Earnings Call Transcript
VISA INC. (V)
Earnings Call Transcript - V Q3 2021
Operator, Operator
Welcome to Visa's Fiscal Third Quarter 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 Milotich. Ms. Como, you may now begin.
Jennifer Como, Investor Relations
Thanks, Michelle. Fiscal third quarter 2021 earnings call. Before we begin, I want to acknowledge the filing was a little later than usual due to an issue, but hopefully, you had opportunities to review prior to the 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 reply will be archived on our site for 30 days. A slide deck containing financial and statistical highlight 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 the results 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 reconciliations are available in today's earnings release. And with that, let me turn the call over to Al.
Alfred Kelly, CEO
Thanks, Jennifer. Good afternoon. Thank you for joining us. We had a really strong fiscal third quarter as payments volume, processed transactions, and cross-border volume all improved globally. In our time today, I will first cover our results and then discuss our performance to date across our three growth levers: consumer payments, new flows, and value-added services. For the first Q3 results, net revenue rose 27% or 39% if service revenues were recognized based on the current quarter's payment volume. This growth far exceeded our expectations due to the strength in the U.S., improving cross-border volumes, and lower-than-expected client incentives, largely due to deal timing. Non-GAAP EPS was $1.49, up 41%. As we look at volumes of transactions, keep in mind that year-over-year growth rates are less indicative of performance and the business trajectory due to the COVID-19 impact. So once again, we provide metrics compared to 2019 on a constant dollar basis as well as year-over-year growth rates. Payments volume was at 121% of 2019, which is up 5 points from the second quarter and represents a 34% year-over-year growth rate. Cross-border volume, excluding intra-Europe, was 82% of 2019, 7 points better than the second quarter, and up 53% year-over-year. The processed transactions were at 120% of 2019, up 4 points from Q2 and up 39% year-over-year. Vasant will provide more color on our results, so now let me transition to progress relative to our business strategy efforts across our three growth levers that helped to fuel strong results while positioning us to capture future opportunities. In consumer payments this quarter, we saw favorable secular trends and had a number of wins with large issuers, co-brands, and fintechs. Cash displacement trends continued this quarter. Globally, cash volume on Visa debit credentials was at 98% of 2019 levels. Cash taken out of ATMs was flat on Visa debit credentials, which was at 140% of 2019 levels, up 5 points from Q2. While debit remains strong and has accelerated since Q2, credit spending is now also improving. Global credit payments volume was at 104% of 2019, up 4 points from the second quarter. At the same time, face-to-face payments volume trends are stable to improving, while eCommerce or card-not-present remains elevated. When we average across our top markets where we process versus 2019, we see card present improved 10 points, with card-not-present, excluding travel, improving 1 point in Q3 over Q2. Travel is starting to recover both domestically and in cross-border. Again, averaging across our top markets where we process versus 2019, domestic travel spending improved more than 20 points in Q3 over Q2. Globally, cross-border travel, excluding intra-Europe versus 2019, improved 6 points in Q3 over Q2 and exited the quarter in June at 50% of 2019. Simply looking at the absolute levels, it was a record quarter for us with $2.7 trillion in payments volume and payment transactions per day globally, which is up $60 million per day from the last quarter and nearly a $160 million transactions per day from a year ago. And we expect much more recovery to come, especially in the areas of credit and cross-border travel. Tap-to-pay is a key accelerator for many of these trends, including face-to-face spending in both credit and debit. We continue to see countries increasing tap-to-pay limits. For example, in Brazil, the limit was doubled five months ago, and the face-to-face tap-to-pay penetration has already more than doubled from 6% to 14% in that short period. In the United States, this quarter, we surpassed 370 million tap-to-pay enabled cards, and we now have three cities above 25% face-to-face tap-to-pay penetration: New York, San Francisco, and San Jose. Merchant progress continued as well. Target has doubled its tap-to-pay penetration in the last year to two out of every five face-to-face transactions, and Costco's U.S. gas stations have reached 40% penetration in tap-to-pay payments since enabling this feature approximately six months ago. Now shifting to clients. We continue to win with large issuers globally. Let me share a few examples from the quarter. In the United States, we're pleased to have renewed our long-standing partnership with Navy Federal Credit Union, the largest U.S. credit union with over 10.5 million members for a multiyear credit, debit, and processing agreement. Also in the U.S., Google Pay introduced the Visa Virtual Card that links to U.S. Android users' global pay balances, enabling these users to spend their balances at stores. In Italy, we extended our agreement with Banca Sella, part of the Sella Group, the largest private and independent banking group in Italy, for the consumer credit and commercial portfolios with plans to launch a new innovative digital credit small business solution. In Singapore, we're expanding our strong partnership with DBS, the largest bank in Southeast Asia. We have faced some technical difficulties, but we will continue to grow in the DBS debit portfolio. In Latin America, we renewed the HSBC