2020 COVID impacts. As a result, net revenue grew 28%, and non-GAAP EPS was up 43%. Fiscal's fourth quarter results were better than we expected with net revenues up 29% driven by strong U.S. domestic trends, robust value-added services growth, and higher cross-border volumes from a faster than anticipated recovery in travel. Had we recognized service revenues on current quarter's payment volumes, net revenue growth would have been approximately 22%. GAAP EPS grew 70%, including equity in Investment gains and a one-time non-cash tax expense last year. Non-GAAP EPS rose 44% helped by a lower tax rate. Exchange rate shifts increased both net revenue and EPS growth by approximately 0.5 a points. In constant dollars, global payments volume was up 17% led by continued strength in debit, as well as improving credit spending. Compared to the fourth quarter of 2019, global payments volume was 21% higher, a 0.8% point acceleration from Q3, with debit slowing 1 point and credit improving by 3 points versus Q3. Excluding China, total payments volume growth was 18% or 26% higher than 2019, and a 1 point acceleration from the third quarter. China domestic volumes continue to be impacted by dual-branded conversion, which has minimal revenue impact. U.S. payments volume was up 30% over 2019, consistent with the third quarter. Credit improved 3 points to 17%, helped by consumer small business, and commercial spending. Debit closed 4 points, but remained very strong at 44% about 2019 without much benefit from economic impact payments. Card-present spending improved 3 points to 15% of our 2019, its highest level yet in the pandemic, driven by higher fuel and restaurant spending. Card-not-present volume excluding travel, slowed 6 points to 53% over 2019 as some food and drug spending shifted back to card-present, and retail spend was not as strong without the benefit of stimulus payments. International constant dollar payments volume improved 3 points from Q3, up 15% over 2019 levels. A few regional highlights. Latin America was up 58% from 2019, accelerated 10 points from the third quarter with robust performance across the region fueled by cash digitization and client wins. Our EMEA region remains strong, up 48% from 2019 levels consistent with Q3, also fueled by cash digitization and client wins. Europe was up 20% from 2019, improving 3 points from Q3 due mostly to strong performance across Continental Europe, while Asia-Pacific remains our weakest region, up 5% from 2019 and consistent with Q3, excluding China. Many countries instituted restrictions in the quarter including Australia, New Zealand, Japan, and Singapore, but all have started to recover in the past few weeks. India’s payments volume has fully recovered from the severe COVID outbreak in Q3. Global process transactions were 24% over 2019, improving 4 points from the third quarter as transactions improved faster than volume. Visa Direct transactions grew 35% down from the 50s in the previous 3 quarters. This quarter, we lapped a very strong Q4 of fiscal year 20 when Visa Direct hit 1 billion transactions for the first time. Stimulus payments have ended, and we’re lapping the COVID-related spike in P2P, which is moderating U.S. growth rates. Meanwhile, the international business is ramping nicely, as well as growth from new skills such as cross-border remittances, earned wage access, and marketplace payouts. Across broader volume, recovery continued as more countries opened their borders, while e-commerce spending, excluding travel, remains strong. Constant dollar cross-border volume, excluding transactions within Europe was at 86% of 2019 volumes, a 4 point improvement from Q3, driven by the continued recovery in travel that started in May. Cross-border card-not-present volume excluding travel continued to be very strong at 43% above 2019, declining 13 points from the third quarter but consistent with Q2. As a reminder, the boost we saw in Q3 was primarily from cryptocurrency purchases. Cross-border travel-related spending excluding intra-Europe versus 2019 improved 13 points from Q3 to Q4. It has risen from 40% of 2019 in April to 50% in June, to 61% in September. In terms of air travel, related spending is improving. The flights in Asia-Pacific outbound spend in each region are indexing at similar levels versus 2019 and each improved by between 10 to 20 points in Q4 versus Q3. The largest improvements were in Canada, the Middle East, and across Europe. Europe inbound spend improved by 24 points versus 2019 as popular travel destinations such as France and Italy relaxed their border restrictions. As we've seen consistently during the pandemic, there is pent-up demand for travel as bookings accelerate when the borders opened. Latin America remains by far the strongest destination, well over 2019 levels. U.S. to Mexico travel remained robust with spend more than 60% of our 2019 levels in Q4, while Asia-Pacific remains mostly closed and did not meaningfully improve in the fourth quarter, remaining below 30% of 2019, both inbound and outbound. Moving now to a quick review of fourth quarter financial results, service revenues grew 41% consistent with 39% nominal growth in third quarter payments volume