debit portfolio, one of the top five portfolios in Mexico. In our CEMEA region, we won the consumer credit portfolio of Qatar National Bank, the largest financial institution in the Middle East and Africa, and we renewed the credit portfolio of Saudi British Bank, one of the largest Saudi Banks. We're also building momentum as the global leader in co-brands. In the U.S. alone, we have seven of the top ten co-brands. And this quarter, we're pleased to renew, higher than the U.S., and renew and grow the Williams-Sonoma co-brand, which will be relaunched with an expanded scope across the Williams-Sonoma brands, including Pottery Barn and West Elm. We secured a new co-brand relationship with PayPal in Australia and MercadoLibre, the largest e-commerce retailer in Latin America. In partnership with Banco Itau, we also won the co-brand business of Magalu, a major retailer with one of the largest co-brand portfolios in Brazil. Finally, in the Asia-Pacific region, we have secured a significant part of LINE Pay's business, with a partnership renewal and Taiwan, the largest co-brand program in the country. Fintechs are also core to our consumer payments growth. And this quarter, we forged new partnerships and deepened relationships with long-time clients. I just mentioned LINE Pay in Taiwan, and we also continue to see strong momentum in our partnership with LINE Pay in Japan and with LINE BK in Thailand. Over the last year, they have added more than 2 million Visa credentials across those markets. Likewise, in India, longtime partner Paytm has issued 6 million virtual Visa debit cards. In addition, they've recently started to issue physical Visa debit cards, which they expect to ramp up over the coming months. Kakao Pay, one of the top three mobile wallet providers in Korea with more than 30 million users, recently signed on to issue Visa credit cards. In the Middle East, we're partnering with STC Pay, the fintech subsidiary of Saudi Arabia's largest telecom operator to embed their services into STC Pay wallets. More than a million Visa credentials have been issued since September of 2020. Rappi, Latin America's Super App with over 70 million users, has now started issuing Visa credit cards in Brazil, Mexico, Colombia, and Peru, with plans to expand to additional countries in the coming months. And in the crypto space, we recently signed three partnerships: one with Tala, the partner on cryptocurrency solutions for the global unbanked, and two with crypto exchanges, FTX and CoinZoom to begin offering Visa cards. We now have more than 50 crypto wallet and platforms, up from 35 in Q1, representing more than the next leading network. Collectively, they drove over $1 billion in payments volume, which represents a significant engine of growth. The market opportunity in new flows is ten times greater, and we continue to make progress in our efforts. We had several capabilities within carded B2B that have been gaining traction. Our freedom solution enables corporates to control and monitor corporate card spending and expand to new use cases, including payables and virtual card capabilities. Across Australia and New Zealand, we have renewed our long-standing partnerships with ANZ Bank for Freedom’s expense management capabilities as well as NAB and BNZ to deliver expense management and payable solutions. In the United States, Wells Fargo will deliver these capabilities to their corporate clients as part of our partnership we announced earlier this year. Visa’s commercial pay, which offers a mobile app enabling virtual card issuance and management of business incidentals with enhanced data, will be part of OCBC Bank’s virtual purchasing card offering in Singapore. Visa Direct transaction growth remains robust with nearly 0.5 billion more transactions this quarter than in the third quarter of last year. We continue to see large banks enable Visa Direct payouts for their customers, including CIBC this quarter. In the payroll category, ADP, a leading global technology company providing human capital management solutions, recently integrated its wisely offering with Visa Direct to provide ADP clients with a digitally enabled, convenient, and cost-effective solution for employee off-cycle payments. In the P2P space, the WhatsApp payment feature powered by Visa Direct and Visa Cloud Token Framework launched in Brazil in May, and we're seeing early success with a significant number of Visa credentials enrolled and sizable growth in P2P money transfers. PayPal announced instant transfers for merchant settlement and P2P via Visa Direct in Australia. We also developed new use cases this quarter for Visa Direct. First, GoFundMe is integrating Visa Direct to soon launch funds disbursement to individuals and organizations. Second, Questrade, the Canadian brokerage platform, announced the launch of Instant Deposit, allowing investors to fund their trade accounts in seconds. Let's now move to our third growth lever, value-added services, where revenue growth grew 28% in Q3. Let me discuss our efforts across a few of our capabilities. First, installments. In addition to investing in and partnering with numerous installment providers globally, we've also developed our own solution, which had some notable progress in the quarter. In Canada, Scotiabank is extending their post-purchase installments offering to eligible Visa retail credit clients. CIBC is launching installments during purchase and Desjardin, North America's largest financial cooperative, will be offering during purchase installments for their eligible Visa customers. In addition, Global Payments is enabling an installment solution for their merchant customers. Second, CyberSource, our omni-channel gateway platform, has grown as a result of three drivers: one, increased e-commerce and omni-channel volumes; two, more businesses creating online and omni-channel presences while leveraging our risk tools; and three, more acquirers white-labeling the solution. This past quarter, top 20 U.S. acquirer, Paya, and Qatar National Bank, both signed to utilize CyberSource’s capabilities. Third, DPS. I mentioned the processing agreement earlier with Navy Federal; they intend to utilize DPS. Additionally, Current, one of the fastest-growing U.S. fintechs with nearly 3 million members, has selected Visa DPS as its partner. Current will integrate with DPS’ newest all-digital processing solution, called DPS Forward, which combines issuer processing capabilities with a new suite of APIs that integrate with modern digital banking players to create unique card programs and payment solutions. Finally, Visa Consulting and Analytics. Our advisory teams have delivered nearly 1,000 projects year-to-date in 88 countries to help our clients be more successful. Let me just share a couple of examples. In Latin America, we developed a digital acquisition platform and helped one of the top issuers in the region improve credit approval turnaround times from days to minutes while also better qualifying leads to reach a four-times improvement in approval rate compared to their prior solution. Globally, we have launched a new program called Visa Portfolio Health Check, where we review clients' portfolios, tracking 30-plus key performance indicators. Year-to-date, we have held health checks across 55 countries, identifying nearly 300 specific opportunities worth nearly $50 billion in incremental payment volume. Before I close, let me touch briefly on the two recently announced acquisitions. First, out of the open banking platform, Tink. Visa's proven infrastructure and sustained investment in resilient cyber security and fraud prevention, combined with Tink's API and their technology and customer relationships, is expected to help accelerate the adoption of open banking in Europe by ensuring a secure, reliable platform for innovation, which will help consumers and businesses. Second is the acquisition of Currencycloud, a global platform that enables banks and fintechs to provide their customer and business customers innovative foreign exchange solutions for cross-border payments around the world. As part of our network-of-networks strategy, the combination of Currencycloud’s capabilities on the front end of the transaction through their API and our settlement capabilities across VisaNet and other Visa networks such as Plus, Earthport, and Visa B2B Connect will be very compelling value propositions for our partners. In closing, as we look to finish our fiscal year, I'm very encouraged by the recovery trajectory across the board and pleased with the momentum in many of our key growth areas. Our recently launched new brand campaign describes Visa as the network working for everyone and we are increasingly sitting at the center of enabling money movement. I'm confident that our strategy, combined with our network-to-network strategy, and our three growth levers of consumer payments, new flows, and value-added services remains more relevant than ever and positions us well as we look forward to our robust recovery. With that, let me turn it over to Vasant. Vasant?
Vasant Prabhu, CFO
Thank you, Al. Good afternoon, everyone. Fiscal third quarter results exceeded our expectations with net revenues up 27%, driven by robust growth in both credit and debit in the U.S., higher cross-border volumes from a faster-than-anticipated recovery in travel, as well as a spike in cryptocurrency purchases and low client incentives largely due to deal timing. Had we recognized service revenues on current quarter payments volume, net revenue growth would have been 39%. The reason for this large difference in growth is a result of the significant quarter-over-quarter change in growth rates of payment volumes, both last year and this year. The third quarter last year experienced the steepest drop in payments volume, and the third quarter this year has been our strongest growth quarter since the pandemic started. When adjusted for the service fee recognition lag, net revenues for Q3 FY '20 are lower and net revenues for Q3 this year are higher. GAAP EPS grew 10%, primarily due to a non-recurring, non-cash step-up in deferred tax liabilities as a result of the recently announced increase in UK tax rates starting in 2023. Non-GAAP EPS rose 41%, helped by lower-than-expected expense growth and a lower tax rate. Exchange rate shifts lifted net revenue growth by 1 point and EPS growth by 2 points. As we did last quarter, to help you better assess both the magnitude and the trajectory of the recovery, we have also provided key performance metrics relative to fiscal year '19. In constant dollars, global payments volume was up 34%, led by continued strength in debit, as well as improved credit spending. Compared to the third quarter of 2019, global payments volume was 21% higher, a 5-point acceleration from the second quarter, with debit and credit improving by 5 points and 4 points, respectively. Excluding China, total payments volume growth was 38% or 25% higher than 2019 and the 5-point acceleration from the second quarter. Chinese domestic volumes continue to be impacted by dual-branded cost conversions, which have minimal revenue impact. U.S. payments volume growth was 40% and up 30% over 2019, benefiting from economic impact payments in the first half of the quarter, and then from the lifting of COVID-related restrictions across the country. Debit growth accelerated 4 points, up 48% from 2019, remaining strong throughout the quarter as the trend towards accelerated cash digitalization and e-commerce was sustained, even as the economy reopened. Credit growth improved 8 points, up 14 points from 2019, with the credit improvement fueled by two interrelated factors: a significant acceleration in travel, entertainment, and restaurant spending, as well as the resurgence of affluent cardholder spending. Card-present spending accelerated by 9 points to 12% above 