and helped by small pricing modifications. Data processing grew 20%, in line with 21% trusted transactions growth with a small impact from unfavorable country mix. International transaction revenue went up 41%, 7 points lower than nominal cross-border volumes, excluding into Europe due to lapping high-currency volatility last year and unfavorable regional mix. Other revenues grew 36% led by consulting and data services, as well as travel benefits. In total, value-added services revenue grew 25% led by security and identity, as well as consulting and data services with some benefit from COVID-related lapping effects. Client incentives lift 26.7% of gross revenues in line with our expectations. The 90 basis point increase from Q3 was primarily driven by strong performance in the U.S. and Latin America and fewer adjustments for underperformance in certain geographies, partially offset by improving cross-border volume. Operating expenses grew 15% in line with our expectations. Marketing expenses grew 58% in the quarter as we stepped up spending and also lapped reductions in Q4 last year. Personnel and professional services spending also accelerated as we continue to invest in our growth initiatives. We recorded gains from our equity investments of $101 million excluding investment gains, non-GAAP, and non-operating expenses worth $118 million. A non-GAAP tax rate of 16.5% was lower than expected due to the resolution of a tax matter. GAAP EPS was $1.65, and non-GAAP EPS was $1.62, up 44% over last year. We bought 13.2 million shares of Class A common stock at an average price of $231.33 for $3.1 billion this quarter. Including our quarterly dividend of $0.32 per share, we returned over $3.7 billion of capital to shareholders in the quarter. On October 22nd, Visa's Board of Directors authorized a 17% increase in the quarterly dividend to $37.5 per share. For the full year, net revenues increased 10% and non-GAAP EPS of $5.91 was up 17%. We returned $11.5 billion in capital to shareholders by repurchasing 39.7 million shares of Class A common stock at an average price of $219.34 for $8.7 billion and by paying a dividend of $2.8 billion. Before we discuss the year ahead, let me share performance through the first 3 weeks of October. U.S. payments volume was up 32% about 2019, consistent with September with debit at 44% and credit at 22% about 2019. Process transactions were 26% about 2019. Cross-border volume, excluding transactions within Europe on a constant dollar basis was 94% of 2019, which is up 8 points from Q4 and 2 points from September. Travel-related spending versus 2019 improved 4 points compared to September to 65% of 2019. Card-not-present non-travel was 49% about 2019, up 6 points from the fourth quarter and down 2 points from September. Looking ahead to Fiscal Year 2022, our business has been on a recovery track for the past 3 to 4 quarters. However, we're not back to normal yet globally. There are many factors to consider as we project the trajectory of the recovery. Debit and e-commerce outperformed and stay resilient even if credit recovers and in-store shopping returns. The full impact of stimulus payments and support programs ending remains to be seen. Cross-border travel is recovering well, but still well below peak levels with the pace of recovery depending on cross-border and border openings. Asia has not reopened to the degree the rest of the world has. The timing of reopening in key countries across Asia, both domestically and for cross-border travel is a key variable. Most importantly, COVID variants are still with us, and vaccination rates remain low in large parts of the globe. With these factors as the backdrop, forecasting the trajectory of the return to normalcy remains difficult. Visibility four quarters out, while improved, is still not great. For the past few quarters, we have been providing you with our best sense of the business one quarter at a time, and we will continue that practice in fiscal year '22. Assuming current trends are sustained through December, you would expect first quarter net revenue growth in the high teens. Client incentives as a percent of gross revenue are likely to be in the 26% to 27% range, in line with the fourth quarter of fiscal year '21. Sustained investment spending combined with low comparable last year leads to operating expenses continuing to grow in the mid-teens. Non-operating expense is expected to be in the 120 to 130 million range, and tax rates in the 19% to 19.5% range. Looking four quarters out projecting growth, revenue growth poses the greatest challenge and is significantly dependent on the pace of the cross-border travel recovery, as well as the other factors I just mentioned. It is all a function of your assumptions for these variables. In order to be helpful, we will share the assumptions we are making for internal planning purposes. For domestic volumes and transactions, we're assuming no disruptions from COVID-related lockdowns. As such, we assume that the recovery trajectory underway in payments volume and process transactions stays intact through Fiscal Year '22. For cross-border travel, we assume that the recovery underway continues steadily through Fiscal Year '22 to reach 2019 levels in the summer of 2023. We assume the index to 2019 climate from around 60 currently to around 80 by September 2022. We also assume the strong growth in cross-border e-commerce continues. We expect new flows and value-added services growth in the high teens. We expect client incentives as a percent of gross revenues to range between 26% to 27% for the year, consistent with the fourth quarter, fiscal year '21 level. Pre-COVID, this percentage increased by 50 to 100 basis points each year due to the impact of new deals and renewals. In Fiscal Year '22, we expect to benefit from revenue mix improvement as cross-border travel continues to recover; partially offset by the lapping of incentive reductions we had in Fiscal Year '21 due to the COVID impact. These assumptions result in the high end of mid-teens net revenue growth for Fiscal Year '22, including over 0.5 point of exchange rate drag from the strengthening dollar. First quarter growth in the high teens will moderate through the year as we lap the recovery in Fiscal Year '21. As I said, these are our assumptions for internal planning purposes. We will continue to provide our outlook for the business one quarter at a time for Fiscal Year '22. In terms of the other elements of the P&L, we expect operating expenses to grow in the low-teens in fiscal year '22 as we step up investment across all three lines of business to lay the foundation for sustained higher growth post-COVID. We’re already increasing marketing investment. We will invest heavily in our technology platforms to continue to enhance functionality, flexibility, security, and reliability. We will invest to sustain the high growth we have in our new flows and value-added services business. And we will continue to add resources in-market to help our clients utilize all of our new capabilities. Expense growth will be higher in the first half and moderate in the second half as we lap the resumption of investment spending in Fiscal Year '21. Non-operating expense is expected to be in the 120 to 130 million ranges each quarter, and our tax rate for the year is also expected to stay in the 19% to 19.5% range. None of these assumptions include Tink or Currencycloud, which we expect to close in the first half of the fiscal year. They will not be material to Fiscal Year '22 revenue or non-GAAP EPS. Visa remains a network of choice for innovative money movement. We enable innovators and disruptors, and we help them scale. In turn, innovators drive our growth. We have continued to enhance the functionality and flexibility of our network to substantially expand the money movement use cases we serve, supporting the new generation of fintechs as well as driving growth in our new flows business. Our value-added services are our differentiation and create more value for our clients than alternative networks can. Our network of networks strategy substantially increases our loans, which we believe can create more value for all network participants than any closed loop or geographically limited network. As we said at our Investor Day, we have a 10x growth opportunity ahead of us, and we are well-positioned to capture it. We ended Fiscal Year '21 with good momentum, a high-growth, resilient dividend e-commerce business, recovering credit and cross-border travel, and new flows and value-added services on newer growth engines driving further acceleration. With that, I'll hand it over to Mike for the Q&A.
Mike Milotich, Investor Relations
Thank you, Vasant. We're ready to take questions, Michelle.
Operator, Operator
Thank you, Lisa Ellis from MoffettNathanson, you may go ahead.
Lisa Ellis, Analyst
Good afternoon. Thanks for taking my question. Al, I wanted to follow up on number 2 on your list that was related to Visa's network of networks. You highlighted open banking as one area that you view as positive for Visa because it enables new flows and value-added services. It's often perceived, however, that open banking is a negative for Visa because it can shift volume away from debit. Can you just elaborate on this point and how Visa benefits from open banking? Thank you.
Al Kelly, CEO
Thank you, Lisa. First of all, open banking is still in its early stages. We believe that by engaging with it, we can assist the ecosystem in identifying the best routing for various transactions. Some transactions may suit an account-to-account approach, which some may see as a threat. However, many transactions require the protections offered by a network, such as dispute resolution and fraud protection. While instant money transfers are appealing, recovering funds once they're moved is quite challenging, and there are many considerations beyond just speed. Additionally, by collaborating with Tink, we position ourselves at the forefront of this evolution, allowing us to learn continuously and create potential value-added services for transactions that may utilize different networks. Ultimately, we may see some transactions that are incremental and might transition away from Visa, but by engaging actively, we will gain insights and influence developments, enabling us to offer additional capabilities and value-added services for various transactions.