2019, even as card-not-present volume, excluding travel, improved four points to 59% over '19. Online shopping habits acquired during the pandemic are persisting. As the U.S. reopened, travel and entertainment spending improved steadily through the quarter, both up about 25 points from the second quarter. Travel is approaching 2019 levels in July, while entertainment surpassed 2019 levels in May. Restaurant spending in the quarter was over 20% above 2019 levels. Growth across all other expense categories remained strong and stable. International constant dollar payments volume growth improved four points from the second quarter, up 13% over 2019 levels. A few regional highlights: Growth in our CEMEA region remains strong, up 48% from 2019 levels, consistent with Q2, fueled by cash digitization and client wins. Latin America was also up 48% from 2019, accelerating 8 points from the second quarter with robust performance across the region fueled by market share gains. Brazilian volumes are seemingly unaffected by the high level of COVID cases due to significant cash digitization and large increases in eCommerce adoption. We are also benefiting from our digital partnerships and client growth in Brazil. Europe was up 17% from 2019, improving 9 points from the second quarter, the largest sequential acceleration among our regions. Across Europe, restrictions were relaxed and in-store spending recovered while e-commerce spending remained strong. Asia-Pacific remains our weakest region, up 5% from 2019, and down three points from the second quarter, excluding China. Performance across the region varied based on the level of infections and COVID-related restrictions. There were intermittent restrictions during the quarter in Australia, Japan, and Singapore. Much of Southeast Asia was significantly impacted by rising COVID infections and resulting lockdowns. In India, a sharp slowdown in spending starting in mid-April and continuing to May was followed by a quick rebound with July trending well above 2019 levels. Global profits transaction growth was 20% over 2019, improving 4 points from the second quarter as transactions increase with volume across every region, except the U.S., where transaction growth still lags behind payments volume growth due to higher ticket sizes. Visa Direct transaction growth remained robust in the mid-50s. The profit model volume recovery continued as more countries open their borders. Constant dollar cross-border volume, excluding transactions within Europe, was at 82% of 2019 volume, a 7-point improvement from Q2, led by a steady increase in travel, as well as the spike in cross-border cryptocurrency purchases from mid-April through the end of May. Cross-border card-not-present volume, excluding travel, continued to be very strong, up 56% from 2019, improving 12 points from the second quarter, with cryptocurrency purchases representing most of that acceleration. We have seen more activity in both spending and purchases involving cryptocurrencies this quarter. We saw the normal seasonal uptick in cross-border travel spending during March and April. However, cross-border travel in May and June was stronger than the typical seasonal trend as many destinations reopened or eased requirements. Cross-border travel-related spending, excluding intra-Europe, was at 45% of 2019 levels, expanding 6 points in the second quarter, rising from 40% of 2019 in April to 50% in June. The state of the cross-border travel recovery varies significantly across regions depending on border openings, quarantine and other requirements, as well as infection levels. Outbound travel from the U.S. and Latin America was back to around 60% of 2019 levels in the third quarter, but in Europe and CEMEA, it was about halfway back. Inbound travel has recovered the most into Latin America and CEMEA, with Latin America above 2019 levels due to Mexico, while the U.S. and Europe are only about a third of 2019 levels. Asia-Pacific cross-border travel, both in and out, has recovered the least, still at around a quarter of 2019 levels. We've seen immediate impacts in popular travel destinations as they open their borders. Greece opened its borders in April and inbound spending rose nearly 30 points by the end of June relative to 2019 levels. France opened on June 9th, and spending volumes rose nearly 20 points by the end of June relative to 2019 levels. Travel to Mexico has been strong for several quarters, where the third quarter accelerated further, helped by travelers from the U.S. amid vaccination progress. Since April, cross-border spending in Mexico from the U.S. rose nearly 50 points to over 170% of 2019 levels. Moving now to a quick review of third quarter financial results. Service revenues grew 17%, led by 11% growth in the second quarter. Constant dollar payments volume helped further by favorable exchange rates and mix, as well as small pricing modifications. Data processing grew 32% due to very strong domestic processed transaction growth, particularly outside the U.S. The 7% point difference between revenue and processed transaction growth reflected the mix shift away from higher-yielding cross-border transactions. In addition, while value-added services recorded in Data Processing revenues had strong and accelerating growth, this was slower than overall processed transaction growth, which benefited from lapping effects. International transaction revenues were up 54%, 8 points lower than nominal cross-border volumes, excluding intra-Europe due to lapping high currency volatility last year, and a less favorable regional mix. Other revenues grew 31% led by consulting and data services, and helped by lapping COVID impacts last year. In total, value-added services revenue grew 28%, marking a 14-point acceleration from the second quarter, about two-thirds of which was due to COVID-related lapping effects. Client incentives constituted about 25.8% of gross revenues, consistent