Operator, Operator
Thank you.
David Koning, Analyst
Oh, yeah. Hey, thanks, guys. One thing I noticed was the last 6 years. I looked at the fiscal years and every year, U.S. volumes grew the same or faster than rest of the world volumes. Maybe discuss a little bit. I know COVID the last year generated some of that, but as we look over the next 5 or even 10 years, A, does that reverse, and B, as part of the U.S. growth, is it just all the new fintech stuff that's happened in the U.S. just creating a lift that is allowing kind of that outpacing?
Al Kelly, CEO
Well, I think David; it's a combination of things. It's certainly the explosion of some of the neobanks and fintechs. Although you're saying those really developed all over the world. I would also say though that our Visa Direct platform is much more mature in the U.S. than it is in other markets, and that has certainly helped spark some of the growth as well. I also think that the U.S. had, prior to the pandemic at least, been more advanced in e-commerce capabilities. And was much adjusted even more quickly than other markets might have. As we saw a rapid move towards cash digitization as COVID set upon us in March of 2020. All that said, we are setting out to invest around the globe and we want our business to grow in all markets and territories in which we do work. We are more than happy to have the U.S. continue to grow, but I think as I look at the future of the business over the next 5 to 10 years, I expect still healthy growth in the U.S., but I do expect our volumes to continue to grow in a nice way around the world. I mean, you saw this prior quarter as good as the growth was in the U.S. in the quarter, both Latin America and CEMEA had very, very strong quarters. And International growth was really held back by Asia-Pacific, which is really been hit very, very hard by lockdowns and restrictions as a result of the pandemic.
Vasant Prabhu, CFO
One other thing I might add as you look ahead, all the points Al made indicate that even international is a little held back right now because Asia, which is almost 20% of our payments volume, is only growing at the low-single-digit levels, because they are largely still not open. The one thing to think about as we look ahead, as we said earlier, that Al mentioned in his comments, contactless payments are already 70% penetrated outside the U.S. This represents a growth engine in the U.S. that is just beginning to take off, and given the size of the U.S., that will be a meaningful contributor to transactions growth. We also know that Tap to Pay digitizes cash and allows us to capture a much larger share of transactions at the point-of-sale.
James Faucette, Analyst
Thank you very much. I want to go back to one of the comments that you made as it relates to Buy Now, Pay Later in the growth of that, and how you see that as a growth avenue for Visa. Can you talk a little bit? I think I conceptually get the idea of expanding acceptance and the advantages that this can provide there, but if you provide a little bit more color on how you think that evolves and what those transactions will look like in a way that will benefit Visa? Thank you very much.
Al Kelly, CEO
I think in the short-term, James, we're seeing many of these players use us and use our credentials, whether they're virtual cards or debit or credit cards to actually pay off the various installments. And so we're getting instead of one transaction, we're getting four transactions. And certainly, that's very good for us. The point I was making is that in many ways, BNPL is a closed-loop capability; somewhat akin to what wallets were three years ago. Closed loops just end up hitting a wall. They don’t end up growing indefinitely; they end up hitting a wall where it's hard to scale and hard to bring the level of depth of choice that you can add to your customers. And so what I think is going to happen is that BNPL players will become issuers who will issue Visa credentials that embed their value proposition for installments within the product itself. So they can therefore scale very quickly by immediately having access to the 100 million merchants that I referenced in my remarks. And so that's what I believe, based on history, is going to happen, and that's what I'm referring to when I say BNPL 2.0.
Sanjay Sakhrani, Analyst
Thanks. So the reopening of the U.S. border should be a pretty big catalyst for you guys. I'm just curious if you guys are seeing anything in terms of bookings that's giving you any perspectives on the trajectory that you outlined. And maybe what's assumed inside your expectations. Thanks.
Vasant Prabhu, CFO
The U.S. border situation regarding inbound travel may explain why international revenues haven't increased as much as international volumes. Significant inbound travel has been robust in the CEMEA region and Latin America, which are relatively open now, and there has also been notable improvement in Europe. However, the U.S. remains largely restricted to inbound travel, except for U.S. citizens, making it comparatively weaker than other regions outside of Asia. This presents a clear opportunity since it is a higher-yielding corridor, and we anticipate benefits once travel from Canada and Europe is allowed. It is challenging to predict the exact mix, but this factor is included in our projections for how cross-border travel will progress. For cross-border travel to reach our expectations by the end of fiscal year '22, we need to see improvements in inbound travel to the U.S., which is an essential part of the overall equation.
Harshita Rawat, Analyst
Hi, good afternoon. Thanks for taking my question. I wanted to follow up on your comments about enabling disruptors as they grow for Visa. As we're seeing this rise of two-sided networks around the world, digital wallets, buy now pay later constraints, super apps. You talked about them becoming the newest issuers of Visa credentials, or something that you're already seeing. Do you think they also pose a risk if they use account-to-account payments that open banking presents in terms of cost longer-term? Thanks.
Al Kelly, CEO
Again, my view on all of these new players has always been that we assume they can be additive to the ecosystem and we assume that we can be helpful to them. And so we lean into all of these new players very, very early. It's one of the reasons why we have the position we have right now in crypto, where we have partnerships with over 60 players because we leaned in right from the beginning. I think some of these players will help continue to digitize payments and take money away from cash. It's extremely likely that some transactions will be A to A, but there are A to A transactions today; a lot of regular bill pay is for all types of purposes A to A. So I'm not really sure. It's that big of a deal. But that said, we think that we're in a far better position by leaning in and working with these players. And if we don't actually have the transaction on our network, or we're out of processing the transaction overall, there's still the possibility of providing other capabilities from our toolbox of solutions in value-added services to bring to the party. So how it's all going to play out, we'll have to see, but I'm optimistic that the position that we're taking, which is to lean into all of this, is going to put us in the best place to be successful.
Vasant Prabhu, CFO
Our approach on the network of networks strategy is fundamentally to go to people with solutions that can meet all their money movement needs. And we've told you about how we do it with a variety of players. Whether it's cross-border remittance providers, we allow them to do account-to-account, account-to-card, and card-to-account transactions, any which way they can. We make it easy for them with one connection to get them money wherever it needs to go. In effect, we get your money from point A to point B. The entire journey may not be on our rails; maybe part of the journey is on some other rails, but we can get it there, and we provide all the things you expect from Visa, which is the trust our brand brings, the reliability, the flexibility, the security, the dispute resolution, and all those capabilities. So fundamentally, it's all about providing solutions, and not just about rails.
Darrin Peller, Analyst
Hey. Thanks, guys. It's kind of a two-sided question, but first is on the medium to long term. When we look at debit being stronger, understanding obviously an acceleration on e-commerce and just the other structural positives you've seen with cross-border 94% of '19, even with travel, it's only 65 services strong. I’d be curious if you can touch on what you see as structurally sustainable about these higher than probably what you'd expect pre-pandemic trends, standing versus not. And then when you think about your '22 qualitative look, what would you say were the areas you would try to build in the most conservatism into the outlook in terms of macro assumptions?
Vasant Prabhu, CFO
I think the first question is related to the structural changes that have occurred and are sustainable. The cash digitization engine is clearly very strong, which significantly contributes to debit usage since debit is often the initial step consumers take into digital payments. We've observed sustained growth in debit usage globally, even as card-present transactions have been recovering and retail activities have resumed. The resilience in debit strength has also been supported by Visa Direct. All signs point to the cash digitization engine, particularly in emerging markets, gaining momentum as consumers adapt to using digital payment methods. We believe there is considerable resilience here, supported by data showing that even as conditions normalize, the shift to e-commerce has remained robust. The charts we shared in our press release illustrate that card-present transactions have shown decent recovery in recent quarters, while card-not-present transactions in e-commerce have remained strong, displaying great resilience. New categories in e-commerce are on the rise, with consumers becoming accustomed to online shopping. The most notable area of resilience is in cross-border e-commerce, which has been very strong, indexing in the 140s. We witnessed a spike last quarter due to cryptocurrencies, but it has returned to the 140 range, reflecting significant growth compared to previous rates. This trend has persisted even as cross-border travel resumes and card-present spending increases. These two structural shifts have demonstrated notable resilience. Beyond these, our value-added services have performed very well throughout the pandemic, with average growth in this area over the past 6 to 8 quarters in the high teens. Our new flows businesses have also experienced significant growth, and we anticipate similar high growth rates next year.