with the second quarter but lower than our expectations due to both numerator and denominator effects. A lower-than-expected numerator at some deals with delayed incentives, and are now expected for the fourth quarter. Also, higher incentives from U.S. outperformance largely offset by lower incentives from underperformance in Asia-Pacific. A higher-than-expected denominator, as we had stronger cross-border volumes and value-added services revenue, both of which don't have significant incentives associated with them. Non-GAAP operating expenses grew 12%, below our expectations, mostly due to the timing of some initiatives being pushed into Q4, particularly marketing spend and professional fees. Marketing expenses did grow over 50% in the quarter as we lapped with reductions in spending at the outbreak of the pandemic. General and administrative expenses decreased year-over-year due to favorable foreign currency fluctuations and lower indirect taxes. The recorded gains from our equity investments were 439 million. Visa has minority investments in over 50 strategic partners. When there is a new financing round or an IPO, per the accounting rules, we mark our investments to market, which can result in gains or losses. Our investment portfolio has been performing very well. The gains recorded this quarter were largely driven by one partner's financing round and another partner's IPO. Excluding investment gains, non-GAAP non-operating expenses were 114 million in the fiscal third quarter. Our GAAP tax rate was 41.3% due to a billion-dollar, non-recurring, non-cash tax charge pertaining to the remeasurement of deferred tax liabilities and the taxes related to investment gains. The non-GAAP tax rate was lower than expected at 17.9% due to the recognition of a tax benefit. GAAP EPS was $1.18, and non-GAAP EPS was $1.49, up 21% over last year. We bought 9.5 million shares of Class A common stock, at an average price of $227.83 for $2.2 billion this quarter. Including our quarterly dividend of $0.32 per share, we returned approximately $2.9 billion of capital to shareholders in the quarter. Moving on to our outlook for the fourth quarter, I'll start with business trends through July 21st. U.S. payments volume growth was 31% above 2019, consistent with the third quarter, with debit up 46% and credit up 17% versus 2019. As you said before, weekly numbers can have noise in them. For example, in the third week of July 2019, a major online retailer had a debt annual sales event that impacted performance indices to 2019, particularly e-commerce spending using credit. International payments volume trends versus 2019 are moderately above the third quarter but in line with June. Notable exceptions include improvements in India, Canada, and Brazil, with modest slowdowns in Australia and Japan. Process transaction growth continued to improve, up 23% versus 2019. Cross-border volume, excluding transactions within Europe on a constant dollar basis, was 81% of 2019, which is 1 point below the third quarter in June. Travel-related spending versus 2019 improved 3 points compared to June, offset by lower e-commerce growth, mostly due to cryptocurrency purchases falling back to pre-April levels. The recent announcements by the UK and Canada regarding border openings in August should be helpful in the fourth quarter, while Asia-Pacific remained largely closed to travelers. As mentioned, July trends continue. Fourth quarter net revenue growth is expected to be in line with the third quarter. We expect a benefit from the service fee recognition lag and the cross-border travel recoveries to be partially offset by cryptocurrency purchases falling back to pre-April levels, as well as smaller year-over-year lapping benefits in transaction processing and value-added services revenues. We expect client incentives as a percentage of gross revenue to increase by 0.5 to 1 percent versus the third quarter due to delays from the third quarter and the typical increase we see in Q4 due to the end of fiscal year deal closings. The third quarter was the first quarter of growth relative to fiscal year '19, we have had since the pandemic started. Based on current trends, we expect fourth quarter net revenue growth relative to fiscal year '19 to be in the same range as the third quarter. Q4 operating expenses are expected to grow in the mid-teens, inclusive of some expenses that were planned for the third quarter, which will push into Q4. Non-operating expenses are expected to be around $125 million. Our tax rate expectations are in the 19% to 19.5% range. In summary, we had a stronger-than-expected third quarter as economies and borders reopened. Even as card spending recovers, e-commerce spending stayed strong. Debit spending sustained high growth rates as cash digitalization remains robust. The cross-border travel recovery is gaining momentum. Our new flows and value-added service businesses continued to grow at high rates, as they have throughout the pandemic. We're stepping up investments in key growth initiatives as we look ahead to several quarters of recovery and prepare to capture the exciting opportunities available to us in the fourth quarter over the year. With that, I'll hand it over to Mike for questions and answers.
Mike Milotich, Investor Relations
We're now ready to take questions.
Operator, Operator
Thank you. Our first question comes from Tien-Tsin Huang from JPMorgan. You may proceed, sir.
Tien-Tsin Huang, Analyst
Hey, thank you very much. Great results here. A lot I could ask, but let me ask on debit versus credit dynamics. I'm really focused on the U.S. here. I'm just curious about some of your views on relative growth between debit and credit based on what you've observed so far in the recovery and with all these fintech investments in card growth and engagement. I think you mentioned Current and some others. So just curious what your thinking is there on structural growth between?