Bryan Keane, Analyst
Hi. Good afternoon. Al, some of your peers have decided to buy the ACH rails and Visa has decided not to take that strategy and rely more on Visa Direct. So I was just hoping you could give us your latest thoughts on not needing to own the ACH rails and how it stacks up versus competitiveness versus what you guys have on Visa Direct.
Al Kelly, CEO
Well, whether it's ACH or RTP rails, they're available to us as they are to anybody else. And we don't believe that we have to operate them in order to be successful in our network of networks strategies. We think there are other places to spend our time and our money. Core to our view is that we want to be the traffic cop and facilitator and enabler so that a sender can provide us the funds and tell us where the destination is around the world and through Visa Direct or B2B Connect, and utilizing either the first or last mile at ACH network or an RTP network gives us a great capability to reach what we believe is an unprecedented level of endpoints around the world that we think is a significant differentiator. Visa Direct, beyond its reach, utilizes our VisaNet platform, which offers incredible operating scale. It allows us to leverage our value-added services that operate on VisaNet. We've had great success in commercializing the capabilities through the various use cases that I referred to in my remarks. So we think the place to invest is in the capabilities to move funds seamlessly with great transparency and good economics, and continuing to invest there is the smart thing to do.
Vasant Prabhu, CFO
I would like to clarify a potential misunderstanding regarding your question. Most ACH networks are operated by bank consortiums, which are the central banks worldwide. If you're referring to a specific competitor, they are associated with the RTP networks, which they do not own. Typically, RTP networks are managed by bank consortiums. Their role is to develop the networks and then either transfer them or, in some instances, manage them. As I mentioned, these networks are accessible to everyone at a regulated rate. To my knowledge, the competitor you mentioned does not own any RTP networks. They may have the chance to manage them after contributing to their development, but often, they just build them and move on; these are not proprietary networks. They are available for anyone to use, including our company. We thoroughly evaluated this and determined that creating these networks is not a profitable venture. Instead, we believe that the opportunity lies in using these networks and providing value through added features and intelligence, which is the direction we have chosen to pursue.
Trevor Williams, Analyst
Hey, good afternoon. Thanks for taking the question. I wanted to ask on yields in data processing. I know there are a few moving pieces in there, but I was a little surprised this quarter to see those ticked down by a few percent from the September quarter, despite the improvement in cross-border. So I think it'd be helpful just to get a sense of what the main variables are there. I think from Vasant’s comments, it sounds like there was just some country mix. But as we look to Q4 and '22, just with the expectation that travel keeps working back towards the 2019 levels, like you guys have embedded. How much can that yield line benefit next year? And if there's any pricing that we should be thinking about rolling on next year with that? Thanks.
Vasant Prabhu, CFO
I'm not sure there was any yield impact. Looking at the data processing line, both volumes and revenues moved together without any delay. This quarter, I believe revenue grew around 20% and volumes followed a similar trend. There wasn't any significant change in yield. The cross-border business is still recovering and remains below its previous levels, which has affected yields due to a shift away from cross-border transactions. However, improvements in the mix are contributing positively to yields. Overall, from one quarter to the next, yields remained relatively stable without any unusual fluctuations.
Tien-Tsin Huang, Analyst
Thank you so much. I just wanted to ask, as you put your internal budget and investments together for fiscal '22, aside from cross-border recovering, what products or initiatives are you most excited about this year? I know you lead with the four points about bigger picture growth, but I’m thinking about just near-term products and initiatives that we should be focused on.
Al Kelly, CEO
I'll go with that, Vasant respond as well, Tien-Tsin. Look, I think you know, each of the last 3 or 4 quarters, we've seen the recovery take more shape, and I feel very good about the way the business is advancing right now. I think consumer payments are positioned to stay strong, but in response to the question, a few questions ago, I think e-commerce is going to sustain. I think Tap to Pay is going to sustain. We're starting to see some of the benefits of our acceptance footprint in places like Latin America grow, and we're starting to see more of a shift to P2P and away from cash throughout that region. So consumer payments are still the bread and butter for our Company, and growing credentials, growing acceptance points, and continuing to work with our issuing partners on engagement and getting the most out of their existing customer base remain a very, very high priority for us. I think we've gotten really good traction on our two other revenue streams in new flows and value-added services. We've got a new flows value Visa Direct. We've talked a bunch about and feel very good about that. I think as the world starts to see people returning to the office and travel start to return, I think that's going to help the B2B space. A lot of what I commented on in terms of wins and advances in value-added services in Fiscal '21 will continue into Fiscal '22. So I think in short, I like the fact that we've got a more diverse business model and more leverage to pull. Of course, we want to continue to plant flags in geographies where the business is still payments and money movements are a little bit more, more nascent. But all-in-all, I'm quite bullish on how the business looks as we enter Fiscal '22. Vasant, you want to add to anything?
Vasant Prabhu, CFO
Sure, and then just to sort of give you a sense of where all the investment money is going. I mean, the broad theme is we have substantially expanded the services we offer and the use cases we serve. What that means is we are investing significantly to continue to make our network more flexible. Add more functionality. Every day, our network is getting more flexible and adds more capability. We are adding significantly more services now to sell to our clients. There are many new types of issuers and new types of acceptance points. There’s a big investment in the ground closest to clients to make it easy to incorporate these services into their business. We're also investing to bring in new types of fintechs, if you want to call them, the innovators into our ecosystem. The third dimension also is broadening our brand. You've seen our new brand positioning. If you have watched the Olympics, you couldn't have missed it. It reflects where the future of Visa is. It's not just about consumer payments. So there's clearly an investment in making sure that that message gets across. Broadly speaking, it's enabling new use cases, new geographies, new clients, and repositioning the whole brand for essentially the leader in money movement.
Timothy Chiodo, Analyst
Thanks a lot for taking the question. I'll make this a little bit more of an industry question, but it alludes to something you mentioned earlier in terms of consumer protections, charge-backs to speed processes associated with card-based transactions. Maybe you could just talk a little bit broadly about, of course, there are many account-to-account and bank-based payment methods that are out there globally. Generally speaking, what types of protections do they have, if any? And then the follow-up to that is how Visa can potentially work with some of those account-to-account and bank-based payment methods to help add some of this in terms of the scheme, the process, the protections, security etc.
Al Kelly, CEO
Well, the protections are very important. People tend to be on the biggest consumer protections that we think about are obviously fraud, making sure that consumers are not liable for fraud and charge-back protection that if you order a red large shirt and you get a blue medium one, the ecosystem will stand behind you and either get you a replacement or get your money back. To the best of my knowledge, Tim, I don't think that the A2A options offer any of those kinds of protections to consumers today that I'm aware of. I think we'll have to see as A2A advances and as we get deeper into open banking, particularly starting in Europe, which is really ground zero for open banking. Obviously one of the reasons why we're excited about owning Tink. We'll have to see whether we think that there's a way for us to step in and try to help provide some of those protections for A2A, or it could well be that A2A just has a different profile for our profile of protections or lack thereof for those transactions versus transactions on the run on network like Visa.
Mike Milotich, Investor Relations
We have time for one last question, Michelle.
Operator, Operator
Thank you. Ashwin, Shirvaikar from Citi. You may go ahead, sir.
Ashwin Shirvaikar, Analyst
Thank you. I mean, less than I think it was in your comments you mentioned sustained higher growth post-COVID and unpack this along the lines of U.S. versus non-U.S. in some of the debit versus credit parts. So that was quite helpful, my question is what the margin structure looks like as the revenue structures first normalized and then possibly steps up beyond what was historically.
Vasant Prabhu, CFO
Looking at the average operating margins for the Company, our general view is that we aim to grow volumes and revenues based on the available opportunities, which are significant. We invest accordingly to support this growth. Margins are a result of our efforts, not a primary goal. Our business typically has a high fixed cost structure, with incremental transactions involving low additional costs. Value-added services and new flows businesses generally enjoy good margins, although yields can differ from those in our core payments business. The new flows segment benefits from leveraging our infrastructure and operates at a significant scale, leading to strong margins. We experienced a nice improvement in margins this year compared to the decline during the COVID era. Moving forward, we do not anticipate any major changes in margin dynamics; they will continue to be influenced by the same factors. As I mentioned, margins are an outcome of our actions, not an end goal.
Mike Milotich, Investor Relations
Well, thank you, everyone, for joining us today. If you have additional questions, feel free to reach out to myself or Jennifer, and we're happy to help you. And thanks again and have a great evening.
Operator, Operator
Thank you. This concludes today's conference. You may disconnect at this time.