Vasant Prabhu, CFO
I think what we're seeing now is, as you've seen on the numbers, debit has been indexing close to 150% to pre-COVID levels, reflecting a huge step-up in the digitalization of cash. It's evident all over the world. You see that in the CEMEA numbers and in the Latin America numbers. So debit is the engine of cash digitization, which is structurally benefiting from cash digitalization picking up, as well as the move to e-commerce. What you are seeing, though, is that credit is accelerating quite fast. And if you look at the numbers, the biggest quarter-over-quarter recovery has been quite significant in credit. Structurally, I think we are seeing affluent customers coming back to spending because economies have reopened, and sectors that benefit from reopening like restaurants, travel, and entertainment are also picking up. There are many factors at play here that are recovery-related or indicate fundamental changes, like cash digitalization and e-commerce, making it too early to tell whether there is a significant structural change in the use of debit and credit. I think credit has a few quarters of recovery to go, and the trend remains robust even as we look at July.
Alfred Kelly, CEO
The only thing I would add, Tien-Tsin, is that we saw a major separation during the ongoing pandemic between credit and debit growth. In this quarter, the separation in our business was more like 6 points, while we've seen quarters closer to 30 points. So that's further indication of credit starting to rebound for the reasons that Vasant articulated.
Tien-Tsin Huang, Analyst
Thank you. I appreciate that.
Operator, Operator
Thank you. Our next question comes from Harshita Rawat from Bernstein. You may go ahead.
Harshita Rawat, Analyst
Hi, good afternoon, and thank you for taking my question. Al, Vasant, can you talk about open banking and what it means for Visa in light of the accelerated activity there and also your recent acquisition of Tink? In what way can Visa participate in this global move towards open banking? And also, can you talk about the potential to take Tink’s capabilities beyond Europe into other regions? Thanks.
Alfred Kelly, CEO
Well, I'll start, and Vasant can jump in. The epicenter of open banking is Europe, which is what attracted us to Tink. It is an open banking platform that has a footprint in 18 markets that allows, through a single API, customers, which are primarily developers, to access financial data, and Tink has connectivity to about 3,400 banks and financial institutions and about 10,000 developers in Europe. And it's one of 400 players compared to other markets. There are a lot of players in the open banking space in Europe because it is ground zero. We believe that the combination of our various capabilities and relationships combined with Tink's technology and relationships is going to accelerate the adoption of open banking in Europe. It's early days, but the increased adoption of open banking is happening, and we see ourselves making progress in Europe, even beyond the 18 markets that Tink is in. There's no reason we can't take this business to other regions of the world, particularly Asia and CEMEA.
Harshita Rawat, Analyst
Thank you very much.
Mike Milotich, Investor Relations
Next question.
Operator, Operator
Thank you. Ramsey El-Assal from Barclays. You may go ahead.
Ramsey El-Assal, Analyst
Hi, thanks for taking my question this afternoon. Could you update us on B2B Connect and talk a little bit about how your go-to-market strategy there is evolving? How is it ramping? And just give us a general update on what's happening with B2B Connect?
Alfred Kelly, CEO
Well, I think as we've talked in the past, the most important thing with B2B Connect is to continue to grow out the infrastructure, which requires both signing key partners, and we recently announced the signing of Goldman Sachs' Transaction Banking as a user of B2B Connect. We're using bank integrators like ACI and Fiserv and Bottomline to help us bring more players into B2B Connect. At this point, that's our emphasis: building out the robustness of this network, so it has more endpoints and more clients. We see this as a $10 billion opportunity, and we believe that B2B Connect has the capability to be a much better alternative to Swift for driving cross-border payments without needing to build out a corresponding banking network. So we've continued to sign players and they've continued to do their infrastructure connections to us, and we've started to drive transactions. However, at this point, my interest is more on how we're doing in driving the robustness of the network rather than counting the progress on the number of transactions that we're actually seeing flow over the network.
Vasant Prabhu, CFO
Yeah, one other thing I might add to that is, you may have seen the announcement of Visa Payout Service. Essentially, we are integrating both Visa Direct and B2B Connect to offer a single point for our customers to come to us for all kinds of cross-border payments, whether they are B2B customers, low-ticket, high-volume transactions handled through Visa Direct and Earthport, or the high-value, low-volume transactions managed through B2B Connect. From a client standpoint, they just interface with us. Whatever their needs are, we can meet them in any form, whether it's to account to card or to any part of the world. So it's important to note that it also integrates well with our other capabilities to provide a single point of contact.
Ramsey El-Assal, Analyst
That's terrific. Thank you.
Operator, Operator
Thank you. Our next question comes from Lisa Ellis with MoffettNathanson. You may go ahead.
Lisa Ellis, Analyst
Hi, good afternoon, and thanks for taking my question. I wanted to dig in a little on value-added services and new flows given the call-out that value-added services grew 28%, I think, you said, in the quarter. Looking back at Investor Day, February 2020, which, of course, was a lifetime ago, but at that time you kind of put this framework out that new flows and value-added services were around 23% of revenues growing in the high teens and that was a momentum expected going forward. Can you just broadly talk about now 18 months later through the pandemic how your outlook for new flows and value-added services has evolved? Do you now expect it to be faster and bigger, given both the secular shifts during the pandemic as well as some of the acquisitions you've made, maybe what's just changed in that outlook? Thank you.
Alfred Kelly, CEO
We are very enthusiastic and confident about the potential in value-added services and new flows. It’s clear that some of our value-added services faced declines during the pandemic due to fewer transactions. However, this quarter, we’ve seen a significant rebound in transactions. For the first time, we averaged over 600 million transactions each day, which is an increase of more than 160 million transactions per day compared to last year during the pandemic. As we enter what I expect to be a strong recovery with ongoing transaction growth, our platform services, such as CyberSource, issuer processing, and risk and identity services, which account for about two-thirds of our value-added services, will continue to grow. We are also witnessing recovery following the pandemic's impact, especially in our consulting services. As travel resumes, card benefits, particularly those related to travel, should increase as well. Although our growth was disrupted during the pandemic, I believe we will quickly return to our growth path and possibly exceed our previous expectations. In terms of new flows, Visa Direct has been performing exceptionally well, with nearly 0.5 billion more transactions this quarter compared to the previous year. As mentioned by Vasant, we are witnessing growth rates in the mid-50s percent, a trend that has persisted for several quarters. Additionally, there is a recovery in the B2B sector that aligns with trends in consumer credit. Small businesses are recovering faster than larger markets, and as business travel resumes and workplaces reopen, we expect commercial volume to continue to rise. I am confident we will realign with our growth trajectory and gain momentum during this robust recovery.
Lisa Ellis, Analyst
Perfect. Thank you.
Operator, Operator
Thank you. Our next question comes from Sanjay Sakhrani from KBW. You may go ahead, sir.
Sanjay Sakhrani, Analyst
Thank you. I guess my question is, if you parse through the granular spending trends, I'm curious how much of the spend outperformance you're seeing is related to pent-up demand versus stimulus benefits. I'm trying to think through how to run rate the outperformance. And then, specific to the fourth quarter expectations, maybe you could just speak, Vasant, about your expectations relative to the third quarter, particularly on cross-border. Thanks.
Vasant Prabhu, CFO
Sure. Regarding your second question, if you look at the trends in the first three weeks of July, I want to emphasize what you said: three weeks don't make a trend, and you shouldn't read too much into it. I told you that the third week of July in the U.S. was impacted by what happened in the same week in 2019 because we often look at it as a clean year, but there will be unusual elements at play concerning that week in 2019, including what day of the week it was, or what holidays impacted performance. That said, the first three weeks of July revealed stability in cross-border spending, which we anticipate will trend similarly into the fourth quarter. Some cryptocurrency-related cross-border purchases have fallen back to pre-April levels after spiking in that timeframe, but travel remains on the uptick. On balance, we believe there is enough stability across the cross-border performance. The key question goes back to the summer travel improvement we expect, given more borders are opening now than are closed. Although it’s still not ideal as many borders in Asia are closed, we believe fourth quarter outlook for cross-border will remain steady compared to the third quarter.
Alfred Kelly, CEO
I'll add that while stimulus has impacted some spending, it tends to drive spending for a couple of weeks and then diminish over the third to fifth week. I might use a different phrase than pent-up demand; I think it represents a return to normal. We're beginning to see signs of returning to pre-COVID behaviors such as gyms reopening and more people attending sporting events. Additionally, affluent customers are now reengaging in the marketplace. These consumers are the ones who drive significant restaurant spending and discretionary purchases, and are heading to Mexico and other destinations as borders open. So I believe that mobility will continue to improve, indicating we're edging closer to a return to normal, which provides promise for a strong recovery for the business.
Sanjay Sakhrani, Analyst
Thank you.
Operator, Operator
Thank you. Our next question comes from Darrin Peller with Wolfe Research. You may go ahead, sir.
Darrin Peller, Analyst
Thanks, guys. When we look at cross-border at 85% of 2019 levels, travel is still at 50% to 60% of '19 levels. Clearly, there's considerable room for upside once travel resumes, especially looking at how eCommerce has held up. Could we revisit the incremental net revenue opportunity from that? I know there's lower correlation on rebates and incentives from cross-border, and it's a higher margin business. So, could you confirm that, and would much of that pass through to shareholders, just considering we've missed out on a year-and-a-half of cross-border revenue?
Alfred Kelly, CEO
If you perform simple math and conclude that the cross-border business would have continued to grow at roughly 10% a year as it did pre-pandemic, we would be indexing closer to 120% or 121%. We suppose if you assume 10%, the delta between 82% and 121% gives a sense along with applying it to our international revenues line for further insight into total revenue implications. Yes, you're correct.
Vasant Prabhu, CFO
Incentives are typically not tied directly to cross-border aspects, although there may be some relationships, particularly in Asia, for travel-related portfolios. A good portion of the revenue would flow through to the net revenue line. This is a key reason our incentives as a percentage of gross revenues have climbed—because of this mix shift. Regarding how much of that flows through to the bottom line, our approach has been to invest sufficiently to grow the business. Significant opportunities are present, and we already discussed expense growth trends for Q4. While accelerated cross-border recovery doesn't change investment strategies, we historically do not manage for margins; margins are an outcome that we focus on primarily growing revenue growth and investing sufficiently for that growth.
Darrin Peller, Analyst
Got it. Thanks, guys.
Operator, Operator
Thank you. Our next question comes from Bob Napoli from William Blair. You may go ahead, sir.
Bob Napoli, Analyst
Thank you, and good afternoon. Question just following up on the Currencycloud acquisition and the growth of cross-border; what is Visa's overall view on the growth of cross-border, particularly in e-commerce? With all the different marketplaces operating today, it seems like there's been an acceleration. So are there any additional thoughts on the long-term growth of cross-border? How is Visa looking to deepen engagement?
Alfred Kelly, CEO
Well, I'll start there. The reality is the world is shrinking regarding how easy it is for people to buy from sellers in different countries and regions around the world. During the pandemic, we saw millions shopping online for the first time, and I believe that this e-commerce trend, both domestically and cross-border, is something we are not going to lose and I don't think people will want to revert to pre-pandemic behavior. This fundamental change in shopping behavior will continue to drive cash digitization we've discussed. Currencycloud, the acquisition we announced a week or two ago, builds on and extends our existing capabilities to provide better FX services and easier connectivity to fintechs, financial institutions, and other partners. They bring a strong set of APIs, and we see the combination of their capabilities at the front end of transactions with VisaNet settlement capabilities as a powerful benefit. Overall, our intention is to provide global reach with simplicity and flexibility at competitive pricing, all while leveraging our scale in settlement while managing risks effectively. We believe the trajectory for cross-border travel is starting to improve while cross-border e-commerce remains strong moving forward.
Vasant Prabhu, CFO
In response to your question about moving beyond our traditional payments business to cross-border, we've accomplished extraordinary progress in our remittance sector by signing up major players and offering a very attractive proposition for consumers at a competitive cost. In fact, remittances are almost as significant in volume as direct investment. We've also recently launched our Visa payout service, which is very valuable to gig economy players around the world; it has a strong role in marketplace payouts. Besides that, we've made partnerships with a range of cryptocurrency wallets enabling the use of Visa credentials they issue at 70 million merchants globally. A significant part of that business is expected to involve cross-border as well. Our business in cross-border has expanded beyond the traditional C2B space to P2P and B2B cross-border and even significant D2C transactions.
Bob Napoli, Analyst
Thank you. Appreciate it.
Operator, Operator
Thank you. Our next question comes from Ashwin Shirvaikar from Citibank. You may go ahead, sir.
Ashwin Shirvaikar, Analyst
Thank you. Hi, I'm Ashwin. I was hoping that you might be able to answer a framework question, as investors think primarily about Fiscal '22 rather than Q4. How are you thinking about pricing during your budget planning? What would it take for you to return to providing a full-year outlook? If you could provide a framework of how you're thinking about this.
Vasant Prabhu, CFO
It's too early to give you a perspective on 2022. I think we'll save that for October, where we may provide a full-year outlook or give you the best sense of what we see around us and how it might play out for a quarter or two. Overall, we'd look for guidance as we progress. We have indicated our posture concerning investment by preparing for multiple quarters of recovery. As mentioned, we've spoken about how the cross-border recovery remains ahead of us, which is a considerable opportunity, so we are stepping up investments, and our expenses are growing in the mid-teens. However, specific revenue projections or volume trends won't have discussions until October.
Ashwin Shirvaikar, Analyst
All right. Thank you.
Operator, Operator
Thank you. Our next question comes from David Togut with Evercore ISI. You may go ahead.
David Togut, Analyst
Thank you. Good afternoon. Recently, your U.S.-centric competitor sharply increased consumer rewards on one of its mass affluent credit cards and some of those reward increases were matched by Visa issuers. So, I’m curious for your view on how this uptick in the rewards battle will impact credit card spending going forward, especially since many of these rewards are tied to travel and entertainment spend.
Alfred Kelly, CEO
I think what issuers are doing is preparing for the return of travel as a critical spending category. As you know, many of these reward propositions in North America, both in the U.S. and Canada, are significantly tied to travel. So I believe that as travel is beginning to resume, issuers want to ensure their products are top-of-wallet as affluent consumers and middle-market consumers begin to travel more.
Mike Milotich, Investor Relations
We're out of time for questions. Thank you for joining us today. If you have additional questions, feel free to call or email Jennifer or myself. Thank you, and have a good evening.
Operator, Operator
And thank you. This concludes today's conference call. You may go ahead and disconnect at this time.